Genentech Reports 25 Percent Increase in Product Sales for Third Quarter

19 Percent Increase in Earnings Per Share

South San Francisco, Calif. -- October 11, 2000 -- Genentech, Inc. (NYSE: DNA) today announced a 25 percent increase in product sales driven by Genentech's oncology drugs and a 19 percent increase in earnings per share¹ for the third quarter of 2000, exclusive of the ongoing impact of the 1999 redemption of Genentech's Special Common Stock and related accounting treatment². As a result of the redemption-related charges, the company recorded minimal net income for the third quarter of 2000.

"During the quarter, we continued to deliver strong financial results fueled by the performance of our oncology products, Rituxan and Herceptin," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "This is an exciting time for Genentech as we lay the groundwork for potential growth with 20 projects in our development pipeline."

For the three months ended September 30, 2000:

Exclusive of the impact of the redemption, net income increased to $85.0 million, or 31 cents per share, an increase in earnings per share of 19 percent over the third quarter of 1999. Exclusive of the impact of the redemption, net income for the third quarter of 1999 was $66.9 million, or 26 cents per share.
Due to charges related to the redemption, the company recorded a third quarter net income of $4.5 million, or a net income per share of 2 cents. The company recorded a net loss of $62.8 million or 25 cents per share for the third quarter of 1999.
Revenues increased 29 percent to $445.2 million from $345.3 million in the same quarter of 1999. This revenue growth was driven primarily by sales of Rituxan® (Rituximab) and Herceptin® (Trastuzumab) and gains on the sales of marketable equity securities. Sales of marketed products increased 25 percent in the third quarter of 2000 to $334.2 million from $267.0 million in the third quarter of 1999.

On October 2, Genentech announced that it submitted for review to the U.S. Food and Drug Administration (FDA) a Supplemental Biologic License Application (sBLA) for Alteplase, recombinant (Activase) for use in restoring function to catheters that have become blocked, preventing the withdrawal of blood samples or infusion of vital fluids to medically ill patients. Also during the quarter, Genentech completed enrollment in two pivotal Phase III clinical trials evaluating anti-CD11a (hu1124) in patients with moderate-to-severe psoriasis. Genentech is developing anti-CD11a with XOMA, Ltd.

Product Sales

Sales of Herceptin in the third quarter of 2000 increased 52 percent to $72.6 million compared to $47.9 million in the third quarter of 1999. Since launch, an increase in penetration into the breast cancer market has contributed to a positive sales trend. During the quarter, Genentech's ex-U.S. marketing partner, Roche, received approval from the European Commission to market Herceptin for the treatment of HER2-positive metastatic breast cancer. In collaboration with Roche, Genentech is conducting trials for the potential adjuvant treatment of early stage breast cancer in patients who overexpress the HER2 protein.

Sales of Rituxan in the third quarter of 2000 increased 62 percent to $117.9 million from $72.6 million in the third quarter of 1999. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma. Genentech and IDEC Pharmaceuticals Corporation continue to explore the use of Rituxan as a potential treatment for intermediate and high-grade non-Hodgkin's lymphoma.

During the third quarter of 2000, sales of Genentech's two cardiovascular products, Activase® (Alteplase, recombinant) and TNKase^TM (Tenecteplase), were $50.7 million compared to $59.2 million of Activase sales in the third quarter of 1999. This sales decrease is due to increased competition and to an overall decline in the size of the thrombolytic market due to the increasing use of mechanical reperfusion as well as early intervention with other therapies in the treatment of acute myocardial infarction (AMI). In August, one-year follow-up data for TNKase was presented at the European Society of Cardiology meeting demonstrating comparable efficacy to Activase with the added benefit of being the fastest thrombolytic to administer in the treatment of heart attack. In addition, in collaboration with Boehringer Ingelheim GmbH, TNKase continues to be studied in Phase II and Phase III clinical trials in combination with various anti-thrombotic agents in the potential treatment of AMI.

Sales of Genentech's growth hormone products were $61.1 million compared to $59.9 million in the third quarter of 1999.

Sales of Pulmozyme® (dornase alfa) Inhalation Solution were $30.0 million in the third quarter of 2000 compared to $27.0 million in the third quarter of 1999. During the quarter, Genentech completed a Phase III clinical trial of Pulmozyme in early-stage cystic fibrosis. Trial results will be presented in November 2000.

