Monday, August 14, 2006

Genentech (DNA): Color on Herceptin delay

Several firms are commenting on Genentech (NYSE:DNA) after the FDA extended Herceptin's sBLA action date for use in the adjuvant breast cancer setting by 90 days. The Agency deemed additional information requested for the application to be a major amendment, making the PDUFA date " which had been August 17 " now November 17:

* Baird notes they don't see the news as a big deal as Herceptin is already the gold standard in the adjuvant setting. As they have noted extensively, Herceptin's uptake in this setting was dramatic and immediate when the data were first detailed at ASCO in 2005. Recalls the drug's penetration of node positive/Her2 positive patients had been in the low double-digits pre-ASCO 2005, but shot up to near 80% (79% to be exact) right after ASCO 2005.

That said, they do think Avastin will very much benefit from a label expansion in lung and breast cancers (expected October 11 and November 22, respectively). Firm's survey work with physicians has indicated more moderate uptake of Avastin " especially in breast cancer, citing reimbursement and lack of FDA approval as the two most important reasons for not treating breast cancer patients with Avastin. With DNA indicating some potential for slippage to the November 22 front-line breast PDUFA date, they think some additional degree of risk has been added to the story here. Remains rated Neutral on DNA shares.

* Goldman notes they do not believe the delay was due to any major concern on safety and efficacy of Herceptin based on previously released Phase 3 data. The turnover and extra caution of FDA reviewers may have led to the delay as we have seen with multiple drugs in the last year. The FDA application on Herceptin is also relatively large, with over 3,000 patients. The primary endpoint was disease-free survival which generally requires more documentation than overall survival. Management indicated that the FDA requested more mature data on progression for about 400 patients. The company has responded to the request with supporting data.

Firm thinks there might be slight downside to Genentech shares because most investors expected FDA approval. However, there has been significant off-label use of Herceptin in adjuvant breast cancer after presentation of the robust Phase 3 data in 6/05. They do not expect the delay to have major impact on Herceptin sales nor EPS. Maintains Buy rating and Neutral coverage view.

*Merrill Lynch notes that since data on Herceptin use in adjuvant breast cancer were reported at ASCO '05, quarterly US Herceptin sales have more than doubled to $331 MM from $152 MM and the annual run rate has increased to $1.3 BB from $610 MM. Firm estimates that about 96% of the increase is related to Herceptin use in the adjuvant setting. Therefore, a 3 month delay in official FDA approval of the adjuvant regimen will not impact Herceptin sales because the drug is already standard of care.

According to Merrill, it is likely there will be a similar regulatory review delay for Avastin in breast cancer. FDA has requested additional data from the ECOG 2100 phase 3 trial that comprises the sBLA application, but according to DNA's 10Q, those data are unlikely to be available to give FDA enough time to review before the November 22 PDUFA date. Because Genentech had previously indicated a delay was a possibility, they adjusted their Avastin growth estimates for 2006 and 2007 accordingly, so an official announcement of a delay would not affect estimates. Maintains Buy and $100 tgt.

Notablecalls: The logical thing here would be to buy the stock down 2-3 pts but I suspect the thing may have some more downside as there is now hightened risk to Avastin in breast cancer. Not willing to step in front of this train.

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