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1997-98: REVIEW AND OUTLOOK

O.C. Firms Take Stock of Last Year

January 04, 1998|P.J. HUFFSTUTTER | TIMES STAFF WRITER

As the overall bull market in 1997 charged ahead--despite its autumn fall--last year proved to be quite a bumpy ride for many Orange County companies.

A handful of technology stocks, most notably PairGain Technologies Inc. and Datum Inc., skyrocketed to new highs before plunging to new lows. Some of 1996's hottest stocks--such as Western Digital Corp., which jumped more than 218%--fizzled in 1997 as nervous investors dumped their shares at the first sign of trouble.

For many firms, the trouble started in October, when markets throughout the world went into a free fall. The bloodletting, triggered by reeling Eastern currencies and a slide in Asian stocks, lasted several days and took big slices out of the market value of many local companies. Among those hardest hit were technology firms and businesses with significant overseas operations.

Over time, however, many of the firms rebounded. And the Dow Jones Industrial average produced an unprecedented 20%-plus annual gain for the third straight year.

But other Orange County companies remained hard pressed to recapture the heady peaks they enjoyed earlier in the year.

Accordingly, the 124-member Bloomberg Index of Orange County stocks showed a huge fluctuation in performance.

MTI Technology Corp.'s shining 300% rise led the index, followed by Insight Health Services Corp. at nearly 216%. Eight other members, with stocks closing at $5 or more, saw their share price jump at least 100%.

Down at the opposite end, Cardiovascular Dynamics Inc. of Irvine dropped by nearly 58%, leading the list of 35 local companies whose stock prices fell.

In 1997, the Orange County stock index stepped up 16%, a moderate showing against the Dow Jones industrial average's 22.64% increase and the 31.01% jump by the Standard & Poor's 500.

This is a boost from 1996, when the local stock index managed only a weak increase of 7.66%.

"It's been a very interesting year to be in the stock market," said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles. "There were a lot of [initial public offerings] in the pipeline, especially in the biomedical sector in Orange County."

Local companies seeking to profit from the bull stock market with initial public offerings got mixed results. Some, such as Kaynar Technologies Inc. of Orange, started strong and continued to remain healthy--from $14.50 a share in May to a nearly 97% jump to $28.50 a share at year's end.

But others, such as the hard-hit Scoop Inc. of Irvine, saw investors cool quickly on the initial sizzle of sexy-sounding online ventures.

And while analysts say the IPO market could see a boost from the traditional "January effect" rally, 1998 is expected to be fraught with pitfalls.

"The growth we've seen in the technology field has been hyper-growth," Kyser said. "1997 was a nirvana economy for Orange County, for the state and for the nation. In 1998, we're getting ready for a more nervous economy. There's a pervading sense among investors that things can't stay at this growth rate forever."

*

The last year was a dream for NeoTherapeutics Inc. Flush with millions after an IPO in 1996, the tiny Irvine drug company was bursting with growth.

Its staff had more than doubled and is expected to double again in 1998, said Michelle Glasky, the company's director of scientific affairs. To accommodate the growth, the firm moved from its smaller offices in Newport Beach to expanded quarters in the Irvine Spectrum in early summer.

And then in July, the 25-person firm announced plans to test the safety of its experimental Alzheimer's treatment in eight healthy U.S. senior citizens. Earlier tests on 10 Canadian patients with mild forms of the disease showed positive results.

The news bolstered the company's stock, as prices rose to a new high of $16.38 a share.

Yet NeoTherapeutics was only one of the biotech success stories.

PharmaPrint Inc. of Irvine spotted an opportunity to cash in on the growing demand for herbal remedies sold over the counter as dietary supplements. So the Irvine company, which develops pharmaceutical drugs based on plant materials, signed a lucrative deal with health care giant American Home Products and watched its stock price take off.

InSight Health Services, a provider of diagnostic imaging systems, also performed well. The Newport Beach company registered a 216% gain for 1997, reaching a yearly high of $17.75 at year's end.

*

Looking back on 1997, Wall Street continued its roller-coaster love affair with the high-tech sector, particularly among local companies.

On the rise was Wonderware Corp., the Irvine maker of Windows-based automation software, which reorganized its manufacturing systems group as part of its effort to cut costs. The software manufacturer enjoyed a nearly 59% rise in its stock price, and closed the year at $14.13 a share.

Up-and-comer State of the Art, an Irvine maker of accounting software, also had a comfortable gain of 31% in its share price.

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