Tuesday, Apr 14, 1998

Genentech Reports 1998 First Quarter Results - 30 Percent Earnings Increase

Increased Revenues and Earnings Show Progress with Long-Range Plan

South San Francisco, Calif. -- April 14, 1998 --

Genentech, Inc. (NYSE: GNE) announced today that earnings for the first quarter of 1998 increased 30 percent to $41.0 million, or 32 cents per share*, from $31.6 million, or 25 cents per share, in the first quarter of 1997. Revenues increased 3 percent to $264.7 million from $257.3 million in the same quarter of 1997. This revenue growth was driven primarily by sales of Rituxan® (Rituximab), indicated for the treatment of patients with relapsed or refractory low-grade or follicular, CD20-positive B-cell non-Hodgkin's lymphoma, and was offset partially by a decrease in sales of other products and in contract and other revenues.

"Our results for the quarter suggest that our Long-Range Plan for growth is working," said Arthur D. Levinson, Ph.D., Genentech's president and chief executive officer. "Besides improved financial results for the quarter, our progress with our marketed products and with those in our pipeline bodes well for continued growth. During the quarter, the U.S. Food and Drug Administration (FDA) approved a label extension for one of our products and an important manufacturing process for another, and it designated one of the oncology products in our pipeline as a Fast Track Product. We also made significant clinical progress with several of our pipeline projects."

* All earnings per share amounts in the text of this press release represent diluted earnings per share as defined under Statement of Financial Accounting Standards No. 128, "Earnings per Share."

Marketed Products

Sales of marketed products increased 7 percent in the first quarter of 1998 to $164.7 million from $154.2 million in the first quarter of 1997

Sales of Rituxan in the first quarter of 1998 were $37.7 million. Genentech first recorded sales for Rituxan of $5.5 million in the fourth quarter of 1997. While Genentech is encouraged by these sales figures, not enough time has passed for these figures to be indicative of future sales, and the figures may reflect pent-up demand for the product. During the first quarter of 1998, Genentech received FDA approval for the large-scale (12,000-liter) manufacture of Rituxan. The Rituxan that Genentech manufactures will supplement the Rituxan manufactured by Genentech's partner IDEC Pharmaceuticals Corporation, ensuring adequate worldwide supply of the medicine.

Sales of Activase® (Alteplase, recombinant), a tissue plasminogen activator (t-PA), during the first quarter of 1998 decreased 26 percent to $55.7 million from $75.0 million in the first quarter of 1997. This decline results primarily from a decrease in market share compared to the prior year's first quarter. However, over the last quarter, Activase market share has declined only slightly. The sales dollar decline from the prior year's quarter also results, to a lesser extent, from a continued decline in the thrombolytic market due to mechanical reperfusion and from a temporary decrease in the available commercial market because of two large ongoing Phase III studies.

In March 1998, Genentech received two new patents related to variant forms of t-PA. Based on these patents, Genentech filed a patent infringement suit against Centocor, Inc. which alleges that Centocor's sale, offer for sale, use and importation of Retavase (Reteplase, recombinant), a t-PA, in the United States infringes these two new Genentech patents. Genentech is seeking a permanent injunction and damages.

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], decreased 9 percent to $50.9 million from $55.9 million in the first quarter of 1997. This decrease primarily reflects fluctuations in distributor ordering patterns.

Sales of Pulmozyme® (dornase alfa) Inhalation Solution decreased 13 percent to $19.5 million in the first quarter of 1998 compared to $22.3 million in the first quarter of 1997 due primarily to fluctuations in ordering patterns. In February 1998, Genentech received FDA approval for a label extension to Pulmozyme. With this revised labeling, Pulmozyme may now also be used to treat very young children with cystic fibrosis, ages three months to four years, adding to the product's previous approvals for patients five years of age and older.

Contract and Other Revenues

Contract and other revenues decreased 30 percent in the first quarter of 1998 to $14.9 million from $21.4 million in the first quarter for 1997. This decrease primarily resulted from fluctuations in contract revenues from Roche.

