Thursday, Apr 12, 2001
Genentech Reports 38 Percent Increase in Product Sales for First Quarter
20 Percent Increase in Net Income and 21 Percent Increase in Earnings Per Share, Exclusive of Impact of Redemption and Change in Accounting
South San Francisco, Calif. -- April 12, 2001 -- Genentech, Inc. (NYSE: DNA) today announced a 20 percent increase in net income and a 21 percent increase in earnings per share1 driven by a 38 percent increase in product sales for the first quarter of 2001, exclusive of the ongoing impact of the 1999 redemption of Genentech's Special Common Stock and related accounting treatment2, and the cumulative effect of; accounting changes3,4.
For the three months ended March 31, 2001:
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Net income for the first quarter of 2001 increased 20 percent to $91.2
million, or 17 cents per share, compared to $76.0 million for the first
quarter of 2000, or 14 cents per share, representing an increase in earnings
per share of 21 percent, exclusive of the ongoing impact of the 1999 redemption
of Genentech's Special Common Stock and related accounting treatment, and
the cumulative effect of accounting changes in 2001 and 2000.
-
Due to charges related to the redemption, the company recorded a first
quarter net income of $26.8 million, or a net income per share of 5 cents,
as compared to a net loss of $82.4 million, or 16 cents per share, in the
first quarter of 20004.
-
Revenues increased 37 percent to $540.1 million from $387.9 million in
the same quarter of 2000. This revenue growth was driven primarily
by sales of Genentech's BioOncology products, Rituxan® (Rituximab)
and Herceptin® (Trastuzumab) and also includes $10.0 million related
to changes in fair values of derivative instruments associated with the
adoption of FAS 1333.
"As we celebrate Genentech and biotech's first 25 years with our products having touched the lives of over one million people, we continue to move projects through our pipeline to treat cancer, heart disease and other significant unmet medical needs while providing strong financial returns for our stockholders," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer.
During the first quarter of 2001, Genentech continued to advance its BioOncology focus with the strong performance of its two marketed cancer products, Rituxan and Herceptin. On March 14, 2001, findings of a pivotal Phase III study evaluating Herceptin plus chemotherapy were published in the New England Journal of Medicine. The results demonstrated a significant 24 percent increase in median overall survival in women with HER2 positive metastatic breast cancer who were treated initially with Herceptin and chemotherapy, compared to women treated with chemotherapy alone. A supplemental Biologics License Application (sBLA) has been submitted to the U.S. Food and Drug Administration (FDA) to add this median survival data to the Herceptin package insert.
In December 2000, encouraging data from a Phase III clinical trial of Rituxan in combination with chemotherapy were presented at the 42nd annual meeting of the American Society of Hematology. These and other ongoing studies show Rituxan may play an important role in improving the response rates for patients with common forms of lymphoma.
Genentech also made progress with its cardiovascular pipeline products during the quarter. In March, with partner Actelion, Ltd., Genentech announced preliminary positive results from a Phase III trial (RITZ 2) of the first intravenous, dual endothelin receptor antagonist Veletri™ (tezosentan) in acute heart failure. Presented at the 50th Annual Scientific Session of the American College of Cardiology, the results of the RITZ 2 trial demonstrated significant improvement in the primary endpoint, cardiac index (the amount of blood pumped by the heart per minute/body surface area), and in secondary endpoints including pulmonary capillary wedge pressure at 6 hours and patient assessed dypsnea at 24 hours.
Product Sales
Sales of marketed products increased 38 percent in the first
quarter of 2001 to $391.9 million from $283.2 million in the first quarter
of 2000.
Sales of Rituxan in the first quarter of 2001 increased 102 percent to $172.1 million from $85.1 million in the first quarter of 2000. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma.
Sales of Herceptin in the first quarter of 2001 increased 18 percent to $81.4 million compared to $68.7 million in the first quarter of 2000. Since launch, an increase in the penetration into the metastatic breast cancer market has contributed to a positive sales trend and consistent quarter-over-quarter growth in the United States.
Combined sales of Genentech's two cardiovascular products, Activase® (Alteplase, recombinant) and TNKase™ (Tenecteplase), during the first quarter of 2001 increased 10 percent to $52.1 million compared to $47.5 million for Activase sales alone in the first quarter of 2000. The increase in sales reflects the steady sales growth of TNKase based on its ability to be administered in a single, 5-second injection.
Sales of Genentech's four growth hormone products were $55.5 million compared to $55.1 million in the first quarter of 2000.
Sales of Pulmozyme® (dornase alfa) Inhalation Solution increased 12 percent to $29.9 million in the first quarter of 2001 compared to $26.8 million in the first quarter of 2000.
Total Costs and Expenses
Costs and expenses increased in the first quarter of 2001 as
compared to the first quarter of 2000.
Research and development (R&D) expenses increased in the first quarter of 2001 to $136.3 million compared to $111.4 million in 2000. R&D expenses as a percent of revenues in the first quarter of 2001 were 26 percent, compared to approximately 29 percent in the first quarter of 2000. R&D expenses as a percent of revenues are expected to vary over the next several periods dependent on possible in-licensing agreements and as products progress through late-stage clinical trials.
