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Genentech
Rank: 79 Ticker: DNA Market value: $84 billion
WHY IT'S HOT: Think of Genentech as the cancer company: Its success rests largely on four blockbuster drugs that combat various forms of the disease. Top treatments include Avastin for colorectal, lung and breast cancers; Herceptin for "Her-2" breast cancer; Rituxan for non-Hodgkin's lymphoma; and Tarceva for lung and pancreatic cancer. Notes Citigroup analyst Elise Wang, for instance: "No other biotech or pharmaceutical company has ever been in a position to be launching four $1 billion-plus products simultaneously."CHALLENGES AND OPPORTUNITIES: Genentech turns 30 this year. With its $84 billion market capitalization, it is larger than rival Amgen, as well as such old-line drugmakers as Wyeth, Schering-Plough and Eli Lilly. Therein lies Genentech's real test: to run among the giants without contracting the malaise plaguing Big Pharma. Can Genentech continue to foster a free-flowing creative spirit among its scientists while becoming more like Big Pharma in areas like sales and marketing? In late June the FDA approved the company's newest drug, Lucentis, a treatment for age-related macular degeneration. Although investors were underwhelmed, the drug could top Pfizer's already established Macugen in the market. Clinical tests suggest Lucentis is more effective at restoring vision and reversing the disease. The next two years are critical for Genentech, as the company will need to prove that its R&D boom wasn't a fluke. Researchers plan to test existing drugs for additional uses while moving three new drugs (for cancer, arthritis and diabetes) into Phase II, or human, testing by the end of this year. STOCK OUTLOOK: Take a deep breath. Genentech sports a high-octane P/E of 61 (based on this year's earnings), yet its earnings growth is likely to slow from its current breakneck annual pace of roughly 50 percent this year to a more moderate 33 percent in 2007 and 25 percent by 2008. That means "Genentech shares are headed for a period of stagnation while the early-stage pipeline matures," contends Lehman Brothers biotech analyst Craig Parker. Still, the company has enormous long-term growth potential, making Genentech a stock to watch and buy if it becomes a little cheaper over the next year or so - as long as any dip in price is not caused by a fundamental change in its prospects. |