Medco is a safe bet for investors in cardiac arrest.

• Author: McMillan, Alex Frew
• Position: Medco Research Inc.

With small caps in a funk since February and even blue chips feeling blue, it's tough to find reasonably priced stocks that have shown good gains this year. And one with growth potential? In a hot industry? With stable profits?

Medco Research Inc. has all that. It was up 24% through the first eight months of 1998, even after slipping in August. The Research Triangle Park-based drug developer even has two products that've passed Food and Drug Administration muster. That's right, a biotech company that actually sells something.

Yet the stock is cheaper than most of its peers. "That's so frustrating," says Mike Freeman, director of corporate communications. Its P/E ratio is 12. "And these other guys who don't have any products, have a hope and a prayer, have P/Es of 35."

What's the catch? Medco just isn't that sexy. It started in Los Angeles in the late '70s as one of the first contract-research organizations. After licensing rights to the hormone adenosine from the University of Virginia, it started developing its own drugs as a late-stage "virtual company" - contracting out the tests. Adenosine occurs naturally in the body and is not that difficult to make, which is partly why investors don't get too starry-eyed. Other drug companies are trying to use the hormone, which triggers lots of receptors in the body, to treat pulmonary, asthma and anxiety problems.

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