Biotech Bets

11/10/2006 12:00 am EST


Michael Shulman

Editor, Short-Side Trader

Although biotech stocks are often preceded by 'speculative', editor Michael Shulman specializes in biotech companies that are of a more conservative nature, yet with excellent potential. Here are two of his favorites from this growing field.

"These early areas of science are hard or impossible to invest in, and at the end of this column you'll see that only two companies (already on the Buy List) are worth buying.

"RNA Interference and Gene Expression: RNA interference is the process that begins with double-stranded RNA and interferes with gene expression.

"Stem Cells: Stem cells are 'undifferentiated' type cells that can renew themselves and are unique in that they can produce any kind of cell found in the body. Stem cells are thought to be able to work in areas where there are no current therapies aimed at curing a disease--namely neurogenerative disorders and other diseases of the central nervous system.

"Proteomics: Proteomics is the study of the structure of proteins and their role in a particular cell--and therefore their role in spreading or stopping a disease. It is easily the most promising area of development, because it is so broad and is being pursued by so many companies.

"Genomics: Genomic research is the study of the entire genome--including DNA and genes--in human beings. Genetic research is a subset of genomics and involves the mapping and sequencing of genetic material found in DNA. More than 40 companies position themselves as genomics companies.

"The first wave of important products is already on the market and quickly expanding--diagnostic tests that give an indication (from 25% to 100%) of a person's susceptibility to developing a disease.

"Another wave is diagnostic tests, such as those from Cepheid (CPHD NASDAQ GM), for specific diseases using genetic tests to perform molecular diagnostics. I see CPHD as the sleeper in this market and if it continues to get traction, it will be a very desirable acquisition candidate for a company like Roche. The leading or hottest company in the genomic infrastructure space is Illumina (ILMN NASDAQ GM).

"RNAi is unproven; stem cells are extremely early, even for most venture capitalists; proteomics, does not have a pure play worth buying; genomics has several plays, and both Cepheid (CPHD) and Illumina are worth buying with CPHD standing out as a definite acquisition target.

"Stay away from everything else. I know some of you think I'm being too conservative. If you love to gamble, let's hold a meeting in Atlantic City at a poker table where I think your odds of success may actually be better."

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