Almost two months ahead of schedule, the U.S. Food and Drug Administration (FDA) said on late Thursday that it approved Tarceva™, the OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) and Genentech (NYSE:DNA) drug for treating advanced cases of non-small cell lung cancer, the most common form of lung cancer. Despite the good news, the share price for OSI Pharmaceuticals plunged at the market opening on Friday, November 19, as much as 14.4 percent as Wall Street raised concerns about the lack of future revenue guidance for Tarceva sales as well as issues surrounding the inclusion of information on the package insert regarding the epidermal growth factor receptor (EGFR) protein that could potentially limit the sales of the drug.

Traders and hedge-fund managers began questioning Tarceva's pricing, $2,060 for a 30-day supply, and the effectiveness of Tarceva on patients that are current or former-smokers. Over 18.5 million OSI Pharmaceuticals shares were traded on Friday, eleven times more than the three-month daily average. The shares closed at $58.16, down 9.48 percent from the previous day's closing price. Genentech's share price on the other hand, closed at $48.89, down just 1.98 percent with trading volume only slightly above average.

Why is the Epidermal Growth Factor Receptor (EGFR) so Important? - Normal epithelial cells produce low levels of epidermal growth factor receptor (EGFR) protein on their surface. An increased level of EGFR protein found in the tumor tissue causes the tumor to grow aggressively and to metastasize. A number of EGFR-targeted agents including the EGFR inhibitors gefitinib ('IRESSA®', ZD1839) and erlotinib ('Tarceva™', OSI-774), and the monoclonal antibody cetuximab ('Erbitux', IMC-C225) have been developed for a variety of anti-cancer treatments.  

For the non-small cell lung cancer treatment, gefitnib, developed and commercialized by London, UK-based AstraZeneca (NYSE ADS :AZN), and erlotinib, co-developed and commercialized by OSI Pharmaceuticals, Inc. and Genentech, which is majority-owned by Switzerland's Roche Holding AG (OTC ADR : RHHBY.PK), work by attaching itself to the EGFR and thereby inhibiting the attachment of the EGFR to the epidermal growth factor (EGF). 

In cell biology, an attachment of the EGFR to the EGF activates the enzyme tyrosine kinase, which causes the cell to grow and multiply. Hence, an EGFR tyrosine kinase inhibitor will cause cells to stop growing. Human epidermal growth receptor 1 (HER1), for example, is one of the several proteins which are found on the surface of many tumor cells.

What is the Real Issue Concerning the EGFR Protein Expression Status and Tarceva's Competitiveness in the Lung Cancer Drug Market?  -  Analysis of the impact of EGFR expression status, as determined by immunohistochemistry (IHC) found in the Tarceva's package insert, based upon 238 study patients, or one-third of the tested population, shows that the survival of patients with the positive EGFR expression status is greater than that with the negative EGFR expression status.

Immunohistochemistry (IHC) using the EGFR pharmDx™ kit from Carpinteria, Ca-based DakoCytomation, Inc., is a quantitative analysis to identify the EGFR expression in normal and neoplastic tissues. In this analysis, specimens from the biopsy are IHC stained and visually inspected. EGFR-negative is defined if cells are absent from staining within the tumor. In the Tarceva study, EGFR-positive was defined as having at least 10% of the cells stained, in contrast to the 1% cut-off specified in the Dako EGFR pharmDx™ kit instructions.

According to DakoCytomation, the EGFR pharmDx™ kit is FDA-approved and is currently used to identify the treatment eligibility for colorectal cancer patients with Erbitux™.  Nonetheless, the use of the pharmDx™ kit has not been validated for use in non-small cell lung cancer tissue. The analysis for EGFR expression in cell tissues is quite routine. Anatomic pathology laboratories such as Riviera Beach, Fl-based AmeriPath, Inc., can run the analysis and provide results within 24 hours from the receipt of the specimen.

Piper Jaffray analyst Thomas Wei raised concerns about the inclusion of the EGFR data in the package insert and suggested that the inclusion could potentially cause physicians to limit Tarceva usage to EGFR-positive patients and therefore his previous estimation of Tarceva sales may be too high. Dr. Susan Desmond-Hellman, Genentech's president of product development, emphasized during Genentech's conference call last Friday that survival benefits were observed in all patients and that they didn't pre- screen patients for the EGFR protein. "The information included in the insert should be seen more as an aid to help doctors prescribe the drug to patients likely to receive the most benefit", she added.

The impacts of smoking and the EGFR expression status on survival of lung cancer patients is not new. At the 39th Annual Meeting of the American Society of Clinical Oncology (ASCO) last year, Dr. Vincent Miller, MD, of New York, NY-based Memorial Sloan-Kettering Cancer Center, the world's oldest and largest private cancer research institution, has concluded that erlotinib was more effective in patients who had never smoked. 

Last August, Dr. William Pao and his research team, also of the Memorial Sloan-Kettering Cancer Center, confirmed that the never-smoker lung cancer patients harbored more EGFR gene mutations than those in smoker patients. In addition, the mutations in the EGFR gene appear to influence sensitivity to gefitinib and erlotinib. 

From our view, the combination of the survival data, 6.7 months compared to 4.7 months in patients who received placebo, and the second and third-line label will allow Tarceva to compete effectively with IRESSA®.  IRESSA® (gefitinib), which was the first HER1TK/EGFR inhibitor drug approved by FDA in May 2003 for third-line treatment on NSCLC patients, has some ability to shrink tumors but failed to improve survival of patients who took the drug alone, without chemotherapy. 

In September this year, AstraZeneca announced a new clinical trial to evaluate the effectiveness of IRESSA® versus semisynthetic chemotherapy drug Taxotere® (docetaxel)® (docetaxel), in patients with locally advanced or metastatic non-small cell lung cancer who have previously received platinum-based chemotherapy. At the end of the trial, the company hopes to have some additional overall survival data in order to compete effectively with Tarceva.

According to Randi F. Marshall, staff writer for the New York, NY-based Newsdaily, patients who took part in the Tarceva's clinical trials early this year were very satisfied with the new drug. Dr. Abraham Chachoua, a New York University thoracic oncologist, who just wrote his first prescription for Tarceva, is convinced Tarceva will improve his patients' quality of life. "Your natural inclination would be to prescribe Tarceva above anything else.", he added.  

Tarceva, which was launched last Monday, is expected to generate sales of $10 million in the fourth quarter for OSI Pharmaceuticals and Genentech. We have no doubt that Tarceva will become a blockbuster drug for both companies. Based upon IRESSA® worldwide sales in the past three quarters of this year, which reached $266 million up 189 percent year over year, we believe that Tarceva's sales could exceed well over $200 million in fiscal 2005. Peak sales could reach $1.4 billion in 2010, according to Merrill Lynch equity analyst Eric Ende. Due to the present weak US currency exchange, we believe that the near-term profit margin derived from Tarceva's sales could be a slight advantage over that of IRESSA®. These were not yet priced into OSI Pharmaceuticals and Genentech's share price.