Genentech at 52 week low and going much lower

Genentech- DNA- has been the cream of the biotech crop for many years. They developed TPA long ago, and more recently have had a string of very successful chemo drugs. Their stock is now sinking and will likely go much lower.

Genentech stock is falling and should continue to do so for some time.

The problem is not with their drugs, which are great, it is with their business model. Their drugs- particularly Avastin and Herceptin have increased life expectancy and helped to usher in a new era of relatively well tolerate chemo.

But the drugs are very expensive- as much as $50,000/yr- and they will be prime targets of the democrats looking to score easy points against the big bad pharma companies. Hilliary would very likely institute price caps on such agents

Also the new legislation in congress will likely allow generic companies to produce generic biologics. As a result, instead of a lifetime of earnings from each compound Genentech will start to have the same problems that big pharma has with older drugs coming off patent. (Just ask the people at Pfizer and Merck what that is like.)

These issues promise to slow the growth of Genentech substantially and make its current P/E in the 30s seem way to rich. I am planning to short it through this period of multiple contraction.

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  • Anonymous

    June 27, 2007

    Sounds like good advice. You just saved me from making a mistake. Thanks.

  • Anonymous

    June 27, 2007

    Genentech may not be a buy and it may even be a sell, but I am not so confident that it is a short.

  • Anonymous

    June 27, 2007

    I'd be curious as to your take on which generic manufacturer is most likely to control generic biologics.

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