A great advancement in the treatment of prostate cancer and possibly a great investment is in the offing, if Westside investment banker Steven Kriegsman is right on his hunches.

Kriegsman, of the Kriegsman Group, is about to pound the bricks on behalf of Menlo Park-based Calydon Inc., which to date has raised $3.8 million from well-regarded venture capitalists, and which is looking for Kriegsman to raise another $10 million in private equity for it.

Two venture capitalists backing the company are Gordon Russell of Palo Alto-based Sequoia Capital and Benno Schmidt of New York-based J.H. Whitney.

Right now, the Calydon game plan is to go public in 1998, although Kriegsman said the schedule could be accelerated.

Prostate cancer is common in men over 50, and current treatments are expensive, and sometimes debilitating to patients. There is no arguing that a huge market exists for successful treatment particularly as baby boomers age, said Kriegsman.

Calydon is developing a new, injectable compound, which patients would receive in a single visit to a doctor’s office. The treatment is about to begin “Phase I clinical trials” (the first testing on human subjects) later this year. Calydon expects commercial shipments to start going out in 2001.

The treatment is touted as relatively inexpensive, and, more importantly for patients, effective against cancerous tumors of the prostate without debilitating side effects. Calydon’s treatment is not for cancers that have moved beyond the prostate.

Calydon has developed a virus that targets cancer cells within the prostate. Injected into the prostate, the virus hunts down and kills cancer cells, thus reducing tumors, according to an investment circular prepared by Kriegsman.

“We anticipate a very hot response to our circular. We are just beginning to circulate it,” said Kriegsman last week. “This could be the next Amgen Inc.”

One hot pair

Casual observers could be forgiven for wondering just why such a ferocious fight has broken out for control of the Santa Anita racetrack property, which is owned by Arcadia-based Santa Anita Cos.

Trading at about $29 a share last week, investors are putting a market capitalization on the stock (shares outstanding times share price) of $330 million. By way of comparison, the Los Angeles Dodgers aren’t expected to sell for that much.

Of course, Santa Anita also has some land development operations under its belt (and the Dodgers don’t). But still, the stock is trading at more than 50 times earnings, lofty even by prevailing standards (the S & P; 500 is trading at about 20 times earnings).

As an industry, horse racing has been struggling, with some tracks closing. Attendance has been falling, although off-track betting has boosted wagering.

So why the action at Santa Anita? The answer lies in the unusual “paired stock” arrangement of Santa Anita. The company is really two companies, Santa Anita Realty Enterprises Inc., which is a real estate investment trust, and Santa Anita Operating Co. (the track). But those two companies are paired and trade as one stock.

The joining of the two companies through one stock allows operating income generated at the track to be paid through the REIT. That’s fantastic, as REIT income is not taxed at the corporate level, as long as it is paid out to shareholders. No double taxation.

This arrangement of funneling operating income through a REIT and thereby avoiding double taxation was outlawed by the IRS about 20 years ago otherwise, every major operating company in America would have teamed up with a REIT. But three paired stocks were grandfathered in, one of which is Santa Anita.

The upshot? In the hands of savvy management, operating income from a variety of enterprises, in Arcadia or elsewhere, could be funneled through the Santa Anita REIT, thus escaping corporate taxation. No wonder people are willing to pay $330 million for a charming horse track with lagging attendance.

The latest word on the Santa Anita buyout war: New York-based financier Leon Black’s outfit, Koll Arcadia Investors LLC, is getting outbid by another party, identity unknown as of last week.

Short takes

Bruce Emmeluth, an investment banker with Van Kasper & Co. in West Los Angeles, is overseeing a $13 million initial public offering for Zindart Ltd., a Hong Kong toymaker with plants in mainland China. Zindart primarily manufactures high-quality die-cast or injection-molded toy action figures and cars, and sells them to Hallmark Inc.

U.S. investors can buy American Depositary Shares, in the company.

The prospectus states that Zindart primarily employs young women, and that “union organizing and labor unrest are not common in the People’s Republic of China.”

T-HQ Inc., a Calabasas-based maker and distributor of entertainment software, issued $10.1 million last week in a secondary offering handled by Wedbush Morgan Securities Inc., in downtown Los Angeles

We see that the Portland-based Red Chip Review, a nifty analysts’ service devoted to small stocks, has initiated coverage of one of our pet local stocks, Bonded Motors Inc., an engine remanufacturer based in South Central Los Angeles. Bonded went public last April at $5.875 a share, and was trading last week in the $10-a-share range. Red Chip says $15 a share is where it’s headed

Has the stock market for REITs gone loony, or what? A recent report from PaineWebber states that office property REITs are trading at an average premium 62 percent above the underlying property value.

PaineWebber says not to worry (too much), there is a premium for REITs (as opposed to single buildings) thanks to liquidity for investors, the ability of REIT management to achieve economies of scale, and the ability of REIT management to cull loser properties from a portfolio.

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