Genentech Gang Fights Back

OrbiMed manages a number of funds, nine of which hold a combined total of 3.8 million Genentech shares. The firm recently trimmed its Genentech holdings, but Borho says that if he had doubts about the company, "I wouldn't own shares."

Making It Better

Last month the headlines seemed to turn against the company. For instance, Genentech halted enrollment in late-stage ovarian cancer trials when five of 44 patients had a gastrointestinal perforation after taking Avastin. Although such perforations are a known side effect, the number of incidents was higher than expected.

The company said at a conference in New York that late-stage ovarian cancer patients often have gastrointestinal complications.

Also in September, Genentech took a bit of a hit, along with partner OSI Pharmaceuticals (OSIP Quote), when the Food and Drug Administration said the benefits of the cancer drug Tarceva might not outweigh its risks in pancreatic cancer patients.

Piper Jaffray analyst Thomas Wei lowered his third-quarter Tarceva sales estimates by $10 million to $75 million, but he left his 2006 estimates unchanged, which assumes rapid growth for the drug in treating pancreatic cancer.

Overall, however, Wei has increased his earnings estimates for Genentech. Data from industry tracker IMS showed Herceptin sales totaled $65 million in August, Wei wrote in a research note, up from $56 million in July and ahead of his projections.

For the third quarter, he expects to see Herceptin sales of $200 million, but he believes upside still remains for the drug. The analyst estimates Avastin sales will hit $260 million for the quarter, and he raised his profit estimate by a penny to 30 cents.

Another potential worry for investors dealt with the use of Avastin in a type of vision loss called wet age-related macular degeneration. Independent investigators have found Avastin is effective against wet AMD, and according to Borho, if the drug is widely accepted for that use, Genentech could stand to lose up to $1 billion in Lucentis sales. He estimates that Lucentis sales otherwise could reach $2 billion a year.