12:00 AM
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Dec 10, 2007
 |  BioCentury  |  Finance

Ebb & Flow

Genentech shares hit their lowest level since early 2005 last week, shedding $7.76 (10%) to reach $68.49 and lopping off more than $8 billion of the company's market cap to $72 billion. The dive came after FDA's Oncologic Drugs Advisory Committee voted that Avastin bevacizumab plus paclitaxel did not demonstrate a favorable risk-benefit ratio as first-line treatment of metastatic breast cancer.

In a 5-4 vote, panel members expressed concerns about the conduct of the trial DNA submitted to support efficacy, and about toxicity associated with the anti-VEGF antibody (see "Cover Story").

Evan McCulloch of Franklin Templeton argued the market now has fully priced its expectation that there will be no approval for metastatic breast cancer.

He thinks there's a slim chance FDA will approve Avastin in this indication, going against the historical precedent to follow panel votes, "because of the narrow vote and how the doctors on the panel weighed in." Still, McCulloch suggested it's safest to assume FDA won't approve the indication.

Buysiders and analysts spent the end of the week adjusting Avastin breast cancer sales in their models. "This shaved 4-5% off its long-term growth rate," said McCulloch.

"It is relatively meaningful in people's models," noted Max Jacobs of Ridgemark Capital. "Avastin has gone from being a decent growth story to being kind of slow growth." With year end tax loss selling, he suggested DNA may not yet have hit bottom and could trade down into the low $60s.

Sellside analysts Adam Walsh of Jeffries and William Tanner at Leerink both slashed their target prices and downgraded on the news to "hold" and "market perform," respectively. They also substantially lowered FY08 sales and EPS estimates.

But Cowen's Eric Schmidt took the contrarian view. He upgraded DNA to "outperform," arguing the price decline was too severe and approval in first-line disease still could be forthcoming.

Schmidt's also eagerly awaiting the data from a Phase III trial of Avastin as an adjuvant to treat colorectal cancer. But even without success on this front he feels DNA is attractively valued (see "Analyst Picks & Changes," A18).

More milestones

DNA needs to get back on track toward a sector average growth rate, said McCulloch. "A low-teens growth rate is not enough to sustain its current multiple of 19X. Something needs to come out of the pipeline in 2008," he concluded.

Jacobs expects the colorectal data in mid-2008, while Schmidt anticipates they'll come out in late 2008 or early 2009. The humanized MAb against VEGF is approved for metastatic colorectal cancer and non-small cell lung cancer (NSCLC) in the U.S. and Europe, and for metastatic breast cancer in Europe, where Roche (SWX:ROG) has rights.

DNA also has Phase II/III data upcoming in 1H08 for Rituxan rituximab to treat primary progressive multiple sclerosis (MS). Also in 1H08, Phase II/III data are expected for Rituxan to treat lupus erythematosus.

"Lupus has been a graveyard for biotechs," observed Jacobs. "If they can hit that it would be pretty important."

The next new compound coming out of the pipeline is Ocrelizumab anti-CD20 (R1594), which is in a Phase III trial for rheumatoid arthritis (RA).

The company is also awaiting FDA action on Rituxan for use in combination with methotrexate to treat moderate to severe active RA and Herceptin trastuzumab as an adjuvant for HER2-positive breast cancer. The PDUFA dates are Jan. 26 and April 28, respectively.

In addition, DNA said it expects to submit an sBLA next year for Avastin to treat first-line metastatic renal cell carcinoma (RCC).

Dating game

It wasn't easy for Oracle Healthcare (OHAQ), a publicly traded acquisition vehicle, to find the right company on which to bestow its $120 million in cash. Last week, it matched up with diagnostics company Precision Therapeutics, which had filed for an IPO in August (see BioCentury, Aug. 27).

After wading through 34 companies earlier this year, 24 gleaned from IPO filings and 10 referred by its board members, none of the four finalists worked out, according to SEC documents.

The owners of one company declined to sell, while another decided to pursue its own IPO and began trading in March. The third company...

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