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Roche (OTCQX:RHHBY) released positive results from an Avastin study conducted in Europe to support the use of Avastin against non-small cell lung cancer.

Avastin met the primary endpoint of prolonging progression-free survival, but the results included an unexpected kicker: Avastin was just as effective at the low dose as one that was twice as strong.

Both Roche and Genentech (DNA), Roche’s partner, fell on the news, with Genentech dropping 3%. In Zurich, Roche was off by 1.7%. Analysts were quick to point out that the half-dose would mean that Avastin would receive the equivalent of a 50% off sale, dropping the monthly price from $8,000 to $4,000.

Although Roche reported that the drug was successful, they did not disclose details on the trial, which will be released at a scientific meeting, most likely the ASCO meeting scheduled for early June.
Originally, Avastin was approved in February 2004 for colon cancer. The drug is currently in trials against 25 different forms of cancer. Genentech reported 2006 revenues of just over $1 billion for Avastin, and analysts estimate the drug could earn as much as $8 billion in the future.

Avastin has already won approval as a first-line treatment for non-small cell lung cancer in the U.S., although it was approved as part of a different regimen than obtained in the European study. In October 2006, Avastin was approved as an adjunct to carboplatin and paclitaxel. The European trial administered Avastin as an adjunct to Gemzar from Lilly (LLY) and cisplatin. It has not yet been proved that the low dose will work as well in the U.S.-approved regimen.

Goldman Sachs put the eventual use of Avastin in lung cancer at a run rate of $800 million. If half the patients go on a low dose, it would reduce the revenue from the drug by $200 million, which would have the effect of lowering earnings by 10 cents per share.

Investors reacted by selling Genentech 3% lower. It fell $2.64 to $85.10, a loss of about $2.7 billion in market cap. They were reacting not just to the news that Avastin dosage might be lowered in this specific indication, but across a much wider range of uses.

Genentech was also under pressure from a lead Wall Street Journal article about Lucentis, its drug for age-related macular degeneration or blindness. The article discusses the competition between two Genentech drugs, Lucentis and Avastin, which are siblings. Lucentis is a variation of Avastin that was reformulated to be more effective in the eye. The trouble is that Lucentis costs almost $2000 per injection (about $50,000 for the entire treatment). Pharmacies are taking Avastin and breaking a single cancer dose into many much-smaller doses needed for the eye and selling them for about $40 each.

When the results from a trial of Lucentis were announced in 2005, the assembled crowd was surprised because Lucentis was so much more effective than anything else on the market - and those drugs were selling for about $1,000 per treatment. But Lucentis would not be commercially ready for at least a year while the FDA reviewed the drug, so enterprising physicians/pharmacists began using Avastin off-label for the condition. It worked very well.

The NIH will run a head-to-head test, beginning in May, to see if Lucentis is more effective than Avastin. The drugs are very similar, though they are not the same. Genentech is not participating in the trial. If the results for the two drugs are similar, insurance companies - and Medicare - will be very reluctant to pay a premium of 50X for specially formulated Lucentis.

Disclosure: Centient management holds a position in Genentech shares and does consulting work for Genentech.

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Source: Genentech Takes Hit On Cancer Drug Success