Monday, Jul 18, 1994

Genentech Reports 1994 Second Quarter Results

Earnings More Than Tripled Over Second Quarter Last Year

South San Francisco, Calif. -- July 18, 1994 --

Genentech, Inc. (NYSE: GNE) announced today that earnings for the second quarter of 1994 more than tripled to $33.4 million, or 28 cents per share, from $10.4 million, or 9 cents per share, in the second quarter of 1993. Revenues for the quarter increased 15 percent to $194.9 million, from $169.8 million in the same quarter of 1993. This increase is due primarily to higher product sales.

"It was an excellent quarter," said G. Kirk Raab, Genentech's president and chief executive officer, "not only for financial results, but because we reached several very important milestones. Increased earnings reflect continued growth in Activase. t-PA sales. Activase also received a unanimous FDA Advisory Committee recommendation this quarter regarding an FDA label change that, if ultimately approved, would further facilitate this sales trend. In addition, during the quarter we made important scientific progress with the publishing in Nature of our discovery of a critical blood factor involved in the production of platelets. We made important clinical progress too, particularly with our anti-lgE antibody and with a new potential indication for Pulmozyme® DNase in chronic obstructive pulmonary disease."

Marketed Products

The GUSTO trial results continued to have a positive impact on Activase sales in the second quarter of 1994. Activase (Alteplase, recombinant) sales increased 32 percent to $73.5 million from $55.8 million in the second quarter of 1993. On June 10, 1994, an FDA Cardiovascular and Renal Drug Advisory Committee unanimously agreed that the rapid infusion of Activase has a clinically significant mortality benefit in the treatment of heart attacks and recommended that the new dosing regimen be incorporated into the product's labeling. "This positive recommendation is an important step toward FDA approval of a label change that would allow us to actively promote an accelerated dosing infusion for Activase and the mortality/morbidity benefits associated with this dose," said Raab.

Sales of Genentech's two human growth hormone products Protropin® (somatrem for injection) and Nutropin® (somatropin [rDNA origin] for injection) increased 11 percent to $59.5 million from $53.7 million in sales of Protropin in the second quarter of 1993. This increase reflects the introduction of Nutropin in 1994 for the additional indication of growth failure due to chronic renal insufficiency and an increased number of patients diagnosed with growth hormone inadequacy.

Genentech did not face new competitors in the growth hormone market in the quarter, though this possibility exists in the future. New competitors could enter the market any time upon receiving FDA approval. Genentech has a strategy in place to protect its market but does anticipate some decrease in sales if competitors enter the market.

Pulmozyme (dornase alfa) sales were $18.7 million, reflecting growing acceptance of this new therapy by cystic fibrosis physicians and patients in the United States and Europe since it was introduced on the market in the first quarter of 1994.

Actimmune® (Interferon gamma-1b) sales decreased to $0.9 million from $1.3 million in the second quarter of 1993. Sales for this product remain modest because the approved indication, chronic granulomatous disease, is rare.

Research and Development

Genentech's strong commitment to research and development (R&D) continues. R&D expenses in the second quarter of 1994 were $73.0 million compared to $83.9 million in the second quarter of 1993, which included a charge of $13.7 million to end an R&D arrangement with Boehringer Ingelheim GmbH concerning the Research Institute of Molecular Pathology in Vienna. R&D spending in the third and fourth quarters of 1994 will increase as Genentech begins additional later stage clinical trials.

During the quarter, five significant events marked Genentech's continued R&D productivity. First, Genentech reported that it identified and cloned human thrombopoietin (the ligand for the c-mpl receptor), an important protein involved in the production of platelets by inducing primitive bone marrow cells to change and mature. Scientists in several laboratories around the world have been working to discover the factor that would stimulate production of platelets. Thrombopoietin could prove useful as a treatment for thrombocytopenia (a deficiency of platelets, which are necessary for clotting) brought on by cancer chemotherapy or bone marrow transplantation. "Based on the strength of these preliminary findings, their potential to advance clinical medicine, and the commercial importance of a drug that fills this need, Genentech will continue to make this a high priority project," said Arthur D. Levinson, Ph.D., Genentech senior vice president.

Also during the quarter, Genentech scientists reported in the Proceedings of National Academy of Sciences advantages of a variant of Activase called TNK-tPA. Tests of the molecule in animal models showed that it dissolved 50 percent of the blood clots in one-third the time required by standard Activase infusion. They also found that TNK-t-PA stayed in the bloodstream about eight times longer that Activase. Because of its slower clearance and faster clot dissolving, TNK-t-PA is a potentially effective thrombolytic agent when given rapidly as an intravenous bolus at a relatively low dose. Genentech expects to begin Phase I clinical trials with TNK-t-PA in early 1995.

