Tuesday, Apr 9, 2002

Genentech Reports 22 Percent Increase in Product Sales For First Quarter

29 Percent Increase in Pro Forma Earnings Per Share

South San Francisco, Calif. -- April 9, 2002 -- Genentech, Inc. (NYSE: DNA) today announced first quarter pro forma financial results of a 29 percent increase in earnings per share from the first quarter of 2001 driven by a 22 percent increase in product sales.  Genentech’s pro forma financial results exclude certain charges related to the 1999 redemption of Genentech’s stock and the cumulative effect of accounting changes¹.  Due to the adoption of new accounting rules^2,3 and the increase in revenues, Genentech’s actual earnings per share for the first quarter of 2002 increased 260 percent.

For the three months ended March 31, 2002: 

• Pro forma earnings per share for the first quarter of 2002 increased 29 percent to 22 cents per share, compared to 17 cents per share for the first quarter of 2001.    Actual earnings per share for the first quarter of 2002 increased 260 percent to 18 cents per share, compared to 5 cents per share in the first quarter of 2001. 
• Pro forma net income for the first quarter of 2002 increased 30 percent to $118.6 million, compared to $91.2 million for the first quarter of 2001.    Actual net income for the first quarter of 2002 increased 256 percent to $95.3 million from $26.8 million in the first quarter of 2001. 
• Total revenues for the first quarter of 2002 increased 14 percent to $613.4 million from $540.0 million in the first quarter of 2001.  This revenue growth was driven primarily by sales of Genentech’s biooncology products, Rituxan^® (Rituximab) and Herceptin^® (Trastuzumab).  Total revenues were offset by lower interest income due to lower interest rates and lower cash balances due to share repurchases and the scheduled repayment of debt. 

“Our solid first-quarter performance is in line with our expectations for the quarter and demonstrates progress towards achieving our financial goals for the year,” said Arthur D. Levinson, Ph.D., Genentech’s chairman and chief executive officer.   “We continue to remain focused on preparing for potential new product launches in 2003.”

Product Sales

Sales of marketed products increased 22 percent in the first quarter of 2002 to $476.5 million from $391.9 million in the first quarter of 2001, with biooncology sales consisting of 70 percent of total product revenues, up from 65 percent in the first quarter of 2001. 

Rituxan sales in the first quarter of 2002 increased 44 percent to $247.5 million from $172.1 million in the first quarter of 2001.  This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin’s lymphoma. 

Herceptin sales in the first quarter of 2002 increased 7 percent to $86.8 million compared to $81.4 million in the first quarter of 2001.  Herceptin sales growth during the first quarter of 2002 reflects the effect of changing distribution methods from direct shipment by the company to wholesaler distributors in the fourth quarter of 2001.  As is typical with this process, Herceptin was ordered by wholesalers in the fourth quarter of 2001 in order for them to stock sufficient inventory to assume product distribution.

Combined product sales for Genentech’s thrombolytics, growth hormones and Pulmozyme® (dornase alfa, recombinant) were $142.2 million in the first quarter of 2002 compared to $137.5 million in the first quarter of 2001.

Costs and Expenses

Costs and expenses in the first quarter of 2002 were higher compared to costs and expenses in the first quarter of 2001 driven by costs related to higher product sales, primarily Rituxan, and related profit sharing expenses.  R&D expenses were higher in the first quarter of 2002 compared to the first quarter of 2001 due to late stage clinical development. 

Genentech is a leading biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs.  Fifteen of the currently approved biotechnology products stem from or are based on Genentech science.  Genentech manufactures and commercializes ten 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.

Genentech Business and Product Development
Events in the First Quarter, 2002

Marketed and Pipeline Product Events

Oncology

• Rituxan® (Rituximab): With partners IDEC Pharmaceuticals Corporation and Roche, Genentech announced the results of a study published in the New England Journal of Medicine showing a 53 percent increase in event-free survival in patients with aggressive non-Hodgkin’s lymphoma (NHL) when Rituxan/MabThera® (Rituximab) was added to standard CHOP chemotherapy.  This study of a new drug combination marks the first improvement in survival over the standard chemotherapy treatment seen in 20 years for patients with aggressive NHL.
• Avastin™ (rhuMAb-VEGF antibody): The Avastin 900-patient colorectal study comparing Avastin plus Saltz regimen (a combination of three kinds of chemotherapy) versus Saltz regimen alone completed enrollment ahead of schedule in early Q2 2002.  In addition, the Eastern Cooperative Oncology Group’s Avastin Phase II/III first-line metastatic breast cancer trial enrolled the first patient.

