Genentech Adds to Avastin's Arsenal

Genentech (NYSE: DNA  ) investors hoping for lead drug Avastin's U.S. approval as a breast cancer treatment will have to keep waiting, but the pharmaceutical did get a bit of good news yesterday. Marketing partner Roche announced Avastin's approval for marketing for colorectal cancer patients in the European Union, in combination with commonly used chemotherapy drugs.

Why, then, did shares of Genentech barely budge following the EU approval? For one thing, the regulatory body that approves the majority of new drugs in Europe, the European Medicines Agency (EMEA), has a two-step approval process. First, it recommends whether a drug should be approved. Then, a few weeks or months later, it follows up with a final decision on the drug.

The EMEA's final decision is never in doubt, though, since the agency always follows the counsel of its human-drugs division. This is nothing like an FDA advisory panel hearing, in which advisory committee recommendations are sometimes ignored. In Genentech's case, the EMEA human-drugs approval recommendation came in December. Investors have expected a positive final EMEA decision ever since.

Genentech's majority shareholder, Roche, markets Avastin in the European Union, giving Genentech royalties on all sales of the drug. Last year, Roche's foreign marketing earned Genentech a total of $1.2 billion in royalty revenue. Overall royalty revenue was up 46% last year for Genentech, and it's expected to rise another 10% to 15% this year as well.

(As a side note, Genentech and Roche aren't the only drugmakers that stand to gain from any expanded use of Avastin. PDL BioPharma (Nasdaq: PDLI  ) also receives a small single-digit percentage royalty on all sales of the drug.)

In addition to its expanded approval of Avastin for colorectal cancer, last month the EU approved the drug as a frontline treatment for kidney cancer. Meanwhile, the PDUFA date on Genentech's FDA breast cancer application is scheduled for Feb. 23. This time around, at least, I doubt it will secure approval.

Genentech, Roche, and other institutions are currently testing Avastin for multiple cancer-related indications with thousands of patients in numerous other clinical trials. Even if it falls short with the FDA this time, plenty more triumphs and setbacks await the drug in the years ahead.

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