Monday, Jul 17, 2000

Genentech Reports 15 Percent Increase in Product Sales for Second Quarter

Earnings Driven by Sales of Rituxan and Herceptin

South San Francisco, Calif. -- July 17, 2000 --

Genentech, Inc. (NYSE: DNA) today announced a 15 percent increase in product sales driven by Genentech's oncology drugs and a 7 percent increase in earnings per share1 for the second quarter of 2000, exclusive of the ongoing impact of the redemption of Genentech's Special Common Stock and related accounting treatment.2 As a result of the redemption-related charges, the company recorded a net loss for the second quarter of 2000.

"In addition to strong financial results that are in line with our expectations, we reached several key milestones during this quarter including, TNKase approval and launch, the launch of Nutropin Depot and the FDA filing of anti-IgE." said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "Our focus on oncology continues to show significant progress with strong sales of Rituxan and Herceptin."

For the three months ended June 30, 2000:

  • Exclusive of the impact of the redemption, net income increased to $78.2 million, or 29 cents per share, an increase in earnings per share of 7 percent over the second quarter of 1999. Exclusive of the impact of the redemption, net income for the second quarter of 1999 was $73.2 million, or 27 cents per share.

  • Due to charges related to the redemption, the company recorded a second quarter net loss of $14.2 million, or a net loss per share of 5 cents. The company recorded a net loss of $923.2 million or $3.59 per share for the second quarter of 1999.

  • Exclusive of the impact of the redemption, revenues increased 10 percent to $413.6 million from $374.9 million in the same quarter of 1999. This revenue growth was driven primarily by sales of Herceptin® (Trastuzumab) and Rituxan® (Rituximab) and gains on the sale of certain marketable equity securities. Sales of marketed products increased 15 percent in the second quarter of 2000 to $309.4 million from $269.3 million in the second quarter of 1999.

During the quarter, Genentech received U.S. Food and Drug Administration (FDA) approval and launched TNKase™ (Tenecteplase), the first five-second, single-dose thrombolytic for the treatment of heart attack. TNKase currently is under regulatory review by the European Regulatory Authority for the same indication and, upon approval, will be marketed in Europe by Boehringer Ingelheim International GmbH.

In late June, Genentech launched Nutropin Depot, the first long-acting dosage form of recombinant human growth hormone. This new formulation offers growth hormone-deficient children and their caregivers a more convenient treatment option with only one or two injections a month compared to current growth hormone therapies that require daily injections. Genentech received approval for Nutropin Depot in December 1999.

Also during the quarter, with Novartis Pharmaceuticals and Tanox, Inc., Genentech submitted a Biologics License Application to the FDA for the approval of anti-IgE (rhuMAb-E25), a recombinant humanized monoclonal antibody to IgE for the potential treatment of allergic asthma and seasonal allergic rhinitis.

Product Sales

Sales of Herceptin in the second quarter of 2000 increased 44 percent to $66.7 million compared to $46.2 million in the second quarter of 1999. Since launch, an increase in penetration into the breast cancer market has contributed to a positive sales trend. At the 36th Annual Meeting of the American Society of Clinical Oncology in May, Genentech announced preliminary positive results from a Phase II study investigating Herceptin as a single agent for patients with previously untreated HER2-positive metastatic breast cancer. Genentech continues to evaluate Herceptin as adjuvant therapy for breast cancer in ongoing clinical trials.

Sales of Rituxan in the second quarter of 2000 increased 38 percent to $102.8 million from $74.4 million in the second quarter of 1999. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma. In May, positive results of a Phase II clinical study using Rituxan in previously untreated patients with low-grade non-Hodgkin's lymphoma was published in the journal Blood. 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.

Sales of Genentech's two cardiovascular products, Activase® (Alteplase, recombinant) and TNKase during the second quarter of 2000 were $56.8 million compared to $58.1 million of Activase sales in the second quarter of 1999. With a mid-June launch of TNKase, the full sales impact of the drug is yet to be realized. Sales of Activase during the quarter decreased due to continued competition and a decline in the overall size of the acute myocardial infarction market due to mechanical reperfusion and early intervention with other therapies. Genentech has completed the efficacy portion of a Phase III clinical trial of Activase for catheter clearance and is on track for filing for approval with the FDA in the third quarter of 2000. In addition to this quarter's approval, TNKase is also being studied in four ongoing clinical trials that began early this year to evaluate TNKase in combination with other agents.