Primarily due to the increase in product sales, cost of sales increased to $83.8 million in the first quarter of 2001 from $62.9 million, exclusive of expenses related to the redemption and push-down accounting in the first quarter of 2000.
Marketing, general and administrative (MG&A) expenses increased during the first quarter of 2001 to $127.9 million compared to $83.6 million in the first quarter of 2000. This increase was due to the write-down of certain biotech investments due to current market conditions, preparation for the Xolair™(Omalizumab) market introduction, an increase in the marketing and selling expenses in continuing support of Genentech's oncology products and royalty expenses associated with licensee sales. Fluctuations in investment write-down expenses are expected over the next several periods dependent on market conditions.
Collaboration profit sharing expenses increased to $46.4 million in the first quarter of 2001 from $18.3 million in the first quarter of 2000. The increase was due primarily to increased Rituxan profit-sharing expense due to higher Rituxan sales.
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.
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Webcast:
Genentech will be offering a live webcast of a discussion by Genentech
management of the earnings and other business results on Thursday, April
12, 2001 at 2:30pm PDT. The live webcast may be accessed on Genentechas
website at http://www.gene.com. This webcast will also be available after
the call via the website until close of business April 19, 2001. An audio replay of the webcast will be available beginning at 4:30pm PDT
on April 12, 2001 until 4:30pm PDT April 19, 2001. Access numbers
for this replay are: 1-800-633-8284 (domestic) and 1-858-812-6440 (international);
passcode number is 18421584.
Genentech Business and Product Development Events in the First Quarter, 2001
Marketed and Pipeline Product Events
BioOncology
-
Published the findings of a pivotal Phase III study evaluating Herceptin
plus chemotherapy in the New England Journal of Medicine. The results
demonstrated a significant 24 percent increase in median overall survival
in women with HER2 positive metastatic breast cancer who were treated initially
with Herceptin and chemotherapy, compared to women treated with chemotherapy
alone. An sBLA has been submitted to the FDA to add this median survival
data to the Herceptin package insert.
-
Announced with partners OSI Pharmaceuticals and Roche a global codevelopment
and commercialization agreement for OSI-774. An inhibitor of the
epidermal growth factor receptor, OSI-774 is currently in Phase II clinical
studies for non-small cell lung, head and neck, and ovarian cancers.
-
Submitted an sBLA to the FDA to revise the Herceptin product labeling to
include FISH (Fluorescence in situ hybridization) testing as an additional
method to select patients appropriate for treatment with Herceptin.
Cardiovascular Medicine
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With partner Actelion, presented encouraging results from a Phase III trial,
RITZ 2, of the first intravenous, dual endothelin receptor antagonist Veletri™ in acute heart failure at the 50th Annual Scientific Session of the American
College of Cardiology.
-
Entered into a copromotion agreement with COR Therapeutics, Inc. and Schering-Plough. Under this agreement, Genentech will copromote the most widely used GP
IIb/IIIa inhibitor INTEGRILIN® (eptifibatide) for non-ST-segment acute
coronary syndrome in 5,000 U.S. hospitals Genentech's representatives currently
call upon, and COR and Schering-Plough will copromote TNKase and Activase
for acute myocardial infarction in 2,000 hospitals they currently call
upon.
Opportunistic
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Announced with partner Alkermes, Inc. the continuation of clinical development
of Nutropin Depot™ [somatropin (rDNA) for injectable suspension] in adults
with growth hormone deficiency.
-
With Novartis Pharmaceuticals Corporation, announced the FDA advised the
companies that it does not plan to convene the scheduled Pulmonary-Allergy
Drugs Advisory Committee (PADAC) meeting on April 26. Genentech and
Novartis anticipate FDA approval of Xolair in the latter part of 2001 or
the early part of 2002.
-
XOMA, Ltd., presented research findings from two clinical studies in moderate-to-severe
plaque psoriasis patients at the 59th Annual Meeting of the American Academy
of Dermatology. In the first study, patients treated with Xanelim™
(efalizumab) for 12 weeks achieved significant improvements in psoriasis
symptoms. In the second study, psoriasis patients retreated with
a second course of Xanelim achieved symptom improvements similar to the
first course of treatment. Xanelim is being developed in collaboration
with Genentech.
-
Millennium Pharmaceuticals, Inc., initiated a Phase II clinical trial of
LDP-02 for ulcerative colitis in Canada. LDP-02 is being developed
in collaboration with Genentech.
Corporate Business Events
-
Announced the appointment of Richard H. Scheller as senior vice president,
Research and the promotions of Robert Garnick as senior vice president,
Regulatory, Quality and Compliance; Kim Popovits as senior vice president,
Marketing and Sales; and John Whiting as vice president in addition to
his role as controller and chief accounting officer.
(1) All earnings (loss) per share data and number of shares reflect the stock split effective October 2000.
(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 was "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 quarter 2001 and 2000 consolidated statements of operations include recurring charges for the amortization of goodwill and other intangibles.
