Mike Havrilla     www.BioRunUp.com       

The accompanying table presents a 20-stock defensive growth portfolio which I believe will outperform the overall market as measured by the S&P 500 Index as the current panic trade comes to an end and investors stop selling stocks regardless of their fundamentals. The average PEG ratio for this group of stocks is below one and the average dividend yield of 4.4% is nearly two times the S&P 500 ETF (SPY) yield of 2.4%. All of the stocks have a market cap over $1B with an average of just under $75B and the industry groups represented are skewed toward defensive sectors, although consumer tech growth stocks such as Apple (AAPL) and RIMM are also included.

In the natural resource and energy space, I chose Freeport McMoRan (FCX), Sasol (SSL), Chevron (CVX), and Devon Energy (DVN) -- which trade as deep value plays with an average PE of about five and average yield around 5% for the quartet. In the agri-biotech space, I chose Monsanto (MON) as a bullish play on the ever-growing demand for food in the world and the ability to improve farm yields through seeds and fertilizers.

In the healthcare sector, I chose Pfizer (PFE) for a turnaround, big pharma play with a strong balance sheet and fat dividend yield. Abbott Labs (ABT) has a more diversified mix of healthcare business segments beyond pharmaceuticals, including diagnostics and nutrition. Invitrogen (IVGN) recently raised its earning guidance and it supplies the tools and systems used in the drug discovery process, genetic analysis, and diagnostics. I like Amgen (AMGN) in the rapidly consolidating biotech space and Teva Pharma (TEVA) as the generic drug industry leader, which also develops and markets brand name pharmaceuticals such as Copaxone.

Some other core holdings in the portfolio include Verizon (VZ), AT&T (T), Procter & Gamble (PG), and Philip Morris International (PM) for the defensive nature of their businesses and above-market dividend yields. Burlington Northern (BNI) was chosen as part of a bullish outlook on rail transport, which has pricing power due to demand for the fuel efficient transport of ag and energy commodities and the limited ability to increase rail capacity in the U.S. Wells Fargo (WFC) is the only financial company in the portfolio since the company will likely benefit from the Wachovia (WB) acquisition. Finally, I chose Microsoft (MSFT) and Google (GOOG) as tech plays on internet advertising, search, and software.

Abbott Labs (ABT) is a consistent performer with diversified healthcare operations, including pharmaceuticals, diagnostics, medical nutrition products, and medical devices/stents. ABT is back to the lower end of its trading range near 50 bucks, presenting an excellent entry point with a 2.8% dividend yield and forward PE of about 14X.

Celgene (CELG) is also trading at the low end of its trading range around 50 bucks as a large-cap growth stock focused on cancer biotech products and research with an estimated PEG ratio below one.

China Medical (CMED) is trading near its IPO levels of August 2005 despite excellent growth prospects and is a buy below 20 bucks with a dividend yield of 2.5% and market cap of $540M as uncertainty over a $345M acquisition has spooked some investors, sending the stock down sharply by over 50% in the past three months. The acquisition provides CMED with a molecular diagnostics platform for HPV, including strains that cause cervical cancer – which is an estimated $700M market in China alone.

Pfizer (PFE) is a stock I have written about before , which currently has a dividend yield over 8% while trading at a forward PE of under 7X and represents a value, turnaround play with the cash to make targeted acquisitions to bolster its pipeline in anticipation of generic competition for Lipitor while the Company also makes a bigger push into generic drugs beyond its in-house Greenstone division. Three more big pharma companies with yields over 6% to look at include Merck (MRK), Bristol-Myers (BMY), and Eli Lilly (LLY) – with LLY still waiting on a FDA decision for Effient (prasugrel) to compete with multi-billion dollar blood thinner Plavix.

Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA. With Momenta trading in single digits again after reaching as high as $20 per share earlier this summer; an approval for M-Enoxaparin would be a significant catalyst since Lovenox posted sales of about $4B in the last year for Sanofi-Aventis (SNY). While other companies such as Teva (TEVA) and Watson Pharma (WPI) also have pending applications for generic Lovenox, it is encouraging the researchers from Momenta contributed to determining the cause of the tainted heparin earlier this year.

