Ebb & Flow

Genentech (DNA) did everything it was supposed to do in the third quarter: it beat the Street estimates, raised its full year guidance and reported a faster than expected ramp in sales of colorectal cancer drug Avastin. The market, however, didn't reward the strong numbers, as the stock dropped $5.91 (11%) to $47.25 on the week.

There are differing opinions on the apparent disconnect. Some buysiders and analysts suggested that the company's comments about a fast Avastin ramp were of concern, because a fast ramp leads to fast maturity.

On its conference call, DNA said that about 40% of treatment-naive colorectal cancer patients - the indicated population - are receiving Avastin, up from 20% in the second quarter. Third quarter sales of the drug, launched on Feb. 26, were $183 million.

"The question is how long the ramp will continue - will it be four quarters or 12 quarters?" said Kilkenny Capital's Michael Walsh. "It took three to four years for Rituxan to hit its stride. I think it'll only take four quarters for Avastin."

Part of the reason, Walsh said, is Avastin's first-line indication. Essentially, he said, "no more studies in colorectal cancer will help you gain market share."

But MPM's Kurt von Emster fingered another possible culprit: "There was a whisper of $200 million in Avastin sales. That was outside the ballpark of expectations, but having that number going around didn't help."

In addition, he said that DNA's conference call comments about a lower than normal inventory of certain drugs may have spooked investors in the wake of the flu vaccine manufacturing blow-up at Chiron (CHIR) (see "Fluvirin: Maybe a silver lining," A13).

Another possible concern may be Avastin sales at maturity. In a research note, SG

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