Monday, Oct 23, 1995

Genentech Reports 20 Percent Increase in Earnings for Third Quarter 1995

Earnings increase was 43 percent without special charge

South San Francisco, Calif. -- October 23, 1995 --

Genentech, Inc. (NYSE: GNE) announced today that earnings for the third quarter of 1995 increased 20 percent to $40.2 million, or 33 cents per share, from $33.6 million, or 28 cents per share, in the third quarter of 1994. The third quarter 1995 earnings reflect a special charge of $9.0 million -- which, after taxes, equals 6 cents per share -- in connection with expenses related to Genentech's proposed new agreement with an affiliate of its majority shareholder Roche Holdings, Inc. and to severance costs associated with Genentech's previously announced leadership change. Revenues increased 16 percent to $223.9 million, from $193.8 million in the same quarter of 1994. This resulted primarily from increased sales of Activase® (Alteplase, recombinant) t-PA and of Pulmozyme® (dornase alfa) and higher royalty income.

"The results of the third quarter of 1995 demonstrate the strength of our major marketed products," said Arthur D. Levinson, Genentech's president and chief executive officer. "Increasing product sales and improving financial returns through prudent expense management are two of the four components of our strategy for growth. The other two are accelerating product development and acquiring additional marketed or late-stage clinical products."

Settlement of Suits

The proposed transaction announced May 1 gives Roche the right to cause the redemption of Genentech stock at predetermined prices that increase each quarter beginning July 1, 1995, through the quarter beginning April 1, 1999, when the redemption price is $82.00. On July 10, Genentech announced an agreement in principle to settle shareholder lawsuits filed after the proposed transaction was announced. The settlement agreement was reached in return for changes in the terms of the proposed transaction between the companies. The changes to the transaction that are part of the settlement, if approved by the Delaware Chancery Court, include an increase in the call prices by 50 cents per share, resulting in a final redemption price of $82.50 in the quarter beginning April 1, 1999. The same transaction gives Genentech stockholders the right to "put" (cause Genentech to redeem) some or all of their stock at $60 per share within a 30 business-day period commencing July 1, 1999. The put price of $60 per share remains unchanged. A shareholder vote on the proposed transaction is scheduled for October 25.

Marketed Products

Sales of Activase increased 12 percent to $73.2 million from $65.1 million in the third quarter of 1994. Since the U.S. Food and Drug Administration licensed the accelerated infusion of Activase for the management of acute myocardial infarction (heart attack) in April, the product's market share has climbed from approximately 70 percent to more than 75 percent.

Sales of Genentech's two growth hormone products Protropin® (somatrem for injection) and Nutropin® (somatropin [rDNA origin] for injection) were $54.2 million compared to $54.6 million in the third quarter of 1994. The decrease results from the impact of pricing programs for distribution channels.

On October 4, Genentech filed a New Drug Application with the FDA seeking approval to market Nutropin for the treatment of growth failure associated with Turner syndrome.

For the past several quarters Genentech has faced the possibility of additional competition from four competitors in the growth hormone market. Three of these companies, BioTechnology General (BTG), Novo Nordisk and Pharmacia AB, have received FDA approval to market their growth hormone products for the treatment of growth hormone inadequacy in children. However, as a result of the assertion of certain Genentech patents, a court has temporarily prohibited two of these products -- Novo Nordisk's and BTG's -- from entering the market pending a full trial. Future court decisions will determine whether these two products will be permanently enjoined from the market. Pharmacia's product may enter the market at any time. Genentech has a clear competitive strategy in place, but additional competition will have some impact on growth hormone sales.

Pulmozyme sales by Genentech worldwide increased 43 percent to $30.1 million from $21.0 million in the third quarter of 1994, reflecting regulatory approval of the product in additional European countries and continuing acceptance of the product by cystic fibrosis patients and their physicians. During the quarter, as Genentech announced on July 10, 1995, the company stopped enrollment in its Phase III trial investigating Pulmozyme in the treatment of patients hospitalized with chronic obstructive pulmonary disease based on a recommendation of the trial's independent Data and Safety Monitoring Board following an interim analysis that showed a lack of benefit. The findings of the analysis do not change current treatment recommendations for patients with cystic fibrosis, for which Pulmozyme has a proven record of safety and efficacy.