(3)Genentech adopted Statement of Financial Accounting Standards No. 133 ("FAS 133") on Accounting for Derivatives and Hedging Activities on January 1, 2001 and recorded a $5.6 million charge, net of tax, upon adoption. The charge was reflected as a cumulative effect of a change in accounting principle related to recording derivative instruments at fair value. As a result of the adoption and changes in fair value of these derivative instruments recognized in contract and other revenues in the quarter ($10.0 million), the net of tax impact of FAS 133 on Q1 2001 was not material.
(4)Genentech adopted the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 ("SAB 101") on revenue recognition, effective January 1, 2000, and recorded a $57.8 million charge, net of tax, which was reflected as a cumulative effect of a change in accounting principle. The cumulative effect was recorded as deferred revenue and is being recognized over the remaining term of the agreements. As a result, Q1 of 2001 and 2000 include the recognition of such revenues, the change of which was not material from period to period.
GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited) Three Months
Ended March 31,
-------------------------------------------------
2001 2000
---------------------- ----------------------
Actual(2) Pro Forma(1) Actual(3) Pro Forma(1)
-------- --------- -------- ---------
Revenues:
Product sales $391,904 $391,904 $283,178 $283,178
Royalties 74,631 74,631 47,344 47,344
Contract and other 38,483 28,479 35,854 35,854
Interest 35,064 35,064 21,474 21,474
-------- -------- -------- --------
Total revenues 540,082 530,078 387,850 387,850
Costs and expenses:
Cost of sales 83,796 83,796 106,135 62,857
Research and development 136,340 136,340 111,406 111,406
Marketing, general
and administrative 127,920 127,920 83,613 83,613
Collaboration profit
sharing 46,373 46,373 18,333 18,333
Recurring charges
related to redemption 81,516 - 98,548 -
Interest 1,491 1,491 1,287 1,287
-------- -------- -------- --------
Total costs and
expenses 477,436 395,920 419,322 277,496
Income (loss) before taxes
and cumulative
effect of accounting
change 62,646 134,158 (31,472) 110,354
Income tax provision (benefit) 30,258 42,931 (6,862) 34,404
-------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change 32,388 91,227 (24,610) 75,950
Cumulative effect of
accounting change,
net of tax (5,638) - (57,800) -
-------- -------- -------- --------
Net income (loss) $ 26,750 $ 91,227 $(82,410) $ 75,950
======== ======== ======== ========
Earnings (loss) per share:
Basic: Earnings (loss)
before cumulative
effect of accounting
change $ 0.06 $ 0.17 $ (0.05) $ 0.15
Cumulative effect
of accounting
change, net of
income tax (0.01) - (0.11) -
-------- -------- -------- --------
Net earnings (loss)
per share $ 0.05 $ 0.17 $ (0.16) $ 0.15
======== ======== ======== ========
Diluted: Earnings (loss)
before cumulative
effect of accounting
change $ 0.06 $ 0.17 $ (0.05) $ 0.14
Cumulative effect
of accounting
change, net of
income tax (0.01) - (0.11) -
-------- -------- -------- --------
Net earnings (loss)
per share $ 0.05 $ 0.17 $ (0.16) $ 0.14
======== ======== ======== ========
Weighted average shares used
to compute earnings (loss)
per share:
Basic 525,795 525,795 519,131 519,131
======== ======== ======== ========
Diluted 535,209 535,209 519,131 540,323
======== ======== ======== ========
(1) Pro Forma amounts exclude recurring charges related to the redemption, costs in 2000 related to the sale of inventory that was written up at the redemption and their related tax effects. In addition, pro forma excludes the cumulative effect of the changes in accounting principle net of tax, adopted in 2001 and 2000, and the changes in fair value of certain derivatives ($10.0 million) recorded in 2001 under FAS 133
(2) Genentech adopted Statement of Financial Accounting Standard 133 (FAS 133) on Accounting for Derivative Instruments and Hedging Activities (FAS 133) on January 1, 2001, and recorded a cumulative effect of a change in accounting principle related to recording derivative instruments at fair value. As a result of the adoption and the changes in fair value of these derivative instruments in the quarter, the net of tax impact of FAS 133 on Q1 2001 was not material.
(3) Genentech adopted Securities and Exchange Commission's Staff Accounting Bulletin No. 101 on Revenue Recognition 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. As a result, Q1 of 2001 and 2000 include the recognition of such revenues, the change of which was not material from period to period.
GENENTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) March 31,
------------------------------
2001 2000
----------- -----------
Selected balance sheet data:
Cash and short-term investments $ 1,332,073 $ 631,490
Accounts receivable 269,570 242,034
Inventories 294,620 254,922
Long-term marketable securities 974,873 1,280,274
Property, plant and equipment, net 765,176 736,920
Goodwill 1,417,457 1,570,403
Other intangible assets 1,239,335 1,397,269
Other long-term assets 220,415 204,237
Total assets 6,600,355 6,440,279
Total current liabilities 548,318 244,099
Long-term debt - 149,692
Total liabilities 924,513 1,088,362
Total stockholders' equity 5,675,842 5,351,917
Year-to-date:
Capital expenditures
36,323 28,243
Pro forma depreciation and
amortization expense
26,599 23,382
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