Six Picks In Biotechnology
01.10.05, 11:20 AM ET
Forbes
In a fourth-quarter earnings preview, Merrill Lynch expects its top-rated picks in the biotechnology sector to report largely in line with Wall Street consensus.
Genentech (nyse: DNA - news - people ) will be the first of the research firm's "buy"-rated picks to report quarterly earnings, set for release after Monday's closing bell. Merrill expects the biotech giant to report earnings of 21 cents per share, a penny below consensus estimates. "[The fourth quarter] will again be all about Avastin sales," it said.
"We believe the market is too near-term focused regarding Avastin peak sales in colorectal cancer and not considering the impact that eventual usage in lung cancer could have on the company's earnings and growth rate."
Amgen (nasdaq: AMGN - news - people ) and Celgene (nasdaq: CELG - news - people ) will report earnings on Jan. 27.
Merrill said Amgen will likely report income a penny above the consensus estimate of 61 cents per share and expects 2005 guidance above expectations. "We expect the company to incur higher operating expenses, as it usually does in the fourth quarter, however we would not be surprised to see the company shift even more than the usual spending from 2005, where revenue growth is not as clear given the changes to Medicare reimbursement," it said.
The key growth driver for Celgene, Merrill says, is experimental drug Revlimid, used to treat myelodysplastic syndrome (MDS), a bond marrow disorder. "We believe Celgene offers a favorable risk-reward profile for a biotech investor with high risk tolerance interested in the oncology space."
Merrill's remaining three "buy"-rated picks, Biogen Idec (nasdaq: BIIB - news - people ), MGI Pharma (nasdaq: MOGN - news - people ) and OSI Pharmaceuticals (nasdaq: OSIP - news - people ) will report earnings in early February.
For OSI, the research house said investors are underestimating the market potential for Tarceva, a recently approved cancer drug. "We believe that a strong than expected launch with upside potential to estimates should push the stock higher," Merrill said.
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