Genentech Investors Monitor Avastin Study

This is why the results of the study, being handled by the National Surgical Adjuvant Breast and Bowel Project and known as NSABP-C-08, are so important to Genentech's future, as well as to the outcome of the Roche takeover bid.

Roche's initial $89-a-share offer for the rest of Genentech it didn't previously own was widely considered to be too low, in part, because of the huge commercial potential for Avastin adjuvant therapy.

The ongoing C-08 study is evaluating post-surgery colon cancer patients treated with Avastin plus chemotherapy, or chemotherapy alone. The study will be a success if Avastin can significantly prolong disease-free survival compared with chemo alone.

"We continue to view the adjuvant colorectal cancer C-08 data as the most important of [upcoming milestones] and expect the study to ultimately be positive, although the interim analysis in [the fourth quarter] has a relatively low probability of success," writes Bernstein Research's Geoffrey Porges, who has an outperform rating and a $97 price target on Genentech.

Positive results from the interim analysis of the C-08 trial would affirm the decision of Genentech's board to reject Roche's $89-a-share offer. It would also all but force Roche to come back with a higher bid. Whether Roche can rustle up the debt financing necessary for a higher offer given the global credit crisis remains to be seen.

"While we think the outcome of NSABP-C-08 is no better than a coin toss, success would drive dramatic ($5 billion-plus) upward revisions to Avastin sales and support 20%-plus EPS growth," said Cowen's Eric Schmidt in a note Wednesday in which he upgraded Genentech to outperform. "As Roche would need to pay up upon any success, Genentech shares appear to have upside with minimal downside into the next interim analysis (likely Nov.)."

Senior Columnist Adam Feuerstein contributed to this report.