Wednesday, Oct 9, 2002
Genentech Reports 23 Percent Increase in Product Sales for Third Quarter
15 Percent Increase in Pro Forma Earnings Per Share
South San Francisco, Calif. -- October 9, 2002 -- Genentech, Inc. (NYSE: DNA) today announced third quarter pro forma financial results of 23 cents per share, a 15 percent increase in pro forma earnings per share from the third quarter of 2001 driven by a 23 percent increase in product sales. Genentech's actual financial results for the third quarter of 2002 were 17 cents per share. Genentech's pro forma financial results exclude certain charges related to the 1999 Roche redemption of Genentech's stock and certain litigation-related special charges.
For the three months ended September 30, 2002:
- Pro forma earnings per share for the third quarter of 2002 increased 15 percent to 23 cents per share, compared to 20 cents per share for the third quarter of 2001. Actual earnings per share for the third quarter of 2002 increased 113 percent to 17 cents per share, compared to 8 cents per share in the third quarter of 2001.
- Pro forma net income for the third quarter of 2002 increased 14 percent to $120.2 million, compared to $105.4 million for the third quarter of 2001. Actual net income for the third quarter of 2002 increased 109 percent to $89.3 million from $42.7 million in the third quarter of 2001.
- Total revenues for the third quarter of 2002 increased 21 percent to $675.1 million from $556.1 million in the third quarter of 2001. This revenue growth was driven primarily by sales of Genentech's biooncology products, Rituxan® (Rituximab) and Herceptin® (Trastuzumab), higher royalties from licensees, and higher contract revenues.
"In addition to achieving strong financial results that are in line with our expectations, we continue to lay the groundwork for the potential of multiple product launches over the next several years," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "We believe we have a very promising pipeline and a long-term approach to managing our business that allows us to continue to build value for stockholders and bring breakthrough medicines to patients."
Product Sales
Sales of marketed products increased 23 percent in the third quarter of 2002 to $551.8 million from $448.7 million in the third quarter of 2001, with biooncology sales consisting of 71 percent of total product revenues, up from 66 percent in the third quarter of 2001.
Rituxan sales in the third quarter of 2002 increased 38 percent to $293.9 million from $212.8 million in the third quarter of 2001. This sales increase is due primarily to increased sales for the treatment of non-Hodgkin?s lymphoma. During the third quarter, Rituxan became the number one branded anti-tumor product in the United States.
Herceptin sales in the third quarter of 2002 increased 15 percent to $96.7 million compared to $83.8 million in the third quarter of 2001. Since launch, the company has experienced consistent quarter-over-quarter growth for Herceptin in the United States.
Sales of Genentech's growth hormone products in the third quarter of 2002 increased 14 percent to $77.4 million compared to $67.7 million in the third quarter of 2001.
During the third quarter of 2002, sales of Genentech's three cardiovascular products, Activase® (Alteplase, recombinant), TNKase™(Tenecteplase) and Cathflo® Activase® (Alteplase), decreased 6 percent to $45.6 million compared to $48.6 million in the third quarter of 2001.
Pulmozyme® (dornase alfa) Inhalation Solution sales in the third quarter of 2002 increased 16 percent to $38.2 million compared to $32.9 million in the third quarter of 2001.
Costs and Expenses
Costs and expenses in the third quarter of 2002 were higher than in the third quarter of 2001 driven by costs related to higher product sales, primarily Rituxan, and related profit-sharing expenses and by increased marketing, general and administrative expenses due primarily to write-downs of biotechnology equity securities and higher royalty expenses. Research and development expenses were higher in the third quarter of 2002 compared to the third quarter of 2001 due to late stage clinical development. The litigation-related special charge in the current quarter is for interest on the City of Hope trial judgment. We expect this charge, as well as additional charges related to obtaining a surety bond, to continue each quarter through the process of appealing the trial result.
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 originated 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.
Webcast:
Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Wednesday, October 9, 2002 at 2:45pm PT. The live webcast can be accessed by going to Genentech's website at http://www.gene.com and will be archived and available for replay until close of business on October 16, 2002. An audio replay of the webcast will be available beginning at 5:45pm PT on October 9, 2002 through 5:45pm PT on October 16, 2002. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291(international); Conference ID number is 5855978.