Sales of Genentech's growth hormone products decreased to $49.9 million compared to $59.3 million in the second quarter of 1999. This decrease was due primarily to fluctuations in distributor ordering patterns. Distributors reduced inventory levels in anticipation of the launch of Nutropin Depot. The launch occurred on June 28, therefore Nutropin Depot sales had minimal impact on the quarter.

Sales of Pulmozyme® (dornase alfa) Inhalation Solution were $32.3 million in the second quarter of 2000 compared to $30.6 million in the second quarter of 1999.

Total Costs and Expenses

Costs and expenses increased in the second quarter of 2000 as compared to the second quarter of 1999.

Research and development (R&D) expenses increased in the second quarter of 2000 to $115.6 million compared to $94.2 million in 1999. The increase is partially related to a milestone payment made under a collaboration contract. R&D expenses as a percentage of revenues, exclusive of the impact of the redemption, in the second quarter of 2000 were 28 percent, compared to approximately 25 percent in the second quarter of 1999. R&D expenses as a percent of revenues are expected to continue to vary over the next several periods dependent on possible in-licensing agreements and as products progress through late-stage clinical trials.

Primarily due to the increase in product sales, cost of sales, exclusive of expenses related to the redemption and push down accounting, increased to $66.2 million in the second quarter of 2000 from $52.7 million in the second quarter of 1999.

Marketing, general and administrative (MG&A) expenses during the second quarter of 2000 were $117.2 million compared to $117.4 million in the second quarter of 1999.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures, and markets human pharmaceuticals for significant unmet medical needs. Fourteen of the currently approved biotechnology products stem from Genentech science. Genentech markets nine 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 Second Quarter, 2000

Genentech announced the following:

  • Received FDA approval and launched TNKase, the first five-second, single-dose thrombolytic for the treatment of heart attack.

  • With Alkermes, Inc., initiated the shipment of Nutropin Depot, Genentech's growth hormone deficiency drug, to the pediatric endocrine community. Nutropin Depot was approved in December 1999.

  • With partners Novartis and Tanox, filed a Biologics License Application (BLA) with the FDA for anti-IgE, (rhuMAb-E25), for the potential treatment of allergic asthma and seasonal allergic rhinitis.

  • Received multi-product FDA licensure for the new, state-of-the-art manufacturing facility in Vacaville, CA.

  • Purchased a cell culture manufacturing facility in Porrino, Spain. The facility has been established as a wholly-owned subsidiary company, "Genentech Espana S.L.," and will supplement Genentech's existing bulk cell culture production capacity.

  • Announced the appointment of Myrtle S. Potter to executive vice president of Commercial Operations and chief operating officer.

  • Named to the Russell 1000 index, a ranking by capitalization of the 1000 largest stocks in the U.S. equity market.

  • At the 36th Annual Meeting of the American Society of Clinical Oncology (ASCO) in May, announced preliminary positive results from Phase II trials evaluating anti-VEGF in combination with chemotherapy in patients with advanced metastatic colorectal and non-small cell lung cancers, as well as positive interim Phase II results of trials evaluating anti-VEGF as a single agent in patients with relapsed metastatic breast cancer.

  • Announced preliminary positive results from a Phase II study investigating Herceptin as a single agent for patients with previously untreated HER2-positive metastatic breast cancer at ASCO. Other preliminary data presented at the meeting showed that an alternative testing method might provide an additional way to identify HER2-positive metastatic breast cancer patients.

  • Moved anti-2C4, a monoclonal antibody, into development for the potential treatment of a variety of solid tumor cancers.

  • Announced preliminary results indicating the Phase II clinical trial of anti-CD18 for the treatment of heart attack did not meet its primary objective.

  • Millennium Pharmaceuticals announced that it has submitted an Investigational New Drug application to the FDA to initiate U.S. Phase II clinical studies of LDP-02 in ulcerative colitis based on encouraging data from a Phase I/II study conducted in Canada. Genentech is collaborating with Millennium in the development of the drug and has exclusive worldwide rights to market the product.

  • Renewed a research and development collaboration with CuraGen for a minimum of two and a half years. Genentech will pay for access to CuraGen's genomic technologies and databases in return for rights to license, develop and market therapeutics resulting from these research efforts.

  • Announced a new collaboration with Magainin Pharmaceuticals to potentially co-develop an IL9 antibody for asthma with options for other products in respiratory disease.

