When my son had a huge boil under his arm, it turned out that it was filled with the killer staph, MRSA. It also turns out that my (otherwise) great doctor used a traditional lab to process the test, which took a week to determine it was MRSA.

Cepheid (NASDAQ: CPHD) manufactures the equipment and test that takes just two hours to do the same thing -- and is better and cheaper than traditional tests. CPHD wins 90%-plus of all competitive bids and its test could be available in low-tech facilities, such as doctor's offices or nursing homes, next year.

The big catalyst for this stock, however, is that Medicare will stop paying for all hospital-acquired infections except MRSA in October. So institutions need a quick test if they are going to be reimbursed for treatment.

The stock has fallen from $30 to under $9. It's worth $20 - $22 to an acquirer.

Your best strategy for life-changing profits?

Buy the call options.

Next: Biotech Stock #4

Last year, as the market sank, one group actually went up -- large-cap, cashflow positive biotech and genomics companies.

This year, interest has shifted to the little guys -- the speculative biotech stocks that could be 10- or 20-baggers with one breakthrough.

Here are six biotech stocks with the potential to deliver life-changing profits:

Biotech Stock #1: Gilead Sciences (NASDAQ: GILD)
Biotech Stock #2: Questcor Pharmaceuticals (NASDAQ: QCOR)

Biotech Stock #3: Cepheid (NASDAQ: CPHD)
Biotech Stock #4: Curis (NASDAQ: CRIS)
Biotech Stock #5: Cerus Corp. (NASDAQ: CERS)
Biotech Stock #6: Illumina (NASDAQ: ILMN)

"I still love Cepheid (NASDAQ: CPHD)," says biotechnology sector expert Michael Shulman in his ChangeWave Biotech Investor.

The advisor explains, "Cepheid does genetic testing of the things that can make us sick or kill us. The company is at the forefront of the next generation of diagnostics testing, and has real products already on the market." Here is his review.

"Cepheid has had outrageous sales success in the past few quarters and, therefore, has excellent profits looming. However, the true value for the company is its long-term potential.

"CPHD broke out about a year ago with a new test for the killer staph infection, MRSA, and the test is an order-of-magnitude better than any the competition has.

"A combination of tremendous public pressure and a CDC report that said MRSA kills at least 17,000 people per annum (and consumes billions of dollars, already), have hospitals everywhere putting in MRSA screening and prevention programs. And nine out of 10 of those hospitals are buying CPHD's equipment and tests.

MOST NOTEWORTHY: Learning Tree, Shengdatech and Cepheid were today's noteworthy initiations:

• B. Riley initiated Learning Tree (NASDAQ:LTRE) with a Buy rating and $24 target. The firm believes investors have an opportunity to invest in a compelling revenue growth/margin expansion story at reasonable multiples with the stock off recent highs.
  
• Merriman started Shengda Tech (NASDAQ:SDTH) with a Buy rating and points to the company's growing nano-particle business and the vast market expansion opportunities associated with this business.
  
• Stephens believes Cepheid (NASDAQ:CPHD) possesses a best-in-class platform for molecular diagnostic testing with a virtual monopoly in the molecular point of care market; shares were assumed with an Overweight rating and $32 target.

OTHER INITIATIONS:

• Visa (NYSE:V) was started at Morgan Keegan with a Market Perform rating.
  
• Morgan Stanley initiated Dr. Pepper Snapple (N YSE:DPS) with an Equal Weight rating and $30 target.
  
• Goldman initiated Kraft Foods (NYSE:KFT) with a Neutral rating.

In referring to his recommended position in Cepheid (NASDAQ: CPHD), industry-leading biotech expert Michael Shulman jests, "To use a highly technical financial term: WooHoo! What a great quarter capped by a justifiably upbeat conference call."

Here, the editor of The ChangeWave Biotech Investor takes a look at the company, noting "I've been pounding the table for CPHD -- and this great quarter justifies my optimism."

"Cepheid develops and markets a diagnostic testing system called the GeneXpert that's a hardware platform for genetic tests of diseases that can be identified by their genetic code.

""There are several specific tests for this platform including MRSA, the killer staph infection that is typically found in hospitals, but is also spreading to other venues.

"In its latest quarrter, the company reported that revenues were $36.3 million, up 53% from Q3 2006. Total product sales were $34 million, up 50% and clinical product sales were $20.7 million, up 258%.

In its latest quarrter, the company reported that revenues were $36.3 million, up 53% from Q3 2006. Total product sales were $34 million, up 50% and clinical product sales were $20.7 million, up 258%.

"The GeneXpert system sales exploded! By the end of the quarter 1,376 GeneXpert System modules were installed in hospitals in the United States -- including 77 in VA hospitals, up by 51 modules in Q3 and representing a 79% share of the VA market.