Genentech Business and Product Development Events in the Third Quarter, 2002
Marketed and Pipeline Product Events:
Oncology
- Herceptin® (Trastuzumab): Genentech received approval from the FDA for its supplemental Biologics License Application (sBLA) to include information about a breast cancer gene-detection test method called FISH (fluorescence in situ hybridization) (PathVysion®) into the labeling of the product insert of Herceptin. FISH is a diagnostic testing method used to detect HER2 (human epidermal growth factor receptor2) gene amplification in a patient's breast cancer cells.
- Rituxan® (Rituximab): The Phase II clinical trial data for Rituxan in rheumatoid arthritis was accepted for presentation at the plenary session at the American College of Rheumatology on October 26, 2002.
- Tarceva™ (erlotinib HCl): Genentech, OSI Pharmaceuticals, and Roche announced that the randomized U.S. Phase III clinical trial evaluating Tarceva in combination with standard chemotherapy for patients with chemotherapy-naive stage IIIB/IV non-small cell lung cancer has completed patient enrollment.
- Avastin™ (bevacizumab, rhuMAb-VEGF): Genentech announced that a Phase III study of Avastin in relapsed metastatic breast cancer patients did not meet its primary efficacy endpoint of progression-free survival. Results from the lead Phase III study in colorectal cancer are due in mid-2003.
- Anti-CD40: On October 8, 2002, Genentech announced that it would discontinue development of the drug candidate anti-CD40 monoclonal antibody that was licensed from Seattle Genetics Inc. in June 1999. The anti-CD40 antibody was being developed for the treatment of various hematologic malignancies.
Immunological Disease & Other Unmet Needs
- Raptiva™ (efalizumab, formerly Xanelim™): Genentech and XOMA Ltd. announced that a randomized Phase III study with Raptiva achieved its primary efficacy endpoint. Genentech and XOMA plan to include this data as part of a Biologics License Application (BLA) to be filed with the FDA in the fourth quarter 2002. In August, at the American Academy of Dermatology meeting, Genentech and XOMA also announced positive preliminary data from a long-term treatment study of Raptiva.
- RhuFab V2 (ranibizumab): On October 1, 2002, Genentech announced positive preliminary data from a Phase Ib/II randomized, single-agent study with the investigational anti-VEGF (vascular endothelial growth factor) product, rhuFab V2, for patients with the wet form of age-related macular degeneration. The company also announced that it plans to move forward with Phase III randomized trials to begin during the first quarter of 2003.
Corporate Business Events
- Genentech was named by Science as the top employer and most admired company in the biotechnology and pharmaceutical industries in the September 20, 2002 issue of the magazine. The honor is the result of a survey of selected readers and subscribers to Science conducted by Hughes Research Worldwide of Rockville, MD.
- In the October issue of Working Mother magazine, Genentech was named one of the "100 Best Companies for Working Mothers" for the 11th year. Genentech is the only biotechnology company to be named to Working Mother?s 2002 list. It is also one of only eight California-based companies that made this year's list.
- Genentech announced that a United States District Court jury in Sacramento found unanimously (10-0) in favor of Genentech that all the claims of Chiron?s patent asserted against Genentech were invalid. Chiron sued Genentech for alleged infringement of a Chiron patent by Genentech?s Herceptin. During the course of the trial, the United States Patent and Trademark Office declared an interference between the Chiron patent involved in the lawsuit with Genentech and a patent application exclusively licensed by Genentech from the University of Pennsylvania relating to anti-HER2 antibodies. In declaring this interference, the Patent Office had determined that there was a substantial question as to whether the inventors of the Chiron patent were first to invent this technology and are entitled to this patent.
- Serono S.A. and Genentech announced that the two companies have entered into an agreement under which Serono received an exclusive license to market the psoriasis treatment Raptiva outside of the United States, Japan, and certain other Asian countries. Development and marketing rights in the United States remain with Genentech and its U.S. partner XOMA, and Genentech retains exclusive rights in Japan and certain other Asian countries.
