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Cramer's Latest Biotech Buy

Cramer on Tuesday added Genzyme to his list of biotech stocks to own. The company has exclusive rights to a number of high-cost drugs and a pipeline that’s attractive to both investors and big pharma firms looking to expand.

Yesterday Cramer named biotech the sector to own right now for five reasons: These high-growth stocks worked during the last U.S. banking crisis in 1990; Democrats for some reason love biotech and there’s a good chance they’ll capture the White House in November; people who need the drugs these companies make are always willing to pay up to get them; there’s been a flurry of takeovers recently – six in July alone; and lastly the fall season is usually filled with medical conferences and drug approvals.

So why Genzyme ? The company develops and sells “orphan status” drugs, meaning they treat diseases found in only five out of every 10,000 people. Both the U.S. and the European Union grant exclusivity rights of seven and 10 years, respectively, on any company that undertakes such an initiative. And Uncle Sam adds on tax credits for research and development costs. That’s a nice headstart for Genzyme.

Don’t think the small number of patients means this company doesn’t make any money. In fact, all of Genzyme’s drugs cost between $220,000 and $300,000 a year for just one patient.

Genzyme’s drugs focus on treating Lysosomal Storage Disorders, a rare group of genetic disorders where patients lack an enzyme that allows their cells to function normally. Cerezyme is used to fight Type I Gaucher disease, which causes fatty material to build up in the spleen, liver, kidneys, lungs, brain and bone marrow. Genzyme earned $1.1 billion in revenue from Cerezyme in 2007 despite the fact that only 5,000 people take it. Those are the kind of figures you rack up when you charge $250,000 a year for your products.

And that’s just one orphan drug. Fabrazyme fights Fabry disease, which causes lesions and burning pain in the extremities and can cause kidney failure, and that raked in $424 million last year. But the number of patients who need it is expected to increase 18% this year and 12% in 2009. Aldurzyme combats a metabolic disorder and that could grow to a $1.1 billion franchise, too. Then there’s Genzyme’s great kidney treatment franchise that management expects to bring in $1 billion in sales by 2010.

Add to all this a fantastic late-stage pipeline that would have most giant pharma companies frothing at the mouth and it’s easy to see why Cramer thinks GENZ should be trading at $92 a share rather than $78.

“I believe the time is right for biotech,” he said. “I think Genzyme, with its orphan drugs, is going to be a big winner come November. The Democrats love this kind of company as much as they hate big pharma.”


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