Thursday, Jan 18, 2001
Genentech Reports 30 Percent Increase in Net Income and 28 Percent Increase in Earnings Per Share for 2000
2000 Performance Driven by 23 Percent Increase in Product Sales
South San Francisco, Calif. -- January 18, 2001 -- Genentech, Inc. (NYSE: DNA) announced today a 30 percent increase in net income, a 23 percent increase in product sales driven by Genentechis biooncology drugs and a 28 percent increase in earnings per share1 for 2000, exclusive of the impact of the 1999 redemption of Genentechis Special Common Stock and related accounting treatment, legal settlements2, and the impact of the cumulative effect of a change in accounting principle3.
For 2000, including the three months ended December 31, 2000:
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Net income for 2000 increased 30 percent to $319.8 million, or 60 cents per share, compared to $246.7 million in 1999, or 47 cents per share, representing an earnings-per-share increase of 28 percent, exclusive of the impact of the redemption and related accounting treatment, legal settlements, and the impact of the cumulative effect of a change in accounting principle. Excluding these charges, net income for the fourth quarter of 2000 increased to $83.4 million, or 16 cents per share, from $48.1 million, or 9 cents per share, in the fourth quarter of 1999.
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Due primarily to the charges resulting from the redemption and related accounting treatment, legal settlements, and the cumulative effect of a change in accounting principle, the company recorded a net loss for 2000 of $68.2 million as compared to a net loss of $1,144.5 million in 1999. After taking into consideration these charges, the company recorded fourth quarter net income of $14.3 million in 2000 as compared to a net loss of $172.9 million in the fourth quarter of 1999.
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Total revenues for 2000 were $1,736.4 million as compared to $1,421.4 million in 1999, up 22 percent. This increase is primarily due to product sales for 2000, which increased 23 percent to $1,278.3 million from $1,039.1 million in 1999, driven by Rituxan® (Rituximab) antibody and Herceptin® (Trastuzumab) anti-HER2 antibody sales. Contract revenues also contributed to the growth in total revenues.
"This year has been marked by significant progress on all fronts advancing and expanding our pipeline, getting novel therapies approved and available to patients and providing solid financial returns to our stockholders," said Arthur D. Levinson, Ph.D., Genentechis chairman and chief executive officer. "Our portfolio of marketed and pipeline products, along with our strategic alliances and emphasis on increasing earnings is positioning the company for near-term, mid-term and long-term growth. With 22 active projects in development, including 6 added in the past year, we are on course to continue to drive growth towards our 5-year goals in earnings-per-share, net income as a percent of revenues, product approvals and late-stage development and revenues from alliances/acquisitions."
In 2000 and early 2001, Genentech significantly advanced its biooncology initiative with the strong performance of its two lead cancer drugs, Rituxan and Herceptin. In addition, the company announced a global co-development and commercialization agreement with OSI Pharmaceuticals and Roche for OSI-774, an oral EGFR inhibitor currently in Phase II trials for non-small cell lung, head & neck and ovarian cancers. The company also initiated Phase III clinical trials to evaluate Herceptin in the adjuvant setting for early-stage breast cancer and is evaluating Herceptin in a broad clinical trials program in other tumor types and chemotherapy combinations. Most recently, the company submitted a supplemental Biologics License Application (sBLA) to the FDA to add positive survival data to Herceptinis label.
Positive interim results were announced in December at American Society of Hematology (ASH) from a Phase III study of Rituximab (Rituxan/MabThera) in combination with CHOP (cyclophosphamide, doxorubicin, vincristine and prednisone) chemotherapy in previously untreated patients with aggressive non-Hodgkinis lymphoma. The company also initiated Phase III clinical trials to evaluate anti-VEGF in colorectal and breast cancers and has added 2C4, a monoclonal antibody, into development for the potential treatment of a variety of solid-tumor cancers.
Also in 2000 and early 2001, Genentech solidified its cardiovascular development and commercialization efforts with the approval and launch of TNKaseo (Tenecteplase), the first five-second, single-dose thrombolytic for the treatment of acute myocardial infarction (AMI), or heart attack; the submission of an sBLA for Activase? for use in catheter clearance; two licensing arrangements with Actelion Ltd. for the development and co-promotion of Tezosentan for the potential treatment of acute heart failure and bosentan for the potential treatment of acute and chronic heart failure; and an arrangement with COR Therapeutics and Schering-Plough to co-promote each other's products--TNKase, Activase and Integrilin.
