Ebb & Flow

Genentech got a 12% bump on Monday when partner OSI (OSIP) reported that its Tarceva small molecule EGFr inhibitor significantly increased survival in a Phase III trial in recurrent non-small cell lung cancer (NSCLC). The pop put DNA within a stone's throw of Amgen's market cap. As of Friday, AMGN was still the largest biotech, with a market cap of $72.2 billion, but DNA was only $7.5 billion behind with a market cap of $64.7 billion.

As the gap between AMGN and DNA narrows, the difference between their sales and P/E ratios becomes more stark. In the first quarter, AMGN posted sales of $2.2 billion - almost three times DNA's sales of $763.3 million. On the Street's 2004 EPS estimates, DNA trades at a 78 multiple, while AMGN is getting 24x.

Investors, however, are undaunted by these figures and either view the companies as different types of investments or think that DNA will eclipse the Street's growth expectations - or both.

Franklin Funds portfolio manager Evan McCulloch holds similar amounts of both DNA and AMGN, but sees them as different animals. "Amgen is a value play and Genentech is more momentum," he said.

Kilkenny Capital's Michael Walsh agreed that DNA is a momentum stock, and attributed much of the company's run-up to mutual funds focused on growth. As opposed to value funds, he said, "growth funds buy the fastest growing stocks irrespective of what they have to pay for them."

The Street's five-year growth estimates for DNA and AMGN are 26% and 21%. Despite DNA's 5% edge, some feel the actual gap will widen. "I think the Street estimates of Genentech's growth are too low," said OrbiMed's Sven Borho. "There's no reason

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