Thursday, Apr 12, 2001

Genentech Reports 38 Percent Increase in Product Sales for First Quarter

20 Percent Increase in Net Income and 21 Percent Increase in Earnings Per Share, Exclusive of Impact of Redemption and Change in Accounting

South San Francisco, Calif. -- April 12, 2001 --

Genentech, Inc. (NYSE: DNA) today announced a 20 percent increase in net income and a 21 percent increase in earnings per share1 driven by a 38 percent increase in product sales for the first quarter of 2001, exclusive of the ongoing impact of the 1999 redemption of Genentech's Special Common Stock and related accounting treatment2, and the cumulative effect of; accounting changes3,4.

For the three months ended March 31, 2001:

  • Net income for the first quarter of 2001 increased 20 percent to $91.2 million, or 17 cents per share, compared to $76.0 million for the first quarter of 2000, or 14 cents per share, representing an increase in earnings per share of 21 percent, exclusive of the ongoing impact of the 1999 redemption of Genentech's Special Common Stock and related accounting treatment, and the cumulative effect of accounting changes in 2001 and 2000.

  • Due to charges related to the redemption, the company recorded a first quarter net income of $26.8 million, or a net income per share of 5 cents, as compared to a net loss of $82.4 million, or 16 cents per share, in the first quarter of 20004.

  • Revenues increased 37 percent to $540.1 million from $387.9 million in the same quarter of 2000. This revenue growth was driven primarily by sales of Genentech's BioOncology products, Rituxan® (Rituximab) and Herceptin® (Trastuzumab) and also includes $10.0 million related to changes in fair values of derivative instruments associated with the adoption of FAS 1333.

"As we celebrate Genentech and biotech's first 25 years with our products having touched the lives of over one million people, we continue to move projects through our pipeline to treat cancer, heart disease and other significant unmet medical needs while providing strong financial returns for our stockholders," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer.

During the first quarter of 2001, Genentech continued to advance its BioOncology focus with the strong performance of its two marketed cancer products, Rituxan and Herceptin. On March 14, 2001, findings of a pivotal Phase III study evaluating Herceptin plus chemotherapy were published in the New England Journal of Medicine. The results demonstrated a significant 24 percent increase in median overall survival in women with HER2 positive metastatic breast cancer who were treated initially with Herceptin and chemotherapy, compared to women treated with chemotherapy alone. A supplemental Biologics License Application (sBLA) has been submitted to the U.S. Food and Drug Administration (FDA) to add this median survival data to the Herceptin package insert.

In December 2000, encouraging data from a Phase III clinical trial of Rituxan in combination with chemotherapy were presented at the 42nd annual meeting of the American Society of Hematology. These and other ongoing studies show Rituxan may play an important role in improving the response rates for patients with common forms of lymphoma.

Genentech also made progress with its cardiovascular pipeline products during the quarter. In March, with partner Actelion, Ltd., Genentech announced preliminary positive results from a Phase III trial (RITZ 2) of the first intravenous, dual endothelin receptor antagonist Veletri™ (tezosentan) in acute heart failure. Presented at the 50th Annual Scientific Session of the American College of Cardiology, the results of the RITZ 2 trial demonstrated significant improvement in the primary endpoint, cardiac index (the amount of blood pumped by the heart per minute/body surface area), and in secondary endpoints including pulmonary capillary wedge pressure at 6 hours and patient assessed dypsnea at 24 hours.

Product Sales
Sales of marketed products increased 38 percent in the first quarter of 2001 to $391.9 million from $283.2 million in the first quarter of 2000.

Sales of Rituxan in the first quarter of 2001 increased 102 percent to $172.1 million from $85.1 million in the first quarter of 2000. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma.

Sales of Herceptin in the first quarter of 2001 increased 18 percent to $81.4 million compared to $68.7 million in the first quarter of 2000. Since launch, an increase in the penetration into the metastatic breast cancer market has contributed to a positive sales trend and consistent quarter-over-quarter growth in the United States.