In the opportunistic area, the company filed a Biologics License Application (BLA) with the FDA for Xolairo (Omalizumab) for the potential treatment of allergic asthma and seasonal allergic rhinitis, with partners Novartis Pharmaceuticals Corporation and Tanox, Inc.; launched Nutropin Depoto [somatropin (rDNA) for injectable suspension], the first long-acting dosage form of recombinant growth hormone indicated for the treatment of growth failure associated with the lack of adequate endogenous growth hormone secretion in children, developed with partner Alkermes; also with Alkermes, announced the continued clinical development of Nutropin Depot in adults with growth hormone deficiency; and completed patient enrollment in two pivotal Phase III clinical trials evaluating anti-CD11a in patients with moderate to severe psoriasis.
Revenues
Overall biooncology product sales have increased to 56 percent of total product revenues, up from 45 percent last year. Rituxan sales increased to $444.1 million in 2000 from $279.4 million in 1999. This sales increase was due primarily to increased market penetration for the treatment of non-Hodgkinis lymphoma.
Herceptin sales for 2000 increased to $275.9 million from $188.4 million in 1999. Since launch, an increase in penetration into the breast cancer market has contributed to a positive sales trend and consistent quarter-over-quarter growth in the U.S.
During 2000, combined sales of Genentechis two cardiovascular products, Activase® (Alteplase, recombinant) and TNKaseo (Tenecteplase), were $206.2 million. Sales of Activase were $236.0 million in 1999. This sales decrease was 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 heart attack.
Sales of Genentechis growth hormone products increased to $226.6 million in 2000 from $221.2 million in 1999. This increase was primarily due to fluctuations in customer ordering patterns and the introduction of Nutropin Depot.
Sales of Pulmozyme® increased to $121.8 million in 2000 compared to $111.4 million in 1999. This increase is due primarily to increased market penetration in the early and mild patient populations for the treatment of cystic fibrosis. The company completed a Phase III clinical trial of Pulmozyme in early-stage cystic fibrosis and presented positive results at the North American Cystic Fibrosis Conference.
Contract revenues increased in 2000 due to biotech stock gains which offset the impact on results of operations of research and development (R&D) in-licensing expenses incurred in the fourth quarter and in the year.
Total Costs and Expenses
Costs and expenses increased in 2000 as compared to 1999.
R&D expenses increased in 2000 to $489.9 million compared to $367.3 million in 1999. R&D expenses as a percent of revenues in 2000 were 28 percent, compared to approximately 26 percent in 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.
Exclusive of expenses related to the redemption and push-down accounting, cost of sales increased to $272.0 million in 2000 from $192.2 million in 1999. This increase was primarily due to higher product sales and product mix. Cost of sales as a percentage of sales was 21 percent for 2000, up from 18 percent in 1999. Marketing, general and administrative (MG&A) expenses increased to $497.0 million in 2000 compared to $467.9 million in 1999. This increase is due primarily to the Rituxan profit-sharing expense, as well as an increase in marketing and selling expenses related to the Xolair (Omalizumab) launch and competitive conditions with other marketed products.
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 a discussion by Genentech management of the earnings and other business results on Thursday, January 18, 2001 at 2:30pm PST. The live webcast may be accessed on Genentechis website at www.gene.com. This webcast will also be available after the call via our website until January 25. An audio replay of the webcast will be available beginning at 4:30pm PST on January 18, 2001 until January 25, 2001. Access numbers for this replay are: 1-800-633-8284 (domestic) and 1-858-812-6440 (international); passcode number is 17223535.
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Genentech Business and Product Development Milestones in Q4 and Early 2001*:
Marketed and Pipeline Product Events
Biooncology
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Announced with partners OSI and Roche a global co-development and commercialization agreement for OSI-774, an oral EGFR inhibitor currently in Phase II trials for non-small cell lung, head & neck and ovarian cancers.
