19 May Genentech's Winning Streak
The firm’s shares shot up 40% this morning after it announced that Avastin, which many analysts consider the most important drug in the company’s pipeline, has been found to extend the lives of colon cancer patients.
Late last week, new data and a regulatory decision buttressed the outlook for medicines that Genentech (nyse: DNA – news – people) is developing with smaller biotech partners. But today’s news is especially auspicious, because the South San Francisco-based firm is developing Avastin entirely by itself–meaning the company wouldn’t have to share sales or profits for the drug.
Avastin works by inhibiting VEGF, a growth factor that spurs the growth of new blood vessels. By turning VEGF off, scientists hope to starve tumors to death. The idea famously has its roots in the work of Judah Folkman, a researcher at Children’s Hospital in Boston. Avastin is one of the first tests of Folkman’s research in people.
Last year, Avastin failed to help breast cancer patients in a late-stage trial. Those bad clinical results came only months after other cancer therapies that targeted single proteins also hit major roadblocks. Doubts grew that Avastin wouldn’t work, or that some serious side effect such as gastrointestinal bleeding would ground the once-promising drug. Now, Genentech says it’s not so.
The company didn’t release full results of a 900-patient study testing Avastin against a placebo in combination with several chemotherapy regimens. That information will come at a meeting of the American Society of Clinical Oncology at the end of the month. But investors got three very juicy tidbits.
First, Avastin extended the survival times of colon-cancer patients. Second, the patients lived even longer than researchers had hoped when designing the trial. Third, the only significant side effect to emerge in late-stage trials was high blood pressure. (Gastrointestinal bleeding is still listed as a possible, though uncommon, side effect.)
Those three pieces of information were enough to clear away skepticism regarding Avastin. This morning, Genentech was upgraded by several sell-side firms, including W.R. Hambrecht, Goldman Sachs and First Albany.
“Genentech’s promising but high-risk pipeline appears to be delivering,” wrote W.R. Hambrecht’s Jason Kantor in a research note. Kantor forecasts that Avastin will be approved by the U.S. Food and Drug Administration, and he says Avastin sales will reach $175 million in 2005, making the drug a major profit driver.
Genentech opened at $54 this morning, after closing at $37.90 May 16. In late-morning trading the stock held its gains, trading above the $53 level.
The Avastin announcement continued Genentech’s recent win streak. Late last week, Millennium Pharmaceuticals disclosed in a regulatory filing that MLN-02, a treatment for Crohn’s disease, was effective in a mid-stage clinical trial. The drug is being co-developed with Genentech. Winton Gibbons, an analyst at William Blair, said in a research note that the results are “promising.” He now expects the drug to advance to late-stage clinical trials.
On May 15, Xolair, an injectible asthma drug Genentech is developing with Novartis and Tanox, got a thumbs-up from a committee assembled to advise the FDA. There had been some questions about potential side effects, include fears that the drug might increase the risk of cancer. The panel’s vote was unanimous, and the drug is now expected to be approved by the FDA. Raptiva, a psoriasis treatment being developed with Xoma, also looks as if it will make it past the regulatory watchdogs.
Genentech’s strategy may have been high risk, as some analysts said. But now the company looks poised to reap some big rewards.