Commentary: Genentech's Lessons For Big Pharma

Mark April, 2005, as a watershed moment in cancer treatment. After decades of trying, researchers proved that two members of a new generation of targeted cancer drugs could extend the lives of breast cancer patients -- an incredibly tough standard to meet. And the glory goes not to Big Pharma but to a far smaller biotech, Genentech Inc. (DNA).

For cancer patients, the payoff could be big. On Apr. 25, the National Cancer Institute announced that Herceptin, Genentech's targeted breast cancer drug approved in 1998, cut the risk of recurrence in half when given after surgery. "These are truly life-saving results in a major disease," said Dr. JoAnne Zujewski, head of breast cancer trials for the NCI. Just 10 days earlier, Genentech had reported that Avastin, a first-in-class drug approved for colon cancer a year ago, also kept early-stage breast cancer patients alive longer.

Genentech shareholders are already reaping the benefits. The stock soared over 18% in just 14 days, closing at $71.89 on Apr. 27. Genentech's $75 billion market capitalization now exceeds those of Amgen (AMGN), the world's largest biotech, and Merck (MRK), the fifth-largest pharmaceutical company. That's despite revenues of just $4.6 billion in 2004, a fraction of those of the other two. "Genentech has transcended the biotech world," says John McCamant, editor of Medical Technology Stock Letter. "This is basically the world's largest oncology company."

It's no accident that Genentech is out front in the race to treat cancer: Unlike many of its rivals, it has focused squarely on the science of drug discovery rather than on marketing, acquisitions, or patent-extension battles. There's a lesson here for the rest of the industry: Genentech has spent the past 15 years coming up with novel drugs for unmet needs. It focused primarily on cancer, one of the hardest diseases to treat. Then it designed clinical trials to test whether its drugs could extend life, an unequivocable proof of efficacy. Most other drug companies merely try to prove that their drugs will shrink tumors.

Genentech's willingness to plod through the science has paid off with Herceptin, which targets a specific genetic flaw, Her-2/neu, responsible for only 25% to 30% of breast tumors. It would have failed clinical trials if it had been tested on all breast cancer sufferers, but Genentech also developed a test for Her-2/neu so it could try the drug only on those with a chance of responding. By comparison, AstraZeneca's Iressa, a targeted lung cancer drug, works only on tumors that overexpress a growth factor called EGF -- but there's no simple test for EGF. Only 10% of lung cancer patients respond to Iressa, and on Apr. 19 a trial was ended early because the drug didn't improve survival rates.

Genentech is also known for sticking with a program even when few others believe in it. Avastin is a case in point. In 2002 the drug failed to produce meaningful results in a late-stage breast cancer trial, and the company's stock sank. "But the science was telling us it should work," says Dr. Susan D. Desmond-Hellman, president for product development. Genentech redesigned the clinical trial. "We learned as much from our failures as our successes," she says.

Now, Avastin can boast a life-extension hat trick -- a first for a targeted cancer therapy. It won Food & Drug Administration approval in 2004 after a trial showed it could extend survival in colon cancer. And last month, Genentech announced that Avastin prolongs the lives of lung cancer patients by two months over standard treatment. Analysts now expect Avastin to be the biggest-selling cancer drug ever.

Success could tempt Genentech to shift focus. "The odds are against them that...their future will be as the last two to three months," says Eric Schmidt, a biotech analyst at SG Cowen & Co. That may be, but Genentech's success is a reminder to the rest of the industry, and to investors, that a slow, steady focus on science wins the race.

By Catherine Arnst

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