The following companies have major FDA product approval decisions expected in the upcoming months which could easily move the underlying stock prices by 100%-plus to the upside or 50%-plus to the downside. Te first group of companies involve decisions for abuse-resistant pain drugs, including Pain Therapeutics (PTIE) + King Pharma (KG) for Remoxy and Alpharma (ALO) for Embeda. Now that Alpharma has accepted King Pharma's $1.6B buyout bid, the latter reflects a way to trade both decisions in a single stock for twice the chances of approval.

Achillion Pharma (ACHN) is a promising micro-cap biotech, specializing in the development of new treatments for infectious diseases, such as the multi-billion dollar market for the chronic treatment of hepatitis C. As I recently wrote , several companies in this space have been bought out at huge premiums over the past year – including an astounding premium of over 400% for a $57M buyout by GlaxoSmithKline (GSK) of hepatitis C virus [HCV] developer Genelabs (GNLB).

Since completing a $41.5M private placement in mid-August (of which $31.1M was already received), Achillion has sufficient liquidity through most of 2010 and is focused on the development of its two pre-clinical HCV compounds, ACH-1095 and ACH-1625. ACH-1095 is part of a 2004 research collaboration with Gilead Sciences (GILD) for which Achillion received $10M upfront and may receive an additional $157M in potential milestone payments from the time of an IND filing to begin clinical studies through commercialization.

Achillion expects to file INDs with the FDA to begin clinical studies for ACH-1095 before year-end and ACH-1625 during 1Q09, starting with Phase 1 pharmacokinetic [PK] + safety studies during 1H09 and progressing to Phase 1b proof-of-concept studies during 2H09. The Company also has an antibiotic drug candidate (ACH-702) which is expected to commence clinical studies in the near-term and it possesses a novel mechanism of action that may be useful against resistant pathogens such as MRSA.

Achillion has a total of 26.4M shares outstanding with a low float of just 12.2M shares and a negligible short interest of less than 0.2M shares. The market cap stands at $26.4M at the close today with $44.3M in cash, $7.7M in debt, and an enterprise value of negative $10.2M.

Thanks to net proceeds of nearly $30M from the private placement in mid-August, Achillion has no concerns over trying to raise cash during the difficult market conditions and can focus on moving its two lead HCV product candidates into the clinic by early next year – with promising results so far for fully-owned ACH-1625 with high potency (for lower dosage requirements), potential once-daily dosing, and possible synergistic effects with other HCV medications.

Below are some recent articles on other companies included in the ETF Innovators [ETFI] Emerging Bio-Pharma Index and smaller companies in the micro-cap range:

Emerging Biotech & Pharma Index: 36 More Cos.

A New Index of Emerging Biotech & Pharma Companies

Navigating the Minefield of Micro-Cap Biotechs

The accompanying table of FDA decision dates is updated to include the following: 1) XenoPort (XNPT) withdrew its NDA for restless leg syndrome drug Solzira for what appears to be a minor, administrative delay to reformat some trial data at the agency's request which will also delay $23M in milestone payments from partner GlaxoSmithKline (GSK); 2) Discovery Labs (DSCO) Surfaxin NDA will undergo a Class II review with a decision deadline pushed out to 4/17/09; 3) Genentech (DNA) filed for accelerated approval of Avastin as a secondary treatment of brain cancer (glioblastoma) based on positive clinical trial results. Also, the backlog of decision dates I wrote about last week still remains -- with only DSCO hearing back from the FDA on the decision to classify Surfaxin as a Class II review, which is probably more of a reflection of the agency's understaffed conditions rather than an issue with the complete response for the drug.

As a follow-up to the top rated companies highlighted from the ETF Innovators [ETFI] healthcare and transport indexes, below are some top rated companies from other sectors and industry groups.

From the Global Tobacco Index , Altria Group (MO) is a top rated stock with a dividend yield near 8% which is set to acquire smokeless tobacco maker UST Inc. (UST) early next year and is poised to capitalize on a strong U.S. Dollar (UUP) compared to the international operations of Philip Morris (PM).

In the Nordic Region , Nokia (NOK) is yielding around 6% since losing about two-thirds of its market value over the past year and is trading at a forward PE below 10 as a turnaround, large-cap ($48B) value play. Scandinavia also offers a leading wind energy company in Vestas Wind Systems (VWDRY), which is down sharply from its peak and is a major holding in Wind Energy ETFs such as those from First Trust (FAN) and PowerShares (PWND). StatoilHydro (STO) is an oil & gas company from Norway which recently signed a deal with Chesapeake Energy (CHK) for the development of unconventional gas reserves in the Marcellus Shale in the Appalachian region of the U.S.

