THE RULE MAKER PORTFOLIO

MedImmune
From First Sighting to a Place
in the Portfolio

By Phil Weiss (TMF Grape)

TOWACO, NJ (September 9, 1999) -- So, you're reading about a stock that you don't own, and you're wondering how to go about researching the company to determine if it merits a spot in your portfolio. What do you do? That's the question I faced recently when a dynamic biotech landed on my radar. Tonight, I thought I'd walk through the steps that led me to present this company for purchase to my investment club.

Back in May, one stock that I suggested to my investment club as a candidate for further study was MedImmune, Inc. (Nasdaq: MEDI), which first came to my attention in a Washington Post article. Not only is MedImmune a profitable biotech company, but also, as a parent, I like the fact that its primary product helps treat something called respiratory syncytial virus (RSV) in premature infants. (It was given to the McCaughey septuplets of Carlisle, Iowa.) While neither of those pieces of information were enough to justify purchase, they were enough to pique my interest.

From there, the two things that I always do when studying a stock for the first time are:

1) Read through the business description found in the most recent 10-K.

2) Call the company and order an investment package. (You can find company phone numbers listed on our Snapshot page.)

MedImmune's investor relations department sends a rather comprehensive package of information to interested parties. The one that I got included a copy of the article that I mentioned above as well as a few others, recent press releases and the most recent annual report. This package didn't include a copy of the 10-K (I forgot to ask for it specifically on this occasion), so I accessed it via the Internet.

Oh yeah, I forgot there's one other thing that you'll find in the package of information MedImmune sends -- analyst reports. I know, I know those things contain nothing but the words of the Wise. While I believe the Wall Street analyst community does investors a big disservice with stock ratings that seem to change at the drop of a hat, I also recognize that they can be a good source of information about a company. I just ignore their simplistic and ever-changing ratings.

The analyst reports can be helpful in studying a biotech like MedImmune. While I do understand the various phases of research that a drug has to go through in order to be approved for marketing and sale, I don't have a good way of determining whether or not there is a real market for the company's products. That's one area where an analyst report is helpful to me, although I try to corroborate as much of the information as I can.

Here's a summary of what I learned by studying the information I read about the company:

MedImmune's breakthrough product is Synagis, a respiratory medication primarily for use in premature babies. Although it's quite expensive ($4,500 to treat a baby for the season), Synagis has high brand-name recognition among doctors and is approved by insurance companies, who like the drug for its efficacy and the fact that it shortens hospital stays. The doctors also like it because it can provide them with an additional revenue source as treatment usually takes place in the doctor's office.

Abbott Labs (NYSE: ABT) is helping with the marketing, which I consider a positive due to its strong pediatric sales force. The best thing about Synagis is that as of right now there's no real product competition. Revenues are growing nicely and the company is profitable. There is some long-term debt, but cash outweighs the debt by about two-and-a-half times. Margins are growing, as well. The company has even been able to leverage some of its position into joint ventures with other biotechs -- something it can only do because of its strong financial position.

MedImmune is also building a new plant to manufacture Synagis. The company currently relies on an alliance with German-based Boehringer Ingelheim Pharma KG to supplement its own limited manufacturing capability. Provided that this plant is approved, MedImmune's profitability from Synagis will be greatly enhanced.

From what I've learned in reading the investor package, it looks like there's some interesting stuff in the pipeline as well. In addition to new products, MedImmune is currently in clinical trials aimed at discovering further indications that its FDA-approved products can treat.

While nothing is guaranteed, it certainly seems possible that Synagis is just the beginning for MedImmune. It looks as if there are several potential blockbuster products in its pipeline. For example, a second Phase I clinical trial was recently completed for a drug that works on a germ called "parvovirus B19." This germ has been linked to miscarriages, red blood cell disorders, and rheumatoid arthritis. In 1998, the company completed Phase I studies of a drug that is aimed at treating genital warts. More recently, Phase I and Phase II studies were concluded on a drug that helps to prevent the rejection of transplanted cells or tissues in the case of such procedures as bone marrow transplants.

Of course, the big drawback with these products is that FDA approval is not around the corner. But, it does seem that these are products directed towards large markets. And, it doesn't hurt to have the profits generated by Synagis, which also just received European approval to help fund these and other research projects.

Particularly when looking at what's happened to this stock since May, I'm happy to say that our club did take an initial stake in MedImmune.

Next week, I'll offer my thoughts on another exciting company that I recently sighted -- fiber optic component maker JDS Uniphase (Nasdaq: JDSU).

Phil Weiss, Fool