Genentech's Next Targets: Alzheimer's, Infectious Diseases

NEW YORK -- What if Genentech(DNA) develops the Avastin of Alzheimer's disease?

That would be pretty cool, no doubt. It also would propel the biotech giant into another dimension of growth and profitability.

To me, this was the most intriguing headline coming out of Genentech's investor meeting Friday. Building on the successful development of blockbuster cancer drugs like Avastin and Rituxan, CEO Art Levinson announced the company's intention to plant its drug research flag into two new therapeutic realms: neuroscience and infectious diseases.

Genentech is wasting no time, either. The company will seek permission from regulators this year to begin human testing of a drug for Alzheimer's that targets beta amyloid.

"There is a tremendous need in this area, so it is time for Genentech to get involved," said Richard Scheller, Genentech's executive vice president for research, adding that he is seeking a "household name," i.e. a neuroscience all-star, to lead the company's efforts in this area.

Given the company's stellar R&D track record, anyone care to bet against Genentech?

Not me.

Now, I do realize that it's very early to be counting on Genentech's push into Alzheimer's or any other neurological or infectious disease. But there isn't a drug or biotech company in existence with a better R&D track record, so when Genentech says it intends to puts its collective brain power into a new disease area -- especially one as medically important and financially lucrative as Alzheimer's -- investors should be taking notice.

Cancer Sweet Spot

Cancer will remain Genentech's sweet spot for the near future, so naturally, the bulk of Friday's meeting was spent discussing Avastin and the rest of the cancer pipeline. Genentech said it will seek regulatory approval later this year for Avastin as a treatment for relapsed glioblastoma multiforme, a type of brain tumor. Further ahead, there are two ongoing, pivotal studies of Avastin as an adjuvant treatment for colon cancer.

On the commercial front, Genentech is launching Avastin in metastatic breast cancer. Remarking on the recent FDA approval, CEO Levinson bristled at suggestions that U.S. regulators lowered the regulatory bar to approve Avastin for the new use.

Genentech's commercial chief Ian Clark was a bit more cautious, however.

"I'm confident in the medium term, but don't expect Avastin in this setting to take off like it did in colorectal cancer," he said.

The issue, he explained, was that Avastin already has about 25% market share in breast cancer due to off-label use of the drug, so the formal, on-label launch won't be as explosive.

Investors have high expectations for Avastin in breast cancer, and rightly so, since the new approval could add about $1 billion to the drug's revenue. But Clark's cautious tone was likely partly responsible for Genentech decision not to bump up its 2008 earnings forecast.

Instead, the company raised the lower end of its previous guidance by five cents to a new range of $3.35 to $3.45 a share. The stock traded up into Friday's meeting in anticipation of more, which explains why the stock fell 3% to $78.83 Friday. (The Bear Stearns(BSC) mess didn't help either.)