Cardiovascular Disease

• Tracleer™ (Bosentan): With partner Actelion Ltd., Genentech announced the Phase III ENABLE program evaluating endothelin receptor antagonist Tracleer in patients with severe chronic heart failure did not reach its two pre-defined primary endpoints. Under an agreement with Actelion completed in December 2000, Genentech has the opportunity in certain circumstances to become a co-promotion partner for Tracleer. Based on the ENABLE results, Genentech did not exercise this option but can explore other opportunities under the current agreement. 

Immunological Disease

• Xanelim™ (Efalizumab): Genentech and XOMA Ltd. announced in early April 2002 that a pharmacokinetic study conducted on Xanelim comparing XOMA-produced material and Genentech-produced material did not achieve the pre-defined statistical definition for comparability.  The study suggested that the Genentech material compared to XOMA achieved a slightly higher serum concentration than the pre-specified boundaries.  Genentech and XOMA will work closely with the U.S. Food and Drug Administration (FDA) to determine next steps, but this will probably delay the filing of a Biologics License Application with the FDA for Xanelim beyond summer 2002. 
  
  In other Xanelim news, Genentech and XOMA presented additional results from two phase III studies of Xanelim at the 60^th annual American Academy of Dermatology meeting in New Orleans, Louisiana. The studies suggest that some patients receiving treatment over 24 weeks with Xanelim may experience improved response rates compared to the initial 12 weeks of treatment. In addition, some patients may also experience relief from psoriasis symptoms as soon as two weeks after receiving an initial treatment.
  
  Finally, the phase II study of Xanelim for moderate-to-severe rheumatoid arthritis being conducted by XOMA began patient enrollment ahead of schedule in early April 2002.  The study is a multicenter, randomized, double blind, placebo-controlled study that will enroll several hundred patients.

Corporate Business Events

• Announced that Genentech will collaborate with Accelerate Brain Cancer Cure (ABC²), a non-profit foundation created by the Dan and Steve Case (chairman of AOL/Time Warner) families, to develop new therapies specifically designed to treat patients with brain cancer and move these therapies as rapidly as possible into the clinic.  Under the collaboration, ABC² will share development expenses with Genentech and provide access to the foundation’s resources, and Genentech will contribute its world-renowned experience in designing and developing pioneering therapeutics. Genentech would commercialize any resulting products, and ABC² would receive a royalty on product sales. 
• Began the retrial of a contract dispute brought by the City of Hope (COH) against Genentech relating to a 1976 agreement covering sponsored research performed by two COH scientists.  An earlier Los Angeles Superior Court trial of the dispute ended last October with a hung jury which voted 7-5 in Genentech’s favor.
• Named Gene Murano vice president, Regulatory Affairs and Mark Ahn vice president, Hematology Sales And Marketing.

The statements made in this press release relating to potential new product launches in 2003 and the Xanelim BLA filing time frame are forward-looking and actual results could differ materially.  Among other things, the timing of the Xanelim BLA filing could be affected by unexpected safety or efficacy issues, manufacturing issues, additional time requirements for data analysis, BLA preparation, discussions with the FDA, slow enrollment in clinical studies or additional clinical studies; the timing of product launches could be affected by all of the foregoing and FDA actions, FDA review times or failure to receive FDA approval.

# # #

Webcast:

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Tuesday, April 9, 2002 at 2:30pm PT.   The live webcast may be accessed on Genentech’s website at www.gene.com.  This webcast will also be available after the call via the website until close of business April 16, 2002.  An audio replay of the webcast will be available beginning at 5:30pm PT on April 9, 2002 until 5:30pm PT April 16, 2002.  Access numbers for this replay are1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); passcode number is 3494500.

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