For the past two days, Genentech
Avastin has been shown to extend the lives of colorectal cancer patients by an average of five months. The treatment works by basically starving the blood flow to tumors. This is a breakthrough in that it's a step closer to providing treatments that could one day transition cancer from a deadly disease -- where sometimes the cure is almost as bad as the ailment -- to a more manageable one.
Although this is without a doubt a treatment with potential, it's very pricey: about $44,000 per year, per patient. While management said in a conference call (transcript courtesy of CCBN StreetEvents) that the pricing is comparable to some other recently introduced cancer treatments, it's still a hefty one to pay, albeit with obvious benefits.
Many analysts see the drug becoming a blockbuster, with predictions of worldwide sales of $1.6 billion to $1.8 billion by 2008 (the consensus for this year seems to be about $300 million in sales). However, there's still room for cautionary notes, at least for the time being. Management remained conservative during the call, suggesting the use of "restraint" in sales assumptions -- at least for now.
Although Genentech is already shipping the drug, it pointed out that doctors often exercise caution as they learn more about a new treatment. It also reminded that there are still "other options" -- perhaps a nod to ImClone Systems'
Management also noted that there are further clinical trials to take into consideration as it tests effectiveness for first-line breast cancer and non-small cell lung cancer patients, for example.
It's no surprise given the positive impacts of Avastin that investors are going nuts over Genentech, not to mention the blinding hopes for blockbuster status. And while the potential is steep, paying 72 times forward earnings for a stock that has tripled since this time last year seems a bit steep, too.
Are you looking for value in a space that's not as risky as biotech? The Motley Fool's Hidden Gems newsletter might be just the right medicine. Talk about this issue and more on the Biotechnology discussion board.
Alyce Lomax does not own shares in any of the companies mentioned.