MOST NOTEWORTHY: Credit Suisse, Deutsche Bank, ConocoPhillips, Finisar and Cepheid were today's noteworthy downgrades:

• Lehman Brothers downgraded shares of Credit Suisse Group (NYSE: CS) to Equal Weight from Overweight and shares of Deutsche Bank AG (NYSE: DB) to Underweight from Overweight to reflect potential write downs from their U.S. subprime mortgage exposure.
• ConocoPhillips (NYSE: COP) was downgraded to Market Perform from Outperform at Bernstein on valuation.
• Needham lowered shares of Finisar Corporation (NASDAQ: FNSR) to Buy from Strong Buy, as they expect pressure in FY08 as margins recover and opex remains elevated due to patent litigation.
• Cepheid Inc (NASDAQ: CPHD) was downgraded at UBS to Neutral from Buy on valuation.

OTHER DOWNGRADES:

• Calyon downgraded shares of Gol Linhas Aereas (NYSE: GOL) and TAM SA (NYSE: TAM) to Add from Buy.
• Goldman Sachs downgraded Altria Group Inc (NYSE: MO) to Neutral from Buy.
• Morgan Stanley downgraded NeurogesX (NASDAQ: NGSX) to Equal Weight from Overweight.
• Friedman Billings downgraded shares of Brookline Bancorp (NASDAQ: BRKL) to Market Perform from Outperform.

In a move that could complement its other recent acquisitions, Roche Holding Ltd (OTC: RHHBY) yesterday made a $75-a-share hostile bid for Ventana Medical Systems, Inc (NASDAQ: VMSI). The $3 billion cash offer would allow Roche to gain a test Ventana developed to screen patients who could respond to the Swiss pharmaceutical giant's breast cancer medicine, Herceptin. The main goal of acquiring Ventana would be to "move closer toward delivering tools to select the right drugs for the right patients, rather than saving costs," Roche CEO Franz Humer told the Wall Street Journal.

Roche has already agreed to three other diagnostic acquisitions this year: The company agreed to buy CuraGen Corporation's (NASDAQ: CRGN) 454 Life Sciences in March for $140 million, allowing it to gain the company's DNA-mapping technology, and later agreed to acquire BioVeris Corporation (NASDAQ: BIOV) for $600 million and NimbleGen Systems for $272.5 million. The acquisition of BioVeris will add a screening technology that stimulates cells to emit light, while the NimbleGen acquisition would add more genetic tools for drug research.

Should an acquisition be seen as a sure thing? No, executives at Ventana said. Although Roche has made several friendly efforts to engage in "meaningful discussions" with Ventana's chairman and board concerning a transaction, Ventana has so far rebuffed Roche. The company advised shareholders in taking any action in response to the offer, but said the Board would review Roche's offer and make a recommendation within 10 days. What may make this particular offer different is that the $75-per-share offer was nearly 45% higher than Ventana's closing price of $51.74 yesterday.

In the event of an acquisition, Roche said it would operate Ventana as a separate unit within its diagnostics division, allowing it to retain its management team and employees as well as its headquarters in Arizona. This would be a similar agreement to the one Roche maintains with U.S. biotech company Genentech Inc (NYSE: DNA), which is majority-owned by Roche but is managed as an independent company.

Based on a potential acquisition, analysts believe that biotechnology companies Gen-Probe Incorporated (NASDAQ: GPRO), Luminex Corporation (NASDAQ: LMNX) and Cepheid Inc (NASDAQ: CPHD) could be potential acquisition targets based on their technology platforms and product offerings.

MOST NOTEWORTHY: Marriott International (MAR), VeriFone Holdings, Inc (PAY), Generex Biotechnology Corp (GNBT), Quality Systems, Inc (QSII) and Owens Corning (OC) were today's noteworthy initiations:

• Friedman Billings views Marriott International's (NYSE: MAR) relatively low-risk, capital efficient fee income model as an attractive investment opportunity and started shares with an Outperform rating.

• Wedbush believes VeriFone Holdings (NYSE: PAY) is on the highest quality names in the space given the company's superior growth, high margins and consistent execution and started shares with a Strong Buy rating.

• Rodman believes Generex Biotech's (NASDAQ: GNBT) oral insulin, Oral-lyn could be a significant player in the non-injectable insulin market and initiated shares with an Outperform rating.

• Quality Systems (NASDAQ: QSII) was initiated with a Market Weight rating at Thomas Weisel.

• Morgan Keegan started Owens Corning (NYSE: OC) with a Market Perform rating citing the slowdown in the North American housing market.

OTHER INITIATIONS:

• William Blair started Cepheid (NASDAQ: CPHD) with an Outperform rating.

• Kaufman started Glu Mobile Inc (NASDAQ: GLUU) with a Buy rating.

• Fuel Tech Inc (NASDAQ: FTEK) was started with a Buy rating.

• Wedbush initiated shares of Hypercom Corp (NYSE: HYC) with a Hold rating.

• Archer Daniels Midland Co (NYSE: ADM) was initiated with an Accumulate rating at Buckingham.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).