Late Tuesday afternoon, an advisory panel to the FDA unanimously recommended the approval of Raptiva -- co-developed by Genentech (NYSE:DNA) and Xoma (NASDAQ:XOMA) -- for moderate to severe psoriasis.

Psoriasis, an immune-related chronic disease, affects approximately 4.5 million people in the United States, including approximately 1.5 million suffering from cases classified as moderate-to-severe. There is no known cure for the disease, but Raptiva seeks to control it. However, some worry that Raptiva must be administered constantly in order to be effective.

Because it interferes with the immune system, patients must stop taking Raptiva in order to give birth. Moreover, in cases where patients stopped taking the drug, the psoriasis flared. But the benefits of the drug appear to outweigh the risks.

Genentech anticipates approval by the October 27 action date and for the drug to hit the market by the end of 2003. Analysts believe that psoriasis treatments target a $1 billion market; however, Raptiva faces stiff competition.

Biogen's (NASDAQ:BGEN) Amevive, which gained FDA approval in February, is the only other drug currently approved for treatment of moderate-to-severe psoriasis. While Raptiva was shown in clinical trials to be slightly more effective, Amevive has the advantage of having a long remission period.

Amgen (NASDAQ:AMGN) filed its blockbuster Enbrel for FDA approval in July. Some believe that Enbrel, already being prescribed by doctors on an off-label basis, will be the treatment of choice within a few years.

Genentech's drug is expected to generate $130 million next year, ultimately reaching between $400 and $710 million per year by 2007. Under the terms of its deal with Xoma, Genetech will receive 75% of Raptiva's revenues, while Swiss drug maker Sereno (NYSE:SRA) has marketing rights for Raptiva outside of the United States.

This is big news for Xoma, as it will get its first big drug to market. The shares have doubled in the past two months in anticipation, and are up 4% to $9.77 in late-afternoon trading. Genentech is down 3% to $82.