Shares of

Genentech

(DNA)

and

ImClone Systems

(IMCL)

fell Monday after an SG Cowen analyst cut sales estimates for the colon cancer drugs of the two companies.

Although the drug Erbitux is ImClone's only product, while Genentech has a broad product portfolio that includes the drug in question, Avastin, both companies are painfully sensitive to any Wall Street remarks about these drugs. ImClone's stock fell $2.43, or 4.9%, to $46.90; Genentech's stock dropped $3.30, or 6.9%, to $44.52.

The source of their woes was a report Monday by SG Cowen analyst Eric Schmidt, who said a recent survey of 27 physicians indicates Avastin's sales growth may be maturing faster "than some expect" and that doctors' use of Erbitux is "flattening, at least in the near term."

As a result, Schmidt cut his sales estimates for Avastin in each year stretching from 2005 to 2009. The forecast calls for a $200 million reduction next year to $1.04 billion. For 2009, sales are now seen at $1.65 billion, $1.01 billion less than the analyst's previous estimate. "We expect decelerating sales of Avastin will cause shares to lose some of their momentum," Schmidt wrote in a report to clients.

He said he included in his sales estimates the prospects of Avastin being approved by the Food and Drug Administration as a treatment for kidney cancer, but he hasn't included other potential cancers in his calculations. In addition to kidney cancer, Genentech is testing Avastin for treating breast cancer and lung cancer.

As a result of his Avastin prediction, Schmidt said he was trimming his earnings per share estimates on Genentech as follows: 5 cents to $1.35 in 2006; 10 cents to $1.65 in 2007; 15 cents to $1.90 in 2008; and 15 cents to $2.10 in 2009. He is keeping, however, his 2004 EPS prediction of 83 cents and his 2005 EPS estimate of $1.10. His firm doesn't offer stock ratings. (He doesn't own shares in Genentech or ImClone; his firm is a market-maker in ImClone's stock and Cowen says it does and seeks to do business with companies mentioned in research reports).

Avastin was approved by the FDA in late February. It contributed $183 million in sales for the third quarter. Although that's less than 10% of the corporate revenue of $1.2 billion for the quarter, Avastin is viewed on Wall Street as Genentech's most important stimulator of sales and profit growth for the next few years.

ImClone didn't fare any better than Genentech. The poll of cancer specialists indicates that "adoption of Erbitux in refractory disease may be peaking sooner than expected." A refractory disease is one that doesn't respond to treatment.

(The survey said that in September, the use of Avastin in refractory patients declined for the first time since the drug reached the market. However, doctor's use of Avastin as a front-line therapy continues to grow).

Schmidt cut his Erbitux sales estimates for each year from 2005 through 2009. Next year, he reduced his estimate by $40 million to $500 million; by 2009, his estimate trims $320 million off of sales to $900 million. "We believe ImClone shares will remain choppy until trends in colorectal cancer reverse or sales in other tumor types ... pick up the slack," he said.

Erbitux, which was approved for colon cancer by the FDA in February, is being tested for treating cancers of the head and neck, pancreas and lung. Schmidt is keeping his 2004 full-year EPS prediction of $1.83, but he cut 2005's by 10 cents to $2.30.

ImClone releases its third-quarter sales and earnings data on Thursday. ImClone's U.S. partner in developing and marketing Erbitux is

Bristol-Myers Squibb

(BMY) - Get Report

. ImClone's marketing partner outside North America is the German company

Merck.