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With partners Roche and IDEC Pharmaceuticals Corporation, announced positive interim results from a Phase III study of Rituximab (Rituxan/MabThera) in combination with CHOP (cyclophosphamide, doxorubicin, vincristine and prednisone) chemotherapy in previously untreated patients with aggressive non-Hodgkinis lymphoma.
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Initiated Phase III clinical trials of anti-VEGF in colorectal and breast cancers.
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Announced four Phase III trials enrolling more than 10,000 women at 800 sites worldwide with early stage (adjuvant) breast cancer.
Cardiovascular Medicine
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Announced a collaboration with COR Therapeutics, Inc. and Schering-Plough Corporation to co-promote INTEGRILIN for non-ST-segment acute coronary syndromes (ACS), as well as TNKaseo (Tenecteplase) and Activase® (Alteplase, recombinant) for acute ST-segment elevation myocardial infarction in hospitals across the United States.
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Signed a second licensing agreement with Actelion for the development and co-promotion of Tracleero in the United States for the potential treatment of acute and chronic heart failure.
Opportunistic
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Announced with partner Alkermes, Inc. the continuation of clinical development of Nutropin Depoto [somatropin (rDNA) for injectable suspension] in adults with growth hormone deficiency.
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In collaboration with Xoma Ltd, patient enrollment was completed in a Phase I/II clinical study of anti-CD11a in the prevention of kidney transplant rejection. The study is being conducted by Xoma.
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As part of Genentechis collaboration with Inspire Pharmaceuticals, Inc. to develop P2Y2 agonists, Inspire filed a new drug application for INS37217 Respiratory for the treatment of cystic fibrosis.
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Corporate Business Events
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Announced a two-for-one stock split that was effective October 24, 2000 in the form of a stock dividend.
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Announced the appointment of Richard H. Scheller, Ph.D., to senior vice president, Research.
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Announced the appointment of Claudia Estrin to vice president, Decision Support and Commercial Innovation.
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Announced that Genentech was named one of Fortuneis "100 Best Companies to Work For in America."
*Please refer to Genentechis website for the Q1, Q2 and Q3 earnings releases which outline the key business and product development events for the rest of the year.
2The 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 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.
3Genentech adopted the Securities and Exchange Commissionis Staff Accounting Bulletin No. 101 on Revenue Recognition in the fourth quarter of 2000, effective January 1, 2000, and recorded a cumulative effect of a change in accounting principle related to contract revenues recognized in prior periods. The related revenue is being recognized over the term of the agreements.
GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited) Three Months
Ended December 31,
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2000 1999
--------------------- ----------------------
Actual Pro Forma(1) Actual Pro Forma(1)
--------- --------- --------- ---------
Revenues:
Product sales $ 351,579 $ 351,579 $ 268,703 $ 268,703
Royalties 58,436 58,436 50,538 50,538
Contract and other 54,364 54,364 18,895 18,895
Interest 20,960 20,960 20,320 20,320
--------- --------- --------- ---------
Total revenues 485,339 485,339 358,456 358,456
Costs and expenses:
Cost of sales 69,744 67,344 94,395 47,851
Research and development 149,274 149,274 96,573 96,573
Marketing, general and administrative 146,208 146,208 140,928 140,928
Special charges:
Legal settlement - - 180,008 -
Related to redemption - - 2,596 -
Recurring charges related to redemption 81,917 - 99,434 -
Interest 1,576 1,576 1,315 1,315
--------- --------- --------- ---------
Total costs and expenses 448,719 364,402 615,249 286,667
Income (loss) before taxes 36,620 120,937 (256,793) 71,789
Income tax provision (benefit) 22,362 37,490 (83,887) 23,690
--------- --------- --------- ---------
Net income (loss) $ 14,258 $ 83,447 $(172,906) $ 48,099
========= ========= ========= =========
Earnings (loss) per share
Basic $ 0.03 $ 0.16 $ (0.34) $ 0.09
========= ========= ========= =========
Diluted $ 0.03 $ 0.16 $ (0.34) $ 0.09
========= ========= ========= =========
Weighted average shares used to compute
earnings (loss) per share:
Basic 525,065 525,065 515,291 515,291
========= ========= ========= =========
Diluted 537,615 537,615 515,291 529,841
========= ========= ========= =========(1) Pro Forma amounts exclude the 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.
GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Year
Ended December 31,
-------------------------------------------------
2000(2) 1999
---------------------- -----------------------
Actual Pro Forma(1) Actual Pro Forma(1)
---------- ---------- ----------- ----------
Revenues:
Product sales $1,278,344 $1,278,344 $ 1,039,095 $1,039,095
Royalties 207,241 207,241 189,270 189,270
Contract and other 160,363 151,730 103,579 83,242
Interest 90,408 90,408 89,434 89,434
---------- ---------- ----------- ----------
Total revenues 1,736,356 1,727,723 1,421,378 1,401,041
Costs and expenses:
Cost of sales 364,892 272,069 285,549 192,191
Research and development 489,879 489,879 367,338 367,338
Marketing, general and
administrative 497,036 497,036 467,929 467,929
Special charges:
Legal settlement - - 230,008 -
Related to redemption - - 1,207,700 -
Recurring charges related to
redemption 375,300 - 198,420 -
Interest 5,276 5,276 5,360 5,360
---------- ---------- ----------- ----------
Total costs and expenses 1,732,383 1,264,260 2,762,304 1,032,818
Income (loss) before taxes and
cumulative effect of accounting 3,973 463,463 (1,340,926) 368,223
Income tax provision (benefit) 20,414 143,674 (196,398) 121,542
---------- ---------- ----------- ----------
Income before cumulative change in
accounting principle (16,441) 319,789 (1,144,528) 246,681
Cumulative effect of change in
accounting principle, net of tax (51,800) - - -
---------- ---------- ----------- ----------
Net income (loss) $ (68,241) $ 319,789 $(1,144,528) $ 246,681
========== ========== =========== ==========
Earnings (loss) per share
Basic: Earnings (loss)before
cumulative effect of
accounting change $ (0.03) $ 0.61 $ (2.23) $ 0.48
Cumulative effect of
accounting change, net
of income tax (0.10) - - -
---------- ---------- ----------- ----------
Net (loss) earnings per
share $ (0.13) $ 0.61 $ (2.23) $ 0.48
========== ========== =========== ==========
Diluted: Earnings (loss) before
cumulative effect of
accounting change $ (0.03) $ 0.60 $ (2.23) $ 0.47
Cumulative effect of
accounting change,
net of income tax (0.10) - - -
---------- ---------- ----------- ----------
Net (loss) earnings per
share $ (0.13) $ 0.60 $ (2.23) $ 0.47
========== ========== =========== ==========
Weighted average shares used to
compute earnings (loss) per share:
Basic 522,179 522,179 512,860 512,860
========== ========== =========== ==========
Diluted 522,179 536,077 512,860 529,475
========== ========== =========== ==========(1) Pro Forma amounts exclude special charges related to legal settlements and the
redemption, recurring charges related to the redemption, costs related to the sale
of inventory that was written up at the redemption and the effects of the change
in accounting principles adopted in 2000.
(2) Genentech adopted Securities and Exchange Commission's Staff Accounting Bulletin
No. 101 on Revenue Recognition in the fourth quarter of 2000, effective
January 1, 2000, and recorded a cumulative effect of a change in accounting principle
related to contract revenues recognized in prior periods. The related deferred revenue
is being recognized over the term of the agreements.
GENENTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) December 31,
------------------------------
2000 1999
----------- -----------
Selected balance sheet data:
Cash and short-term investments $ 1,193,859 $ 742,685
Accounts receivable 261,682 214,785
Inventories 265,830 275,245
Long-term marketable securities 1,265,515 1,214,757
Property, plant and equipment, net 752,892 730,086
Goodwill 1,475,437 1,628,722
Other intangible assets 1,280,359 1,453,268
Other long-term assets 168,458 201,100
Total assets 6,734,633 6,554,441
Total current liabilities 450,192 484,127
Long-term debt 149,692 149,708
Total liabilities 1,039,586 1,271,636
Total stockholders' equity 5,695,047 5,282,805
Year-to-date:
Capital expenditures 112,681 95,008
Pro forma depreciation and amortization expense 97,258 90,247
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