Marketing, General and Administrate Expenses

Marketing, general and administrative expenses were $55.2 million compared to $59.3 million in the third quarter of 1994 and $67.8 million in the second quarter of 1995. The year-to-year decline is due to a $4 million charge in the third quarter of 1994 for the write-down of a biotechnology stock investment. The decline from the second quarter of 1995 is due primarily to a charge in the second quarter for the write-down of investments in biotechnology stocks and a decrease in royalty expenses.

Research and Development

Research and development (R&D) expenses in the third quarter of 1995 increased 17 percent to $86.0 million from $73.2 million in the third quarter of 1994. The increase reflects a continued commitment to investment in R&D, including increased expenses related to Genentech's Phase III trial investigating its anti-HER2 antibody as a potential therapy for breast cancer.

In line with its strategy for growth, Genentech will continue to invest aggressively in R&D. Pending approval of the new arrangement with Roche, Genentech plans to move several additional products into clinical development from late-stage research. Shortly after the close of the third quarter Genentech moved an important preclinical product into Phase I clinical development: thrombopoietin for the treatment of thrombocytopenia (a deficiency of platelets, needed for blood clotting) in cancer patients treated with chemotherapy.

Acquittal in Minneapolis Trial

On October 3, Genentech's Vice President of Sales and Marketing Ed Jennings was acquitted of all charges in a trial that began in August, 1995, following an indictment last year of Jennings on charges of violating Medicare/Medicaid Anti-remuneration laws. At the conclusion of the prosecution's case, and prior to the presentation of the defense, the judge concluded that the government had failed to prove wrongdoing on the part of Jennings.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures and markets human pharmaceuticals for significant medical needs. Ten of the currently marketed biotechnology products stem from Genentech research, five of which Genentech markets directly. Genentech is headquartered 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 September 30,

1995 1994
   Product sales $ 158,478 $ 142,555
   Royalties 45,642 33,118
   Contract and other 4,494 7,187
   Interest 15,297 10,978
      Total revenues 223,911 193,838
Costs and expenses
   Cost of sales 24,639 24,460
   Research and development 85,971 73,208
   Marketing, general and administrative 55,249 59,341
   Special charge (primarily merger related) 9,000 -
   Interest 1,994 1,843
      Total costs and expenses 176,583 158,852
Income before taxes 47,328 34,986
Income tax provision 7,099 1,400
Net income $ 40,229 $ 33,586
Net income per share $ 0.33 $ 0.28
Weighted average number of shares used in
   computing per share amounts:
121,334 119,819
Nine Months
Ended September 30,

1995 1994
   Product sales $ 481,781 $ 442,927
   Royalties 142,215 92,896
   Contract and other 28,577 21,556
   Interest 43,358 30,251
      Total revenues 695,931 587,630
Costs and expenses
   Cost of sales 75,431 71,156
   Research and development 268,097 220,592
   Marketing, general and administrative 187,386 180,269
   Special charge (primarily merger related) 17,000 -
   Interest 5,904 5,375
      Total costs and expenses 553,818 477,392
Income before taxes 142,113 110,238
Income tax provision 21,317 4,410
Net income $ 120,796 $ 105,828
Net income per share $ 1.00 $ 0.89
Weighted average number of shares used in
   computing per share amounts:
120,909 119,222
September 30,
1995 1994
Selected balance sheet data
   Cash and short-term investments $ 824,856 $ 655,264
   Accounts receivable 176,249 126,023
   Inventories 92,700 100,810
   Long-term marketable securities 255,371 219,494
   Property, plant and equipment, net 485,544 480,102
   Other long-term assets 91,712 43,986
   Total assets 1,965,577 1,634,590
   Total current liabilities 230,393 190,086
   Long-term debt 176,082 150,584
   Total liabilities 432,990 351,345
   Total stockholders' equity 1,532,587 1,283,245