Genentech Shares Leap on Drug News
Genentech Inc.’s shares touched a record high Monday after the company said a drug it was developing with two other firms extended the lives of lung cancer patients in a large clinical trial.
Wall Street drove Genentech’s shares up 12%, adding $7.1 billion to the total market value of the South San Francisco company. Analysts expect the drug, called Tarceva, to be approved by the Food and Drug Administration and to eventually add $1 billion-plus to the top line of the biotech firm, a leading maker of cancer drugs.
The results came as a surprise to the financial community because in an earlier trial, Tarceva had failed to improve survival when patients took the once-daily pill with chemotherapy. In the latest trial, Genentech said, patients benefited from taking Tarceva alone as a secondary treatment with chemotherapy after they had failed to improve on standard chemo drugs.
In an interview, Genentech Chief Medical Officer Hal Barron called the results “impressive.” The trial, which involved 700 patients, was designed to show a one-third improvement in survival and that patients with advanced lung cancer usually live four to five months. Two-thirds of the patients took Tarceva and the others received a placebo along with pain medication.
The company declined to say anything more about the experiment until the American Society of Clinical Oncology meeting in June. Nonetheless, investors responded enthusiastically, sending Genentech shares to an all-time high of $136.50 before they closed at $131.99, up $13.77, on the New York Stock Exchange.
The reaction, said analyst Alex Hittle of A.G. Edwards & Sons, was testimony to the “rock star-like quality” that Genentech has had lately among biotech backers. The company’s shares have more than tripled since last May, when it announced that another cancer drug, Avastin, had extended the lives of colon cancer patients. Avastin won FDA approval in February and is expected to become a $2-billion-a-year product.
Genentech is developing Tarceva with Roche Holding, the Swiss firm that owns a controlling stake in the company, and OSI Pharmaceuticals Inc., a small New York biotech firm. OSI added $2.1 billion to its market value as its shares more than doubled Monday to $91.10, up $52.96 in Nasdaq trading.
Tarceva is the latest in a class of drugs that disrupts the molecular “switches” that cause cancerous tumors to grow. The switches are called epidermal growth factor receptors, or EGFR, and are found on two-thirds of solid tumors.
ImClone Systems Inc.’s Erbitux for colon cancer and AstraZeneca’s lung cancer drug Iressa also target EGFR, but neither has demonstrated a survival advantage in a clinical trial.
Genentech said that its partner, OSI, was preparing to file the necessary documents with the FDA and expected approval during the first quarter of 2005.
In a research note, analyst Michael King of Banc of America Securities was bullish on Tarceva’s prospects, forecasting that if it received approval, the medication would “achieve rapid penetration” of the market for secondary lung cancer treatments and would have sales of $295 million in 2005. Under terms of its partnership with OSI, Genentech would record all of Tarceva’s U.S. sales and split the profit with OSI. Roche would market the drug overseas.
Still, some on Wall Street are skeptical of the drug’s ability to compete with other similar drugs on the market. Jason Zhang of Independent Research Group said Tarceva was not pitted in the latest trial against Taxotere, a drug made by Aventis that often is used as a secondary therapy for lung cancer patients in the U.S.
Many of the patients in the Tarceva trial were in Canada, where Taxotere is not as widely used, Zhang noted.
To make inroads in the U.S. market, Zhang added, Tarceva needs to show that it is as good as Taxotere, which has shown that it can add seven months to the lives of patients.
An additional challenge for Tarceva could come from Alimta, a chemotherapy drug from Eli Lilly & Co. Already approved for asbestos-related lung cancer, Alimta extended the lives of patients with other forms of the disease by eight months in a clinical trial, Zhang said.
“It would be a miracle if [Tarceva] did better than Alimta,” said Zhang, who plans to issue a “sell” rating on OSI today. “If it does about as well as Taxotere, then it’s OK. If it is much worse than that, it will change the whole equation.”
Colin Goddard, OSI’s chief executive, said in response that many of the patients in the Tarceva trial, in fact, had tried Taxotere first but did not improve on it. As for Alimta, he said, “the data is good; all power to Lilly, but you still have the side effects of a chemotherapy drug.”
He added: “Our data will speak for itself.”
The side effects associated with Tarceva included a skin rash and diarrhea.
Genentech said 173,000 people are diagnosed with lung cancer each year and it is the leading cause of cancer death. Analysts said the number of patients eligible for Tarceva would be lower because the drug would be a secondary treatment.
Sales of the drug could be further limited by other factors. Iressa appears to work best in specific lung cancers and in women rather than men.
Genentech wouldn’t say whether some groups of patients benefited more from Tarceva than others. However, Barron, Genentech’s chief medical officer, said, “If it was only active in a small subset of patients, our results would not be so positive.”
Responding to Genentech’s announcement Monday, AstraZeneca said that the Tarceva results “validated” the effectiveness of its lung cancer drug Iressa, which has about $100 million in U.S. sales. Spokeswoman Mary Lynn Carver said AstraZeneca was conducting a trial that it hoped would show that Iressa improves survival as a secondary treatment.