The Global Telecom Services Index offers U.S. giants Verizon (VZ) and AT&T (T), which are both yielding around 6%, while many foreign large-cap telcos are yielding even more such as France Telecom (FTE), Deutsche Telekom (DT), Swisscom (SCMWY), and Telstra (TLSYY).

From the defensive indexes , Wal-Mart (WMT) offers a play on the trade-down effect and all-in-one discount retailer of choice for an increasing number of people while McDonalds (MCD) offers a similar option in the area of fast food and coffee as a trade-down from Starbucks (SBUX) and higher priced restaurants. Defensive high-yielding stocks to consider include utilities such as Duke (DUK) and Progress Energy (PGN) as well as large cap integrated energy companies such as Eni (E), Sasol (SSL), and British Petroleum (BP).

Some consumer staples and food companies to consider include Kraft (KFT), Nestle (NSRGY), and Procter & Gamble (PG) while Monsanto (MON) is attractive as an agri-biotech growth play which is down by more than 50% from its highs since momentum trade ended for fertilizer stocks such as Potash (POT). For diversification and exposure to gold, Barrick Gold (ABX) provides a low-risk, large-cap option trading at a forward PE around 10.

As a follow-up to the top rated companies highlighted from the ETF Innovators [ETFI] healthcare and transport indexes, below are some top rated companies from other sectors and industry groups.

From the Global Tobacco Index , Altria Group (MO) is a top rated stock with a dividend yield near 8% which is set to acquire smokeless tobacco maker UST Inc. (UST) early next year and is poised to capitalize on a strong U.S. Dollar (UUP) compared to the international operations of Philip Morris (PM).

In the Nordic Region , Nokia (NOK) is yielding around 6% since losing about two-thirds of its market value over the past year and is trading at a forward PE below 10 as a turnaround, large-cap ($48B) value play. Scandinavia also offers a leading wind energy company in Vestas Wind Systems (VWDRY), which is down sharply from its peak and is a major holding in Wind Energy ETFs such as those from First Trust (FAN) and PowerShares (PWND). StatoilHydro (STO) is an oil & gas company from Norway which recently signed a deal with Chesapeake Energy (CHK) for the development of unconventional gas reserves in the Marcellus Shale in the Appalachian region of the U.S.

The Global Telecom Services Index offers U.S. giants Verizon (VZ) and AT&T (T), which are both yielding around 6%, while many foreign large-cap telcos are yielding even more such as France Telecom (FTE), Deutsche Telekom (DT), Swisscom (SCMWY), and Telstra (TLSYY).

From the defensive indexes , Wal-Mart (WMT) offers a play on the trade-down effect and all-in-one discount retailer of choice for an increasing number of people while McDonalds (MCD) offers a similar option in the area of fast food and coffee as a trade-down from Starbucks (SBUX) and higher priced restaurants. Defensive high-yielding stocks to consider include utilities such as Duke (DUK) and Progress Energy (PGN) as well as large cap integrated energy companies such as Eni (E), Sasol (SSL), and British Petroleum (BP).

Some consumer staples and food companies to consider include Kraft (KFT), Nestle (NSRGY), and Procter & Gamble (PG) while Monsanto (MON) is attractive as an agri-biotech growth play which is down by more than 50% from its highs since momentum trade ended for fertilizer stocks such as Potash (POT). For diversification and exposure to gold, Barrick Gold (ABX) provides a low-risk, large-cap option trading at a forward PE around 10.

Abbott Labs (ABT) is a consistent performer with diversified healthcare operations, including pharmaceuticals, diagnostics, medical nutrition products, and medical devices/stents. ABT is back to the lower end of its trading range near 50 bucks, presenting an excellent entry point with a 2.8% dividend yield and forward PE of about 14X.

Celgene (CELG) is also trading at the low end of its trading range around 50 bucks as a large-cap growth stock focused on cancer biotech products and research with an estimated PEG ratio below one.

