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BofA Starts Genentech With Buy

The brokerage sees expanding off-label use for Herceptin.
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Doctors aren't waiting for FDA approval to prescribe



Herceptin to prevent the spread of breast cancer, a trend that could lead the high-flying biotech beat earnings estimates in the third quarter, Banc of America Securities said Friday.

It initiated Genentec, with which it has an investment banking relationship, with a buy.

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The brokerage set a $105 price target on the stock, which has doubled since March compared with a 25% rise in the Amex Biotechnology Index. Genentech closed at $87.72 on Thursday, about $5 below its 52-week high of $91.70 touched Aug. 2.

According to Banc of America, Herceptin should do about $270 million in sales this quarter as doctors increasingly prescribe the drug as a so-called adjuvant treatment for breast cancer. Genentech is expected to seek formal approval for the indication next year following blowout clinical results released last spring.

For Avastin, the company's groundbreaking treatment for lung and colon cancer, the brokerage pegs 2005 sales at $1.07 billion, rising to $5.9 billion by 2010.

"We believe shares remain attractively valued on anticipated free cash flow and EPS leverage over the next six years, high barriers to entry, and what will likely be a sustained period of competitive advantage following unprecedented research and development productivity that should lead to nine FDA filings over the next 12 months," BofA wrote.

The brokerage price target reflects a multiple of 35 applied to its 2010 earnings estimates of $4.30 a share discounted back four and a half years at 10%.