Sector Wrap: Biotechnology

Analysts reduced sales estimates for Amgen's Aranesp anemia drug on Friday, after the Oncologic Drugs Advisory Committee recommended further restrictions on the drug's use in patients with metastatic breast cancer, head and neck cancer, and curable cancers.

On Thursday, federal advisers said anemia drugs sold by Amgen Inc. and Johnson & Johnson should be sharply restricted to a segment of cancer patients _ a recommendation that could cost the companies millions. The cancer experts overwhelmingly voted to keep the drugs on the market for chemotherapy patients, but said use should be limited to those with uncurable forms of cancer.

The experts also voted nine-to-five to withdraw the drug's use in patients with breast or head-and-neck cancers, such as those affecting the sinuses, throat and lymph nodes. The FDA often follows its panelists' advice, though it is not required to do so.

Lazard Capital Markets analyst Joel Sendek, who rates Amgen at "Hold," said he expects the FDA to restrict Aranesp's label consistent with these safety recommendations, leading to a further decline in Aranesp sales in 2008 and beyond.

He said Amgen avoided a "worst case scenario," but warned that the FDA could still implement more restrictions on prescribed use.

UBS analyst Maged Shenouda said that Amgens scale and operating leverage will help it absorb this new hit. He estimates, however, that the revenue shortfall will hurt earnings projections by 4 cents per share in 2008 and 6 cents per share in 2009.

Shenouda maintained a "Neutral" rating on shares and cut his price target to $49 from $52.

Amgen shares fell $2.70, or 5.7 percent, to $44.48 in afternoon trading.

As analysts expected, biotechnology firm Genentech Inc. raised the lower end of its outlook for fiscal 2008 adjusted earnings on Friday, ahead of a meeting with investors.

The company now expects 2008 adjusted earnings in the range of $3.35 to $3.45 per share, up from $3.30 to $3.45 as estimated before it received expanded approval for the cancer treatment Avastin.

Genentech also said it is making "good progress" toward achieving annual adjusted earnings per share growth of at least 25 percent through 2010; bringing 20 or more new molecules into clinical development; bringing at least 15 major new products or indications onto the market; and being the nation's largest cancer drug maker by sales.

Shares slid $3.22, or nearly 4 percent, to $78.24 in afternoon trading, amid a broad market sell-off.

Elsewhere in the sector, small biotech Exelixis Inc. said Genentech, its partner, agreed to fund development of a cancer treatment candidate called XL518. Genentech will pay Exelixis $3 million and handle the costs of developing the drug after Exelixis determines the maximum tolerable dose. Genentech will also sell the drug if testing is successful and it reaches the market.

Exelixis shares rose 12 cents, or 2.2 percent, to $5.60.

Shares of Curis Inc. rose Friday after the drug developer said it sees evidence that one of its drug candidates is effective against a form of skin cancer. Curis said its partner, also Genentech, reports that some patients have responded to treatment with GDC-0499 in an early stage clinical trial. Genentech wants to start three midstage trials of the drug this year, which will trigger millions of dollars worth of payments.

In afternoon trading, Curis shares surged 12 cents, or nearly 10 percent, to $1.35.

The Nasdaq Biotechnology Index fell 26.3 points, or 3.5 percent, to 726.3 in afternoon trading. The Dow Jones Industrial average, meanwhile, plunged nearly 300 points, or 2.3 percent, as the federal government and JPMorgan Chase & Co. teamed up on a bailout of investment bank Bear Stearns Cos. on Friday, further stoking fears about the credit market.