Monday, Jan 14, 2008

Genentech Announces Full Year and Fourth Quarter 2007 Results

South San Francisco, Calif. -- January 14, 2008 --

Genentech, Inc. (NYSE: DNA) today announced financial results for the full year and fourth quarter of 2007. Key results for the full year 2007 include:
  • U.S. product sales of $8,540 million, a 19 percent increase over U.S. product sales of $7,169 million in 2006.
  • Non-GAAP operating revenues of $11,718 million1, a 26 percent increase over operating revenues of $9,284 million in 2006; GAAP operating revenues of $11,724 million, which include recognition of approximately $6 million of deferred royalty revenue associated with the acquisition of Tanox, Inc.
  • Non-GAAP net income increase of 31 percent to $3,142 million from $2,390 million in 20061; GAAP net income increase of 31 percent to $2,769 million from $2,113 million reported in 2006.
  • Non-GAAP earnings per share increase of 32 percent to $2.94 per share from $2.23 per share in 20061; GAAP earnings per share increase of 31 percent to $2.59 per share from $1.97 per share reported in 2006.

"We are pleased with our strong financial performance in 2007, which was our tenth consecutive year of double-digit revenue growth," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "We remain steadfast in our focus on building a pipeline of novel therapies that have the potential to make an important difference for patients suffering from significant diseases. In 2008, we will continue to invest in the 20 new molecular entities in clinical development and look forward to new data from a number of potentially important line extensions, including Rituxan for multiple sclerosis and lupus and Avastin in combination with Tarceva for advanced non-small cell lung cancer." 

The company announced it expects full-year 2008 non-GAAP earnings to be in the range of $3.30 to $3.45 per share1.

Other Financial Results
Key results for the fourth quarter of 2007 include:

  • U.S. product sales of $2,199 million, a 7 percent increase over U.S. product sales of $2,053 million in the fourth quarter of 2006.
  • Non-GAAP operating revenues of $2,966 million1, a 9 percent increase over operating revenues of $2,714 million in the fourth quarter of 2006; GAAP operating revenues of $2,970 million, which include recognition of approximately $4 million of deferred royalty revenue associated with the acquisition of Tanox, Inc.
  • Non-GAAP net income increase of 12 percent to $737 million from $659 million in the fourth quarter of 20061; GAAP net income increase of 6 percent to $632 million from $594 million reported for the fourth quarter of 2006.
  • Non-GAAP earnings per share increase of 13 percent to $0.69 per share from $0.61 per share in the fourth quarter of 20061; GAAP earnings per share increase of 7 percent to $0.59 per share from $0.55 per share reported for the fourth quarter of 2006.

Reconciliations between non-GAAP and GAAP earnings per share for the full years 2007 and 2006 and the fourth quarters of 2007 and 2006 are provided in the following table:

 

Non-GAAP Diluted EPS

Employee Stock-Based Compensation Expense

Net Charges related to Redemption, Acquisition and Special Items

In-process Research and Development Expense Related to Acquisition

 

 

Non-Cash Gain on Acquisition

Reported GAAP Diluted EPS

FY 2007

$2.94

($0.24)

($0.10)

($0.07)

$0.07

$2.59

FY 2006

$2.23

($0.17)

($0.09)

-

-

$1.97

Q4 2007

$0.69

($0.07)

($0.03)

-

-

$0.59

Q4 2006

$0.61

($0.04)

($0.02)

-

-

$0.55

Note: Amounts may not sum due to rounding.

Product Sales
Information on product sales for the three months and years ended December 31, 2007 and 2006, are provided in the following tables (dollars in millions):

 

Three Months Ended
December 31,

 

 

Year
Ended
December 31,

 

 

2007

2006

% Change

 

2007

2006

% Change

Avastin®+

$603

$490

23%

 

$2,296

$1,746

32%

Rituxan®

596

560

6

 

2,285

2,071

10

Herceptin®

327

322

2

 

1,287

1,234

4

Lucentis®++

197

217

(9)

 

815

380

114

Xolair®

120

117

3

 

472

425

11

Tarceva®

112

107

5

 

417

402

4

Nutropin® Products

93

101

(8)

 

371

378

(2)

Thrombolytics

66

62

6

 