Expenses

Research and development (R&D) expenses decreased 20 percent in the first quarter of 1998 to $98.2 million from $122.7 million in the first quarter of 1997. For the quarter, Genentech invested approximately 37 percent of revenues into R&D, compared to 48 percent in the first quarter of 1997. This decrease is in line with the goal of Genentech's Long-Range Plan to decrease R&D spending as a percent of revenues as products progress through late-stage clinical trials and revenues increase.

Marketing, general and administrative (MG&A) expenses increased in the first quarter of 1998 to $74.9 million from $62.0 million in the first quarter of 1997, driven by the introduction of Rituxan and the resultant profit sharing, and by competitive conditions with other marketed products. Cost of sales also increased to $33.6 million in the first quarter of 1998 from $27.7 million in the first quarter of 1997 resulting primarily from the mix of marketed products, including the introduction of Rituxan.

R&D Progress

Genentech's strong investment in R&D was coupled with significant progress in product development during the quarter. Besides the progress mentioned above, Genentech achieved the following during the quarter:

  • Genentech's antibody to a growth factor receptor known as HER2, Herceptin™ (Trastuzumab), received Fast Track Product designation from the FDA. This designation may help ensure a rapid review of regulatory filings seeking market clearance. Genentech also entered into an agreement with DAKO A/S under which DAKO will develop a laboratory diagnostic kit to screen breast cancer patients for overexpression of HER2 and potential eligibility for treatment with Herceptin.

  • Genentech partner Alkermes, Inc. completed enrollment in a U.S. Phase III clinical trial of ProLease™ encapsulated sustained-release human growth hormone.

  • Completed enrollment ahead of schedule in a U.S. Phase III clinical trial of nerve growth factor (NGF) in patients with diabetic peripheral neuropathy.

  • Based on positive results of Phase II clinical trials in each indication, with partners Novartis AG and Tanox Biosystems, Inc., began a Phase III trial with the anti-IgE antibody for the potential treatment of allergic asthma, and began planning a Phase III trial with this antibody in patients with allergic rhinitis.

  • Began Phase II clinical trials of the anti-VEGF antibody (an antibody to vascular endothelial growth factor) in patients with advanced solid tumors.

  • Based on the recommendations of an External Safety Monitoring Committee, with which the FDA and Genentech concurred, partner Alteon, Inc. discontinued a Phase III clinical trial of pimagedine in Type 2 diabetics with progressive kidney disease and is continuing a Phase III trial of pimagedine in Type 1 diabetics with progressive kidney disease. A third Phase III trial in diabetic patients with end-stage renal disease is ongoing.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures and markets human pharmaceuticals for significant unmet medical needs. Eleven of the currently marketed biotechnology products stem from Genentech science, seven of which Genentech markets directly in the United States. The company has headquarters in South San Francisco, California and is traded on the New York Stock Exchange and Pacific Exchange under the symbol GNE.

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GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months
Ended March 31,

1998 1997
Revenues
Product sales $ 164,719 $ 154,213
Royalties 64,493 65,312
Contract and other 14,865 21,409
Interest 20,623 16,351
Total revenues 264,700 257,285
Costs and expenses
Cost of sales 33,621 27,685
Research and development 98,202 122,743
Marketing, general and administrative 74,950 61,981
Interest 959 988
Total costs and expenses 207,732 213,397
Income before taxes 56,968 43,888
Income tax provision 15,951 12,289
Net income $ 41,017 $ 31,599
Earnings per share
Basic $ 0.33 $ 0.26
Diluted $ 0.32 $ 0.25
Weighted average shares used to
compute diluted earnings per share:
128,807 125,258
March 31,
1998 1997
Selected balance sheet data
Cash and short-term investments $ 885,081 $ 660,606
Accounts receivable 175,825 205,561
Inventories 117,711 93,667
Long-term marketable securities 487,867 505,479
Property, plant and equipment, net 688,363 617,895
Other long-term assets 165,000 153,187
Total assets 2,573,521 2,282,166
Total current liabilities 273,374 248,464
Long-term debt 150,000 150,000
Total liabilities 461,603 422,351
Total stockholders' equity 2,111,918 1,859,815

All earnings per share amounts were calculated in accordance with Statement of Financial Accounting Standards No. 128.