During the quarter Genentech successfully completed Phase I clinical trials of its anti-lgE humanized monoclonal antibody for treating allergic rhinitis. Last week Genentech began Phase II clinical trials with the product for this indication. Phase I trials of this antibody for treating asthma are ongoing.

Genentech has used the results of Phase II clinical trials of Pulmozyme to define Phase III clinical plans for a new indication for the drug. A previously reported Phase II trial showed that Pulmozyme reduces death by a statistically significant 61 percent in patients with acute infectious exacerbations of chronic bronchitis. More recently, a Phase II trial in stable bronchiectasis patients did not show a significant benefit to using Pulmozyme as a therapy in these patients. These findings in stable bronchiectasis patients did not support advancing to a Phase III trial for this indication.

However, Pulmozyme may demonstrate significant benefit in certain acutely ill and hospitalized pulmonary patients with or without bronchiectasis. Genentech has designed a Phase III trial to determine the safety and efficacy of Pulmozyme in treating patients with exacerbations requiring hospitalization of chronic obstructive pulmonary disease (COPD), a disease classification that may include various combinations of chronic bronchitis, asthma, emphysema and bronchiectasis. This worldwide trial is scheduled to begin in the fall of 1994.

Consistent with Genentech's strict selection criteria for development projects, during the quarter Genentech discontinued study of insulin-like growth factor (IGF-1) for treating AIDS wasting, based on preliminary Phase II clinical trial results. (Genentech is continuing development of IGF-1 for Type II Diabetes, currently in Phase II clinical trials.) "This selection process ensures a healthy focus that puts our resources behind projects that have the most potential to improve human health and increase stockholder value," said Raab.

Marketing. General and Administrative

Marketing, general and administrative expenses totaled $60.8 million in the second quarter of 1994 versus $56.2 million in the second quarter of 1993. The increase is primarily due to an increase in marketing and selling expenses including continued product launch expenses for Nutropin and for Pulmozyme in the United States and Europe; and increases in other corporate expenses, including litigation related expenses.

Raab said, "Our significant regulatory, scientific and marketing progress during the quarter, combined with our continued emphasis on bringing important new products for significant medical needs to market, should bring continued profit growth for Genentech and its stockholders."

Genentech, Inc. is a leading international biotechnology company that discovers, develops, manufactures and markets human pharmaceuticals for significant medical needs. The company has headquarters in South San Francisco, California and is traded on the New York and Pacific Stock exchanges under the symbol GNE.

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(in thousands, except per share amounts)

Three Months
Ended June 30,

1994 1993
   Product sales $ 152,574 $ 110,768
   Royalties 26,099 24,052
   Contract and other 6,842 24,255
   Interest 9,407 10,762
      Total revenues 194,922 169,837
Costs and expenses
   Cost of sales 24,565 17,680
   Research and development 73,008 83,944
   Marketing, general and administrative 60,817 56,191
   Interest 1,754 1,621
      Total costs and expenses 160,144 159,436
Income before taxes 34,778 10,401
Income tax provision 1,391 -
Net income $ 33,387 $ 10,401
Net income per share $ 0.28 $ 0.09
Weighted average number of shares used in
   computing per share amounts:
119,041 116,707
Six Months
Ended June 30,

1994 1993
   Product sales $ 300,372 $ 213,426
   Royalties 59,778 53,394
   Contract and other 14,369 34,784
   Interest 19,273 21,230
      Total revenues 393,792 322,834
Costs and expenses
   Cost of sales 46,696 34,279
   Research and development 147,384 158,166
   Marketing, general and administrative 120,928 102,694
   Interest 3,532 2,960
      Total costs and expenses 318,540 298,099
Income before taxes 75,252 24,735
Income tax provision 3,010 -
Net income $ 72,242 $ 24,735
Net income per share $ 0.61 $ 0.21
Weighted average number of shares used in
   computing per share amounts:
118,924 116,267
June 30,
1994 1993
Selected balance sheet data
   Cash and short-term investments $ 599,370 $ 514,258
   Accounts receivable 126,633 113,978
   Inventories 95,006 70,899
   Long-term marketable securities 220,224 144,384
   Property, plant and equipment, net 475,675 456,975
   Other long-term assets 48,398 61,371
   Total assets 1,575,676 1,372,771
   Total current liabilities 189,773 149,023
   Long-term debt 150,804 151,636
   Total liabilities 352,435 313,467
   Total stockholders' equity 1,223,241 1,059,304