China Medical (CMED) is trading near its IPO levels of August 2005 despite excellent growth prospects and is a buy below 20 bucks with a dividend yield of 2.5% and market cap of $540M as uncertainty over a $345M acquisition has spooked some investors, sending the stock down sharply by over 50% in the past three months. The acquisition provides CMED with a molecular diagnostics platform for HPV, including strains that cause cervical cancer – which is an estimated $700M market in China alone.

Pfizer (PFE) is a stock I have written about before , which currently has a dividend yield over 8% while trading at a forward PE of under 7X and represents a value, turnaround play with the cash to make targeted acquisitions to bolster its pipeline in anticipation of generic competition for Lipitor while the Company also makes a bigger push into generic drugs beyond its in-house Greenstone division. Three more big pharma companies with yields over 6% to look at include Merck (MRK), Bristol-Myers (BMY), and Eli Lilly (LLY) – with LLY still waiting on a FDA decision for Effient (prasugrel) to compete with multi-billion dollar blood thinner Plavix.

Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA. With Momenta trading in single digits again after reaching as high as $20 per share earlier this summer; an approval for M-Enoxaparin would be a significant catalyst since Lovenox posted sales of about $4B in the last year for Sanofi-Aventis (SNY). While other companies such as Teva (TEVA) and Watson Pharma (WPI) also have pending applications for generic Lovenox, it is encouraging the researchers from Momenta contributed to determining the cause of the tainted heparin earlier this year.

The following companies have major FDA product approval decisions expected in the upcoming months which could easily move the underlying stock prices by 100%-plus to the upside or 50%-plus to the downside. Te first group of companies involve decisions for abuse-resistant pain drugs, including Pain Therapeutics (PTIE) + King Pharma (KG) for Remoxy and Alpharma (ALO) for Embeda. Now that Alpharma has accepted King Pharma's $1.6B buyout bid, the latter reflects a way to trade both decisions in a single stock for twice the chances of approval.

The ETF Innovators [ETFI] Global Healthcare Cost Containment Index profiled in the accompanying table is updated and expanded to include more companies from my recent Analysis of Generic Drug Companies from India . The index is structured to include companies with market caps between $150M-$60B, which are involved in producing generic healthcare products such as generic drugs and pharmacy benefit managers which do not have retail store and insurance components.

The Top 10 Rated companies are sorted by market cap, with Taro Pharma (TAROF) involved in litigation with India's top generic drug company by market cap, Sun Pharma (524715), to fend off a tender offer which Taro claims undervalues the company. Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA, and Momenta represents a pure play on the future of biogenerics for those who believe legislation could come next year to ease the path for lower cost, generic equivalents to biotech products – including the CEO of MedcoHealth Solutions (MHS).

The market cap leaders for generic versions of prescription and over-the-counter drug products are also included in the Top 10, Teva Pharma (TEVA) and Perrigo (PRGO), respectively. A generic drug company which is expected to resume trading again shortly is Impax Labs (formerly IPXL), which had net cash of $73M and trailing 12-month GAAP sales of $309M as of 2Q08, according to a recent presentation available at their website .

Impax Labs follows the business model of Teva Pharma as it also has a proprietary division focused on new product development with one IND filed to begin clinical studies, one compound in Phase 3 clinical development, and four compounds in the exploratory stage. On the generic side, the Company offers 79 marketed products, 24 pending generic applications at the FDA (ANDAs), and 53 products under development (with over 50% of these representing potential first-to-file opportunities) – all focusing on specialty areas with limited competition which may involve controlled-release formulations or require technical expertise to manufacture.

The Top 30 Rated Healthcare Cost Containment companies outpaced benchmark healthcare ETFs over the past year with a loss of just 2.7%, compared to losses of about 30% each for the Healthcare Sector SPDR (XLV) and iShares S&P Global Healthcare (IXJ), 18% for PowerShares Dynamic Pharma (PJP), 28% for Pharma HOLDRs, and 22% for iShares Dow Jones U.S. Pharma (IHE).

With the announcement earlier today that the four remaining HealthShares funds will be closing, there is clearly a shift in the ETF industry away from niche products which are too narrowly focused. The Global Healthcare Cost Containment Index is structured to expand on a narrow index (generic prescription drugs) and include PBMs such as SXC Health Solutions (SXCI) and Express Scripts (ESRX), consumer healthcare product companies such as Perrigo, and India-based generic drug formulation and ingredient suppliers for a much broader group of companies, in addition to a wider market cap range than the $100M-$15B for HealthShares.

