Thursday, Jan 20, 2000

Genentech Reports 1999 Year-End Results

1999 Revenues Driven by 45 Percent Increase in Product Sales

South San Francisco, Calif. -- January 20, 2000 --

Genentech, Inc. (NYSE: DNA) announced today the highest yearly earnings and product sales in its history, exclusive of special charges, primarily redemption-related and legal settlements, and recurring charges related to the redemption. The redemption-related charges are due to the redemption of Genentech's Special Common Stock in June and related accounting treatment1 resulting from Roche's exercise of its option and the subsequent reoffering of Genentech shares. As a result of such charges, the company recorded a net loss for 1999.

For 1999, including the three months ended December 31, 1999:

  • Net income for 1999 increased 36 percent to $246.7 million, or 93 cents per share, from $181.9 million in 1998, or 70 cents per share2, exclusive of special charges, primarily redemption-related and legal settlements, and recurring charges related to the redemption. Excluding these charges, net income for the fourth quarter of 1999 increased to $48.1 million, or 18 cents per share, from $37.1 million, or 14 cents per share, in the fourth quarter of 1998.

  • Due primarily to the charges resulting from the redemption of Genentech's Special Common Stock and related accounting treatment and legal settlements, the company recorded a net loss for 1999 of $1,144.5 million as compared to net income of $181.9 million in 1998. The company also recorded a fourth quarter net loss of $172.9 million as compared to a net income of $37.1 million in the fourth quarter of 1998.

  • Total revenues for 1999 were $1,421.4 million as compared to $1,150.9 million in 1998. This increase is primarily due to product sales for 1999, which increased 45 percent to $1,039.1 million from $717.8 million in 1998, driven by Herceptin? (Trastuzumab) anti-HER2 antibody and Rituxan? (Rituximab) antibody sales.

"In addition to our strong revenues for the year, Genentech made significant progress in moving projects through its pipeline, including the approval of Nutropin Depot, a filing for approval for TNKase and the announcement of positive results from Phase III clinical trials of anti-IgE," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "The year was also marked by two impressive stock offerings, strong performance of Genentech's stock and a record-setting first full year of sales for Herceptin."

Nutropin Depot™ [somatropin (rDNA origin) for injectable suspension], the first long-acting dosage form of recombinant human growth hormone, received U.S. Food and Drug Administration (FDA) approval in December for use in pediatric growth hormone deficiency.

Following a July 30, 1999 submission, Genentech was notified that the FDA accepted for review a Biologics License Application for TNKase™ (Tenecteplase) for treating heart attack patients. Boehringer Ingelheim International GmbH filed with the European Regulatory Authority for approval of Tenecteplase for the same indication.

With Novartis Pharma AG and Tanox, Inc., Genentech announced positive results from Phase III clinical trials of anti-IgE in patients with allergic asthma and seasonal allergic rhinitis. The companies intend to file a biologics license application in the United States and registration in Europe by mid-year 2000.

Product Sales

Herceptin sales for 1999, the first full year on the market, were $188.4 million. Genentech first recorded sales for Herceptin of $30.5 million in the fourth quarter of 1998. In 1999, Herceptin surpassed Rituxan as having the highest first-year sales of any anti-cancer product in the United States. Since launch, an increase of physician acceptance of Herceptin has contributed to a positive sales trend and successful penetration into the breast cancer market.

Rituxan sales increased to $279.4 million in 1999 from $162.6 million in 1998. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma. With partners IDEC Pharmaceuticals Corporation and Roche, Genentech continues to explore other uses of Rituxan as a single agent as well as in combination with other traditional therapies through clinical trials.

Activase® (Alteplase, recombinant) sales increased to $236.0 million in 1999 from $213.0 million in 1998 as a consequence of the drug's increased use in peripheral blood vessel occlusions offset by a decline in the overall size of the acute myocardial infarction market due to mechanical reperfusion and continued competition.

Sales of Genentech's three growth hormone products, Protropin® (somatrem for injection), Nutropin® [somatropin (rDNA origin) for injection] and Nutropin AQ® [somatropin (rDNA origin) injection] increased to $221.2 million in 1999 from $214.0 million in 1998. This change is primarily due to fluctuations in customer ordering patterns.

Sales of Pulmozyme increased to $111.4 million in 1999 compared to $93.8 million in 1998. This increase is due primarily to increased market penetration in the early and mild patient populations for the treatment of cystic fibrosis.

Total Costs & Expenses

Costs and expenses increased in 1999 as compared to 1998 due primarily to the redemption-related charges, described above, and the legal settlements.

Research and development (R&D) expenses decreased in 1999 to $367.3 million compared to $396.2 million in 1998. R&D expenses as a percent of revenues in 1999 were 26 percent, compared to approximately 34 percent in 1998. 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.

