Successful Tarceva Study Sends Shares Skyward

On its conference call, Genentech executives expressed "great interest" in testing Tarceva in this so-called "adjuvant" setting for lung cancer, although the company said such studies are complicated and difficult to conduct.

In addition to lung cancer, Tarceva is also being studied as a treatment for cancers of the pancreas and brain.

Under their co-marketing agreement, Genentech and OSI Pharmaceuticals will split the U.S. profits of Tarceva equally. Genentech's large cancer drug sales force will assume the lead marketing role here, with OSI salespeople right behind them. Roche will market the drug outside the U.S.

Despite an equal Tarceva profit split and the fact that OSI is a bigger percentage gainer Monday, Genentech has added approximately $8 billion to its already mighty market cap to just over $2 billion for OSI. The discrepancy is not easily explained, but it could be because Genentech will add hundreds of millions of dollars in Tarceva sales to its top line without having to spend very much at all to market the drug, given the fact that Genentech has already bulked up its sales force to sell Avastin. (These sales people will call on the same doctors for both drugs.)

Also, coming soon are more studies looking at combination treatments of Avastin and Tarceva, which could boost sales of both above current estimates. There will be some midstage data on the Avastin-Tarceva combination in lung and kidney cancer at this year's annual ASCO confab.

For the number buffs out there -- but not necessarily those adherents to "sane" or "traditional" valuation metrics -- Genentech is now only about $5 billion shy of Amgen's (AMGN Quote) sector-topping $75 billion market cap, despite having about half the annual sales. Biotech investors love companies that have momentum on their side, and Genentech has it in spades. Amgen, by comparison, is mature, which is really a four-letter word in biotech. Anyone want to guess how long it takes before Genentech is the market-cap leader among biotech?