Speculating on Genzyme

If biotech stocks were the best performers during the last financial crisis in 1990, Cramer thinks they could work again for this one. That’s why he interviewed Genzyme Chairman, CEO and President Henri Termeer for Friday’s Mad Money.

Genzyme develops orphan drugs. These are treatments for diseases found in only five out of every 10,000 people. They are, of course, conditions you’ve probably never heard of, such as Fabry disease, which causes lesions and burning pain in the extremities and can cause kidney failure.

The U.S. and EU grant exclusivity on these drugs for seven and 10 years, respectively, because they focus on such a small niche of patients. Any company that wants to find a cure for these rare diseases is favored. Not that Genzyme or its peers really needs the help, though. Orphan drugs are big business. Genzyme can collect as much as $300,000 per year per patient for one treatment.

You might think that an insurance company wouldn’t fork over that kind of money, but Termeer disagreed. The only thing insurance companies are concerned with in cases like these is whether or not the drug works. If the answer’s yes, then they’re all for it.

And Genzyme’s treatments work. So well, actually, that even countries considered conservative in the treatments they allow, such as Canada, Australia and the Netherlands, Termeer said, welcome the company’s business.

That’s not to say the U.S., and the Food and Drug Administration in particular, doesn’t offer its own set of problems. The FDA is a “very big hurdle,” Termeer said, because its approvals are becoming harder and harder to get, for all biotech and pharma companies. But Genzyme has compensated by testing more patients over a longer period of time, and that increased rigor seems to have helped.

The key for investors here is that patients tend to stay on Genzyme’s drugs for life. These treatments are pretty much all the patients have. So by providing “real solutions,” Termeer said, that otherwise wouldn’t be there, the company watches its business build gradually and consistently over time.

Genzyme is also growing beyond just orphan drugs. There’s a formidable late-stage pipeline here that tackling everything from cholesterol to multiple sclerosis. But the strategy is still the same: focusing on select populations within the larger demographic. Take Mipomersen, for instance, which is only for patients for whom other cholesterol-lowering meds haven’t worked. And Campath for multiple sclerosis will be a one-a-year treatment rather than once-a-week or month. As Termeer put it, Genzyme’s drugs are for “very well-defined patient populations that have real, very well-defined clinical problems.”

Genzyme has three drugs coming up for FDA approval by the end of the year, and they could add 33 cents to 36 cents to full-year earnings per share in 2009. That’s the only kind of speculation Cramer will endorse in this market.

If “you want to speculate like a pro, you speculate with fabulous companies that have been around that have really exciting drugs in the pipeline,” Cramer said. “Genzyme fits that bill.”

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