Updated from 8:38 a.m. EST

Genentech ( DNA) and Xoma ( XOMA)said Monday that their drug Raptiva had failed to meet the goals of clinical testing for treating psoriatic arthritis, an inflammatory disease of the joints.

Genentech's stock was able to absorb the bad news; but shares of the much smaller Xoma were pummeled. Recently, Genentech's shares were down $1.46, or 1.4%, to $103.39, while Xoma's shares sank 66 cents, or 12.9%, to $4.49, highlighting the differing importance of Raptiva on the companies' fortunes.

Although the injectable Raptiva reached the U.S. market in November as a treatment for moderate to severe psoriasis in adults, the preliminary results of the test announced Monday represent a setback to the companies' strategy of securing government approval for multiple uses of the same drug.

Federal law allows doctors to prescribe a drug for any disease once the Food and Drug Administration approves a medication for a single use, but companies can only market the drug for FDA-approved purposes. Therefore, an FDA endorsement of multiple uses gives companies an important marketing advantage.

The latest test didn't deter UBS analyst Meirav Chovav from maintaining her prediction that Raptiva would produce $100 million in sales this year, $180 million next year and $250 million in 2006. Chovav, who has a buy rating on Genentech, told clients Monday that the results weren't surprising given the negative results reported last May in a test of Raptiva for rheumatoid arthritis, also an inflammatory disease. The latest test, she added in her research report, showed that "the drug was well-tolerated, with no worsening in the signs or symptoms of psoriatic arthritis after treatment." (UBS has had an investment banking relationship with Genentech in the last 12 months. Chovav's research report says that "the analyst covering this company, a member of his or her team or one of their household members has a long common stock position in Roche," the Swiss drug giant that owns more than 50% of Genentech.)

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