  • Signed an exclusive license agreement to use ImmunoGen's maytansinoid TAP technology with anti-HER2 products and a broad range of proprietary antibodies


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

2. 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. This accounting treatment is the result of Roche's exercise of its option to redeem Genentech's Special Common Stock in June 1999. The company's new accounting basis is 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 first and second quarter 2000 consolidated statements of operations include recurring charges for the amortization of goodwill and other intangibles, and costs related to the sale of inventory that was written up at the redemption.

# # #

GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)
(unaudited)

Three Months
Ended June 30,

2000 1999

Actual Pro Forma(1) Actual Pro Forma(1)
Revenues
   Product sales $ 309,414 $ 309,414 $ 269,355 $ 269,355
   Royalties 49,643 49,643 45,986 45,986
   Contract and other 32,349 32,349 57,915 37,578
   Interest 22,262 22,262 21,986 21,986
      Total revenues 413,668 413,668 395,242 374,905
     
Costs and expenses
   Cost of sales 97,657 66,283 52,681 52,681
   Research and development 115,563 115,563 94,211 94,211
   Marketing, general and administrative 117,156 117,156 117,372 117,372
   Special charge:        
      Related to redemption - - 1,147,304 -
   Recurring charges related to redemption 98,072 - - -
   Interest 1,240 1,240 1,356 1,356
      Total costs and expenses 429,688 300,242 1,412,924 265,620
     
Income (loss) before taxes (16,020) 113,426 (1,017,682) 109,285
Income tax (benefit) provision (1,860) 35,162 (94,490) 36,084
     
Net income (loss) $ (14,160) $ 78,264) $ (923,192) $ 73,221
     
Earnings (loss) per share:        
   Basic $ (0.05) $ 0.30 $ (3.59) $ 0.28
   Diluted $ (0.05) $ 0.29 $ (3.59) $ 0.27
     
Weighted average shares used to
   compute earnings (loss) per share:
       
   Basic 260,616 260,616 256,961 256,961
   Diluted 260,616 269,187 256,961 266,822

(1) Pro Forma amounts exclude the special charge related to the redemption, recurring charges related to the redemption and costs related to the sale of inventory that was written up at the redemption.


Six Months
Ended June 30,

2000 1999

Actual Pro Forma(1) Actual Pro Forma(1)
Revenues
   Product sales $ 592,592 $ 592,592 $ 503,424 $ 503,424
   Royalties 96,987 96,987 92,604 92,604
   Contract and other 66,045 66,045 77,181 56,844
   Interest 43,736 43,736 44,385 44,385
      Total revenues 799,360 799,360 717,594 697,257
     
Costs and expenses
   Cost of sales 203,792 129,140 98,404 98,404
   Research and development 226,969 226,969 184,952 184,952
   Marketing, general and administrative 219,103 219,103 214,572 214,572
   Special charges:        
      Legal settlement - - 50,000 -
      Related to redemption - - 1,147,304 -
   Recurring charges related to redemption 196,619 - - -
   Interest 2,526 2,526 2,719 2,719
      Total costs and expenses 849,009 577,738 1,697,951 500,647
     
Income (loss) before taxes (49,649) 221,622 (980,357) 196,610
Income tax (benefit) provision (9,584) 68,703 (71,580) 64,881
     
Net income (loss) $ (40,065) $ 152,919 $ (908,777) $ 131,729
     
Earnings (loss) per share:        
   Basic $ (0.15) $ 0.59 $ (3.55) $ 0.51
   Diluted $ (0.15) $ 0.57 $ (3.55) $ 0.50
     
Weighted average shares used to
   compute earnings (loss) per share:
       
   Basic 260,091 260,091 256,184 256,184
   Diluted 260,091 269,674 256,184 265,934
 
June 30,
2000 1999
Selected balance sheet data
   Cash and short-term investments $ 766,451 $ 912,278
   Accounts receivable 262,140 191,743
   Inventories 240,190 324,473
   Long-term marketable securities 1,334,683 808,024
   Property, plant and equipment, net 739,698 718,743
   Goodwill 1,551,401 1,706,042
   Other intangible assets 1,353,040 1,563,601
   Other long-term assets 170,293 130,660
   Total assets 6,561,152 6,369,379
   Total current liabilities 295,621 619,235
   Long-term debt 149,692 149,989
   Total liabilities 1,094,457 1,240,528
   Total stockholders' equity 5,466,695 5,128,851
   Capital expenditures 53,071 41,513
   Pro forma depreciation and amortization expense 47,304 44,317

(1) Pro Forma amounts exclude special charges related to a legal settlement and the redemption, recurring charges related to the redemption and costs related to the sale of inventory that was written up at the redemption.