Thursday, December 22, 2005

Psoriasis Plays: Genentech/Abbott

Earlier this week, the New York Times ran a heartening story on one woman's chronic ordeals with psoriasis, an inflammatory skin disease affecting almost 6 million people in the US.

Psoriasis isn't just an esthetic nuissance -- people with psoriasis suffer discomfort, restricted motion of joints, and emotional distress.

Researchers believe psoriasis is an inherited autoimmune disorder.

The good news is that more is being learned about immune responses and new research is spearheading the way to more definitive treatments.

The best biologic drugs on the market approved for psoriasis include Genentech's Raptiva and Abbott Lab's Humira.

These drugs boast great track records; the companies behind them are just as dependable.

Abbott (ABT) has a solid business platform built on pharmaceuticals, diagnostics, and infant formula.

We think of Abbott as a classic growth story.

Abbott spits out plenty of cash, pays a 3% dividend, and trades for less than its industry multiple.

Genentech's the hi-flier of the biotech industry -- when it comes to oncology, Genentech (DNA) is king.

When DNA got walloped down to the $80s a while back, we put a strong buy on shares. Genentech of course went back to the high $90s after the smart money realized that Lucentis (for age related macular degeneration) was not going to cannibalize sales and that investors had, as usual, over-reacted.

Compared to Abbott, then, Genentech is an aggressive growth play -- it trades at 88 X earnings, unheard of anywhere else in the industry.

Nevertheless, of the 33 analysts who follow Genentech - not one has a single sell rating on the stock.

We believe that these two names are some of the best in the industry and we hope you'll join us in tracking them in 2006.

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