While Genentech Inc. logged a 43 percent jump in total product sales for 2004, analysts scrutinized the company's sales of Avastin, calling them modest and lethargic at best.

The fourth quarter and year-end results released Monday were in line or slightly below most analyst estimates in terms of earnings per share (EPS), but the company came in ahead on its collection of royalties and behind on its sales of Avastin.

"I think on the positive side, the royalties that Genentech put up in the fourth quarter were substantially higher than most expected," said Eric Schmidt, an analyst with SG Cowen & Co. in New York. "On the other hand, the big negative had to be Avastin sales, which I guess, in this drug's third full quarter on the market, came in toward the low end of expectations."

South San Francisco-based Genentech reported total product sales for the year of $3.7 billion and $1.1 billion for the quarter, compared with $2.6 billion in 2003 and $724 million in that year's fourth quarter.

While EPS for the fourth quarter were a penny below consensus estimates, they were in line with Schmidt's figures. Non-GAAP net income and EPS were $225.4 million and 21 cents per share, compared with $145 million and 14 cents per share in the previous fourth quarter. GAAP net income and EPS increased to $206.6 million and 19 cents per share, up from $126.7 million and 12 cents per share.

For the year, non-GAAP net income and EPS rose to $894.4 million and 83 cents per share, respectively. GAAP net income and EPS increased to $784.8 million and 73 cents per share.

Royalties were higher than expected due to increased sales by licensees, with Genentech reporting $641.1 million in 2004, compared to $500.9 million in 2003.

While Avastin (bevacizumab) had sales of $555 million for the year and $200.4 million in the fourth quarter, it fell short of fourth-quarter consensus estimates of $220 million. Avastin was approved in February. (See BioWorld Today, Feb. 7, 2004.)

Schmidt believes the ultimate market opportunity for Avastin in colorectal cancer is only a little more than $1 billion.

"According to the survey work that we've done," he told BioWorld Today, "the second- and third-line patient population for Avastin is shrinking, as patients who were put on that drug back in the spring of 2004 are beginning to roll off."

Jennifer Chao, an analyst with New York-based Deutsche Bank Securities Inc., agreed that growth in the colorectal cancer indication might be limited.

"We are concerned Avastin's growth trajectory may be flattening earlier than expected, heightening the importance of garnering additional indications beyond advanced colorectal cancer," she said in a research note.

In a conference call Monday, Ian Clark, Genentech's senior vice president and general manager of BioOncology, attempted to assuage concerns, saying the company is "incredibly pleased with the performance" of Avastin, which has a 55 percent penetration rate as a first-line therapy.

He explained that the fourth-quarter sales might have been down from what was expected due to an early penetration of Avastin as a second- and third-line therapy.

"There was an inclination," he said, "to use it on a number of patients who were fairly desperate at launch, and those patients may have been on the drug for six or seven months and they may have come off during the final quarter."

Avastin is in late-stage trials for renal-cell carcinoma, non-small-cell lung cancer (NSCLC), metastatic breast cancer and pancreatic cancer. NSCLC data are expected in the middle of the year.

"There is potential in other tumor types," Schmidt said. "We model a fair bit of sales from renal-cell carcinoma. They've had good Phase II data. The bigger indication is lung cancer, which could be an incremental $1 billion to $2 billion for Genentech."

If NSCLC data are positive, Avastin could be approved in that indication in 2006. Its market potential in colorectal cancer could hinge on PTK787 data expected this year from Novartis AG, of Basel, Switzerland, and Schering AG, of Berlin.

"I think the two big milestones to look out for this year are the data from Avastin in non-small-cell lung cancer, because that potentially could be a large opportunity," Schmidt said. "And then the other is a risk factor. There will be pivotal data from this potential competing product."

Including Avastin, Genentech had four new products launched over a 16-month period. The latest was Tarceva, approved in November for patients with locally advanced or metastatic non-small-cell lung cancer after failure of at least one prior chemotherapy regimen. The product was co-developed with OSI Pharmaceuticals Inc., of Melville, N.Y. Tarceva (erlotinib) reached sales of $13.3 million for the year, and the product seems to be "rapidly taking share from Iressa," Schmidt said.

Last month, OSI's and Genentech's stocks rose following news from London-based AstraZeneca plc that Iressa failed to show a survival benefit vs. placebo in the overall NSCLC patient population or in those with adenocarcinoma. (See BioWorld Today, Dec. 20, 2004.)

Before the announcement, Tarceva had an estimated new patient market share of about 39 percent. That since has been bumped to about 54 percent, Chao's note said.

Genentech's two other recent product launches were Xolair and Raptiva, which had sales of $188.5 million and $56.3 million in 2004, respectively. Rituxan brought in $1.7 billion in 2004, and Herceptin had sales of $483.2 million. Sales of the company's growth hormone, cardiovascular products and Pulmozyme (dornase alfa, recombinant) inhalation solution were $731.3 million in 2004.

In terms of annual expenses, Genentech reported $947.5 million in research and development expenses, $672.5 million in cost of sales and $1.1 million in marketing, general and administrative expenses.

Operating revenues were $4.6 billion in 2004 and $1.3 billion in the fourth quarter.

Looking forward, Genentech expects non-GAAP EPS growth of greater than 25 percent for 2005.

The company has more than 30 projects in development, including six new molecular entities that entered its pipeline in 2004. Among several clinical projects, it is developing Rituxan for multiple sclerosis and Lucentis for wet age-related macular degeneration.

Genentech's stock (NYSE:DNA) dropped $3.73 Tuesday to close at $50.70.

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