Associate

Bullish on biotech in '03.

That's the take on the industry by Banc of America Securities, a viewpoint it attributes to a season of earnings re-acceleration and late-stage data, prompting the firm to label 2003 as potentially "the biggest product year ever for biotech."

Genentech Inc. is doing its part to make 2003 live up to those expectations. Just days after getting a unanimous vote from an FDA panel for the allergy drug Xolair, Genentech said its VEGF product, Avastin, provided a benefit that "far exceeded" what the study was designed to demonstrate in its Phase III metastatic colorectal cancer trial. Given that the product is an anti-angiogenesis drug, a technology that hasn't been proven, and that some investors had doubted the trial's outcome, the news hit extra hard, lifting Genentech's stock 44.7 percent.

"Scientifically, it was an outbreak event," said Sena Lund, analyst with Cathay Financial in New York. "This gives a strong confirmation that this class of drugs can be converted into a therapeutic product."

It would appear so. The results are the first positive Phase III data from an anti-angiogenesis product in cancer. Genaera Corp., EntreMed Inc., Regeneron Pharmaceuticals Inc. and Protein Design Labs Inc., all companies with similar cancer products in development, rode the wave, with Protein Design leading the way in terms of money at an increase of $2.13, but with Genaera gaining 49.5 percent on the day, or 45 cents.

But while the news helped many, it meant the most to Genentech. Genentech's stock (NYSE:DNA) shot up $16.95 Monday to close at $54.85. The South San Francisco-based company did not disclose full data - it will do so at the American Society of Clinical Oncology meeting in Chicago June 1 - but it did say the drug met its primary endpoint of improving overall survival and hit secondary endpoints of progression-free survival, response rates and duration of response.

In a research note, UBS Warburg analyst Meirav Chovav wrote that "we believe the study was designed to demonstrate a primary endpoint of a two- to three-month increase in survival. Obviously the benefit with Avastin is larger."

Avastin is a humanized therapeutic antibody designed to inhibit tumor growth by binding to and inhibiting vascular endothelial growth factor, which plays a role in tumor angiogenesis. The trial enrolled more than 900 patients. Eight hundred were randomized to receive either Avastin plus the standard-of-care chemotherapy (5-FU/leucovorin/CPT-11, also called the Saltz regimen) or the Saltz regimen plus placebo. A third arm of the study treated 100 patients with Avastin plus 5-FU/leucovorin chemotherapy. That arm was dropped when safety was established with the Saltz regimen.

Adverse events were limited mainly to hypertension and a potential for increased gastrointestinal perforations in the trial, but Colleen Sweeney, spokeswoman for Genentech, said, "In terms of safety, we see that the side-effect profile seems to be manageable."

There is a smaller Phase III colorectal cancer trial under way in a slightly different patient population, one that is "not optimal candidates for CPT-11" treatment, Sweeney told BioWorld Today. While data from that trial are expected later this year, she said, it would mostly provide additional information about safety, as far as filing goes.

"We feel the results are strong enough to take the data to the FDA now and start talking about next steps," Sweeney said. "For Genentech, it's just another milestone. We've had an amazing week. The unanimous [Xolair] vote and then this comes along, which shows us that our approach to anti-angiogenesis and the work we did to pick the target gave us the correct target. It reaffirms the way we designed this program."

Recently Questioned Technology Validated By Trial

It's roses for Avastin now, but in the fall the drug fell short in a breast cancer study. Results showed it missed its primary endpoint of progression-free survival in relapsed metastatic breast cancer, but hit a secondary endpoint of overall response rate. That secondary endpoint didn't translate into benefit with regard to progression-free survival or 12-month survival, however. (See BioWorld Today, Sept. 11, 2002.)

That disappointment had some investors doubting anti-angiogenesis and casting a wary eye at the expected colorectal cancer results. In fact, earlier Monday morning, before news of the trial had been made public, Banc of America analyst Mike King downgraded Genentech on suspicion of the colorectal trial failing. Once the news broke, the firm sent out a new note, titled "Holy Cow! Our Timing Couldn't Have Been Worse; Avastin Excels in Phase III." King reversed his position and now rates Genentech a "buy."

King wrote: "Clearly, this is good news for DNA. Not only is the trial outcome a home run, but it affirms the company's financial outlook of a minimum average of 20 percent EPS growth per year out to 2005. In our view, the company will now easily meet or exceed that guidance."

Banc of America raised its Genentech target from $30 to $73.

Genentech owns complete rights to Avastin as of now, but F. Hoffmann-La Roche Ltd., of Basel, Switzerland, has the option to rights outside the U.S. If Roche decides not to take that option, Genentech would seek a partner for those areas, but plans on keeping U.S. rights.

Chovav wrote in her note that her firm anticipates a filing on the data, "which would, in our opinion, allow for product launch in early 2004." She conservatively assumes the product would generate $140 million in 2004 and $350 million in 2005. The drug certainly has blockbuster potential.

"This will transform the company into a new dynamic next year," Cathay's Lund told BioWorld Today. "It will give them another $1 billion product, besides Rituxan."

Gathering Weight, Genentech Is Rolling

With one of the industry's deepest pipelines, Genentech's stock leap might seem extreme - after all, this is a company that has publicly said it will grow its EPS by 20 percent per year.

"I think what happened was the investment community read into it too much," Lund said. "Most were inclining toward the risk side [for this trial], because of the negative [breast cancer] results last year. This was given a 50-50 probability of success."

Those doubters might have climbed aboard now. Genentech also is developing Avastin in other cancer indications. In October 2001, a Phase II study with Avastin in metastatic renal cell carcinoma conducted by the National Cancer Institute in Bethesda, Md., was stopped early after reaching a pre-specified efficacy endpoint. Two Phase III trials in metastatic kidney cancer are scheduled to begin enrollment this year. Phase III studies from the Eastern Cooperative Oncology Group continue to evaluate Avastin in second-line metastatic colorectal cancer, first-line metastatic non-small-cell lung cancer and first-line metastatic breast cancer. Besides Avastin, there is Rituxan, which brought in $1.2 billion in 2002, and the submitted BLA for Raptiva in psoriasis. Throw in the strong panel vote for Xolair in moderate to severe allergic asthmatic patients, and Genentech is gathering some serious steam.

"I think this has them in a positive momentum," Lund said. "The company is on the go now."