Thursday, Jan 22, 1998

Genentech's Year-End Results On Track

Four FDA approvals in 1997, and nine late-stage development products entering 1998 demonstrate strength of company's Long Range Plan

South San Francisco, Calif. -- January 22, 1998 --

Genentech, Inc. (NYSE: GNE) announced today that earnings for 1997 increased nine percent to $129.0 million, or $1.02 per share*, from $118.3 million in 1996, or 95 cents per share*. This increase reflects increased revenues partially offset by increased marketing, general and administrative expenses.

Earnings for the fourth quarter of 1997 increased to $41.5 million, or 33 cents per share*, from $7.5 million, or 6 cents per share*, in the fourth quarter of 1996. This quarter- to-quarter earnings increase primarily reflects increased revenues.

Revenues for 1997 increased 5 percent to $1,016.7 million from $968.7 million in 1996. This growth came from all revenue areas, but primarily from royalties and from contract and other revenues. Revenues for the fourth quarter of 1997 increased 20 percent to $277.0 million from $230.3 million in the fourth quarter of 1996, primarily due to an increase in contract and other revenues. Genentech's royalties in 1997 were $241.1 million compared to $214.7 million in 1996. This increase primarily reflects increased sales by licensees. Contract and other revenues in 1997 were $121.6 million compared to $107.0 million in 1996. The increase in contract and other revenues for the quarter and on a full-year basis is largely due to strategic alliances formed with Sumitomo Pharmaceuticals Co., Ltd. and Pharmacia & Upjohn, Inc.

"1997 was a successful year for Genentech on many levels, validating the corporate strategy for growth that we implemented in 1995," said Arthur D. Levinson, Ph.D., Genentech's president and chief executive officer. "Our financial results were consistent with our plan to begin to see a modest earnings increase in 1997, and we made substantial progress with our pipeline and our strategic relationships. We also implemented a new Long Range Plan to meet our objectives and give us, as we move into the 21st century, the potential for a strong bottom line, strong prospects for future growth and a strong late-stage pipeline."

Genentech received four regulatory approvals from the U.S. Food and Drug Administration in 1997. One was for a new product, Rituxan (Rituximab), which Genentech launched with its partner IDEC Pharmaceuticals Corporation for the treatment of patients with relapsed or refractory low-grade or follicular, CD20-positive B-cell non-Hodgkins lymphoma. The others were for new indications of certain of Genentech's growth hormone products.

Genentech also announced favorable preliminary Phase III results and began preparing regulatory filings for another new oncology product, Herceptin (trastuzumab) anti-HER2 antibody, and started or began planning, either alone or with partners, Phase III trials for five potential products. With ongoing trials and an additional Phase III product in- licensed during 1997, Genentech now has nine products or potential products in late-stage clinical development (entering Phase III or beyond). Genentech expects to submit regulatory filings on Herceptin in the second quarter of 1998. Genentech also moved two potential new products into initial clinical testing in 1997.

Marketed Products

Product sales for 1997 increased slightly to $584.9 million from $582.8 million in 1996. Sales from Rituxan and increased sales of Genentech's growth hormone products and Pulmozyme(R) (dornase alfa, recombinant) Inhalation Solution offset the decline in Activase(R) (Alteplase, recombinant) sales.

In 1997, Genentech launched a new BioOncology initiative that includes the marketed product Rituxan as well as the oncology products that Genentech has under clinical development. Genentech and IDEC launched Rituxan on December 16, 1997, and recorded initial sales of $5.5 million for 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.

With a new competitive thrombolytic agent on the market and a decline in the overall size of the thrombolytic therapy market as some heart attack patients receive mechanical reperfusion rather than thrombolytic therapy and from two large ongoing clinical studies, Activase sales decreased to $260.7 million in 1997 from $284.1 million in 1996. Activase's market share in the fourth quarter of 1997 was approximately 71 percent compared to approximately 76 percent in the third quarter of 1997 and approximately 80 percent in the fourth quarter of 1996.

Sales of growth hormone products Protropin(R) (somatrem for injection), Nutropin(R) [somatropin (rDNA origin) for injection] and Nutropin AQ(R) [somatropin (rDNA origin) injection] increased slightly to $223.6 million in 1997 from $218.2 million in 1996.

Sales of Pulmozyme were $91.6 million in 1997 compared to $76.0 million in 1996. This increase resulted primarily from increased penetration in patients with mild and moderate cystic fibrosis as well as from variation in customer ordering patterns.

Marketing, General and Administrative Expenses

MG&A expenses for 1997 were $269.9 million compared to $240.1 million in 1996. The increased expenses were primarily in support of marketing and sales for Genentech's launch of its new BioOncology initiative; for its launch of a new indication, growth hormone deficiency in adults, for Nutropin and Nutropin AQ; and for its efforts to defend Activase against new competition. In addition, there was an increase in general and administrative expenses due to royalty expense.

R&D Expenses

Research and development expenses for 1997 were $470.9 million compared to $471.1 million in 1996. R&D expenses as a percentage of revenues in 1997 were 46 percent, compared to approximately 49 percent in 1996.

"This initial decrease in R&D expenses as a percent of revenues," said Levinson, "is in line with our continuing efforts to bring increasing revenues to the bottom line through disciplined spending in all areas of the company."

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. Genentech markets or promotes eight biotechnology products 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.