The ETF Innovators [ETFI] Global Healthcare Cost Containment Index profiled in the accompanying table is updated and expanded to include more companies from my recent Analysis of Generic Drug Companies from India . The index is structured to include companies with market caps between $150M-$60B, which are involved in producing generic healthcare products such as generic drugs and pharmacy benefit managers which do not have retail store and insurance components.

The Top 10 Rated companies are sorted by market cap, with Taro Pharma (TAROF) involved in litigation with India's top generic drug company by market cap, Sun Pharma (524715), to fend off a tender offer which Taro claims undervalues the company. Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA, and Momenta represents a pure play on the future of biogenerics for those who believe legislation could come next year to ease the path for lower cost, generic equivalents to biotech products – including the CEO of MedcoHealth Solutions (MHS).

The market cap leaders for generic versions of prescription and over-the-counter drug products are also included in the Top 10, Teva Pharma (TEVA) and Perrigo (PRGO), respectively. A generic drug company which is expected to resume trading again shortly is Impax Labs (formerly IPXL), which had net cash of $73M and trailing 12-month GAAP sales of $309M as of 2Q08, according to a recent presentation available at their website .

Impax Labs follows the business model of Teva Pharma as it also has a proprietary division focused on new product development with one IND filed to begin clinical studies, one compound in Phase 3 clinical development, and four compounds in the exploratory stage. On the generic side, the Company offers 79 marketed products, 24 pending generic applications at the FDA (ANDAs), and 53 products under development (with over 50% of these representing potential first-to-file opportunities) – all focusing on specialty areas with limited competition which may involve controlled-release formulations or require technical expertise to manufacture.

The Top 30 Rated Healthcare Cost Containment companies outpaced benchmark healthcare ETFs over the past year with a loss of just 2.7%, compared to losses of about 30% each for the Healthcare Sector SPDR (XLV) and iShares S&P Global Healthcare (IXJ), 18% for PowerShares Dynamic Pharma (PJP), 28% for Pharma HOLDRs, and 22% for iShares Dow Jones U.S. Pharma (IHE).

With the announcement earlier today that the four remaining HealthShares funds will be closing, there is clearly a shift in the ETF industry away from niche products which are too narrowly focused. The Global Healthcare Cost Containment Index is structured to expand on a narrow index (generic prescription drugs) and include PBMs such as SXC Health Solutions (SXCI) and Express Scripts (ESRX), consumer healthcare product companies such as Perrigo, and India-based generic drug formulation and ingredient suppliers for a much broader group of companies, in addition to a wider market cap range than the $100M-$15B for HealthShares.

The ETF Innovators [ETFI] Global Healthcare Cost Containment Index profiled in the accompanying table is updated and expanded to include more companies from my recent Analysis of Generic Drug Companies from India . The index is structured to include companies with market caps between $150M-$60B, which are involved in producing generic healthcare products such as generic drugs and pharmacy benefit managers which do not have retail store and insurance components.

The Top 10 Rated companies are sorted by market cap, with Taro Pharma (TAROF) involved in litigation with India's top generic drug company by market cap, Sun Pharma (524715), to fend off a tender offer which Taro claims undervalues the company. Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA, and Momenta represents a pure play on the future of biogenerics for those who believe legislation could come next year to ease the path for lower cost, generic equivalents to biotech products – including the CEO of MedcoHealth Solutions (MHS).

The market cap leaders for generic versions of prescription and over-the-counter drug products are also included in the Top 10, Teva Pharma (TEVA) and Perrigo (PRGO), respectively. A generic drug company which is expected to resume trading again shortly is Impax Labs (formerly IPXL), which had net cash of $73M and trailing 12-month GAAP sales of $309M as of 2Q08, according to a recent presentation available at their website .

Impax Labs follows the business model of Teva Pharma as it also has a proprietary division focused on new product development with one IND filed to begin clinical studies, one compound in Phase 3 clinical development, and four compounds in the exploratory stage. On the generic side, the Company offers 79 marketed products, 24 pending generic applications at the FDA (ANDAs), and 53 products under development (with over 50% of these representing potential first-to-file opportunities) – all focusing on specialty areas with limited competition which may involve controlled-release formulations or require technical expertise to manufacture.