268

243

10

Pulmozyme®

58

53

9

 

223

199

12

Raptiva®

28

24

17

 

107

90

19

 

 

 

 

 

 

 

Total U.S. product sales +++

2,199

2,053

7

 

8,540

7,169

19

 

 

 

 

 

 

 

Net product
sales to collaborators

 

150

 

191

 

(21)

 

 

903

 

471

 

92

Total product sales +++

$2,349

$2,244

5%

 

$9,443

$7,640

24%

+ Fourth-quarter and full-year 2007 Avastin U.S. product sales results include a net recognition of approximately $5 million and $7 million, respectively, in previously deferred revenue in conjunction with the company's Avastin Patient Assistance Program launched in February 2007.
++ Lucentis was launched June 30, 2006.
+++ Amounts may not sum due to rounding.

Total Costs and Expenses
Information on costs and expenses including cost of sales (COS), research and development (R&D) and marketing, general and administrative (MG&A) expenses for the three months and years ended December 31, 2007 and 2006, are provided in the following tables (dollars in millions)2:

 

Three Months Ended
December 31,

 

 

Year
Ended
December 31,

 

 

2007

2006

% Change

 

2007

2006

% Change

non-GAAP2

 

 

 

 

 

 

 

COS

$322

$338

(5%)

 

$1,500

$1,181

27%

R&D

579

517

12

 

2,293

1,633

40

MG&A

650

555

17

 

2,077

1,845

13

GAAP

 

 

 

 

 

 

 

COS

344

338

2

 

1,571

1,181

33

R&D

618

555

11

 

2,446

1,773

38

MG&A

692

600

15

 

2,256

2,014

12

Note: Genentech's fourth-quarter 2007 non-GAAP reported COS, R&D and MG&A expenses exclude the effects of employee stock-based compensation expense of $22 million, $39 million, and $42 million, respectively, associated with Genentech's adoption of FAS 123R on January 1, 2006. Full-year 2007 non-GAAP reported COS, R&D and MG&A expenses exclude the effects of employee stock-based compensation expense of $71 million, $153 million, and $179 million, respectively.2

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2007

2006

 

2007

2006

non-GAAP2

 

 

 

 

 

COS as a % of product sales

14%

15%

 

16%

15%

R&D as a % of operating revenues

20%

19%

 

20%

18%

MG&A as a % of operating revenues

22%

20%

 

18%

20%

GAAP

 

 

 

 

 

COS as a % of product sales

15%

15%

 

17%

15%

R&D as a % of operating revenues

21%

20%

 

21%

19%

MG&A as a % of operating revenues

23%

22%

 

19%

22%

Clinical Development
Genentech announced results from the Rituxan Phase III SUNRISE trial, a controlled re-treatment study for patients with rheumatoid arthritis who have had an inadequate response to previous treatment with one or more tumor necrosis factor (TNF) antagonist therapies.  The trial met its primary endpoint, as a larger proportion of patients retreated with Rituxan achieved an American College of Rheumatology (ACR) 20 response at week 48 compared to those retreated with a placebo.  A preliminary review of the safety data revealed no new safety signals. 

During the fourth quarter of 2007, Genentech and Roche initiated enrollment in two Phase III Avastin adjuvant HER2-negative breast cancer studies (ECOG 5103 and BEATRICE).  Genentech also initiated patient enrollment in the second-generation humanized anti-CD20 Phase III study for systemic lupus erythematosus.

The company made a decision not to move forward with its topical VEGF product (telbermin) as a treatment for diabetic foot ulcers after negative results in its Phase II study.

Genentech and its collaborator Curis plan to initiate in the first half of 2008 a Phase II trial of a systemic hedgehog antagonist molecule as a treatment of solid tumors.

Other Company Activities
Genentech announced that the California Supreme Court set a hearing date of February 5, 2008, to review the contract dispute lawsuit between Genentech and the City of Hope (COH).  A decision in the matter is anticipated no later than 90 days after the hearing.  The California Supreme Court had announced in February 2005 that it would review the 2002 judgment of the Los Angeles County Superior Court award for COH in the amount of approximately $300 million in compensatory and $200 million in punitive damages.  Genentech has already recorded litigation-related special charges for the amount of the judgment and related costs.