Combined sales of Genentech's two cardiovascular products, Activase® (Alteplase, recombinant) and TNKase™ (Tenecteplase), during the first quarter of 2001 increased 10 percent to $52.1 million compared to $47.5 million for Activase sales alone in the first quarter of 2000. The increase in sales reflects the steady sales growth of TNKase based on its ability to be administered in a single, 5-second injection.

Sales of Genentech's four growth hormone products were $55.5 million compared to $55.1 million in the first quarter of 2000.

Sales of Pulmozyme® (dornase alfa) Inhalation Solution increased 12 percent to $29.9 million in the first quarter of 2001 compared to $26.8 million in the first quarter of 2000.

Total Costs and Expenses
Costs and expenses increased in the first quarter of 2001 as compared to the first quarter of 2000.

Research and development (R&D) expenses increased in the first quarter of 2001 to $136.3 million compared to $111.4 million in 2000. R&D expenses as a percent of revenues in the first quarter of 2001 were 26 percent, compared to approximately 29 percent in the first quarter of 2000. 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.

Primarily due to the increase in product sales, cost of sales increased to $83.8 million in the first quarter of 2001 from $62.9 million, exclusive of expenses related to the redemption and push-down accounting in the first quarter of 2000.

Marketing, general and administrative (MG&A) expenses increased during the first quarter of 2001 to $127.9 million compared to $83.6 million in the first quarter of 2000. This increase was due to the write-down of certain biotech investments due to current market conditions, preparation for the Xolair™(Omalizumab) market introduction, an increase in the marketing and selling expenses in continuing support of Genentech's oncology products and royalty expenses associated with licensee sales. Fluctuations in investment write-down expenses are expected over the next several periods dependent on market conditions.

Collaboration profit sharing expenses increased to $46.4 million in the first quarter of 2001 from $18.3 million in the first quarter of 2000. The increase was due primarily to increased Rituxan profit-sharing expense due to higher Rituxan sales.

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.

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Webcast:
Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Thursday, April 12, 2001 at 2:30pm PDT. The live webcast may be accessed on Genentechas website at http://www.gene.com. This webcast will also be available after the call via the website until close of business April 19, 2001. An audio replay of the webcast will be available beginning at 4:30pm PDT on April 12, 2001 until 4:30pm PDT April 19, 2001. Access numbers for this replay are: 1-800-633-8284 (domestic) and 1-858-812-6440 (international); passcode number is 18421584.

Genentech Business and Product Development Events in the First Quarter, 2001

Marketed and Pipeline Product Events

BioOncology

  • Published the findings of a pivotal Phase III study evaluating Herceptin plus chemotherapy in the New England Journal of Medicine. The results demonstrated a significant 24 percent increase in median overall survival in women with HER2 positive metastatic breast cancer who were treated initially with Herceptin and chemotherapy, compared to women treated with chemotherapy alone. An sBLA has been submitted to the FDA to add this median survival data to the Herceptin package insert.

  • Announced with partners OSI Pharmaceuticals and Roche a global codevelopment and commercialization agreement for OSI-774. An inhibitor of the epidermal growth factor receptor, OSI-774 is currently in Phase II clinical studies for non-small cell lung, head and neck, and ovarian cancers.

  • Submitted an sBLA to the FDA to revise the Herceptin product labeling to include FISH (Fluorescence in situ hybridization) testing as an additional method to select patients appropriate for treatment with Herceptin.

Cardiovascular Medicine

  • With partner Actelion, presented encouraging results from a Phase III trial, RITZ 2, of the first intravenous, dual endothelin receptor antagonist Veletri™ in acute heart failure at the 50th Annual Scientific Session of the American College of Cardiology.

  • Entered into a copromotion agreement with COR Therapeutics, Inc. and Schering-Plough. Under this agreement, Genentech will copromote the most widely used GP IIb/IIIa inhibitor INTEGRILIN® (eptifibatide) for non-ST-segment acute coronary syndrome in 5,000 U.S. hospitals Genentech's representatives currently call upon, and COR and Schering-Plough will copromote TNKase and Activase for acute myocardial infarction in 2,000 hospitals they currently call upon.

