Another Big Quarter for Genentech

Avastin's sales appeared to have been little affected by a company warning sent in mid-August that said Avastin was linked to "serious thromboembolic adverse events," such as stroke, heart attacks, heart-related chest pains and death caused by blood clots.

In tests involving patients with advanced colon cancer, this warning -- known in the drug business as a "Dear Doctor" letter -- said that the risk of a dangerous side effect was approximately twice as great for patients receiving Avastin.

On the conference call, COO Myrtle Potter said Avastin's market penetration in first-line colon cancer had doubled sequentially to 40% in the third quarter. Given the fact that there are only a finite number of new colon cancer patients to treat, Potter said the company sees Avastin possibly reaching peak market penetration faster than expected. In other words, the rate of Avastin's sales growth in colon cancer may soon start to slow. At the same time, Potter said the company still believes that the overall market opportunity for Avastin in colon cancer remains the same.

Noting the strong Avastin sales numbers from the past two quarters, some investors have begun to worry that Avastin may be peaking too soon. But on a positive note, Genentech is still developing Avastin as a treatment for a variety of other cancers, including lung, renal and pancreatic.

A recent report by the SG Cowen brokerage said that "although Avastin appears to be tracking ahead of expectations, we believe the potential for future sales revisions to spark upside in Genentech shares is modest." However, the firm, which doesn't provide stock ratings, added that it still believes that Avastin will continue to gain more market share in the colorectal cancer market "and could provide further upside" to Wall Street estimates.

Also on Wednesday, Genentech said its biggest drug, Rituxan, recorded sales of $437.7 million, an 18% increase over the same period last year. The drug, which treats patients with non-Hodgkins lymphoma, is marketed in the U.S. through a joint venture with Biogen Idec(BIIB Quote - Cramer on BIIB - Stock Picks). Sales of the advanced breast cancer drug Herceptin rose to $126 million, a 17% increase over the same period last year.

Commenting on the subpoena received Monday from government prosecutors concerning Rituxan, CFO Lavigne said the company has not been informed about the origin of the investigation, but that it is cooperating and is committed to the ethical and legal promotion of its products. Company executives declined to take any questions about the matter.

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