- Genentech announced that its Board of Directors has authorized the extension of its current stock repurchase program for the repurchase of up to an additional $375 million of its common stock through June 30, 2003. The Board initially approved $625 million for repurchases of common stock under the stock repurchase program in October 2001. Through the end of the third quarter of 2002, Genentech made purchases of its common stock under the stock repurchase program at an aggregate cost of approximately $615 million.
- Genentech announced the promotions of Stephen Juelsgaard to executive vice president, general counsel and secretary; Gwen Fyfe to vice president, Clinical Hematology/Oncology; and, Kenneth Hillan to vice president, Research Operations and Pathology.
The statements made in this press release relating to the initiation date of the rhuFab Phase III clinical trials, the time frame of data availability from the Phase III Avastin trial in colorectal cancer, the Raptiva BLA filing time frame and potential product launches are forward-looking, and actual results could differ materially. Among other things, the start of rhuFab trials could be delayed by the outcome of discussions with the FDA or by unexpected safety, manufacturing or patient enrollment issues; the timing of the availability of the Avastin data could be affected by the length of time to achieve study endpoints, additional time requirements for data analysis or discussions with the FDA; the Raptiva BLA filing time frame could be delayed by unexpected safety or manufacturing issues, additional time requirements for data analysis and preparation of the BLA, discussions with the FDA, or the need for additional clinical studies; and the number and timing of potential multiple product launches could be impacted by any and all of the foregoing or failure to receive FDA approval.
GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months
Ended September 30,
----------------------------------------------------
2002 2001
------------------------ -----------------------
Actual(2) Pro Forma(1) Actual Pro Forma(1)
--------- --------- --------- ---------
Revenues:
Product sales $ 551,823 $ 551,823 $ 448,700 $ 448,700
Royalties 85,082 85,082 66,051 66,051
Contract and other 17,417 17,417 8,941 8,941
Interest income 20,846 20,846 32,473 32,473
--------- --------- --------- ---------
Total revenues 675,168 675,168 556,165 556,165
Costs and expenses:
Cost of sales 112,481 112,481 96,030 96,030
Research and development 143,659 143,659 128,195 128,195
Marketing, general and administrative 145,414 145,414 109,365 109,365
Collaboration profit sharing 90,048 90,048 65,796 65,796
Recurring charges related to redemption 38,928 - 79,404 -
Special charges: Litigation-related 12,512 - - -
Interest expense - - 1,719 1,719
--------- --------- --------- ---------
Total costs and expenses 543,042 491,602 480,509 401,105
Income before taxes 132,126 183,566 75,656 155,060
Income tax provision 42,822 63,385 32,915 49,619
--------- --------- --------- ---------
Net income $ 89,304 $ 120,181 $ 42,741 $ 105,441
========= ========= ========= =========
Earnings per share:
Basic $ 0.17 $ 0.23 $ 0.08 $ 0.20
========= ========= ========= =========
Diluted $ 0.17 $ 0.23 $ 0.08 $ 0.20
========= ========= ========= =========
Weighted average shares used to compute
earnings per share:
Basic 516,025 516,025 527,328 527,328
========= ========= ========= =========
Diluted 519,429 519,429 533,670 533,670
========= ========= ========= =========
(1) Pro Forma amounts exclude litigation-related special charges in Q3 2002 and recurring charges related to the 1999 redemption of Genentech's Special Common Stock.
(2) Genentech adopted Statement of Financial Accounting Standards (or "FAS") No. 141 on Business Combinations and FAS 142 on Goodwill and Other Intangible Assets on January 1, 2002. As a result of our adoption, reported net income increased by approximately $39.4 million, net of tax, (or $0.08 per share) in Q3 2002 due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset.
GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Nine Months
Ended September 30,
-----------------------------------------------------
2002 2001
------------------------ ------------------------
Actual(4) Pro Forma(3) Actual(5) Pro Forma(3)
---------- ---------- ---------- ----------
Revenues:
Product sales $1,551,899 $1,551,899 $1,250,862 $1,250,862
Royalties 252,460 252,460 193,128 193,128
Contract and other 57,468 57,468 68,359 58,355
Interest income 79,105 79,105 99,772 99,772
---------- ---------- ---------- ----------
Total revenues 1,940,932 1,940,932 1,612,121 1,602,117
Costs and expenses:
Cost of sales 321,792 321,792 256,013 256,013
Research and development 438,272 438,272 387,984 387,984
Marketing, general and administrative 395,956 395,956 345,084 345,084
Collaboration profit sharing 246,216 246,216 170,077 170,077
Recurring charges related to redemption 116,784 - 242,411 -
Special charges: Litigation-related 530,512 - - -
Interest expense 753 753 4,554 4,554
---------- ---------- ---------- ----------
Total costs and expenses 2,050,285 1,402,989 1,406,123 1,163,712
Income (loss) before taxes and cumulative
effect of accounting change (109,353) 537,943 205,998 438,405
Income tax (benefit) provision (80,312) 178,594 92,220 140,290
---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
accounting change (29,041) 359,349 113,778 298,115
Cumulative effect of accounting change,
net of tax - - (5,638) -
---------- ---------- ---------- ----------
Net income (loss) $ (29,041) $ 359,349 $ 108,140 $ 298,115
========== ========== ========== ==========
Earnings (loss) per share:
Basic: Earnings (loss) before cumulative
effect of accounting change $ (0.06) $ 0.69 $ 0.22 $ 0.57
Cumulative effect of accounting
change, net of tax - - (0.01) -
---------- ---------- ---------- ----------
Net earnings (loss) per share $ (0.06) $ 0.69 $ 0.21 $ 0.57
========== ========== ========== ==========
Diluted: Earnings (loss) before cumulative
effect of accounting change $ (0.06) $ 0.68 $ 0.21 $ 0.56
Cumulative effect of accounting
change, net of tax - - (0.01) -
---------- ---------- ---------- ----------
Net earnings (loss) per share $ (0.06) $ 0.68 $ 0.20 $ 0.56
========== ========== ========== ==========
Weighted average shares used to compute
earnings (loss) per share:
Basic 520,889 520,889 526,709 526,709
========== ========== ========== ==========
Diluted 520,889 526,000 534,783 534,783
========== ========== ========== ==========
(3) Pro Forma amounts exclude litigation-related special charges in 2002 and recurring charges related to the 1999 redemption of Genentech's Special Common Stock. In addition, pro forma excludes the impact of our adoption of Statement of Financial Accounting Standards (or "FAS") No. 133 on Accounting for Derivative Instruments and Hedging Activities in Q1 2001 (see also note 5 below).
(4) Genentech adopted FAS 141 on Business Combinations and FAS 142 on Goodwill and Other Intangible Assets on January 1, 2002. As a result of our adoption, reported net loss decreased by approximately $118.2 million, net of tax, (or $0.23 per share) in the nine months ended September 30, 2002, due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset.
(5) As a result of our adoption of FAS 133 in Q1 2001, we recorded a cumulative effect of a change in accounting principle, net of tax, and the changes in fair value of certain derivatives ($10.0 million) in contract and other revenues. The net of tax impact of our adoption on Q1 2001 was not material.
GENENTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
2002 2001
------------ -----------
Selected balance sheet data:
Cash and short-term investments $ 1,124,145 $ 1,348,078
Accounts receivable 302,091 303,298
Inventories 394,593 356,946
Long-term marketable securities 1,049,799 1,468,450
Property, plant and equipment, net 1,017,121 865,668
Goodwill 1,334,219 1,302,493
Other intangible assets 965,246 1,113,299
Other long-term assets 277,654 175,585
Total assets 6,673,424 7,134,847
Total current liabilities 588,216 651,755
Total liabilities 1,372,646 1,215,028
Total stockholders' equity 5,300,778 5,919,819
Year-to-date:
Capital expenditures 244,626 213,351
Pro forma depreciation and amortization expense 88,245 110,477
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