Genentech ( DNA) has had the wind at its back for the past year, seeing its share price more than double and reaching an all-time high. But in September, the big biotech found the going a little tougher.

From a best close of $94.74 on Sept. 1, the stock began a reversal that saw it drop to $79.86 on Sept. 27, a decline of more than 15% and a level it hadn't touched since late June. Following that close below $80, buyers sensed a bargain, and the stock ended last week above $84.

Genentech's shares have continued rising, and on Tuesday, they were up again, lately by 68 cents to $86.90.

Recent weeks have seen concerns arise over an ongoing patent dispute and the safety of the celebrated cancer drug Avastin. Genentech even found itself up against worries that the aforementioned Avastin could be effective against vision loss, meaning it may ultimately cut into sales of the company's experimental and probably higher-priced vision-loss drug Lucentis.

The majority of Genentech's Wall Street watchers don't seem to think the recent pullback is reason to believe the big run might be losing steam. Of the more than 30 analysts covering Genentech, 20 of them have a form of buy or strong buy rating, according to Thomson First Call. None have sell ratings on the stock, and the median price target is $97.

Next week, Genentech will report its quarterly earnings, and investor sentiment may well hinge on what the company says during the conference call following its profit report. On average, analysts expect the company to earn 30 cents a share on revenue of $1.63 billion for the latest quarter.

"In the spring, most of Genentech's stock price was driven by clinical news," according to Sven Borho, partner at OrbiMed Advisors, a health care fund manager. "Now all eyes are obviously on Avastin and Herceptin."

OrbiMed manages a number of funds, nine of which hold a combined total of 3.8 million Genentech shares. The firm recently trimmed its Genentech holdings, but Borho says that if he had doubts about the company, "I wouldn't own shares."

Making It Better

Last month the headlines seemed to turn against the company. For instance, Genentech halted enrollment in late-stage ovarian cancer trials when five of 44 patients had a gastrointestinal perforation after taking Avastin. Although such perforations are a known side effect, the number of incidents was higher than expected.

The company said at a conference in New York that late-stage ovarian cancer patients often have gastrointestinal complications.

Also in September, Genentech took a bit of a hit , along with partner OSI Pharmaceuticals ( OSIP), when the Food and Drug Administration said the benefits of the cancer drug Tarceva might not outweigh its risks in pancreatic cancer patients.

Piper Jaffray analyst Thomas Wei lowered his third-quarter Tarceva sales estimates by $10 million to $75 million, but he left his 2006 estimates unchanged, which assumes rapid growth for the drug in treating pancreatic cancer.

Overall, however, Wei has increased his earnings estimates for Genentech. Data from industry tracker IMS showed Herceptin sales totaled $65 million in August, Wei wrote in a research note, up from $56 million in July and ahead of his projections.

For the third quarter, he expects to see Herceptin sales of $200 million, but he believes upside still remains for the drug. The analyst estimates Avastin sales will hit $260 million for the quarter, and he raised his profit estimate by a penny to 30 cents.

Another potential worry for investors dealt with the use of Avastin in a type of vision loss called wet age-related macular degeneration. Independent investigators have found Avastin is effective against wet AMD, and according to Borho, if the drug is widely accepted for that use, Genentech could stand to lose up to $1 billion in Lucentis sales. He estimates that Lucentis sales otherwise could reach $2 billion a year.

Lucentis won't be on the market until the end of next year or later, and already Eyetech ( EYET) and Pfizer ( PFE) have a head start with their own wet AMD treatment called Macugen, which was approved in December. OSI and Eyetech are merging.

Various Outcomes

The most recent issue Genentech has had to confront entailed a patent detailing methods of producing monoclonal antibodies -- molecular-targeted drugs designed to fight specific diseases. Genentech licenses the patent to other companies.

The company's shares sank 3.3% on Sept. 27 as speculation arose that Genentech's Cabilly patent, which isn't set to expire until 2018, in fact might not be untouchable . The company said the U.S. Patent and Trademark Office had rejected the claims of the Cabilly patent, but called the decision "a routine and expected next step" in a re-examination another party had requested.

There are three possible outcomes of the dispute, according to analyst Joel Sendek of Lazard Capital Markets: The patent could be rejected, stopping Genentech's royalty payments at the end of 2006; the patent office may force Genentech to renegotiate license agreements; or the patent may ultimately stand, allowing Genentech to continue collecting Cabilly-related royalty payments through its scheduled expiration.

"We believe that Genentech has a strong case to prevail and achieve an extension to their patent, and therefore we view reducing our royalty estimates at this time would be premature," Sendek wrote in a research report last week. He maintained a buy rating and price target of $103.

Genentech said a final resolution of the case may take from several months to several years. As a result, Adam Walsh of Jeffries & Co. said the threat isn't immediate to the patent's validity. The Cabilly patent remains valid while the re-examination is pending.

However, Walsh says the Cabilly issue is worth watching. An estimated $300 million in annual royalty revenue would be lost without the patent, and according to the analyst's calculations, that could cut earnings by 18 cents a year.

"We would take advantage of the recent pullback to add to positions, as fundamentals remain strong and valuation looks increasingly attractive," Walsh wrote in a research report. He kept his buy rating on the stock and sees a 12- to 18-month price target of $98. Jefferies doesn't have an investment banking relationship with Genentech.

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