Genentech, Inc. (DNA)

Timing probably isn't the best, but this is a long-term play - if I had more time I'd probably watch for a nice dip to buy on, but in the long haul Genentech is probably as safe a biotech company as you'll find as well as the best big cap bet to appreciate over the next half decade or so. As a former bench jockey I have to admit to having a fawning deference for this company, they're legendary amongst My People, pretty much the biology geek version of what Google is to computer geeks. Their business model is extremely different from that of big pharma in that management lets their science lead the business, while most big drug companies' management run business with an iron fist.

Not much analysis here, except to point out that:

*In 2007 total revenue was $11.7B. Analysts project that in 2010 Genentech will have 3 of the top 4 oncology drugs by revenue (Avastin, Rituxan, and Herceptin), with those 3 drugs alone generating $17.1B. If they hit that number they'll be growing sales at a CAGR of ~13.5%, something almost no other major drug companies can expect over the same time frame.

*While I wouldn't say anyone has a really robust pipeline right now, Genentech has done a good job at developing new compounds, and inlicensing a nice mix of drugs that look intriguing and/or complement/enhance their current drugs nicely (the deals they cut with IMGN and SGEN for ADC technology that could enhance their monoclonal antibodies could pay off huge).

*They're still expanding indications for their drugs with new approvals. Avastin's recent approval for breast cancer will give a nice boost, and there are still more cancers out there for their antibodies - the trick will be whittling down which ones the antibodies work for and will provide the biggest payoff. They're also testing their drugs against competitors, such as their recent release of data showing that Herceptin enhances GSK's Tykerb.

Big pharma has had an awful decade, largely due to being slow to recognize that the blockbuster model will not work going forward. Most of the large pharmaceutical companies are considerably cheaper than they were 10 years ago. Genentech, on the other hand, is up over 700% over the same time frame. While there's an argument to be made that they too use the blockbuster model (few drugs, huge sales/drug), if you look closely their development style is much more deliberate than the frantic style of big pharma, and the input from the scientists has paid off handsomely, as Genentech's productivity smokes big pharma any way you care to measure it. DNA is currently carrying a somewhat higher PE ratio than most of big pharma (26.02 vs. an average of ~14.71), but I think the premium is warranted.