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THE TIMES 100 : VIEW FROM THE STREET : President's Impending Health Plan Has Medical Sector Feeling a Little Queasy : Fear of reform and continuing cost-cutting efforts put the pinch on health care stocks.


Need an excuse for an unfortunate stock pick?

Blame Hillary.

Fear of federal health care reforms being orchestrated by First Lady Hillary Rodham Clinton--plus the cost-squeezing effects of managed-care programs already in place--have hit many companies like the flu.

Nearly half the bedridden on this year's list of California's 25 worst-performing stocks are in the health care field.

Losses among the Bottom 25 range from a 90% plunge in stock value for Los Angeles-based Chantal Pharmaceutical, which makes an anti-baldness potion, to a 70% drop for software developer Frame Technology of San Jose.

Especially green around the gills are Southland high-tech firms involved in diagnostic imaging, as an oversupply of magnetic resonance imaging machines and CAT scanners has squashed prices of both the hardware itself and the pictures it produces.

Consider Alliance Imaging in La Palma, American Health Services Corp. in Newport Beach and Medical Imaging Centers of America in San Diego. All three run MRI or CAT scan facilities, either mobile, free-standing or hospital-based. And all three made this year's losers list, dropping about two-thirds of their stock value.

Alliance Pharmaceutical Corp. of San Diego--no relation to Alliance Imaging--got punished partly because a monoclonal antibody product it developed may not live up to its billing as an effective agent for enhancing diagnostic images, an East Coast analyst said.

The whole medical sector, from pharmaceuticals to acute-care hospitals, has been slammed in the market over the last year for several reasons.

First, many such stocks were admired by institutional shareholders and were trading near historic highs in 1991 and the start of 1992. Even without other pressures, profit taking by portfolio managers alone could have pushed many such issues downhill.

But there were other pressures. Revenue for many health care companies has been cramped by the efforts of employers, health insurers, hospitals and a new breed of cost watchers--managed-care consultants--to cut medical bills.

"Managed care is making health care companies more efficient," said analyst Paul W. Brown of Volpe, Welty & Co., "but it puts pressure on everybody."

Brown said an index of 30 health care technology stocks nationwide compiled by the San Francisco-based investment firm lost half its value between March 31, 1992, and March 31, 1993.

Worse than bad news can be uncertainty, and there has been plenty of uncertainty about how the Clinton Administration will handle health care reform. Analysts said investors have put off buying decisions while waiting for the First Lady's task force to release its plan.

"I think stock prices already reflect a worst-case scenario," said Frank G. Morgan of Sterne, Agee & Leach in Atlanta.

Other companies have been hammered for individual reasons.

Chantal Pharmaceutical, for instance, suffered a drastic slide partly because an influential publication, Sturza's Medical Investment Letter, turned thumbs-down on one of its key products, a baldness remedy.

"We were convinced it had no efficacy," Editor Evan Sturza said from his New York office.

The company issued a rebuttal of Sturza's criticism, saying the product does work.

Of Cygnus Therapeutic Systems, Sturza said the Redwood City company was the fourth to get U.S. Food and Drug Administration approval for its product--a nicotine patch--and that by the time the OK arrived it had already become clear that the market was not as big as anticipated.

Staar Surgical of Monrovia was up against much larger competitors in the field of minimally invasive surgical devices. "You can't be small in this business," Sturza said.

Santa Ana-based Tokos Medical Corp.'s stock took a licking in March--dropping 21% on one day--after it announced a dip in annual revenue. Tokos, which provides specialized home health care services to women with high-risk pregnancies, had been battered earlier by revelations that the FDA and the American Medical Assn. were investigating allegations of kickbacks to doctors. Two months ago, however, Tokos said that investigation had been closed.

Tricare Inc., an Irvine-based operator of rehabilitation centers, underwent a restructuring last year that resulted in layoffs and the closing of several of its rehabilitation centers in Southern California. As a result, revenue shrank.

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