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Merrill Lynch sees little joy in the third-quarter results of Israeli biopharmaceuticals company Biotechnology General Corp. (Nasdaq:BTGC).

The bank reiterated its short-term Accumulate recommendation and long-term Buy, expecting BTGC to rally from the end of the fourth quarter as sales of human growth hormone Bio-Tropin pick up.

The company and analysts lowered guidance for the third quarter because of slumping sales of flagship product, Oxandrin, used to treat weight loss as a result of trauma, chronic infection or major surgery.

Demand for Oxandrin was huge in the first half: $16.7 million in the first quarter and $17.9 million in the second quarter. But it slid to $4.4 million in the third quarter.

Analyst Paul Woodhouse attributed the erosion to both internal and external causes.

Internally, there was an imbalance between demand and the stocks of Oxandrin kept at distributors, mainly at key distributor Gentiva.

To solve the problem, BTGC has changed the terms of its agreements with Gentiva, which will now buy the drug at a three-month average price and build up a reasonable level of inventory.

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The external factor is a slide in sales via pharmaceuticals company Abbott Laboratories (NYSE:ABT).

In a report after the second quarter, Woodhouse predicted that BTGC's fourth-quarter results would largely depend on Abbott's activity in the third quarter. It transpires that BTGC would do better not to rely on Abbott, which reported stagnating Q3 Oxandrin sales compared with Q2, after steep growth in the first half.

The Q3 slide may be because Abbott diminished its efforts to market Oxandrin, but it says it will try to redress this problem.

Woodhouse is not impressed, feeling that any improvement in Oxandrin sales via Abbott will not make a great difference to BTGC's Q4 results. The effect, if any, will be felt in early 2002, says the analyst.

Bio-Tropin sells better than Oxandrin
He does see relief from human growth hormone Bio-Tropin. Revenues from HGH came to $8.1 million in the third quarter, beating both expectations and sales of Oxandrin.

Sales growth was most marked in Japan, where the HGH is distributed by JCR Pharmaceuticals and Sumitomo Pharmaceuticals.

Woodhouse sees BTGC quickly acquiring a market segment in Japan, which augurs well for the future given that Bio-Tropin is BTGC's most profitable product.

Merrill Lynch expects Bio-Tropin sales to grow elsewhere too, possibly through sales by Teva Pharmaceuticals (Nasdaq:TEVA). Teva is expected to start marketing Bio-Tropin in the United States by year-end or in early 2002.