Genentech Business and Product Development Progress in 1997

In 1997 Genentech made significant progress with the products in its pipeline, including several stemming from business collaborations. During the year:

Along with partner IDEC Pharmaceuticals Corporation, Genentech received approval for Rituxan for the treatment of patients with relapsed or refractory low-grade or follicular, CD20- positive B-cell non-Hodgkins lymphoma.

Genentech received approval for Nutropin and Nutropin AQ for the treatment of growth hormone deficiency in adults.

Genentech received approval for Nutropin AQ for the treatment of short stature associated with Turner Syndrome.

Genentech announced favorable preliminary Phase III trial results and began preparing regulatory filings for Herceptin for the treatment of breast cancer.

Genentech began a Phase III trial of nerve growth factor in diabetic patients with sensory peripheral neuropathy.

With partner Boehringer Ingelheim International GmbH (BI), Genentech began a Phase III trial for TNK t-PA for acute myocardial infarction.

BI completed enrollment in its ECASS II stroke study, which is investigating using Activase for acute ischemic stroke within the first six hours of symptom onset (Activase is currently approved for acute ischemic stroke within the first three hours of symptom onset).

Genentech began a Phase III Early Intervention Trial with Pulmozyme in young cystic fibrosis patients with preserved lung function.

With partner Alkermes, Inc., Genentech began pivotal Phase III trials of ProLease(R) sustained-release human growth hormone (hGH).

Genentech agreed to provide Sumitomo Pharmaceuticals Co., Ltd., exclusive rights to develop, import and distribute in Japan Nutropin AQ and ProLease sustained release growth hormone.

Genentech agreed with Alteon, Inc. for continued development and future marketing in the United States of Pimagedine, currently in Phase III trials to treat kidney disease in diabetic patients.

With partners Novartis Pharma AG and Tanox Biosystems, Inc., Genentech began planning a Phase III trial of an anti-IgE antibody for the treatment of allergic asthma.

Roche began Phase III clinical trials of Sibrafiban, an oral IIb/IIIa antagonist for acute coronary syndrome. In 1997, Roche assumed development of Sibrafiban on its own. Genentech will provide clinical and scientific input for the program and may subsequently opt-in and join development at any time up to the New Drug Application filing for the first indication.

Roche began Phase II clinical trials of the anti-CD18 antibody for the treatment of shock and burns, and Genentech began planning Phase II clinical trials of this antibody for the treatment of acute myocardial infarction.

Genentech completed one and initiated a second of two planned Phase I safety trials of vascular endothelial growth factor (VEGF) in patients with coronary artery disease.

Genentech completed one and initiated a second of two planned Phase I safety trials of Genentech's anti-VEGF antibody in patients with refractory cancer.

Genentech agreed with LeukoSite Inc. to develop and commercialize LeukoSite's LDP-02, a humanized monoclonal antibody for the treatment of inflammatory bowel diseases. LDP-02 is expected to enter human clinical trials in 1998.

In exchange for development costs, fees and, upon marketing, royalties, Genentech agreed to provide to Pharmacia & Upjohn (P&U) exclusive worldwide rights for thrombopoietin (TPO), which is in Phase II trials for potential use in treating patients with complications of cancer chemotherapy. P&U and Genentech will jointly develop TPO.

Genentech discontinued IGF-I development effort in Type I and Type II diabetes, based on the scope and extended time frame of the clinical program required to address potential concerns about diabetic retinopathy.

With partner Scios, Inc., Genentech discontinued development of Auriculin after an interim analysis of data from an ongoing Phase III study in oliguric acute renal failure suggested a low probability of a positive outcome.

Genentech returned to IDEC Genentech's U.S. marketing rights for IDEC-Y2B8, a radioimmunotherapy under investigation for the treatment of relapsed or refractory non-Hodgkin's B-cell lymphoma.



(In thousands, except per share amounts)

Three Months
Ended December 31
Ended December 31
Product sales $ 143,352 $ 139,724 $ 584,889 $ 582,829
Royalties 60,789 54,156 241,112 214,702
Contract and other 54,134 19,046 121,587 107,037
Interest 18,778 17,399 69,160 64,110
Total revenues 277,053 230,325 1,016,748 968,678
Costs and expenses:
Cost of sales 22,719 26,659 102,536 104,527
Research and development 119,144 128,135 470,923 471,143
Marketing, general and administrative 79,348 65,170 269,852 240,063
Interest 1,196 1,024 3,642 5,010
Total costs and expenses 222,407 220,988 846,953 820,743
Income before taxes 54,646 9,337 169,795 147,935
Income tax provision 13,117 1,867 40,751 29,587
Net income $ 41,529 $ 7,470 $ 129,044 $ 118,348
Net income per share (1) :
Basic $ 0.33 $ 0.06 $ 1.05 $ 0.98
Diluted $ 0.33 $ 0.06 $ 1.02 $ 0.95
Weighted average number of shares used
in computing per share computations:
Basic 123,974 121,354 123,042 120,623
Diluted 127,230 124,562 126,397 124,197
Selected financial data (unaudited):
Cash and short-term investments $ 833,322 $ 623,164
Accounts receivable 189,245 197,612
Inventories 116,026 91,943
Long-term marketable securities 453,189 535,916
Property, plant and equipment, net 683,304 586,167
Other long-term assets 177,201 149,205
Total assets 2,507,612 2,226,372
Total current liabilities 289,557 249,951
Long-term debt 150,000 150,000
Total liabilities 476,387 425,313
Total stockholders' equity 2,031,225 1,801,059

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

# # #