Fool Fight: Amgen vs. Genentech

Welcome to another Fool Fight. Grab your ringside seat, please.

Our last bout, which featured Johnson & Johnson and Procter & Gamble, resulted in a split decision in favor of P&G, thanks to several passionate Motley Fool CAPS players. Today, two biotech beasts let the molecules fly.

Tale of the tape
Let's meet our combatants. In the red corner, it's Amgen (Nasdaq: AMGN  ) , which secured its future in September with FDA approval for its latest colorectal cancer treatment. Momentum should have continued through October with soothing earnings but, instead, management reached for the aspirin when results fell short of Street estimates. Fortunately, there's still plenty of cash on the books, which raises the possibility of a rich dividend. No wonder Motley Fool Rule Breakers team member and biotech investor Karl Thiel says Amgen could be one of the best blue chips of 2007.

Meanwhile, in the blue corner, it's Genentech (NYSE: DNA  ) , which got sick in September when the FDA asked for more trial data before approving colorectal cancer drug Avastin as a breast cancer treatment. Relief came in October with therapeutic third-quarter results, highlighted by 61% earnings growth and 36% sales growth year-over-year. Then, in November, the FDA approved Herceptin for treating the early stages of breast cancer, offsetting Genentech's earlier setback with Avastin. But will that be enough to take the title in this bout?

Get ready to ruuuuummmmmmble!
Let's find out. Ding! There's the bell! First out of the corner is Amgen with a series of jabs from CAPS player gstrout:

"Proven ability to bring innovative therapies to market, solid financials, several strong revenue generating therapies in the market, a deep pipeline, heavy R&D spending, 3-4 mid-to-late stage products with good potential, and a price drop thanks to market gravity ... I'm in."

Genentech reels from the shots, covers up, and searches for an opening. It sees one, and Jon408 delivers the left hook to Amgen's jaw:

"[Genentech] has done well, no doubt about it. Cash flow [is] strong, great research and development. Avastin and Herceptin will provide growth until they invent the 'next new thing' to combat aging, cancer, and specific medical issues we could all do without."

Amgen is cut! It's a bad cut, too. Give that round to Genentech but, as the bell sounds, Amgen is back on the offensive. Rule Breakers biotech expert Charly Travers, known as TMFBreakerCharly in Fooldom, sets up the haymaker:

"[Genentech] is a very good biotech company. However, the stock is very overvalued, even after a 20% drop off of its 52-week high. The [free cash flow] is just not there to support a $80 billion market cap, even with robust growth rates. Also, the company's drug pipeline is thin. The market does not recognize that yet because for much of the past decade Genentech was believed to have the best pipeline in the sector. That is no longer the case since the number of drugs in development has not kept pace with the company's skyrocketing top line. It takes far more drugs to move the needle on the top line now that revenue is quickly approaching $10 billion than it did a few years ago when revenue was $2 billion."

Down goes Genentech! Down goes Genentech! But the battered biotech isn't yet out. As the count concludes, the ref sends both fighters to their corners. After the breather, a wobbly-kneed Genentech presses one final assault thanks to Enzo24hrs:

"Biotech is undervalued ... metrics and demographics will power this one ahead."

Let's go to the scorecard
Maybe so, but, as the final bell rings, the judges can't seem to get past Amgen's edge in bullish sentiment, which gets it the nod on all three scorecards:

Metric

Amgen

Genentech

Star Rating (5 Max)

****

***

Total Ratings

583

505

Bullish Ratings

553

462

Bull Ratio

94.9%

91.5%

Bearish Ratings

30

43

Bear Ratio

5.1%

8.5%

Bullish Pitches

101

71

Bearish Pitches

5

9

Data current as of Jan. 3, 2007.

Get in the ring!
Will Avastin help Genentech make a comeback? Is Amgen really as undervalued as my fellow Fools believe? Get in the game now, and let us know what you think. It's entirely free to participate in CAPS, so join now. Your Fool cap awaits.

Biotech. Nanotech. High tech. Any tech. David Gardner and his Foolish band of analysts cover it all for Rule Breakers subscribers. As a result, they've built a market-beating portfolio featuring three four-baggers. Intrigued? Click here now to get 30 days of free access to the service.

Fool contributor Tim Beyers, ranked 1,381 out of more than 18,700 in CAPS, has 30 picks in his CAPS portfolio, though none of them appeared in this article. Neither did he own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all of Tim's stock holdings by checking his Fool profile. Johnson & Johnson is anIncome Investorselection. The Motley Fool's disclosure policy is always in fighting shape.


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