DNA: Best Biotech Pipeline

10/09/2002 12:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

Jim McCamant, who has been in the financial world for 40 years, began The Medical Technology Stock Letter in 1983 and remains editor-at-large. His son John brought the added skills of being a healthcare hedge fund manager and a venture capitalist in the life sciences field to the newsletter, and became editor in 2000. No one knows the intricacies of the biotech sector better than this father and son duo. In a twist of fate, John’s latest new buy recommendation is Genentech, the stock whose IPO in 1980 sparked his father’s initial interest in biotechnology.

“We believe that Genentech (DNA NYSE) represents the cream of the crop among the biotechs. This pioneer within the biotech world is the second largest biotech company. While not nearly as big as Amgen, Genentech's smaller size means that a successful drug will have a much greater impact on its earnings. The company has both excellent science and an aggressive, intelligent management team with a commitment to the licensing of new products, as well as developing internal products. A strong focus on cancer drug development is another strength of the company. Perhaps most importantly, they have one of the world’s leading cancer sales forces. DNA is the company of choice for biotech investors looking to partner their new cancer drugs.

The current price opportunity in the stock is the result of a string of product delays and some high-profile lawsuits. Most of the delays are behind the company and the potential monetary damages from the lawsuits have already been factored into the current price. In fact, we now anticipate multiple approvals and positive news flow to provide upside momentum in the next 12 months.

The current product growth driver for the company is Rituxan, a treatment for relapsed and low-grade, follicular, non-Hodgkin’s lymphoma. The recent blockbuster growth of this product–sales estaimates for 2002 are over $1 billion–can be attributed to huge off-label use, most prominently as front-line therapy. Additional growth for Rituxan may come from treating rheumatoid arthritis. Another product driver is Herceptin, which targets the overexpression of HER2 in breast tumors. 

Finally, we believe that DNA has the best late-stage clinical pipeline in biotech. Raptiva is a potential treatment for psoriasis. Xolair is a monoclonal antibody developed to treat patients with asthma. Overall, we believe the company is positioned for a string of positive events that will drive the stock price higher. We are recommending purchase of DNA under $35 with an 18-24 month target of $55.”

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