Genentech Shares Decline on Cancer Drug Setback

Investors drove Genentech Inc. shares down 9.7% on Tuesday on news that a closely watched experimental cancer drug failed to prolong the lives of patients with advanced breast cancer.

The company disclosed late Monday that Avastin slowed tumor growth but did not improve the survival of breast cancer patients in clinical trials, the gold standard for marketing approval.

Avastin was one of the most promising candidates of an emerging class of drugs that are called angiogenesis inhibitors because they choke tumors by closing off the blood vessels that feed them. Hailed as a silver bullet only a few years ago, anti-angiogenesis drugs have been a big disappointment to investors and drug companies that have poured millions into their development.

Pharmacia Corp.’s Sugen unit dropped an angiogenesis blocker in February after it failed in late-stage clinical trials. No such drug has yet reached the market.

“The industry is still learning how to use these drugs,” said Stephens Inc. analyst Jason Zhang. “It doesn’t have a handle on it yet.”

For Genentech, the results mean that Avastin, which is being tested in other types of cancer, won’t reach the market before 2004 and isn’t likely to generate the $1 billion in peak sales previously forecast by some analysts.

The setback heightens the importance of other drugs in Genentech’s development pipeline. Key data on medications for psoriasis and asthma are expected soon. Whatever the outcome of those drug trials, it will be tougher for the South San Francisco-based company to meet its ambitious financial goals. Chief Executive Arthur D. Levinson pledged in 1999 to achieve average annual earnings growth of 25% through 2005.

A number of analysts Tuesday reduced their earnings forecasts for Genentech as they removed Avastin from 2002 and 2003 projections. Frank DiLorenzo, an analyst with Standard & Poor’s Corp., downgraded the stock to “hold” from “accumulate,” expressing reduced confidence in the drug’s “approvability and potential.”

Genentech shares closed at $28.89, down $3.11 on the New York Stock Exchange, on a day when biotechnology stocks edged slightly higher.

Genentech downplayed the significance of the failed trial and said that it had always believed Avastin had greater potential in colon and kidney cancers. Avastin targets a protein that is more prevalent in those cancers than in breast cancer, said Gwen Fyfe, senior director for oncology affairs.

In addition, she said, patients in the breast cancer trial were sicker and therefore harder to treat than patients in the colon or kidney cancer trials.

In one completed clinical trial, she said, colon cancer patients treated with a combination of Avastin and standard chemotherapy drugs lived 3.5 months longer than patients on chemotherapy alone. Results from a larger trial with colon cancer patients should be available next year, she said.

“We have much stronger data in colorectal cancer than we had in breast cancer,” Fyfe said.

Avastin is an antibody that works by disrupting one of the protein switches that spurs blood vessel growth, the vascular endothelial growth factor, or VEGF. The drug doesn’t cause tumors to die but slows their growth by pruning the thicket of blood vessels that feed cancerous cells.

In doing so, Avastin and other anti-angiogenesis drugs create more navigable pathways for chemotherapy drugs, which reach tumors through the bloodstream. How chemotherapy drugs work with Avastin on specific tumors is as much an art as a science, said analyst Alex Hittle of A.G. Edwards & Sons Inc.

“The tricky thing is finding the right dose of Avastin that still allows chemotherapy to get in there,” he said.

Hittle said he did not expect the drug to work well in breast cancer. For Genentech, success with Avastin in breast cancer would have allowed it to get the drug to market more quickly and leverage a sales force that already promotes the successful breast cancer drug Herceptin.

“For Genentech, it was kind of like having a second down and inches and throwing a long ball to see if you can get to the end zone more quickly,” he said.

Avastin will prove to be an effective treatment for colon and kidney cancers, Hittle predicted. At a medical meeting in May, Genentech presented data that showed the drug slowed the advance of kidney cancer, a significant result for a hard-to-treat disease.