Investors Jump into Genentech, but Questions Remain

Genentech's shares soared as much as 11 percent on Monday after U.S. regulators approved its drug Avastin for the treatment of metastatic breast cancer.

Analysts had not expected the ruling so early, and many raised their sales and earnings estimates. The approval is contingent on data to be released later this year from additional trials.

Avastin is one of Genentech's most important products, with U.S. sales of $2.3 billion in 2007. The breast cancer approval could add $500 million or more in sales a year, according to some analysts.

The approval gives a much needed boost to Genentech, the world's second-biggest biotech by sales. Its shares had fallen nearly 17 percent in the year prior to the FDA's ruling on Friday, compared with a decline of 7 percent in the American Stock Exchange biotechnology index over the same period.

"We view this as the best-case scenario and increase our sales estimates as a result," said Joel Sendek, an analyst at Lazard Capital Markets, in a report. "We forecast significant penetration in metastatic breast cancer as approval validates the safety and efficacy claim."

Some analysts are more cautious.

"Because some physicians already use Avastin extensively in the metastatic setting, we question the robustness of uptake, possibly providing an opportunity for investor disappointment," said William Tanner, an analyst at Leerink Swann & Co, in a report.

In addition, it is possible that data released later this year will show the drug is as effective at a low dose as at a high dose. Many doctors are already prescribing the half-dose for patients with lung cancer, which has caused lung cancer revenue to fall short of expectations, said Jim Reddoch, an analyst at Friedman, Billings, Ramsey.

"Lung cancer is a precedent for what we expect to happen in breast cancer," he said.

Avastin is the first in a class of drugs known as anti-angiogenesis therapies to be approved for use against breast cancer. The drugs starve tumors of essential blood and nutrients by blocking a protein known as vascular endothelial growth factor, or VEGF.

"We are still not certain whether it is possible to achieve the same or even greater benefit by using a lower dose than the maximal dose possible," said Dr. William Li, president and medical director of the non-profit Angiogenesis Foundation, which studies this class of drugs.

Marcio Jose Sanchez / AP The Genentech campus is seen in South San Francisco, California.

The approval of Avastin in breast cancer also establishes a bar for other drugs in the same class that are being tested against breast cancer, including Pfizer Inc's Sutent and Nexavar, a drug made by Onyx Pharmaceuticals Inc and Germany's Bayer AG , he said.

"I think overall the pharmaceutical industry will view this as a very positive development because it establishes that breast cancer is an approvable indication for anti-angiogenic therapies," Li said.

The U.S. Food and Drug Administration approved Avastin for use against breast cancer based on data that showed it extended the time before a patient's disease progressed, a measure known as progression-free survival, even though it did not prove the drug prolongs life.

It is the first time the agency has approved a drug on that basis in the front-line breast cancer setting.

But Bret Holley, an analyst at Oppenheimer & Co, said investors should not take that to mean the FDA will relax the parameters for approval for all cancer drug companies.

"I do think this will be positive for the sector, but this approval comes in the wake of very compelling clinical trial data," he said. "I don't think you'll see marginal drugs approved on this basis."

Genentech's shares were up $6.21, or 8.7 percent, to $77.80 in early afternoon trading on the New York Stock Exchange. Earlier they rose as high as $79.39.

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