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Tuesday, October 10, 2006

Bogeying Genentech & Biotechs Ahead of Earnings

For starters Genentech (DNA) is expected to post $0.50 EPS on revenues of $2.3 Billion; and next quarter $0.52 EPS on $2.48 Billion revenues.

Genetech shares look like they really wanted to find a floor, with its shares trading between $77 and $85 for almost every day since April of this year. That is except for the last two days since Cramer touted it Friday by inferring that the street has grossly underestimated the potential sales for Avastin down the road because of how many potential uses it can have.

Even after the stock has gone up so much compared to 5 years ago, the street still has a positive bias on the stock and it is easy to find share price targets far north of $100 in the coming year.

The stock options for October have been fairly active, and if you trust today's options pricing it appears as though the options traders are braced for the stock to move up to $2.90 in either direction.

The stock is slightly lower today ahead of earnings and it has already traded its average daily volume by noon. That is classical trading ahead of and out of the stock right before the event and with the short interest having climbed from 9.9 million shares in August to 11 million shares in September, with average daily volume running about 3 million shares. Another ongoing twist to the Genentech saga is that it is majority owned by Roche overseas, so its $90 Billion market cap is somewhat misleading.

Unless you see some drastic unexpected news not known by anyone, you can be pretty sure that Cramer will be out defending the stock if it falls or cheering it if it rises. He was just out Friday saying it would be good to acquire half of a position before earnings and another half after the earnings if it falls off too much.

We do not like to focus on only 1 drug like so many on the street often do, but its main drugs to watch are Rituxan, Avastin, Herceptin, Tarceva, Lucentis and Xolair. It has others and literally every analyst will focus on different metrics out there when making their forward estimates. It also has review dates upcoming for expanded uses for Avastin, but they will not likely be able to make any predictions there.

Here is a breakdown of its previous quarter's product sales:

* U.S. sales of Rituxan® increased 17% to $526 million, from $450 million in the second quarter of 2005.
* U.S. sales of Avastin® increased 72% to $423 million, from $246 million in the second quarter of 2005.
* U.S. sales of Herceptin® increased 111% to $320 million, from $152 million in the second quarter of 2005.
* U.S. sales of Tarceva® increased 47% to $103 million, from $70 million in the second quarter of 2005.
* U.S. sales of Xolair® increased 31% to $105 million, from $80 million in the second quarter of 2005.
* U.S. sales of RAPTIVA® increased 5% to $22 million, from $21 million in the second quarter of 2005.
* U.S. sales of LUCENTIS™, approved and launched on June 30, 2006, were $10 million.
* U.S. sales of legacy products, including growth hormone, cardiovascular products and Pulmozyme® Inhalation Solution, increased 5% to $207 million, from $197 million in the second quarter of 2005.
* Product sales to collaborators increased 62% to $94 million, from $58 million in the second quarter of 2005.

Last quarter Genetech actually fell after its earnings release from $84.06 before earnings to close at $80.98 at the close the following day, and traded 11.1 million shares that day. While we gave a wider range above, it has really been in a trading range of $79 to $83 for most of the days since its last earnings.

Genetech can often set the bar for other large biotechs, so here are some of the key biotechs with their approximate market caps included: Amgen (AMGN) $86 billion, Gilead (GILD) $30 billion, Genzyme (GENZ) $18 billion, Celgene (CELG) $16 billion, Biogen Idec (BIIB) $15 billion, and Serono (SRA) $15 billion.

Jon C. Ogg
October 10, 2006
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