The Top 30 Rated Healthcare Cost Containment companies outpaced benchmark healthcare ETFs over the past year with a loss of just 2.7%, compared to losses of about 30% each for the Healthcare Sector SPDR (XLV) and iShares S&P Global Healthcare (IXJ), 18% for PowerShares Dynamic Pharma (PJP), 28% for Pharma HOLDRs, and 22% for iShares Dow Jones U.S. Pharma (IHE).

With the announcement earlier today that the four remaining HealthShares funds will be closing, there is clearly a shift in the ETF industry away from niche products which are too narrowly focused. The Global Healthcare Cost Containment Index is structured to expand on a narrow index (generic prescription drugs) and include PBMs such as SXC Health Solutions (SXCI) and Express Scripts (ESRX), consumer healthcare product companies such as Perrigo, and India-based generic drug formulation and ingredient suppliers for a much broader group of companies, in addition to a wider market cap range than the $100M-$15B for HealthShares.

The ETF Innovators [ETFI] Global Healthcare Cost Containment Index profiled in the accompanying table is updated and expanded to include more companies from my recent Analysis of Generic Drug Companies from India . The index is structured to include companies with market caps between $150M-$60B, which are involved in producing generic healthcare products such as generic drugs and pharmacy benefit managers which do not have retail store and insurance components.

The Top 10 Rated companies are sorted by market cap, with Taro Pharma (TAROF) involved in litigation with India's top generic drug company by market cap, Sun Pharma (524715), to fend off a tender offer which Taro claims undervalues the company. Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA, and Momenta represents a pure play on the future of biogenerics for those who believe legislation could come next year to ease the path for lower cost, generic equivalents to biotech products – including the CEO of MedcoHealth Solutions (MHS).

The market cap leaders for generic versions of prescription and over-the-counter drug products are also included in the Top 10, Teva Pharma (TEVA) and Perrigo (PRGO), respectively. A generic drug company which is expected to resume trading again shortly is Impax Labs (formerly IPXL), which had net cash of $73M and trailing 12-month GAAP sales of $309M as of 2Q08, according to a recent presentation available at their website .

Impax Labs follows the business model of Teva Pharma as it also has a proprietary division focused on new product development with one IND filed to begin clinical studies, one compound in Phase 3 clinical development, and four compounds in the exploratory stage. On the generic side, the Company offers 79 marketed products, 24 pending generic applications at the FDA (ANDAs), and 53 products under development (with over 50% of these representing potential first-to-file opportunities) – all focusing on specialty areas with limited competition which may involve controlled-release formulations or require technical expertise to manufacture.

The Top 30 Rated Healthcare Cost Containment companies outpaced benchmark healthcare ETFs over the past year with a loss of just 2.7%, compared to losses of about 30% each for the Healthcare Sector SPDR (XLV) and iShares S&P Global Healthcare (IXJ), 18% for PowerShares Dynamic Pharma (PJP), 28% for Pharma HOLDRs, and 22% for iShares Dow Jones U.S. Pharma (IHE).

With the announcement earlier today that the four remaining HealthShares funds will be closing, there is clearly a shift in the ETF industry away from niche products which are too narrowly focused. The Global Healthcare Cost Containment Index is structured to expand on a narrow index (generic prescription drugs) and include PBMs such as SXC Health Solutions (SXCI) and Express Scripts (ESRX), consumer healthcare product companies such as Perrigo, and India-based generic drug formulation and ingredient suppliers for a much broader group of companies, in addition to a wider market cap range than the $100M-$15B for HealthShares.

Caraco Pharma (CPD) offers a compelling value at its current price of $3.30 per share and I bought some shares today, as the stock has lost an astounding two-thirds of its market value in just the past month and over three-quarters of value in the past year.

1.) Defensive: Healthcare Sector, Generic Drug Industry

2.) Growth: Net income of $17.9M for the first six months of FY09 (up 36% from the year-ago period) on $230.5M in revenue for the same time period (up 200% from a year ago) – largely due to a distribution agreement with India's largest generic drug company by market cap, Sun Pharma (524715), which also owns 16.6M of the 34.7M total shares of outstanding common stock for Caraco. Caraco has guided for 25% sales growth for FY09 and expects to complete the expansion of its facilities (manufacturing + distribution) by the end of the current fiscal year.

