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Genentech Investors Monitor Avastin Study

Now that Genentech has a solid quarter under its belt, investors are waiting to see whether a new use for cancer drug Avastin is effective.

Now that



has a strong third-quarter earnings report behind it, investors are turning their attention to a possible buyout by Swiss drugmaker Roche and a large clinical trial of cancer treatment Avastin that could add billions of dollars in sales to the drug's already blockbuster status.

Several interim analyses of the phase III study, which is testing Avastin as an adjuvant therapy in patients with colon cancer, have been conducted already. None have resulted in strong enough data to stop the study.

The next scheduled examination of the data will occur this quarter, Sue Desmond-Hellmann, Genentech's president of product development, said Tuesday. At that point, Genentech will determine whether to release the results or indicate instead that the trial will proceed.

If the findings this quarter aren't unequivocally in Avastin's favor, the review will continue to a final analysis, currently expected in mid-2009, according to the company.

Adjuvant cancer therapy involves treating patients with drugs (or radiation or hormones, in some cases) soon after surgery in which the patient's primary tumor is removed. The idea is to kill any residual cancer cells that surgery may have missed and, by doing so, lower the risk that the cancer will return.

Right now, Avastin is approved as a treatment for patients with colon, lung and breast cancers. U.S. sales totaled $2.3 billion in 2007 and almost $2 billion through the first nine months of this year.

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But adjuvant use of Avastin in patients undergoing successful colon cancer resection surgery could tack on another $5 billion in sales, according to one estimate from the analysts at Cowen & Co.

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.