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Genentech's research and development efforts focus on a variety of significant medical conditions in specific disease areas, from cancer to cardiovascular disease to diabetes.
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A key component of our strategy for growth since 1995 has been to accelerate and expand product development. With a view toward the future, we have been investing up to half of our revenues back into research and development (R&D) at the expense of short-term earnings. In line with another key component of our strategy for growth - to increase the pace of forming strategic alliances - we are funding projects with strong medical and market potential stemming from both our own research and the research of our partners.
This strategy of fully backing our R&D efforts is beginning to show early signs of tangible success. With one new product and one new indication submitted for regulatory clearance, and seven Phase III pipeline projects with possible additional Phase III projects by year-end, we are poised to realize the benefits of our steadfast approach to R&D as we move into the next century. I hope you will share my excitement for the potential of our pipeline as you review the back page of this report, which profiles our late-stage development projects.
Our pipeline is deep as well as broad. With four new projects that entered into clinical development in 1996, we are positioning ourselves to continue our growth well into the next century. Our efforts in the area of oncology, outlined in this report, illustrate this depth, with one product ready to enter the market upon regulatory clearance, one in Phase III clinical testing, and another just beginning clinical development.
In a current Phase III clinical trial, Genentech is testing whether the effectiveness of Activase in the treatment of acute ischemic stroke will extend out to five hours after the onset of symptoms, beyond the three-hour treatment window for which it is currently marketed.
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In a continuing effort to help the full spectrum of cystic fibrosis patients, Genentech is preparing to conduct a Phase III clinical trial to determine whether early intervention with Pulmozyme® (dornase alfa, recombinant) can benefit young patients with preserved lung function.
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Results from the GUSTO III study, announced in the first quarter of 1997, suggest that Activase remains a standard of care in the treatment of heart attack by demonstrating that a new competitive thrombolytic agent does not save more lives than Activase in the treatment of acute myocardial infarction.
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Our R&D efforts support yet another component of our strategy for growth: to maximize sales of our marketed products. Submitted for regulatory clearance is a new indication for our growth hormone products - the treatment of growth hormone inadequacy in adults. This report discusses the work of our partner Alkermes, Inc., which is investigating in Phase I/II clinical trials a sustained-release formulation of growth hormone, which could potentially reduce the frequency of injections. A key Phase III trial with Activase® (Alteplase, recombinant) is testing whether its effectiveness in the treatment of acute ischemic stroke will extend out to five hours after the onset of symptoms, beyond the three-hour treatment window for which it is currently marketed. If clinical trial results are positive, the market size for the stroke indications could increase. As described in this report, clinical research findings by independent clinical investigators in the GUSTO III trial also lend support to our marketing efforts for Activase in the treatment of acute myocardial infarction, for which Genentech now holds more than an 80 percent share of the thrombolytic market.
| With one new product and one new indication submitted for regulatory clearance, and seven phase III pipeline projects, we are poised to realize the benefits of our steadfast approach to R&D as we move into the next century.
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The fourth component of our strategy for growth, improve financial returns, will, we expect, follow from the first three strategies. I believe it is important to note that even as we invested in R&D at a rate approaching 50 percent of revenues, we still were able to bring more than 12 percent of our revenues to the bottom line in 1996. If we can continue this disciplined approach as sources of additional revenue move out of our pipeline and onto the market, I anticipate we will be able to provide an attractive return to our stockholders as we move into the next century. We anticipate R&D spending to increase in absolute dollar terms, while we level off R&D spending as a percent of revenues in 1997 by bringing more revenues to the bottom line. We anticipate spending about 25 to 30 percent of our revenues on R&D by the turn of the century. As we move forward with our plan for growth, I appreciate your continued support and shared vision.
Arthur D. Levinson, Ph.D.
President and Chief Executive Officer
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