A "Healthy" Defense
01/20/2006 12:00 am EST
Mike Murphy has developed an industry leading expertise by focusing on high growth, high potential markets such as technology, biotech, and healthcare. With his expectations for economic weakness ahead, he looks towards the "more defensive" healthcare sector for top picks.
"I think 2006 will be a poor year in the economy because the Fed has gone too far (again), compounded by an erosion in housing due to regulatory changes. My MegaShift stocks are selected to sidestep economic weakness, and the one sector that does that best is defensive healthcare. So I’ll pick two stocks in the healthcare field— both potential doubles in 2006.
"eResearch (ERES NASDAQ), my more conservative pick, is the leading independent contractor for cardiac impact studies of drugs in clinical trials. Pharmaceutical and biotech companies of all sizes, worldwide, hire them to collect ECG data over the Internet, analyze it and prepare FDA-acceptable analyses and documents that can be "plugged in" to the drug developer’s FDA applications. The Premarin and Vioxx disasters caused the FDA to require that almost every drug undergo cardiac safety testing for side effects, not just heart drugs.
"That change quadrupled ERES’ available market overnight, and has now become a worldwide standard. Newly required cardiac safety studies are now holding up drugs that were completing Phase III trials, and ERES’ orders exploded in the December quarter. The company has over $70 million in cash, no debt, throws off $9 million in cash per quarter, and should earn north of 50 cents a share in 2006, up about 75%. My target is $30.
"Dendreon (DNDN NASDAQ), my more speculative pick, is a development-stage biotech just completing filing for its first drug approval. Provenge (PROstate reVENGE) is a personalized vaccine for prostate cancer, made by taking the patient’s own cancer cells, growing them in a lab, attaching a powerful antigen, and reinfusing the therapeutic vaccine into the tumor. Phase III trials showed it significantly increased survival, the gold standard for approval.
"The technology can be applied to numerous solid tumor cancers, and is an important early step in the trend to personalized medicine. The drug qualified for Fast Track review, and I expect approval in 2006, with revenues before the end of the year. That would get the stock to my $14 target by the end of 2006, if it isn’t bought out by a big drug company at a higher price first."