Biotech Investors' Dream Stocks

Investors are always hunting for the next big stock -- the dream stock whose price increases severalfold when the market finally discovers it. It's easy to look back and see what the 10 best stocks of the past decade were. But I'm more interested in how to find tomorrow's greatest companies.

One investing tool offers a variety of resources to help with finding tomorrow's leaders: Motley Fool CAPS. We've enlisted CAPS to screen for top biotech stocks and get the story behind them. CAPS' nifty screener will help us find stocks with:

• A market cap of at least $100 million.
• A three-year revenue growth rate of at least 15%.
• A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our 115,000-plus CAPS members to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

Data and star rankings from CAPS. All data as of Oct. 7.

BioMarin
Proving that developing niche orphan drugs can be profitable, BioMarin is expecting 135% revenue growth in 2008. In addition to the high revenue growth, the company also notched up its full-year earnings and revenue guidance.

Its key Kuvan drug should soon be approved for sales abroad, which is expected to significantly expand the $12 million in second-quarter revenue BioMarin earned in the United States. The company feels Kuvan could potentially reach $400 million annually, before marketing exclusivity runs out in 2014 and others like Teva Pharmaceutical (NASDAQ:TEVA) can step in with generics. As such, more than 95% of the 875 CAPS members rating BioMarin see it outperforming the market.

Seattle Genetics
Development-stage drugmaker Seattle Genetics is betting on a less direct -- though still viable -- path to success. In addition to developing drugs that directly kill cancer cells, similar to Genentech's (NYSE:DNA) Avastin and ImClone Systems' Erbitux, Seattle Genetics also develops antibodies that carry toxic drugs to cancerous cells. The company hopes to convert this form of therapy to cash by licensing it to other players looking for more effective cancer treatments.

Seattle Genetics recently signed a deal with Daiichi Sankyo, giving Daiichi rights to the technology in exchange for $4 million up front and possible future royalties on any approved drugs. The potential for similar deals with many other drugmakers has many investors optimistic. More than 92% of the 263 CAPS members rating Seattle Genetics expect it to outperform the market.

Emergent BioSolutions
Already one of this year's top stocks, many investors think Emergent BioSolutions still has room to run. More than 96% of the 298 CAPS members rating the company are bullish on its future as the only current provider of FDA-approved anthrax vaccine.

Emergent has an existing $448 million contract in place to supply the U.S. Department of Health and Human Services with more than 18 million vaccine doses, and it just signed a new contract to provide an additional 14.5 million doses. Second-quarter sales were up by 88% over the previous year, and the company hopes to sign yet another BioThrax contract with the U.S. Department of Defense before the end of this year.

Elan
Despite a recent setback that Elan and Biogen Idec (NASDAQ:BIIB) faced over multiple sclerosis treatment Tysabri, many CAPS members believe that bad news means a good opportunity to buy shares. Even though it carries the risk of rare brain disorders, many still see the drug as the most effective treatment for the most severe cases of MS.

The company is still moving forward to sell off its drug-delivery unit, but the current credit crisis could hamper this effort. Still, with continued strong sales of Tysabri expected, many investors think Elan could be a monster of a stock. More than 92% of the 829 CAPS investors rating Elan have voted for it to outperform the S&P.

Let 115,000 members be the judge
The collective wisdom of a huge pool of investors can help give context to a page of numbers developed through a stock screen. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury. Fools should always perform their own due diligence.

Run your favorite factors through the Motley Fool CAPS screener. It's totally free, and we think you'll like the results.

On Oct. 7, 2008, Fool co-founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.