Excluding the effects of push-down accounting related to the redemption, cost of sales increased to $192.2 million in 1999 from $138.6 million in 1998, primarily as the result of the increase in product sales. Marketing, general and administrative (MG&A) expenses increased to $467.9 million in 1999 compared to $358.9 million in 1998 due to an increase in marketing and selling expenses in support of Genentech's oncology products, including the Rituxan profit sharing expense. This increase is also due to expenses related to competitive conditions with Genentech's other marketed products.

In the fourth quarter of 1999, Genentech recorded a net special charge of $180 million related to the settlement of the patent infringement lawsuits brought by the University of California (UC) relating to Genentech human growth hormone products. Genentech will pay UC $150 million and make a $50 million contribution to UC toward construction of a biological sciences research building. The special charge reflects these obligations less amounts previously recorded.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures, and markets human pharmaceuticals for significant unmet medical needs. Thirteen of the currently approved biotechnology products stem from Genentech science. Genentech markets eight 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.

1. 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 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 is "pushed down" to Genentech and reflected on Genentech's financial statements beginning June 30, 1999. The effect of push-down accounting on Genentech's 1999 consolidated statement of operations include a non-cash charge to earnings and recurring charges for the amortization of certain assets including goodwill and other intangibles.

2. All earnings [loss] per share data and number of shares reflect the 2-for-1 stock split effective November 2, 1999.

Genentech Business and Product Development Events in 1999

In 1999 Genentech made significant progress with the products in its pipeline, including several stemming from business collaborations. During the year Genentech:

  • Announced the public offering by Roche of 44 million shares of Genentech common stock in July and 40 million shares in October and a 2-for-1 stock split in November.3 On June 14, 1999, Roche exercised its option to cause Genentech to redeem as of June 30, 1999 all of its outstanding special common stock not owned by Roche. Since the offering in July, Genentech common stock is traded on the New York Stock Exchange under the symbol DNA.

  • Appointed Arthur D. Levinson, Ph.D., as chairman of the board of directors, re-elected to the board Herbert W. Boyer, Ph.D., and appointed new board members Charles A. Sanders, M.D., and Sir Mark Richmond, Ph.D.

  • With Alkermes, Inc., received U.S. Food and Drug Administration (FDA) approval for Nutropin Depot, the first long-acting dosage form of recombinant human growth hormone, for use in pediatric growth hormone deficiency. Nutropin Depot was granted priority review status six months earlier.

  • Received FDA approval of additional labeling describing Nutropin and Nutropin AQ's effects on spine bone mineral density in young adults with childhood-onset growth hormone deficiency.

  • Following a July 20, 1999 submission, was notified that the FDA accepted for review a Biologics License Application for TNKase for treating heart attack patients. Boehringer Ingelheim International Gmbh filed with the European Regulatory Authority for approval of Tenecteplase for the same indication.

  • With Novartis Pharma AG and Tanox, Inc., announced positive results from Phase III clinical trials of anti-IgE in patients with allergic asthma and seasonal allergic rhinitis. The companies intend to file a biologics license application in the United States and registration in Europe by mid-year 2000.

  • Initiated Phase III clinical trials of Rituxan in intermediate/high-grade non-Hodgkin's lymphoma. In keeping with Genentech's goal to explore other uses of Rituxan, over 90 investigational abstracts of Rituxan were featured at a major medical meeting in December.

  • With XOMA Corporation, announced the initiation of Phase III clinical trials of anti-CD11a (hu1124) monoclonal antibody product in psoriasis. Expanded the anti-CD11a antibody product development program to include solid organ transplant rejection and began planning for Phase I clinical trials. Agreed with XOMA to license XOMA's technology for pharmaceutical antibody production designed to reduce production costs and increase yields.

  • Initiated Phase III safety and efficacy trials of Activase in catheter clearance.

  • Announced, with COR Therapuetics, Inc., a Phase III collaborative study of COR's antiplatelet agent INTEGRILIN in combination with Genentech's single-bolus thrombolytic TNKase in patients with acute myocardial infarction (heart attack).

  • Announced the decision to proceed with Phase III clinical trials of recombinant human monoclonal antibody to vascular endothelial growth factor (rhuMAb- VEGF) in combination with chemotherapy in metastatic colorectal cancer and metastatic non-small cell lung cancer, based on positive results in Phase II studies.

  • Initiated Phase II clinical trials of Herceptin in other solid-tumor indications and began preparing for Phase III clinical trials in adjuvant therapy for breast cancer. At a major medical meeting in May, Genentech reported that metastatic breast cancer patients who have tumors that overexpress the HER2 protein, when treated with Herceptin plus chemotherapy, had a longer overall survival compared to patients treated with chemotherapy alone.

  • Roche Holding AG reported that Xubix, an oral platelet IIb/IIIa antagonist discovered jointly with Genentech and aimed at cutting the risk of cardiac events, showed no benefit over aspirin in a Phase III trial.

  • Announced that the Phase III clinical trial of recombinant human nerve growth factor (rhNGF) for use in diabetic peripheral neuropathy did not meet its objectives and decided not to file for product approval with the FDA.

