Greetings, Fools!

Two fast-growing companies are advancing to round two of our high-growth study today. These companies advance because they are industry leaders, they're making money in ways we can readily understand, they have expanding possibilities, and they're expected to grow sales and earnings rapidly -- in fact, more rapidly than our five-year 25% annual goal.

Raise the trumpets for these two contenders!

The first company is Genentech (NYSE: DNA). With a market value of more than $40 billion, Genentech is the second-most valuable biotechnology company in the world, behind Amgen (NYSE: AMGN). Founded in 1976, Genentech is older than Amgen and it has more drugs -- nine, all of them protein-based -- on the market than any other biotech firm.

Genentech broke $1 billion in annual sales in 1997. This year, sales will top $1.6 billion, while earnings are expected to be $0.60 per share, up 69% from 1999. In years ahead, the company projects annual earnings per share growth of at least 25% all the way through 2005. So far in our study, only eBay (Nasdaq: EBAY) has made a similar five-year projection -- a projection that exceeds our growth requirement. 

Genentech bases its growth estimate on its drug pipeline, which has more products in development than any of its peers. The company has seventeen drugs in clinical trials and three awaiting first trials; seven of these twenty drugs are in phase III of III trials, and two of the drugs are through with trials and awaiting FDA approval. The company's pipeline is focused on three areas: oncology (cancer), cardiovascular, and, generally titled, "opportunistic" markets -- or large markets having unmet needs.

One reason that I like and own Genentech rather than Amgen is Genentech's diverse product base. Amgen currently relies on only two drugs, and although both are billion-dollar blockbusters, risks are higher when selling only two drugs. Genentech's nine drugs on the market and additional licensed products result in average sales of a few hundred million dollars apiece (some much more, others less) and spread the risk of one drug being replaced by something better, or, for example, being recalled for long-term side effects.

I also appreciate Genentech's potential for our 17-year investment because drug manufacturers truly do have expanding -- and in a way, limitless -- product possibilities. Plus, similar to Johnson & Johnson (NYSE: JNJ), Genentech has sustainable advantages gained through its patents, scientists, and a large, growing research and development investment.

I've written here since 1997 that we might make two pharmaceutical-related investments in our portfolio's lifetime because the industry is so attractive. We own J&J and we've considered Pfizer (NYSE: PFE), the $275 billion giant. At $40 billion, Genentech is poised to grow more rapidly than Pfizer, although Pfizer is no slouch. Pfizer expects its earnings per share to grow at least 25% annually through 2002; Genentech expects this type of growth through 2005. Like eBay with its high growth projection, Genentech will be a strong contender in our final study.

Today's second strong contender is Mercury Interactive (Nasdaq: MERQ). Mercury is the leading developer of Internet performance and management software. Founded in 1989, the company's business has rocketed since 1997 as it redirected efforts toward Web performance management solutions. With 40 offices around the world, Mercury has more than 10,000 clients and partners, including (Nasdaq: AMZN), Oracle (Nasdaq: ORCL)Intel (Nasdaq: INTC), and another contender in our study, BroadVision (Nasdaq: BVSN).

Mercury's sustainable advantages derive from the fact that once a company -- take Amazon, for example -- begins to use Mercury's Web-testing and monitoring software, switching to another company's software becomes difficult and costly. Meanwhile, software is licensed over a period of time, and software is continually updated. Both of these factors result in software being a repeat-purchase business, and one with high margins. Mercury also has expanding possibilities as the Internet's usage and applications expand (more video, audio, etc.).

Mercury's long-term growth estimate is 40% per year, with 52% earnings per share growth expected this year -- again, well above the 25% that we want for the next five years.

Mercury Interactive and Genentech join our existing six contenders in the next round of our study. Those companies are eBay, Paychex (Nasdaq: PAYX), Ariba (Nasdaq: ARBA), Millennium Pharmaceuticals (Nasdaq: MLNM), (Nasdaq: PHCM), and Redback Networks (Nasdaq: RBAK).

Except for Paychex, these companies do not have Drips, but are available to buy through services such as BUYandHOLD or ShareBuilder. Next week, we'll tackle -- do we keep it or drop it? Continue to share your thoughts on the Drip Companies board! Finally, for a reminder of why we're doing this new study, see the end of this recent column.

Portfolio update
We sent $50 to get our PepsiCo (NYSE: PEP) Drip statements initiated and it ends up that we bought $50 worth of the stock at $44 on November 30. We also bought $100 worth of Intel on December 5. This means that we only have $50 to invest in January. Next week, we'll send that $50 to Pepsi. If you missed Brian Graney's look at the Pepsi-Quaker Oats (NYSE: OAT) deal this past Tuesday, check it out. Take care and Fool on!

P.S. Looking for holiday gift ideas? Consider books about investing -- they're great gifts for family and friends!