Opportunistic

  • Announced with partner Alkermes, Inc. the continuation of clinical development of Nutropin Depot™ [somatropin (rDNA) for injectable suspension] in adults with growth hormone deficiency.

  • With Novartis Pharmaceuticals Corporation, announced the FDA advised the companies that it does not plan to convene the scheduled Pulmonary-Allergy Drugs Advisory Committee (PADAC) meeting on April 26. Genentech and Novartis anticipate FDA approval of Xolair in the latter part of 2001 or the early part of 2002.

  • XOMA, Ltd., presented research findings from two clinical studies in moderate-to-severe plaque psoriasis patients at the 59th Annual Meeting of the American Academy of Dermatology. In the first study, patients treated with Xanelim™ (efalizumab) for 12 weeks achieved significant improvements in psoriasis symptoms. In the second study, psoriasis patients retreated with a second course of Xanelim achieved symptom improvements similar to the first course of treatment. Xanelim is being developed in collaboration with Genentech.

  • Millennium Pharmaceuticals, Inc., initiated a Phase II clinical trial of LDP-02 for ulcerative colitis in Canada. LDP-02 is being developed in collaboration with Genentech.

Corporate Business Events

  • Announced the appointment of Richard H. Scheller as senior vice president, Research and the promotions of Robert Garnick as senior vice president, Regulatory, Quality and Compliance; Kim Popovits as senior vice president, Marketing and Sales; and John Whiting as vice president in addition to his role as controller and chief accounting officer.

(1) All earnings (loss) per share data and number of shares reflect the stock split effective October 2000.

(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 was "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 quarter 2001 and 2000 consolidated statements of operations include recurring charges for the amortization of goodwill and other intangibles.

(3)Genentech adopted Statement of Financial Accounting Standards No. 133 ("FAS 133") on Accounting for Derivatives and Hedging Activities on January 1, 2001 and recorded a $5.6 million charge, net of tax, upon adoption. The charge was reflected as a cumulative effect of a change in accounting principle related to recording derivative instruments at fair value. As a result of the adoption and changes in fair value of these derivative instruments recognized in contract and other revenues in the quarter ($10.0 million), the net of tax impact of FAS 133 on Q1 2001 was not material.

(4)Genentech adopted the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 ("SAB 101") on revenue recognition, effective January 1, 2000, and recorded a $57.8 million charge, net of tax, which was reflected as a cumulative effect of a change in accounting principle. The cumulative effect was recorded as deferred revenue and is being recognized over the remaining term of the agreements. As a result, Q1 of 2001 and 2000 include the recognition of such revenues, the change of which was not material from period to period.

