Original message sent: Monday, December 04, 2006 2:28 PM
December 4, 2006
ACTIONS
LEGACY BUY LIST
Geron Corp. (GERN) -- Buy under $9
PROFITS FROM THE PETRI DISH
We all know what happened in the November mid-term elections -- the Dems "thumped" the Republicans good!
But the change in personnel on Capitol Hill wasn't the only thing voters across the country voiced their opinion about. In fact, the lineup change was just part of a broader shift in opinion on a variety of key issues. One of the biggest was the change in attitude toward stem-cell research.
In the "Show Me" state of Missouri, voters opted to endorse what has become a controversial scientific field. According to its proponents, passage of the Missouri amendment allowing stem-cell research to take place in the state was a turning point that will likely clear the way for other states to adopt similar measures.
Supporters of stem-cell research have been empowered by the Missouri decision, as well as the new makeup of Congress. Patient-advocacy groups and medical research organizations are already increasing efforts to advance the research, including a planned push for the next Congress to provide federal funding.
These winds of change blowing on the stem-cell plain are bringing great news for the biotech companies involved in this immensely promising field, and there is no company better positioned to take advantage of the stem-cell wave than Geron Corp. (GERN).
Geron is the biggest owner of the intellectual property for anti-cancer telomerase inhibitor therapies. These therapies are used to repair cells and turn off the "bad things" that can trigger cancerous mutations. Basically, telomerase is an enzyme that affects the ends of chromosomes during cell division. Cancer is runaway cell division, and researchers hope that inhibiting the function of the enzyme can play a role in fighting the disease.
A FEEDING FRENZY
In October, we introduced a winner in Sirna Therapeutics (RNAI), which doubled when pharmaceutical giant Merck (MRK) announced they were buying the company for $1.1 billion -- more than double its $470 million market cap at the time. Sirna is just one of at least a half-dozen companies developing drugs using RNA interference (RNAi) technology that was placed in the spotlight this year when two biologists took home a Nobel Prize for their work in the field.
Geron's telomerase therapy is similar to Sirna's, and Geron also has many other therapies in the works -- along with a whole lot of patents in the stem-cell research area.
Now look at Pfizer today -- $30 billion in market cap LOST on news that the company halted development of a key new cholesterol treatment that was heralded as its engine for future growth while the company struggles with stagnant sales.
Big Pharma needs new blockbusters and has $200 billion in cash sitting on the sidelines to acquire companies with breakthrough technology. And I believe Geron's technology has the biggest breakthrough potential in medicine…even grander than RNAI.
So, by connecting the dots here, I think it's fair to say that if a big pharmaceutical concern like Merck is on the prowl scooping up firms with new drugs in order to feed their insatiable need for new products, then it could be a good bet that Geron may also be in some firm's sights for a similar buyout deal.
I think we're likely to see a land grab by Big Pharma soon for the biotechnology companies doing innovative research in the stem-cell arena, and nobody's doing it better than Geron.
Want a bit more evidence of this land-grab atmosphere? Well, how about the Nov. 10 announcement by Genentech (DNA), which said it would acquire biotech firm Tanox (TNOX) for about $919 million, or $20 a share? That's about 47% above Tanox's Nov. 9 closing price of $13.64.
I see Geron potentially being bought out by one of the big players for upwards of $2 billion. I think the buyout of Sirna really rang a bell in this industry, and the message is that if you're a Big Pharma company, you need to put the stem cell and biotech brains in your pocket -- or you'll be left competing against them.
Geron has got everything a Big Pharma company could want, so I recommend buying GERN today. Buy Geron under $9 for your Legacy portfolio. It's a Strong Buy under $8 and the Accumulate price is $10. I have a 12-month target of $18 for the shares and a three- five-year target of $50.
THE CHANGEWAVE EFFECT
A word of warning about our recommendations: Often our new picks suffer from what we call the "ChangeWave Effect" -- that's when one of our recommendations sets off a flurry of buying that temporarily throws a stock's price off kilter.
For our new or less-patient subscribers, this means that you may want to wait to buy our newest picks during the two- to three-day period when some of the prices could exceed our recommended Buy Under prices.
We live in a free country, and I cannot stop the trading desks of the world's hedge funds from subscribing to our service. But I want our subscribers to understand that, if they are going to make very satisfying profits from our service, they can't chase a new stock recommendation past our buy under limits in the first 24 to 48 hours.
If you see the price jump after our initial recommendation arrives in your e-mail, don't be alarmed. You can buy a portion of you position now and add more when the price returns to a normal range, or wait a day or two to before you start building a position. It's your call.