Total Costs and Expenses

Costs and expenses increased in the third quarter of 2000 as compared to the third quarter of 1999.

Primarily due to the increase in product sales, cost of sales, exclusive of expenses related to the redemption and push-down accounting, increased to $75.6 million in the third quarter of 2000 from $46.0 million in the third quarter of 1999. The increase in cost of sales as a percentage of sales is primarily due to product mix as well as an increase in provisions established for nonuseable inventory.

Research and development (R&D) expenses increased in the third quarter of 2000 to $113.6 million compared to $84.6 million in 1999 due primarily to an increase in expenses related to later-stage clinical trials. R&D expenses as a percentage of revenues in the third quarter of 2000 were 26 percent, compared to approximately 25 percent in the third quarter of 1999. R&D expenses as a percent of revenues are expected to continue to vary over the next several periods dependent on possible in-licensing agreements and as products progress through late-stage clinical trials.

Marketing, general and administrative (MG&A) expenses during the third quarter of 2000 were $131.7 million compared to $113.6 million in the third quarter of 1999. The increase is due primarily to the Rituxan profit-sharing expense, as well as increased sales and marketing expenses related to competitive conditions with other marketed products and the Xolairo (Omalizumab) launch preparation.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures, and markets human pharmaceuticals for significant unmet medical needs. Fourteen of the currently approved biotechnology products stem from Genentech science. Genentech markets nine biotechnology products directly in the United States. The company has headquarters in South San Francisco, California, and is traded on the New York Stock Exchange under the symbol DNA.

Webcast

Genentech will be offering a live webcast of this conference call. This webcast will also be available after the call via our website until October 18. To access the webcast, please visit our website at www.gene.com and follow the instructions provided.

Replay

An audio replay of the Genentech 3rd Quarter 2000 analyst conference call will be available for a 7-day period commencing 9:30 a.m. (Pacific time), Oct. 11 through 9:30 a.m. (Pacific time), Oct. 18, 2000. Access numbers for this replay are 1-800-633-8284 (domestic) and 858-812-6440 (international); passcode number is 16362099.

Genentech Business and Product Development Events in the Third Quarter, 2000

Genentech announced the following:

Submitted for review to the FDA an sBLA for Activase for use in catheter clearance.
Completed patient enrollment in two pivotal Phase III clinical trials evaluating anti-CD11a in patients with moderate-to-severe psoriasis. Genentech is developing anti-CD11a with XOMA, Ltd.
Genentech's European partner, Roche, received European Union approval for Herceptin.
IDEC, Genentech's partner on Rituxan, received a "completion of review" letter from the FDA regarding the Supplemental Biologic License Application (sBLA) for Rituxan to include: retreatment with Rituxan; extended initial therapy (eight weekly infusion instead of four); and treatment of patients with bulky disease.
Completed a Phase III clinical trial of Pulmozyme in early-stage cystic fibrosis. Trial results will be presented in November 2000.
Signed agreement with UroGenesys, which provides Genentech with exclusive worldwide license to develop antibody-based therapeutics for cancer using Prostate Stem Cell Antigen (PSCA) as a target antigen.
Announced the appointment of Joseph McCracken to vice president, Business Development.
Announced the promotion of David Nagler to vice president, Human Resources.
In May, announced the promotion of Roy C. Hardiman to vice president, Corporate Law.
In May, announced the promotion of Andrew Scherer to vice president, Engineering and Facilities.
In October, announced a 2-for-1 stock split to be effective in the form of a stock dividend. The record date of this transaction is October 17 with distribution beginning October 24.

¹ All earnings (loss) per share data and number of shares reflect the stock split effective November 2, 1999.

² The accounting treatment under U.S. Generally Accepted Accounting Principles (GAAP) requires Genentech to establish a new accounting basis for the company's assets and liabilities. This accounting treatment is the result of Roche's exercise of its option to redeem Genentech's Special Common Stock in June 1999. The company's new accounting basis is based on the cost of Roche's 1990 through 1997 purchases of Genentech shares and the redemption of Genentech's Special Common Stock on June 30, 1999. Roche's cost of acquiring Genentech is "pushed down" to Genentech and reflected on Genentech's financial statements beginning June 30, 1999. The effect of push-down accounting on Genentech's first, second and third quarter 2000 consolidated statements of operations include recurring charges for the amortization of goodwill and other intangibles, and costs related to the sale of inventory that was written up at the redemption.

GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended September 30,

	2000				1999

	Actual		Pro Forma(1)		Actual		Pro Forma(1)
Revenues
Product sales	$	334,173	$	334,173	$	266,968	$	266,968
Royalties	51,818		51,818		46,128		46,128
Contract and other	33,479		33,479		7,503		7,503
Interest	25,712		25,712		24,729		24,729
Total revenues	445,182		445,182		345,328		345,328

Costs and expenses
Cost of sales	91,356		75,584		92,750		45,936
Research and development	113,636		113,636		84,629		84,629
Marketing, general and administrative	131,726		131,726		113,613		113,613
Special charge:
Related to redemption	-		-		57,800		-
Recurring charges related to redemption	97,780		-		98,986		-
Interest	1,175		1,175		1,326		1,326
Total costs and expenses	435,673		322,121		449,104		245,504

Income (loss) before taxes	9,509		123,061		(103,776)		99,824
Income tax (benefit) provision	5,044		38,149		(40,931)		32,942

Net income (loss)	$	4,465	$	84,912	$	(62,845)	$	66,882

Earnings (loss) per share:
Basic	$	0.01	$	0.16	$	(0.12)	$	0.13
Diluted	$	0.01	$	0.16	$	(0.12)	$	0.13

Weighted average shares used to compute earnings (loss) per share:
Basic	522,928		522,928		511,413		511,413
Diluted	541,483		541,483		511,413		524,325
(1) Pro Forma amounts exclude the special charge related to the redemption, recurring charges related to the redemption and costs related to the sale of inventory that was written up at the redemption.
	Nine Months Ended September 30,

	2000				1999

	Actual		Pro Forma(1)		Actual		Pro Forma(1)
Revenues
Product sales	$	926,765	$	926,765	$	770,392	$	770,392
Royalties	148,805		148,805		138,732		138,732
Contract and other	99,524		99,524		84,684		64,347
Interest	69,448		69,448		69,114		69,114
Total revenues	1,244,542		1,244,542		1,062,922		1,042,585

Costs and expenses
Cost of sales	295,148		204,724		191,154		144,340
Research and development	340,605		340,605		269,580		269,580
Marketing, general and administrative	350,830		350,830		328,186		328,186
Special charges:
Legal settlement	-		-		50,000		-
Related to redemption	-		-		1,205,104		-
Recurring charges related to redemption	294,399		-		98,986		-
Interest	3,701		3,701		4,045		4,045
Total costs and expenses	1,284,683		899,860		2,147,055		746,151

Income (loss) before taxes	(40,141)		344,682		(1,084,133)		296,434
Income tax (benefit) provision	(4,541)		106,851		(112,511)		97,823

Net income (loss)	$	(35,600)	$	237,831	$	(971,622)	$	198,611

Earnings (loss) per share:
Basic	$	(0.07)	$	0.46	$	(1.90)	$	0.39
Diluted	$	(0.07)	$	0.44	$	(1.90)	$	0.38

Weighted average shares used to compute earnings (loss) per share:
Basic	521,097		521,097		512,050		512,050
Diluted	521,097		540,060		512,050		529,353

	September 30,
	2000				1999
Selected balance sheet data
Cash and short-term investments	$	996,786			$	688,886
Accounts receivable	238,993				185,220
Inventories	237,834				284,972
Long-term marketable securities	1,567,247				918,569
Property, plant and equipment, net	743,378				721,990
Goodwill	1,512,773				1,667,382
Other intangible assets	1,321,244				1,506,478
Other long-term assets	167,366				182,158
Total assets	6,932,540				6,169,395
Total current liabilities	410,683				355,446
Long-term debt	149,692				149,708
Total liabilities	1,268,902				942,293
Total stockholders' equity	5,663,638				5,227,102
Year-to-date
Capital expenditures	78,994				65,347
Pro forma depreciation and amortization expense	72,866				69,799
(1) Pro Forma amounts exclude special charges related to a legal settlement and the redemption, recurring charges related to the redemption and costs related to the sale of inventory that was written up at the redemption.

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