                                GENENTECH, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                  (unaudited)                                                  Three Months
                                                 Ended March 31,
                               -------------------------------------------------
                                        2001                       2000
                               ----------------------     ----------------------
                                Actual(2)  Pro Forma(1)   Actual(3)  Pro Forma(1)
                               --------    ---------      --------    ---------
Revenues:
   Product sales               $391,904      $391,904     $283,178    $283,178
   Royalties                     74,631        74,631       47,344      47,344
   Contract and other            38,483        28,479       35,854      35,854
   Interest                      35,064        35,064       21,474      21,474
                                --------      --------     --------    --------
      Total revenues            540,082       530,078      387,850     387,850
Costs and expenses:
   Cost of sales                 83,796        83,796      106,135      62,857
   Research and development     136,340       136,340      111,406     111,406
   Marketing, general
     and administrative         127,920       127,920       83,613      83,613
   Collaboration profit
     sharing                     46,373        46,373       18,333      18,333
   Recurring charges
     related to redemption       81,516             -       98,548        -
   Interest                       1,491         1,491        1,287       1,287
                               --------      --------     --------     --------
      Total costs and
        expenses                477,436       395,920      419,322     277,496
Income (loss) before taxes
     and cumulative
     effect of accounting
     change                      62,646       134,158      (31,472)    110,354
Income tax provision (benefit)   30,258        42,931       (6,862)     34,404
                                --------      --------     --------   --------
Income (loss) before
     cumulative effect of
     accounting change           32,388        91,227      (24,610)     75,950
Cumulative effect of
     accounting change,
     net of tax                  (5,638)            -      (57,800)       -
                                --------      --------     --------    --------
Net income (loss)               $ 26,750      $ 91,227     $(82,410)   $ 75,950
                                ========      ========     ========    ========
Earnings (loss) per share:
   Basic: Earnings (loss)
      before cumulative
      effect of accounting
      change                    $   0.06      $   0.17     $  (0.05)   $   0.15
          Cumulative effect
            of accounting
            change, net of
            income tax             (0.01)            -        (0.11)        -
                                --------      --------     --------     --------
          Net earnings (loss)
            per share           $   0.05      $   0.17     $  (0.16)   $   0.15
                                ========      ========     ========    ========
 Diluted: Earnings (loss)
       before cumulative
       effect of accounting
       change                   $   0.06      $   0.17     $  (0.05)   $   0.14
          Cumulative effect
            of accounting
            change, net of
            income tax             (0.01)            -        (0.11)        -
                                --------      --------     --------     --------
          Net earnings (loss)
            per share           $   0.05      $   0.17     $  (0.16)   $   0.14
                                ========      ========     ========     ========
Weighted average shares used
   to compute earnings (loss)
   per share:
    Basic                        525,795       525,795      519,131     519,131
                                ========      ========     ========    ========
    Diluted                      535,209       535,209      519,131     540,323
                                ========      ========     ========    ========

(1) Pro Forma amounts exclude recurring charges related to the redemption, costs in 2000 related to the sale of inventory that was written up at the redemption and their related tax effects. In addition, pro forma excludes the cumulative effect of the changes in accounting principle net of tax, adopted in 2001 and 2000, and the changes in fair value of certain derivatives ($10.0 million) recorded in 2001 under FAS 133

(2) Genentech adopted Statement of Financial Accounting Standard 133 (FAS 133) on Accounting for Derivative Instruments and Hedging Activities (FAS 133) on January 1, 2001, and recorded a cumulative effect of a change in accounting principle related to recording derivative instruments at fair value. As a result of the adoption and the changes in fair value of these derivative instruments in the quarter, the net of tax impact of FAS 133 on Q1 2001 was not material.

(3) Genentech adopted Securities and Exchange Commission's Staff Accounting Bulletin No. 101 on Revenue Recognition effective January 1, 2000, and recorded a cumulative effect of a change in accounting principle related to contract revenues recognized in prior periods. The related deferred revenue is being recognized over the term of the agreements. As a result, Q1 of 2001 and 2000 include the recognition of such revenues, the change of which was not material from period to period.

                                  GENENTECH, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (in thousands)
                                   (unaudited)                                                         March 31,
                                              ------------------------------
                                                  2001               2000
                                              -----------        -----------
Selected balance sheet data:
Cash and short-term investments              $ 1,332,073         $  631,490
Accounts receivable                              269,570            242,034
Inventories                                      294,620            254,922
Long-term marketable securities                  974,873          1,280,274
Property, plant and equipment, net               765,176            736,920
Goodwill                                       1,417,457          1,570,403
Other intangible assets                        1,239,335          1,397,269
Other long-term assets                           220,415            204,237
Total assets                                   6,600,355          6,440,279
Total current liabilities                        548,318            244,099
Long-term debt                                         -            149,692
Total liabilities                                924,513          1,088,362
Total stockholders' equity                     5,675,842          5,351,917
Year-to-date:
Capital expenditures
                                                  36,323             28,243
Pro forma depreciation and 
  amortization expense
                                                  26,599             23,382

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