Despite soundly beating revenue estimates for the second-quarter - due in large part to a 42 percent increase in overall product sales - Genentech Inc.'s stock fell on news that Avastin failed to perform to analysts' expectations.

The South San Francisco-based company reported operating revenue of $2.2 billion for the quarter ending June 30, a 44 percent increase over the second quarter in 2005 and higher than the $2.12 billion estimated by analysts. Non-GAAP net income came to $602 million, or 56 cents per share, well over the consensus estimate of 47 cents. GAAP net income was $531 million, or 49 cents per share. The company ended the quarter with about $2.2 billion in cash.

But it was Avastin (bevacizumab) revenue that received the most scrutiny from investors. U.S. sales of the anti-VEGF cancer drug totaled $423 million for the second quarter, 72 percent more than the same period last year but more than $15 million below Wall Street predictions. That pushed shares of Genentech (NYSE:DNA) down $3.08 Wednesday to close at $80.98.

The company's earnings report comes as patient advocacy groups are pressuring drug firms to cut the costs of their products. A July 11 USA Today front-page article, "Prices soar for cancer drugs," included a graphic listing the 10 highest-priced cancer therapies - four were from Genentech: Avastin, at $4,400 per month; Herceptin, at $3,000 per month; Rituxan, which can run from $4,200 to $13,000 per month depending on cancer type; and Tarceva, which ranges between $2,400 to $2,700 per month depending on cancer type.

While dominating that list could be seen as both a compliment and a negative for Genentech, a February article in The New York Times titled "A Cancer Drug Shows Promise, at a Price That Many Can't Pay," explored the company's plan to double the price of Avastin upon approval for the lung and breast cancer indications (both cancers would require a higher dose). Supplemental biologics license applications are pending at the FDA, with a PDUFA date of Oct. 11 for lung cancer. The FDA has set a PDUFA date of Nov. 22 for the breast cancer application, though the company said that approval could be delayed by additional documentation.

Genentech, which has defended its pricing policy, reported that its profit margin averages about 20 percent after taxes, and analysts say Avastin's cost had no effect on its lower-than-expected second quarter sales.

"I think the pricing element is a non-issue," said analyst Joel Sendek, of New York-based Lazard & Co. "I think in this case, The Street was too optimistic on what Avastin would do."

Jason Kantor, of RBC Capital Market, agreed.

"I think there are few people with colorectal cancer who are not getting the drug because of reimbursement issues," he told BioWorld Today.

Avastin has been approved in combination with chemotherapy as a first-line treatment for patients with colorectal cancer, and gained a second approval in that indication for patients who previously received chemotherapy.

In the lung and breast cancer indications, doctors have started prescribing Avastin off-label, and "in our analysis," Lazard's Sendek said, "it has already penetrated both of those markets by about 8 percent."

Genentech recorded increases in U.S. sales for all its major products last quarter: Rituxan (rituximab) rose 17 percent over the second quarter last year to total $526 million; Herceptin (trastuzumab) jumped 111 percent to $320 million; Tarceva (erlotinib) increased 47 percent to $103 million; Xolair (omalizumab) increased 31 percent to $105 million; and Raptiva (efalizumab) rose 5 percent to $22 million.

Genentech's highly anticipated wet age-related macular degeneration drug, Lucentis (ranibizumab), was launched the final day of the second quarter, the same day it received FDA approval. For that day, Genentech recorded sales of $10 million. (See BioWorld Today, July 5, 2006.)

"I think there's a tendency to think of Genentech as a one-product company," Kantor said. "But this is a company with 10 different drug classes on the market, and that will have total U.S. sales this year of over $7 billion."

In its updated guidance, Genentech said it expected growth of 55 percent to 60 percent in non-GAAP EPS for 2006, relative to the $1.28 per share recorded in 2005.

In separate news, the company, along with partner Curis Inc., decided not to move forward with the current formulation of a topical basal-cell carcinoma drug and will determine another path for approaching the target.

In January, the companies halted enrollment in the trial after preliminary data failed to show a complete clearance of skin lesions, a decision that sent Curis' shares down 30 percent to $2.61. Recently released results from another segment of that same study showed that the formulation did not down-regulate the targeted pharmacodynamic marker, suggesting the possibility that the product is not adequately penetrating the skin. (See BioWorld Today, Jan. 25, 2006.)

Genentech and Curis will continue with their ongoing collaboration on a systemic Hedgehog antagonist program for solid-tumor cancers.

Shares of Cambridge, Mass.-based Curis (NASDAQ:CRIS) closed at $1.28 Wednesday, up 6 cents.