DNA Gets Approval

Plus MNST, PPH, RIG, OSTK, and SBUX

By Bryan Bottarelli
Thursday, October 12, 2006 10:20 AM EST
Thu, 12 Oct 2006 15:20:00 GMT

Dear Bottarelli Research Member,

I think the market’s really got itself mixed up when it comes to Genentech (DNA – NYSE). Yesterday, they reported earnings that solidly beat the street, yet the stock sold off because the sales numbers of their non-Hodgkin’s lymphoma treatment Rituxan rose only 12% to $509 million.

Today, DNA has received approval from the FDA to use their colon cancer treatment Avastin also as a treatment for the most common type of lung cancer. That means Avastin, which is designed to starve tumors of blood and nutrients, has the colon and lung cancer market basically cornered. Quite frankly, this is a billion-dollar decision for Genentech.

According to Laurie Fenton, president of the Lung Cancer Alliance, “Lung cancer is responsible for more than one-third of all U.S. cancer deaths, killing more people than breast, prostate, colon, liver and kidney cancers combined." So we’re talking a HUGE market for DNA. In fact, the FDA’s lung cancer approval now opens up a potential new market between 65,000 to 81,000 patients for Avastin. At a minimum price tag of $4,400 per month, you can see the enormous potential we’re talking here. Not millions, billions.

DNA

It’s a huge dean for DNA, yet the market is simply shrugging off the news (as you can see by today’s minimal chart reaction). Like I said above, I think they’re getting it wrong, and I’ll continue to be a long-term bull on DNA.

More news keeps trickling in about Monster Worldwide (MNST — NASDAQ) and CEO Andrew McKelvey’s abrupt decision to leave. McKelvey, a 39-year veteran with the company, resigned from his post as rumors about potential options back-dating investigations began to circulate. As I write, shares of MNST are trading down $1.00 and your MNST November 40 Puts (BSQ WH) jumped from $2.90 up to $3.50, good for a quick 20.6% gainer. If they hit $3.50 again, let’s take the gains.

MNST

PLAY: Sell the MNST November 40 Puts (BSQ WH) at or above $3.50, good for the day.

I’d also like to add to our position in the PPH November 75 Calls (PPH KO).As you can see from the chart, it appears like the index has found near-term support at $77.00 and is once again mounting a rally up to a new 52-week high. Let’s use the recent dip to add to our position at these attractive prices prior to the next up-swing.

PPH

PLAY: Buy more PPH November 75 Calls (PPH KO) at or under $3.20, good for the day.

Looking at our RIG play, the stock is up as crude oil is bouncing off the $57.22 low it set yesterday. But later today, key oil supply is expected to show supplies of oil are still comfortably above their average levels for the time of year. If this supply number comes in high, it could be the catalyst that drives oil prices even lower, thus sending oil-related plays like RIG down with it. Hold your RIG November 65 Puts (RIG WM), as this stock is known for very quick moves — both up and down.

Also maintain your downside positions in the OSTK November 20 Puts (QKT WD) and SBUX November 37.5 Puts (SQX WU) as they’ll each gain value the moment this over-inflated market turns lower. Until then…

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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