3.) Value Parameters: Market Cap - $115M, Enterprise Value [EV] - $146M, Revenue (ttm) - $504M, Net Income (ttm) - $40M, Price to Sales Ratio [PSR] – 0.22, EV to EBITDA Ratio – 2.6, Cash & Equivalents - $33.6M, No Debt. As a comparison, the average PSR for all 48 companies in the ETF Innovators [ETFI] Global Generic Drug Index is 2.4X versus a lower valuation of 1.7X for the 25 companies featured in my analysis of generic drug companies from India .

The most obvious negative factor and overhang on Caraco's share price is an outstanding warning letter from the FDA which was issued at the end of October related to an inspection of the Company's manufacturing facility in Detroit earlier this year in May. Caraco responded to the FDA within the 15 business day window on November 24 and has requested a follow-up meeting with the agency to resolve the matter. The FDA warning letter does not impact the sale of currently marketed products, but may affect the approval of applications for new drug products produced at the facility in question.

In a recent move, Sun Pharma acquired Chattanooga, TN-based Chattem Chemical to strengthen its presence in the controlled drug market, as Chattem is a registered with the DEA as an importer and manufacturer of active pharmaceutical ingredients (APIs) for a variety of Schedule 1-5 controlled substances. Sun Pharma has also extended its tender offer to acquire Taro Pharma (TAROF) until Decemeber 19, and Sun remains a major player in the generic drug industry behind only Teva Pharma (TEVA) in terms of market cap since Barr Pharma (BRL) is being acquired by Teva.

Caraco Pharma offers U.S. investors a way to play Sun Pharma's growth through their distribution agreement and the Company believes it has addressed the issues raised in the FDA warning letter completely, which provides a potential upside catalyst upon resolution. Also, Caraco is committed to product development agreements with other companies and internal R&D efforts focused on formulations aimed at expanding its product offerings.

The ETF Innovators [ETFI] Global Healthcare Cost Containment Index profiled in the accompanying table is updated and expanded to include more companies from my recent Analysis of Generic Drug Companies from India . The index is structured to include companies with market caps between $150M-$60B, which are involved in producing generic healthcare products such as generic drugs and pharmacy benefit managers which do not have retail store and insurance components.

The Top 10 Rated companies are sorted by market cap, with Taro Pharma (TAROF) involved in litigation with India's top generic drug company by market cap, Sun Pharma (524715), to fend off a tender offer which Taro claims undervalues the company. Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA, and Momenta represents a pure play on the future of biogenerics for those who believe legislation could come next year to ease the path for lower cost, generic equivalents to biotech products – including the CEO of MedcoHealth Solutions (MHS).

The market cap leaders for generic versions of prescription and over-the-counter drug products are also included in the Top 10, Teva Pharma (TEVA) and Perrigo (PRGO), respectively. A generic drug company which is expected to resume trading again shortly is Impax Labs (formerly IPXL), which had net cash of $73M and trailing 12-month GAAP sales of $309M as of 2Q08, according to a recent presentation available at their website .

Impax Labs follows the business model of Teva Pharma as it also has a proprietary division focused on new product development with one IND filed to begin clinical studies, one compound in Phase 3 clinical development, and four compounds in the exploratory stage. On the generic side, the Company offers 79 marketed products, 24 pending generic applications at the FDA (ANDAs), and 53 products under development (with over 50% of these representing potential first-to-file opportunities) – all focusing on specialty areas with limited competition which may involve controlled-release formulations or require technical expertise to manufacture.

The Top 30 Rated Healthcare Cost Containment companies outpaced benchmark healthcare ETFs over the past year with a loss of just 2.7%, compared to losses of about 30% each for the Healthcare Sector SPDR (XLV) and iShares S&P Global Healthcare (IXJ), 18% for PowerShares Dynamic Pharma (PJP), 28% for Pharma HOLDRs, and 22% for iShares Dow Jones U.S. Pharma (IHE).

