Drug’s Price Is Less Than Expected

Shares of biotechnology companies Genentech Inc. and OSI Pharmaceuticals Inc. fell Friday after the companies priced their new lung cancer drug lower than investors had expected.

Analysts also said the drug, Tarceva, might be used on fewer patients than expected because regulators and the companies agreed to include data in the package insert showing the medicine’s effectiveness might vary with some patients.

The drug was approved by the Food and Drug Administration late Thursday, earlier than expected.

Shares of Genentech, headquartered in South San Francisco, fell as much as 4%, and OSI, based in Melville, N.Y., as much as 14% before recovering.

The companies plan to charge $2,026 for a month’s supply of the drug, as much as 50% below the price some analysts had expected. In addition, the companies said they expected lung cancer patients to use the drug for fewer months than many had anticipated.

“It’s a big surprise,” said Jim Reddoch, an analyst at Friedman, Billings, Ramsey & Co. “Peak sales of the drug for lung cancer are probably going to be in the $400-million to $500-million range instead of the $1-billion range investors expected.”

In addition, the drug’s package insert includes data, revealed by the companies for the first time Thursday, showing a big difference in the effectiveness of the drug, depending on whether patients have a protein called epidermal growth factor receptor. Tarceva works by blocking the protein, which activates the growth of cancer cells.

The data show that patients who have the protein can extend their lives by several months by taking Tarceva. Patients who do not have the protein get no such benefit from the drug.

Insurance companies and other payers, before they agree to pay for Tarceva, may eventually force patients to be tested for the protein. That could narrow the field of potential patients because less than half of lung cancer patients have the protein.

Colin Goddard, OSI’s chief executive, said on a conference call that it was too early to say whether sales of Tarceva would be limited because of potential testing for the protein. He also said the FDA had asked the company to initiate a trial in which it would segregate patients into two groups -- those who have the protein and those who don’t -- before administering the drug.

Shares of Genentech were down 99 cents, or 2%, at $48.89 on the New York Stock Exchange, while OSI was off $6.09, or 9.5%, to $58.16 on Nasdaq.