Roche May Have Worst Adverse Reaction To Raptiva Safety News

Roche May Have Worst Adverse Reaction To Raptiva Safety News

Without doubt, the side effects linked to Genentech's Raptiva (efalizumab) treatment for psoriasis are serious - three confirmed cases and one possible report of a rare brain infection known as PML, or progressive multifocal leukoencephalopathy.

Just the same, the development and the attendant sales limits the drug now faces appear unlikely to derail or delay Roche's $42 billion bid for Genentech. On one hand, the adverse events and FDA scrutiny could prompt the biotech to write down $130 million in Raptiva inventory and, going forward, have a "materially adverse effect on demand," according to a Genentech U.S. Securities and Exchange Commission filing Feb. 13, nearly a week before the announcement of regulatory actions from FDA and EMEA. Not surprisingly, one analyst, Christopher James at Rodman & Renshaw, lowered his sales estimate for Raptiva for this year and beyond.

At the same time, though, Raptiva is a relatively small piece in a much larger puzzle. Last year, Raptiva sales totaled just $108 million, or 1 percent of overall Genentech sales of $10.5 billion. Moreover, that also represented a 1 percent increase from 2007. In other words, the side effects probably will not attract nearly the kind of attention that Genentech institutional shareholders are paying to upcoming clinical trial results for Avastin as an adjuvant, or preventive therapy for colon cancer. At $2.68 billion in sales last year, Avastin is Genentech's biggest seller. As James also wrote: "The changes we have made to our model have minimal impact on our (earnings per share) estimates and do not change our valuation" for Genentech stock.

If anyone is likely to make a big deal out of the Raptiva side effects, however, it may be Roche executives, who are offering $86.50 a share for the biotech. Last month, in fact, they lowered their bid, from $89, after citing, among other things, a Genentech financial forecast they deemed overly optimistic ('The Pink Sheet' Feb. 2, 2009, p. 3). The biotech used this forecast to justify a $112 asking price, but Roche may now try to use Raptiva as ammunition for saying Genentech is too bullish on its own prospects.

- Ed Silverman ([email protected])