With the announcement earlier today that the four remaining HealthShares funds will be closing, there is clearly a shift in the ETF industry away from niche products which are too narrowly focused. The Global Healthcare Cost Containment Index is structured to expand on a narrow index (generic prescription drugs) and include PBMs such as SXC Health Solutions (SXCI) and Express Scripts (ESRX), consumer healthcare product companies such as Perrigo, and India-based generic drug formulation and ingredient suppliers for a much broader group of companies, in addition to a wider market cap range than the $100M-$15B for HealthShares.

The fear and pessimism behind major selling pressure and stock market losses can be summarized by the late Jim Morrison in a song by The Doors called 'Roadhouse Blues' – "The future's uncertain, and the end is always near." Some stocks that I follow which are trading at less than half of the 20% decline for the S&P 500 ETF (SPY) below its 50-day moving average are highlighted below.

Earlier this week, AspenBio Pharma (APPY) reported that its key clinical trial was nearly 90% enrolled for AppyScore, which is a blood-based diagnostic screening test for appendicitis. APPY expects to reach the required total of 800 patients within weeks, report topline results 4-6 weeks after enrollment is complete, and file a 510(k) with the FDA in early 2009 – which is a quicker approval process for medical devices and tests compared to the PMA process. APPY is currently trading at its 50-day moving average of around 5 bucks, which is impressive given overall market carnage.

Amgen (AMGN) has pulled back below its 50-day moving average of $55.50 at around 52 bucks today since reporting two consecutive quarters in which the Company beat estimates and raised guidance on better sales of its embattled anemia drugs Epogen and Aranesp. The outlook is also improving for Amgen's pipeline, including bone drug denusomab and recently approved Nplate.

Cypress Bioscience (CYPB) is about 8% below its 50-day moving average and has a still pending FDA decision for milnacipran in the treatment of fibromyalgia, which has been widely used as an anti-depressant in Europe and other markets for over a decade. The FDA missed its mid-October decision deadline, but said it expected to resolve the matter in a "matter of weeks", which is encouraging since the agency did not simply delay the deadline by three months as it has done in many recent cases. Another key event is Phase 3 results for the drug for the same indication, with results expected before year-end.

Teva Pharma (TEVA) is trading slightly below its 50-day moving average of around 42 bucks, with a bullish outlook for the Company as the leader in generic drugs which also engages in R&D for brand drugs such as Copaxone. Perrigo (PRGO) is another generic drug company focused more on over-the-counter products, which is trading slightly below its 50-day moving average of 33 bucks.

The accompanying table includes the Top 25 rated companies with market caps over $50M U.S. Dollar which are included in the ETF Innovators [ETFI] Indian Generic Drug Index as a major component in the Global Generic Drug Index. The index also includes three companies based outside of India – Akorn (AKRX), Caraco Pharma (CPD), and Taro Pharma (TAROF).

Akorn has a joint venture with Strides Arcolab (Akorn-Strides, LLC) which is focused on the hospital market for generic injectables, dominated by Hospira (HSP) and APP Pharma, which was acquired by Fresenius Medical (FMS).

Taro is involved in litigation with India's largest generic drug company by market cap, Sun Pharma, to fend off a tender offer which Taro claims undervalues the company since its has completed a turnaround from the brink of bankruptcy in mid-2007. Sun Pharma is also a major shareholder and has a distribution agreement with Caraco Pharma, which is due to file a response today to a May 2008 FDA warning letter for a Detroit manufacturing facility.

The companies in the Indian Generic Drug Index are highly leveraged to the favorable trends in the generic drug industry since they are trading at a 30% discount on a price/sales ratio [PSR] basis to the overall Generic Drug Index and have lost nearly 42% of market value in the past year compared to 67% for the iPath MSCI India Index ETN (INP) and 18% for all generic drug companies.

Dr. Reddy's Labs (RDY) is the only major Indian generic drug company with a U.S. listing on the NYSE or Nasdaq and the company has fared worse than its peers with a loss of 46% in the past year on falling profit concerns. Also, Mylan Labs (MYL) owns a majority stake in Matrix Labs, which serves as a low-cost supplier for active pharmaceutical ingredients [APIs] and solid dosage forms.

While U.S. investors currently have relatively few options to invest in the Indian generic drug market, many of the component companies are included in the ETFI Healthcare Cost Containment Index with the goal of commercializing the idea as an exchange-traded fund for a low-cost investment vehicle which is highly leveraged, but not limited to, to the global generic drug industry.