Similar to gefitinib, erlotinib specifically targets the epidermal growth factor receptor (EGFR) tyrosine kinase, which is highly expressed and occasionally mutated in various forms of cancer. It binds in a reversible fashion to the adenosine triphosphate (ATP) binding site of the receptor. For the signal to be transmitted, two members of the EGFR family need to come together to form a homodimer. These then use the molecule of ATP to autophosphorylate each other, which causes a conformational change in their intracellular structure, exposing a further binding site for binding proteins that cause a signal cascade to the nucleus. By inhibiting the ATP, autophosphorylation is not possible and the signal is stopped.
Erlotinib has shown a survival benefit in the treatment of lung cancer in phase III trials. It has been approved for the treatment of locally advanced or metastatic non-small cell lung cancer that has failed at least one prior chemotherapy regimen. In November 2005, the FDA approved the use of erlotinib in combination with gemcitabine for treatment of locally advanced, unresectable, or metastatic pancreatic cancer. The drug's patent will expire in 2020. 
A test for the EGFR mutation in cancer patients has been developed by Genzyme. This may predict who will respond to erlotinib and other tyrosine kinase inhibitors. It is reported that responses among patients with lung cancer are seen most often in females who were never smokers, particularly Asian women and those with adenocarcinoma cell type.
Erlotinib has recently been shown to be a potent inhibitor of JAK2V617F activity. JAK2V617F is a mutant of tyrosine kinase JAK2, is found in most patients with polycythemia vera (PV) and a substantial proportion of patients with idiopathic myelofibrosis or essential thrombocythemia. The study suggests that erlotinib may be used for treatment of JAK2V617F-positive PV and other myeloproliferative disorders.
Rash occurs in the majority of patients. This resembles acne and primarily involves the face and neck. It is self-limited and resolves in the majority of cases, even with continued use. Interestingly, some clinical studies have indicated a correlation between the severity of the skin reactions and increased survival though this has not been quantatively assessed. The Journal of Clinical Oncology reported in 2004 that "cutaneous [skin] rash seems to be a surrogate marker of clinical benefit, but this finding should be confirmed in ongoing and future studies." The newsletter Lung Cancer Frontiers reported in its October 2003 issue, "Patients with moderate to severe cutaneous reactions [rashes] have a far better survival, than those with only mild reactions and much better than those with no cutaneous manifestations of drug effects."
Loss of appetite
Rarely, interstitial pneumonitis, which is characterized by cough and increased dyspnea. This may be severe and must be considered among those patients whose breathing acutely worsens.
Rarely, ingrown hairs, such as eyelashes
It has also been suggested that erlotinib can cause hearing loss.
Resistance to treatment
A key issue with EGFR-directed treatments is that after a period of 8-12 months, the cancer cells become resistant to the treatment, most commonly by recruiting a mutated IGF-1 receptor to act as one of the EGFR partners in the homodimer, so forming a heterodimer. This allows the signal to be transmitted even in the presence of an EGFR inhibitor. Some IGR-1R inhibitors are in various stages of development (based either around tyrphostins such as AG1024 or AG538 or pyrrolo[2,3-d]-pyrimidine derivatives such as NVP-AEW541.
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^ Li Z, Xu M, Xing S, Ho W, Ishii T, Li Q, Fu X, Zhao Z (2007). "Erlotinib effectively inhibits JAK2V617F activity and polycythemia vera cell growth". J Biol Chem282 (6): 3428–32. PMID 17178722.
^ Dudek A, Kmak K, Koopmeiners J, Keshtgarpour M (2006). "Skin rash and bronchoalveolar histology correlates with clinical benefit in patients treated with gefitinib as a therapy for previously treated advanced or metastatic non-small cell lung cancer". Lung Cancer51 (1): 89-96. PMID 16290256.
^ Román Pérez-Soler, M.D., et al. (2004). "Selected Highlights". Lung Cancer Frontiers22 (16): 3238-3247.
^ Thomas L. Petty, M.D. (2003). "Determinants of Tumor Response and Survival With Erlotinib in Patients With Non—Small-Cell Lung Cancer". Journal of Clinical Oncology1 (17): 3-4.
^ Jones H, Goddard L, Gee J, Hiscox S, Rubini M, Barrow D, Knowlden J, Williams S, Wakeling A, Nicholson R (2004). "Insulin-like growth factor-I receptor signalling and acquired resistance to gefitinib (ZD1839; Iressa) in human breast and prostate cancer cells". Endocr Relat Cancer11 (4): 793–814. PMID 15613453. Free full text
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^ Warshamana-Greene G, Litz J, Buchdunger E, García-Echeverría C, Hofmann F, Krystal G (2005). "The insulin-like growth factor-I receptor kinase inhibitor, NVP-ADW742, sensitizes small cell lung cancer cell lines to the effects of chemotherapy". Clin Cancer Res11 (4): 1563–71. PMID 15746061. Free full text
Sordella R, Bell DW, Haber DA, Settleman J. Gefitinib-sensitizing EGFR mutations in lung cancer activate anti-apoptotic pathways. Science 2004;305:1163-7. PMID 15284455.
Genzyme "Genzyme Launches Exclusive Lung Cancer Test" Press Release September 27, 2005
"Determinants of Tumor Response and Survival With Erlotinib in Patients With Non-Small-Cell Lung Cancer, Journal of Clinical Oncology, August 15, 2004.
October 2003 issue of Lung Cancer Frontiers on rash/effectiveness correlation
"Is Rash a Good Thing with EGFR Inhibitors?", Dr. Howard West, M.D., OncTalk, November 25, 2006 (directed toward the layperson).