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Biotech / Medical : momo-T/FIF -- Ignore unavailable to you. Want to Upgrade?

To: tom pope who wrote (4154)	3/20/2006 8:07:42 AM
From: tom pope	Respond to of 12215

This is the full report, gives more meat to Ende's skeptical approach. Overreaction to Higher Guidance Overreaction to Higher Guidance; Priced for Perfection: At its analyst day on Friday, DNA showed off its unprecedented R&D productivity as well as strong sales and EPS growth. Key points included higher '06 EPS and long-term growth guidance in addition to positive data from 2ndgeneration Rituxan for rheumatoid arthritis. But, better '06 EPS was not a function of higher product sales, which is key for future growth and higher longterm growth guidance was actually below our estimate. Also, at 47x '06 EPS, we believe the stock is priced for perfection, but we think investors are underestimating key risks and the stock overreacted on Friday. Maintain Neutral. Higher '06 Guidance NOT Due to Higher Product Sales: Management raised '06 EPS guidance from growth of 35% - 45% ($1.73 - $1.86) to 40% - 50% ($1.79 - $1.92). But, higher '06 EPS guidance was not from higher product sales, which is the key to future growth, but largely from higher sales to collaborators, which are low margin & expected to grow only 4% annually. Also, investment income may be higher due to biotech stock gains and expenses may be lower. We raised our '06 EPS estimate to $1.88 from $1.79. Higher Long-Term Growth Guidance Was Below Our Est.: DNA also raised long-term ('05 - '10) growth projections from 20% to 25%. But, our prior estimate was for 28% growth, which is above guidance. Thus, we lowered our long-term growth rate to 27%. Priced for Perfection, But Investors Underestimating Risk: At 47x '06 EPS, we believe the stock is priced for perfection and an expectation for continued upside to estimates, but we think investors are underestimating risk. Because of strong product sales, DNA's manufacturing is at almost 100% utilization. But, if a plant needs to be shut down for maintenance or production lots do not meet specifications then sales and gross margins may be at risk.