Avastin spurs Genentech to forecast profit growth

San Francisco-based Genentech says it expects annual earnings growth of 20 per cent for the next seven years on strong sales of cancer drugs, including the new medicine Avastin, and treatments for auto-immune disorders.

Genentech outlined its strategy through 2010, highlighted by Avastin, a colon cancer drug approved by the US regulators two weeks ago after positive clinical trial results last year that surprised cancer researchers across the country.

Genentech, the world's second biggest biotechnology company, said it hopes to be the largest US seller of cancer-related treatments by 2010, overtaking Amgen.

Chairman and CEO Arthur Levinson admitted that might be a difficult task, as many companies are researching cancer drugs, but said the company is aiming high with Avastin in hand.

Given that Genentech's stock price has tripled in the past year on excitement about Avastin and other drugs, analysts said the financial outlook was relatively conservative.

"Some people are asking why the guidance is so low if they are so bullish on Avastin," said analyst Michael King of Banc of America. "I just think they don't want things to get out of control."

He said he has published estimates that annual Avastin sales could exceed US$1 billion, but his "gut" was telling him the drug could easily generate more than $2 billion per year.

Company officials acknowledged during the meeting that Avastin could greatly exceed initial expectations -- and therefore drive profitability higher -- because it extends survival by nearly five months compared with conventional colon cancer treatment and could also be effective in other types of cancer.

"The focus of the meeting was on Avastin. There was a lot of enthusiasm over Avastin," said CIBC World Markets analyst Matthew Geller. "They warned people not to get too aggressive with their estimates, but they admitted there was some upside to their guidance."

Genentech said its profit would rise by 20 per cent or more this year and next year, consistent with its recent estimates. For 2006 through 2010, the company expects average profit growth of 20 per cent annually.

By 2010, the company plans to have started human clinical trials for five new cancer products and five new immune-disorder drugs, or new uses for existing ones in both cases.

While the company's Rituxan for non-Hodgkin's lymphoma and Herceptin for breast cancer already make Genentech a top cancer company, Amgen leads the cancer market by selling blockbuster drugs for the side effects of chemotherapy, such as Epogen and Aranesp for anaemia, as well as Neupogen and Neulasta for white blood cell depletion that can lead to infections.

CIBC's Geller said Genentech's fully humanised version of Rituxan, still in experimental stages, could prove to be a big seller for diseases such as multiple sclerosis, lupus and rheumatoid arthritis. The version of the drug that is currently sold for cancer, approved in 1997, is an antibody, mass-produced in the lab using mice.

Genentech has had a successful 12 months and is now considered one of the most exciting companies in the drug industry. Last spring, Avastin surprised many healthcare analysts by proving that the strategy of starving tumours of blood they need to thrive could actually work. The company last year received US Food and Drug Administration approval for two new medicines: Xolair for asthma and Raptiva for the skin disorder psoriasis.

Genentech shares rose US$1.67 to close at $107.70 on the New York Stock Exchange on Friday.