F. Hoffmann-La Roche Ltd., doing what just about everyone expected it to do, picked up its option on non-U.S. rights to Genentech Inc.'s cancer drug Avastin.
The positive Avastin data released in May that demonstrated the drug "far exceeded" what it was designed to show in a Phase III metastatic colorectal cancer trial were seen as a watershed event for anti-angiogenesis products and sent South San Francisco-based Genentech's stock up 44.7 percent the day they were made public. There has been plenty of buzz around Avastin since then, including a spirited American Society of Clinical Oncology meeting in Chicago, and Genentech has been riding the wave it created. Most found it difficult to imagine Roche, of Basel, Switzerland, not picking up the option. (See BioWorld Today, May 20, 2003, and June 3, 2002.)
"I'd say this was 100 percent expected," said Cory Kasimov, analyst with New York-based Ryan Beck & Co. Inc.
Although Genentech retains rights in the U.S., Roche will bear the load elsewhere. The FDA in June granted Avastin fast-track status in previously untreated, first-line metastatic colorectal cancer patients and most industry observers anticipate a regulatory filing in the second half of this year. Beyond colorectal cancer, Roche and Genentech will develop Avastin in other tumor types.
Franz Humer, chairman and CEO of Roche, in a prepared statement called Avastin "an ideal supplement to our existing range" of cancer drugs. The companies' history goes back some time. Roche in 1990 acquired most of Genentech through a $492 million investment at $36 per share. On June 30, 1999, Genentech redeemed all its outstanding special common stock held by stockholders other than Roche Holdings Inc. at $20.63 per share in cash, with the funds coming from Roche, thus boosting Roche's ownership of Genentech common stock from 65 percent to 100 percent. In July 1999, Roche sold 22 percent of the Genentech shares in a public offering of 20 million shares at $97 per share, effectively spinning Genentech back out through an offering of nearly $2 billion, not including the overallotment option. Roche further dropped its holding in October 1999 by selling off another 20 million shares at $143.50, raising another $2.87 billion. (See BioWorld Today, June 4, 1999; July 21, 1999; and Oct. 22, 1999.)
Genentech's stock (NYSE:DNA) rose 94 cents Tuesday to close at $76.49.
Today, Roche maintains a controlling interest in Genentech. As of April 24, Genentech had about 510 million shares outstanding, and on March 31, Roche held 60.1 percent of Genentech's common stock. Genentech receives royalties on sales of Rituxan, Pulmozyme and Herceptin outside of the U.S. and on sales of human growth hormone, Rituxan, Pulmozyme, Activase and TNKase in Canada from Roche.
Potential Avastin sales outside the States now can be added to that list. Although Kasimov couldn't comment on what royalty Roche would pay Genentech for sales abroad, he assumes it's "typically standard" and in the mid-teen range.
"Suffice it to say [colorectal cancer] would be a large indication for Genentech in Europe," he told BioWorld Today. In the U.S., he said, once approved, "and we expect once it is filed, it will be approved in short order," he expects Avastin to "very rapidly" become a standard of care for patients with colorectal cancer.
Looking ahead at biotechnology's coming wave of second-quarter earnings reports, Eric Schmidt at SG Cowen Securities Corp. in New York wrote in a research note that Avastin's excitement-generating success in the colorectal trial has provided Genentech with a "can't miss" $1 billion to $2 billion blockbuster and "strong top-line revenue growth for the foreseeable future." Schmidt also lauded the company's pipeline, calling it one of the industry's best (something said about Genentech for years now) with "15 projects in development as well as five in Phase III."
"While Genentech's stock price reflects much success, positive Avastin data in additional indications (expected in 2004) could boost the drug's revenue potential by a significant margin," Schmidt said. "Upcoming events include data from a supportive Phase III Avastin study in front-line colorectal cancer (July), a likely [biologics license application] filing for Avastin (Q3:03), Phase III data on Tarceva in non-small-cell lung cancer (H2:03) and a possible advisory panel meeting on Raptiva."
Tarceva is being developed with OSI Pharmaceuticals Inc., of Melville, N.Y. Raptiva, on file with the FDA for psoriasis, is being developed with Xoma Ltd., of Berkeley, Calif. Noting those drugs as well as the recent approval of the asthma drug Xolair (partnered with Tanox Inc., of Houston, and Novartis Pharma AG, of Basel, Switzerland), Kasimov is impressed with Genentech.
"It's firing on all cylinders right now," he said. "The news flow out of their late-stage pipeline has been tremendous."