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syncor

By JILL ROSENFELD Staff Reporter While most stocks are taking a roller-coaster whirl on Wall Street last week, shares of Syncor International Corp. are chugging along like a gentle train ride no dips, dives, or sharp curves for this Woodland Hills maker and distributor of nuclear pharmaceutical products. A little-known leader in a small market, Syncor’s core business consists of 118 U.S. pharmaceutical labs that prepare syringes filled with a radioactive chemical mixture. Injected into the bloodstream, the chemical leaves a dye-like trail that helps doctors diagnose a variety of medical ailments. Syncor’s stock was trading in the $15 range for much of last week, about midway between its 52-week high and low. What accounts for its stability amid the market turmoil? “It’s a very illiquid stock, so there aren’t a lot of sellers who want to get out of it,” said Larry Marsh, an analyst for Salomon Smith Barney. “The company’s fundamental outlook is good. It has strong contractual relationships, and I think investors are holding onto companies they think will grow regardless of how the economy’s doing, and won’t be hurt by weaker markets overseas.” Syncor supplies pharmaceutical products to 3,500 hospitals in the United States. About half its revenues were generated from large hospital buying groups. The U.S. market for radiopharmaceuticals is less than $1 billion. Syncor represents about 52 percent of that market, with the balance coming from Mallinckrodt Inc. and Nycomed-Amersham. “The product has a very short shelf life, and Syncor guarantees to have the product delivered within one hour of a customer’s call. That’s a service that’s extremely difficult for other manufacturers to replicate. Even (Syncor’s competitors) have chosen to sell products through Syncor,” said Marsh. Syncor is also the sole distributor of Cardiolite, a widely used heart-imaging agent produced by DuPont Merck Pharmaceutical Co. The radioactive solution helps doctors see into the workings of the heart to better evaluate problems. Net income has increased steadily over the last four years, climbing from a low of $1.2 million in 1994, to $11.1 million in 1997. “1994 was a disaster,” said President and CEO Robert Funari, who was chief operating officer at the time. “Our stock got as low as $6 a share. Since then we’ve been in the process of trying to repair the damage.” That damage occurred when Syncor formed a close alliance with DuPont, a major supplier of the isotopes and chemicals contained in Syncor’s syringes. In 1994, DuPont agreed to use Syncor as its sole distributor. Mallinckrodt and Nycomed-Amersham, concerned that Syncor would promote DuPont products over their own, responded by refusing to sell raw materials to Syncor. Because both companies have their own distribution networks, the decision set off a price war. “They saw us as competitors, and chose to behave in a way that triggered some pretty extraordinary competition in the marketplace,” said Funari. To better compete, the company cut prices which also cut profits. When Funari took over, he raised prices. “In 1995 he became more disciplined, and didn’t distribute the product if the price didn’t meet a margin threshold,” Marsh said. He also moved to repair relationships with Mallinckrodt and Nycomed-Amersham. Last year, the company negotiated lower materials costs with DuPont, and has been taking a sharper look at all expenses, said company spokeswoman Mary Meusborn. For the second quarter ended June 30, net income was $4.4 million (40 cents per diluted share), compared with $4.3 million (44 cents) for the like period a year ago. Revenues were $113.2 million vs. $98.2 million. Meusborn said earnings appear flat because of one-time gains in 1997 from the sale of the company’s stake in a joint business venture with another pharmaceutical firm. Meusborn said a better barometer of Syncor’s growth can be found by looking at earnings from continuing operations which were $4.4 million for the most recent quarter, compared with $3.2 million a year earlier.

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