Updated from 8:12 a.m. EST
continued their march higher Friday, the day after the FDA approved the company's colorectal cancer drug Avastin.
Shares closed up Friday $4.69, or 4.55%, to $107.99, after the stock gained $7.02 Thursday.
The stock was propelled by some analysts raising their sales and profit estimates for the drug Avastin, after the company said it would charge $4,400 per month for the product, double what many on Wall Street had been predicting. A broader-than-expected label for prescribing the drug also encouraged some analysts.
"We estimate a compelling revenue opportunity in 2004 from Avastin," said Eric Schmidt, of SG Cowen, in a brief note to clients on Friday. Schmidt, who has a strong buy rating on Genentech, issued a more detailed report a few days before the FDA announcement, correctly predicting that Avastin would command a high price. He said Avastin could produce $350 million in sales this year and $870 million next year, about 50% more than the Wall Street consensus.
Schmidt said his optimism was prompted by conversations with medical consultants who "praise Avastin for its strong survival benefits, clean side-effect profile and convenient dose regimen."
Such comments encouraged Schmidt to predict more doctors would use Avastin more quickly than most analysts predict. (Schmidt doesn't own shares, but his firm says it "does and seeks to do business with companies covered in its research reports.)
A contrasting view comes from Christopher J. Raymond of the Robert W. Baird investment banking firm, who has an underperform rating on the stock, which he thinks is overvalued. (His price target is $82).
Conceding that he was impressed by the FDA granting a broader-than-expected label for Avastin's use, Raymond said Genentech's decision to charge so much for Avastin "clearly implies sizable commercial advantages." He added in a Friday research report that most Wall Street expectations "are far ahead of what the data might support in clinical practice."
Avastin's price is double what he expected, causing him to raise revenue estimates on the drug to $175 million from $150 million this year. His new estimate is still below the Wall Street consensus of $269 million, according to his firm's research.
Raymond said his conversations with cancer specialists indicate that physicians won't use Avastin as quickly or as often as other analysts say. "Based on Genentech's own cautionary stance with regard to Avastin expectations, voiced repeatedly on its conference call
with investors Thursday evening, we continue to believe Avastin revenue estimates have been overly aggressive" among other investment bankers, he added. (Raymond doesn't own shares, but his firm expects to receive or seek investment banking-related compensation from Genentech in the next three months).
Avastin was approved by the FDA as a first-time therapy for patients suffering from colorectal cancer that has spread to other parts of the body. The drug is used with several standard chemotherapy products. Colorectal cancer is the second-biggest cancer killer in the U.S., according to the American Cancer Society.
The FDA approved the drug based on tests that showed patients taking Avastin plus standard chemotherapy had a median survival of 20.3 months compared with a median survival of 15.6 months for patients treated with just chemotherapy.
Avastin is the first drug approved by the FDA to prevent the formation of new blood vessels in tumors. This vessel-forming process called angiogenesis enables the tumors to grow and spread. The drug is believed to target a protein in tumor cells that stimulates blood vessel formation. When this protein is blocked and blood vessel formation is impaired, the tumors lose their source of nutrition.