When reporter Mark Potts called Genex Corp. to discuss the problems of raising capital for high-technology ventures, executives of the Rockville genetic engineering firm were reluctant to talk about their recent $19 million public stock offering.
Genex must be up to something, Potts speculated.
What they're up to turned out to be an extraordinary second public offering that was announced on Wednesday, less than six months after Genex sold its first shares to investors.
Last September, Genex went public by selling 2 million shares at $9.50 each. With those shares now selling for $17 to $18 in the over-the-counter market, Genex is going to the market again with another 2 million share offering.
Finding financing for exotic research is proving to be no problem for Genex. If the second stock sale goes off as anticipated at about $17.50 a share, Genex will have raised more than $42.3 million in less than a year.
That's a lot of new cash for a company that has lost money four of the last five years, is not promising to hit the black any time soon and says up front that "no dividends will be declared on the common stock in the foreseeable future."
The usual financial formulas provide little clue to Genex's success in the stock market. The new stock will be offered at almost 4 1/2 times book value--not an obvious bargain considering the company lost $5.5 million last year and thus doesn't even have a price-earnings ratio.
What makes Genex so intriguing are its blue-chip roots, its blue-sky future and the magic words "genetic engineering."
The Genex prospectus is a crash course in state-of-the-art biotechnology, loaded with references to protein engineering, self-replicating DNA molecules and custom-cloned coryneform bacteria that give investors only clues to the company's business.
Ordinarily, not one investor in a hundred has enough financial savvy to read a prospectus and really understand the finances of a new company, but a background in accounting is not as useful as a degree in biochemistry for deciphering the Genex offering statement.
Genetic engineering, the company explains, is the rearrangement of molecules of deoxyribonucleic acid (DNA). Genex calls DNA "the language in which all nature's genetic information is written."
What the 200 people who work for Genex do is read, write and edit that language. "Reading" DNA to determine the genetic makeup of an organism has been possible for about five years and "writing" methods are evolving rapidly.
It is by "editing" DNA that scientists hope for major breakthroughs. Some microorganisms, for example, give off small quantities of vitamins in much the same way that humans exhale carbon dioxide. By "editing" genes, Genex scientists are working to create a bacillis that will give off great amounts of vitamins, an organism that would be a living "mini-factory" for vitamins.
While Genex discusses some such research in detail, much of its prospectus is overtly obscure. The company says it got a new contract last year from a foreign company to develop "a nonpathogenic strain of bacteria capable of excreting a protein with potential therapeutic applications at prescribed concentrations." What they don't say is what the bacteria is, what chemical it is supposed to produce, how much of the chemical will be needed for success and what disease the product might treat.
But there are tantilizing clues to other products Genex is working on, ranging from interferons that might cure cancer to what could be called genetic "Janitor-in-a-Drum."
Under a research contract with Bristol-Myers Co., Genex has developed what it says is the most efficient process known for producing alpha interferon--a potential cancer cure that offers the most exciting promises of genetic engineering.
Yet Genex scientists are also tackling the more mundane problem of keeping the crud off bathroom walls. Using the same genetic engineering techniques as their cancer research, they have created a bacillis that produces an enzyme called alkaline protease, a chemical used in detergents and presoak laundry products. These enzymes may be able not only to wipe out the mold growing on shower stalls or house paint, but also to clear clogged drains without harsh chemicals.
A cure for cancer it's not, but the market for bathroom cleaners is a multimillion dollar business that could provide cash for more exotic research projects.
Genex's future depends on half a dozen families of obscure microorganisms and a handfull of Fortune 500 megaliths--Escherichia coli, bacillus subtilis, pseudeomonas, coryneforms and saccharomyces plus Koppers Company, Monsanto and Emerson Electric.
Investors who might cringe at putting their cash in E. coli can draw comfort from Koppers, Monsanto and Emerson, the three companies that invested $15.5 million in Genex and remain its largest stockholders.
Monsanto and Emerson each own 8 percent of Genex's stock and similar size blocks are held by Genex Chairman Robert F. Johnston--a Princeton, N.J., venture capitalist--and President J. Leslie Glick.
Koppers, which owns 4.3 million shares of Genex, is selling some of its holdings as part of the new public offering. After cashing in 550,000 shares worth $9 million to $10 million, Koppers will remain the biggest stockholder with 3.7 million shares, about a 29 percent stake in Genex.
In a private investment, Koppers in 1980 paid $6.25 a share for a batch of Genex stock and will nearly triple its investment in three years if the shares are sold for $17.50.
Investors who bought the stock when it first came on the market last September are sitting on a gain of about 85 percent. You don't need a PhD in bacteriology to recognize the color of that money.