January 15, 2007 (Vol. 27, No. 2)

With Three Approvals, Avastin Awaits One More and Is Under Study in 130 Trials

Genentech (www.genentech.com) is the fastest growing stock on the Zacks Focus List with a long-term growth rate of 29.46%, according to a report from Zacks in December 2006. The company has met or exceeded Zacks’ estimates in 16 consecutive quarters with steady year-over-year growth. Genentech’s commercial line up and strong R&D capabilities led to an annual revenue near $7B and a market cap of $85.91B, making it the second-largest biotech firm in the U.S.

Genentech’s portfolio consists of 15 products in three distinct indications—oncology, immunology, and tissue growth and repair disorders. The leading products are Rituxan for non-Hodgkin’s lymphoma, Avastin for colorectal cancer and non-small-cell-lung cancer, and Herceptin for breast cancer. Rituxan and Herceptin provide more than one-third of the company’s revenue, bringing in more than $2.5B annually. Its drug for non-small-cell-lung cancer and pancreatic cancer, Tarceva, generated $296M in sales for the first three quarters of 2006.

“The company possesses an impressive oncology pipeline, with additional label potential for both Avastin and Tarceva,” points out Jason Napodano, a Zacks equity research analyst. “New product growth, primarily driven by the launches of Avastin and Tarceva, should lead to impressive revenue growth the next several years.” According to Napodano, such new products along with the strength of existing products, should drive Genentech’s topline up roughly 21% CAGR through 2009.

The main growth driver for Genentech is Avastin, which in the first three quarters of 2006 generated approximately $1.25B in global sales. It was approved in combination with chemotherapy for first-line and second-line treatment of metastatic colorectal cancer (CRC). Penetration in first-line use is probably at or above 75%, according to Napodano. Over the next few quarters Napodano predicts that Avastin can achieve near 80% penetration in this indication.

With CRC under its belt, in October 2006 Avastin received approval for the first-line treatment of unresectable, locally advanced, recurrent or metastatic nonsquamous non-small-cell-lung cancer. It currently awaits FDA action regarding its use in the first-line treatment of metastatic breast cancer. The drug is also being investigated in 25 different tumor types with 130 clinical trials ongoing.

In December 2006, interim analysis of a Phase III study showed a significant increase in progression-free survival when Avastin is added to standard interferon treatment for first-line metastatic renal cell carcinoma. But, it is believed Avastin will need to demonstrate significant clinical benefit to compete with its cheaper, small molecule competitors.

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