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Genentech Is More Robust Than It Looks

Genentech (DNA), the world's second-largest biotech and an innovative developer of biotherapeutics, gets no favors from the Street. Its stock slipped from 84.06 to 81.56 on July 11 even though it had just posted an 80% jump in second-quarter earnings. Now it's at 79.30. The rap: The $423 million sales of its Avastin colon cancer drug were 4% below consensus estimates. Never mind that this was a 72% jump in sales or that Genentech's two other major drugs beat forecasts. Sales of Rituxan, for non-Hodgkin's Lymphoma, rose 17%, to $526 million, and those of Herceptin, for breast cancer, more than doubled, to $320 million. Some bulls see the stock's drop as a chance to buy. Geoffrey Porges of Sanford C. Bernstein upgraded it from "hold" to "outperform," with a 12-month target of 98. He says Genentech can deliver annual profit growth averaging 28% between 2005 and 2010. He expects earnings to jump to $2.51 a share in 2007, up from $1.85 this year. Kavita Thomas of First Global Markets also upped Genentech to "outperform." Herceptin's expected approval in August for early-stage breast cancer, and the wider use of Avastin for non-small-cell lung cancer, are both good signs, she says.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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