Genentech/Roche in Uncomfortable Position Over Avastin

Mar. 1.11 | About: Roche Holding (RHHBY)

The Genentech/Roche (OTCQX:RHHBY) drug Avastin has been in the news a lot lately, mostly about cost/benefit analysis for its uses in oncology. It's nobody's idea of a cheap drug, even for those indications where it shows results. But there's one therapeutic area where it's actually the bargain alternative.

That's AMD, wet age-related macular degeneration. Stopping the growth of those leaking blood vessels in the eye is the standard therapy for the condition, so a VEGF-targeted therapy is just the thing. Lucentis is the anti-VEGF antibody that's approved for that use; it showed very impressive results in the clinic, and seems to perform just as well in the real world.

But Lucentis is expensive, and while it's different from Avastin, it's really not that different. It is, in fact, an opthalmic-delivery-optimized version of the same general antibody, and was developed by the same folks at Genentech. Avastin itself isn't packaged in units small enough for AMD therapy, but if you have a practice with a number of patients, well ... by the time you split it out, an Avastin injection is about $50, versus nearly $2,000 for Lucentis. In fact, a great many physicians in the U.S. (possibly a majority) use Avastin off-label in just that fashion. A U.K. study last fall shored up that practice with some data, and a number of other studies are underway.

One of these, conducted by the NIH, should be reporting soon. And that's putting Roche/Genentech in an odd position. It has not supplied drugs for the trial, for one thing. Last fall The New York Times reported that rebates are now being offered to opthamologists if they'll use Lucentis, which many have interpreted as a preemptive maneuver to deal with the likely NIH results.

This is a mess; no doubt about it. While Genentech did indeed spend the time, money, and effort to develop Lucentis as a separate therapy, there seems to have been an active effort to avoid finding out if Avastin wouldn't have been just as good. The market does provide perverse incentives like this sometimes; this is an instance where I think that the NIH is doing exactly what it should be doing by running the head-to-head trial.

But I don't think that Roche is going to like the results. And it could find itself arguing, simultaneously, that Avastin should not be used for AMD, even though it's cheaper than the alternatives and may well be just as effective, while Avastin should be used for metastatic breast cancer, even though it's more expensive than the alternatives and may well not be effective at all. And while the company will surely argue that the numbers are not what they appear, and that there are other numbers that say differently, and that it's all quite complex, it's going to be unable to escape the downward slice of Occam's razor: That in every case, it's arguing for the exact position that maximizes its revenue.

This is what companies do, of course. We shouldn't expect any less. But that doesn't mean that the revenue-maximizing path is always the right one, either.