Webcast
Genentech will be offering a live webcast of a discussion by Genentech management of its financial and other business results on Monday, January 14, 2008, at 2:15 p.m. Pacific Time (PT). The live webcast may be accessed on Genentech's website at http://www.gene.com. This webcast will be available via the website until 5:00 p.m. PT on February 4, 2008. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on January 14, 2008 through 5:15 p.m. PT on January 21, 2008. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 28051568.

About Genentech
Founded more than 30 years ago, Genentech is a leading biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs. A considerable number of the currently approved biotechnology products originated from or are based on Genentech science. Genentech manufactures and commercializes multiple biotechnology products and licenses several additional products to other companies. The company has headquarters in South San Francisco,
California and is listed on the New York Stock Exchange under the symbol DNA. For additional information about the company, please visit http://www.gene.com.

About Genentech's Commitment to Patient Access
Genentech is committed to helping patients have access to our therapies. For those eligible patients in the United States who do not have insurance coverage or who cannot afford their out-of-pocket co-pay costs, Genentech has several support programs. Since 1985, when its first product was approved, Genentech has donated approximately $1 billion in free medicine to uninsured patients through its Genentech® Access to Care Foundation (GATCF) and the Genentech Endowment for Cystic Fibrosis. Since 2005, Genentech has also donated more than $140 million to various independent public charities that provide financial assistance to eligible patients who cannot access needed medical treatment due to co-pay costs. Through its Single Point of Contact (SPOC) program, Genentech provides patients with assistance and information on a broad array of reimbursement services and support.

For information on Genentech's latest business and product development events please refer to http://www.gene.com/gene/news/press-releases/index.jsp.

This press release contains forward-looking statements regarding investing in new molecular entities, data from clinical trials including trials for Rituxan, Avastin and Tarceva, the initiation of a clinical trial for a systemic hedgehog antagonist, and expected growth in non-GAAP earnings per share for 2008. Such statements are predictions and involve risks and uncertainties such that actual results may differ materially. Among other factors, actual results could be affected by unexpected safety, efficacy or manufacturing issues, additional time requirements for biologic license application (BLA) preparation or decision making, need for additional data or clinical studies, U.S. Food and Drug Administration (FDA) actions or delays, the failure to obtain or maintain FDA approval, changes in dosing or duration of product use, competition, pricing, reimbursement, intellectual property or contract rights, the ability to supply product, product withdrawals, new product approvals and launches, product sales, contract revenues and royalties, cost of sales, R&D or MG&A expenses, stock-based compensation expense, unanticipated expenses such as litigation or legal settlement expenses or equity securities write-downs, fluctuations in tax and interest rates, and changes in accounting or tax laws or the interpretation of such laws. Please also refer to Genentech's periodic reports filed with the Securities and Exchange Commission. Genentech disclaims, and does not undertake, any obligation to update or revise forward-looking statements in this press release.

###

1 Genentech's non-GAAP operating revenues exclude recognition of deferred royalty revenue associated with the acquisition of Tanox, Inc. Genentech's non-GAAP net income and non-GAAP earnings per share exclude the after-tax impact of certain items associated with the acquisition of Tanox, Inc., including in-process research and development expenses (a non-recurring expense in the third quarter of 2007), recurring recognition of deferred royalty revenue, recurring amortization of intangible assets, and a gain pursuant to Emerging Issues Task Force (EITF) Issue No. 04-1 (a non-recurring gain in the third quarter of 2007). Non-GAAP net income and non-GAAP earnings per share also exclude recurring charges related to the 1999 redemption of Genentech's stock by Roche Holdings, Inc., litigation-related and similar special items, and employee stock-based compensation expense. The differences in non-GAAP and GAAP amounts are reconciled in the accompanying tables and on http://www.gene.com.

2 Genentech's non-GAAP reported COS, R&D and MG&A expenses exclude the effects of employee stock-based compensation expense associated with Genentech's adoption of FAS 123R on January 1, 2006. Stock-based compensation expense was recognized in COS for the first time in the first quarter of 2007 as the company capitalized employee stock-based compensation into inventory produced in 2006 and began to sell those products in 2007. The differences in non-GAAP and GAAP amounts are reconciled in the accompanying tables and on http://www.gene.com.

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