  • Announced that a Phase II clinical trial of recombinant human vascular endothelial growth factor (VEGF) protein did not meet its primary objectives.

  • With Immunex Corporation, began planning Phase I clinical trials for Apo2L/TRAIL in cancer.

  • Filed an Investigational New Drug application (IND) for AMD-Fab for age-related macular degeneration.

  • Signed a license agreement with Immunex Corporation that grants rights under Genentech's immunoadhesin patent portfolio to Immunex for its product Enbrel. Immunex paid Genentech an initial license fee in exchange for a worldwide, co-exclusive license covering p75TNFR:Fc fusion proteins such as Enbrel. Immunex is paying royalties to Genentech on sales of Enbrel for the life of Genentech's patents.

  • Announced a collaboration with Inspire Pharmaceuticals, Inc. to develop a therapy for respiratory disorders, including cystic fibrosis and chronic bronchitis.

  • Agreed with Aradigm Corporation to jointly develop an advanced pulmonary delivery system for Genentech's Pulmozyme inhalation solution.

  • Entered into an agreement with Schwarz Pharma AG for the development and distribution of Nutropin AQ and Nutropin Depot for the treatment of certain pediatric and adult growth disorders in Europe and several other countries outside of the United States, Canada and Japan.

  • Entered into an agreement with Abgenix, Inc. under which Abgenix agreed to provide Genentech access to Abgenix's XenoMouse technology to generate fully human antibodies.

1. All earnings [loss] per share data and number of shares reflect the 2-for-1 stock split effective November 2, 1999.


GENENTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

Three Months
Ended December 31,
1999 1998
Actual Pro Forma(1) Actual
Revenues:
   Product sales $ 268,703 $ 268,703 $ 213,713
   Royalties 50,538 50,538 46,983
   Contract and other 18,895 18,895 19,760
   Interest 20,320 20,320 23,844
      Total revenues 358,456 358,456 304,300
 
Costs and expenses:
   Cost of sales 94,395 47,851 32,501
   Research and development 96,573 96,573 105,173
   Marketing, general and administrative 140,928 140,928 113,793
   Special charges:
      Legal Settlements 180,008 - -
      Related to redemption 2,596 - -
   Recurring charges related to redemption 99,434 - -
   Interest 1,315 1,315 1,250
      Total costs and expenses 615,249 286,667 252,717
 
Income (loss) before taxes (256,793) 71,789 51,583
Income tax (benefit) provision (83,887) 23,690 14,443
 
Net income (loss) $ (172,906) $ 48,099 $ 37,140
Earnings (loss) per share:
   Basic $ (0.67) $ 0.19 $ 0.15
   Diluted $ (0.67) $ 0.18 $ 0.14
 
Weighted average shares used to
   compute earnings (loss) per share:
   Basic 257,645 257,645 253,706
   Diluted 257,645 264,920 261,916
 
Year
Ended December 31,
1999 1998
Actual Pro Forma(1) Actual
Revenues:
   Product sales $ 1,039,095 $ 1,039,095 $ 717,795
   Royalties 189,270 189,270 229,589
   Contract and other 103,579 83,242 114,795
   Interest 89,434 89,434 88,764
      Total revenues 1,421,378 1,401,041 1,150,943
 
Costs and Expenses:
   Cost of sales 285,549 192,191 138,623
   Research and development 367,338 367,338 396,186
   Marketing, general and administrative 467,929 467,929 358,931
   Special charges:
      Legal settlements 230,008 - -
      Related to redemption 1,207,700 - -
   Recurring charges related to redemption 198,420 - -
   Interest 5,360 5,360 4,552
      Total costs and expenses 2,762,304 1,032,818 898,292
 
Income (loss) before taxes (1,340,926) 368,223 252,651
Income tax (benefit) provision (196,398) 121,542 70,742
 
Net income (loss) $ (1,144,528) $ 246,681 $ 181,909
Earnings (loss) per share:
   Basic $ (4.46) $ 0.96 $ 0.72
   Diluted $ (4.46) $ 0.93 $ 0.70
 
Weighted average shares used to
   compute earnings (loss) per share:
   Basic 256,430 256,430 251,646
   Diluted 256,430 264,737 259,744
 
December 31,
1999 1998
Selected balance sheet data (unaudited):
   Cash and short-term investments $ 742,685 $ 887,706
   Accounts receivable 214,785 149,741
   Inventories 275,245 148,626
   Long-term marketable securities 1,214,757 716,888
   Property, plant and equipment, net 730,086 700,249
   Goodwill 1,628,722 -
   Other intangible assets 1,453,268 65,033
   Other long-term assets 201,100 131,274
   Total assets 6,554,441 2,855,402
   Total current liabilities 484,127 291,327
   Long-term debt 149,708 149,990
   Total liabilities 1,271,636 511,557
   Total stockholders' equity 5,282,805 2,343,845

(1) Pro Forma amounts exclude special charges, primarily redemption related and legal settlements, and related tax effects, and recurring charges related to the redemption.

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