Washington Editor

(Companies included in this article are: Genentech Inc., Roche Holding AG)

After trading ended Tuesday, Genentech Inc. reported that sales of its cancer drug Avastin (bevacizumab) were stronger than anticipated, at $704 million, an 18 percent increase over a year ago. The company said the growth was due primarily to increased usage of Avastin in metastatic breast cancer, an indication approved in February. (See BioWorld Today, Feb. 25, 2008.)

However, third-quarter earnings fell short of expectations, which the South San Francisco-based firm attributed to the cost of an employee retention program related to the $89 per share purchase price it rejected from Roche Holding AG.

Refusing to give in to the pleas from analysts during a conference call Tuesday evening, CEO Arthur Levinson provided no details on where things stand with Roche after Genentech's special committee on Aug. 13 concluded that the Basel, Switzerland-based drugmaker's unsolicited $89-per-share bid "substantially undervalues the company." (See BioWorld Today, July 22, 2008, July 28, 2008, and Aug. 14, 2008.)

The committee, Levinson said, would consider a proposal that "recognizes the value of Genentech and reflects the significant benefits that would accrue to Roche as a result of full ownership."

Although analysts expressed frustration with the lack of communication about the Roche proposal, most agreed that a deal is inevitable. The only major barrier to a full buyout, said analyst Eric Schmidt, of Cowen & Co., is the Swiss firm's ability to gain financing. Nonetheless, he said in a research note, assuming normalization in the credit markets, "a deal in the $90+ share range is likely."

Meanwhile, Levinson was adamant that Genentech employees and senior management "remain focused on running the business and developing molecules that we believe will make an important difference for patients." He noted that in the 12 weeks since the Roche proposal, Genentech has seen no increase in employee turnover compared with the same period preceding the bid.

Levinson noted that Genentech was again ranked the top science employer by Science magazine for 2008. The firm has received the honor six out of the past seven years, Levinson added. "We consider this ranking important recognition as we place significant value on attracting and employing scientists at the top of their field," he said.

Despite the fact that Genentech's earnings per share, which the firm posted as 81 cents, missed most analysts expectations of 90 cents and a consensus of 88 cents for the third quarter, the firm was "operationally strong," said analyst Christopher Raymond, of R.W. Baird & Co.

In addition to the employee retention program, Genentech reported expenses of 6 cents per share, or $105 million, related to a collaboration agreement with Zurich, Switzerland-based GlycArt and Roche announced on Oct. 2 to jointly develop and commercialize GlycArt's GA101, a humanized anti-CD20 monoclonal antibody engineered to increase both direct and immune-mediated target cell death, as a potential therapy for hematological malignancies and other oncology-related B-cell disorders, such as non-Hodgkin's lymphoma.

Genentech has initiated 11 clinical trials, eight of which are investigating new molecular entities, Levinson said. He noted that the firm recently made "go decisions" for a Phase II study of MetMAb in metastatic non-small-cell lung cancer and a Phase III study of trastuzumab-DM1 (T-DM1) as a potential second-line treatment for HER2-positive metastatic breast cancer.

T-DM1 consists of Cambridge, Mass.-based ImmunoGen Inc.'s DM1 cell-killing agent attached to Genentech's trastuzumab, an HER2-binding antibody.

Genentech plans to initiate the Phase III trial of T-DM1 in the first half of 2009. T-DM1 is being developed under a 2000 licensing agreement, expanded in May 2006, that enables Genentech to use ImmunoGen's maytansinoid TAP technology with anti-HER2 antibodies. ImmunoGen stands to gain up to $44 million in milestones in addition to royalties from the deal.

In a filing with the Security and Exchange Commission (SEC), ImmunoGen said that patients in the trial will be randomized to treatment either with T-DM1, given as a single agent, or with capecitabine plus lapatinib. The primary endpoint of the trial is progression-free survival. Genentech initiated two Phase II studies of T-DM1 in the third quarter evaluating the compound as potential first-line and third-line treatments for patients with HER-positive metastatic breast cancer. In its SEC filing, ImmunoGen said that, should the third-line study yield compelling data, Genentech plans to discuss an accelerated approval path with the FDA.

Genentech plans to present data from the study evaluating T-DM1 as a second-line plus treatment for HER2-positive metastatic breast cancer at the San Antonio Breast Cancer Symposium in December. The company also plans to initiate a Phase Ib study in the first half of 2009 to assess T-DM1 given in combination with its experimental HER dimerization inhibitor pertuzumab.

Levinson said his firm sees the combination of targeted therapies "as an important area of exploration with the potential to advance treatment regimens in oncology." "Our objective is to explore molecular pathway combinations across a broad number of tumor types," he said. Although a Phase III trial of Avastin in combination with Tarceva (erlotinib) failed to improve overall survival of patients with non-small-cell lung cancer, those recently reported results, Levinson said, "do not dampen our interest in the potential of combinations of targeted therapies." (See BioWorld Today, Oct. 7, 2008.)

Levinson noted that Genentech in the third quarter had submitted supplemental biologics license applications to the FDA for Avastin in combination with interferon alfa-2a therapy for patients with first-line metastatic renal cell carcinoma and Rituxan (rituximab) in rheumatoid arthritis patients who have had an inadequate response to prior treatment with a disease modifying anti-rheumatic drug.

David Ebersman, Genentech's chief financial officer, said sales of Rituxan were up 15 percent to $655 million, which analyst Thomas Wei, of Piper Jaffray Ltd., noted was about $6 million above Wall Street's expectations.

Sales of Herceptin (trastuzumab), which had a 15 percent increase from last year, and Lucentis (ranibizumab injection), which had a 14 percent increase, also exceeded analysts' expectations at $368 million vs. the Street's $344 million and $225 million vs. $213 million, respectively.

Sales of Genentech's asthma drug Xolair (omalizumab) and Tarceva also were up substantially, at $136 million (up 12 percent) and $110 (up 9 percent), respectively. Genentech reported that it has $8.6 billion in cash and investments.

Shares of Genentech (NYSE:DNA) gained $2.38 Wednesday, to close at $81.50.