DNA: The Best in Biotech

04/23/2004 12:00 am EST

Focus:

John McCamant

Editor, Medical Technology Stock Letter

In Oct. 2002, in one of the very first issues of the Digest, we featured John McCamant's initial buy of Genentech. At the time, he called it the "cream of the crop" for biotech investors. Despite having since tripled in price, he still considers it the preeminent biotech.

"Genentech (DNA NYSE) has sustained its excellence. Avastin has been the primary driver of the stock rise since our recommendation. But one should not overlook the company's other accomplishments, which will be important contributors to earnings growing forward. Almost beyond comprehension, DNA has received a new product approval in every year since 1996. There were two approvals last year, and one so far this year. Last year, the company reported total revenues in excess of $3.3 billion. Every product that DNA sells showed revenue growth in 2003 over the preceding year. Here's what we see ahead:

"Rituxan was approved back in 1997, and DNA is as excited today about the possibility for its expanded use as it was when the drug was launched. Rituxan is currently approved to treat patients with certain types of non-Hodgkin's lymphoma and the drug brought in $1.5 billion in revenues in 2003. The company is in phase III trials testing Rituxan in patients with relapsed chronic lymphocytic leukemia. Rituyxan has considerable potential to treat autoimmune disease in addition to cancer. Bringing in $425 million in revenues in 2003, Herceptin is DNA's second largest selling product. Herceptin targets metastic breast cancer, and its use as adjuvant therapy in patients with early-stage breast cancer are ongoing. Success in treating early-stage breast cancer could double revenues.

"But the big news in the cancer arena is the company's Avastin, a hallmark of DNA's cancer drug development strategy. We expect Avastin's hot launch, which began the day the drug was approved, to continue to go smoothly. With the drug having passed muster in extensive pre-clinical trials, it will now be tested clinically in a variety of cancers. Analysts currently expect Avastin sales to result in over $500 million in revenues next year. Beyond 2005, we believe that with label expansion, Avastin should become a multi-billion dollar drug with double-digit billions annually not being out of the question in the long term.

"Management has been a core strength at DNA for many years. The current CEO and management team have grown together, and we believe they represent the best in the biotech sector.  We believe that the company has emerged as the preeminent biotech company. In terms of its fundamentals, the company has no peers. No single biotech combines all of DNA's assets: a skilled and experienced management team, the deepest and broadest pipeline, manufacturing expertise and capacity, a skilled regulatory team, and an excellent and highly motivated sales force. We consider DNA as a core holding for any diversified biotech portfolio."

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