Tuesday, Apr 16, 1996
South San Francisco, Calif. -- April 16, 1996 --Genentech, Inc. (NYSE: GNE) announced today that earnings for the first quarter of 1996 declined 12 percent to $38.2 million, or 31 cents per share, from $43.4 million, or 36 cents per share, in the first quarter of 1995. Reported revenues increased 2 percent to $242.9 million from $239.0 million in the same quarter of 1995. This revenue change reflects increases in contract revenues and royalties offset by reductions in sales, due primarily to Roche Holdings Inc.'s assumption of Canadian sales of Genentech products and European sales of Pulmozyme&® (dornase alfa) Inhalation Solution in the fourth quarter of 1995.
"Our results for the first quarter of 1996 show growth in U.S. sales of our two leading product lines, Activase and growth hormone, and a growth in royalty and contract revenues stemming from our revised relationship with our majority stockholder, Roche," said Genentech President and Chief Executive Officer Dr. Arthur D. Levinson. "Also during the quarter we launched a new growth hormone product; filed for regulatory approval to market a new indication for Activase; began clinical trials for a new indication for DNase, the active ingredient in Pulmozyme; and entered one new business development agreement and expanded another."
In November 1995, Genentech began receiving royalties rather than recording sales on all European sales of Pulmozyme as Roche assumed responsibility for those sales per Genentech's new 1995 arrangement with Roche. In December 1995, Roche similarly assumed responsibility for Canadian sales of all Genentech products. These changes have led to a reduction in reported product sales compared to the first quarter of 1995, but also to increased royalty revenues and decreased marketing, general and administrative expenses. On a pro forma basis that considers the new arrangement with Roche, product sales increased 3 percent to $152.3 million from $148.3 million. Reported total product sales were $152.3 million in the first quarter of 1996 compared to $162.1 million in the first quarter of 1995. Royalties in the first quarter of 1996 increased to $52.9 million from $47.1 million in the first quarter of 1995. MG&A expenses in the first quarter of 1996 decreased to $52.0 million from $64.3 million in the first quarter of 1995.
On a pro forma basis, sales of Activase&® (Alteplase, recombinant), a tissue-plasminogen activator (t-PA), increased to $76.6 million in the first quarter of 1996 from $75.9 million in the first quarter of 1995, with a $3.8 million bulk shipment of t-PA to licensees in Japan included in the first quarter of 1995. This increase follows Food and Drug Administration clearance in April 1995 for Genentech to promote an accelerated infusion of Activase and its mortality benefits, after which Genentech's U.S. thrombolytic market share jumped from approximately 70 to 75 percent. Reported total sales of Activase during the first quarter of 1996 decreased to $76.6 million from $78.2 million in the first quarter of 1995.
On a pro forma basis, sales of Pulmozyme increased 6 percent to $18.9 million in the first quarter of 1996 from $17.8 million in the first quarter of 1995, with the increase driven primarily by sales of Pulmozyme to Roche for ex-U.S. sales. Principally due to Roche's assumption of ex-U.S. sales, reported total sales of Pulmozyme decreased to $18.9 million from $28.5 million in the first quarter of 1995. Sixty percent of U.S. cystic fibrosis patients over age five currently receive Pulmozyme.
On a pro forma basis, sales of Genentech's two growth hormone products Protropin® (somatrem for injection) and Nutropin® [somatropin (rDNA origin) for injection] increased 4 percent to $56.0 million in the first quarter of 1996 from $53.7 million in the first quarter of 1995. Reported total growth hormone sales increased to $56.0 million from $54.4 million in the first quarter of 1995. This increase occurred even with the assumption of responsibility for Canadian sales of growth hormone by Roche and with the introduction in late 1995 of a competitive growth hormone product. These results support our comprehensive plan to defend our leadership position in this market. During the quarter, Genentech launched the first liquid version of growth hormone, Nutropin AQ [somatropin (rDNA origin) injection] and an injection device, GenJect, representing two potentially important competitive advantages.
Genentech continues to defend its patent position against potential new growth hormone competition. In June and August of 1995, respectively, a district court in New York granted preliminary injunctions preventing Bio-Technology General and its affiliates (BTG) and Novo Nordisk A/S and its affiliates (Novo) from marketing their human growth hormone products in the United States. Subsequent to those decisions, both companies appealed the decisions against them to the Federal Court of Appeals for the Federal Circuit. In February, 1996, that appeals court overruled the preliminary injunction against Novo, but in April 1996 it upheld the preliminary injunction against BTG prohibiting sales of its growth hormone product. Genentech has since sought a rehearing on the overturn of Novo's preliminary injunction, and it has sought a second preliminary injunction against Novo on another patent not previously considered. Neither product is currently on the market, though a third product from Pharmacia & Upjohn Inc. has been on the market since December, 1995.
Contract and other revenues in the first quarter of 1996 increased to $22.1 million from $16.2 million in the first quarter of 1995. This increase resulted primarily from $17.1 million from Roche for its exercise of its option (per Genentech's 1995 arrangement with Roche) to codevelop the IDEC-C2B8 monoclonal antibody for non-Hodgkin's B-cell lymphoma outside of the United States. This is made up of a one-time option fee, including pre-opt-in development costs and Asian rights of $13.1 million, with the balance related to development activity since Roche chose to opt in. On a quarter-to-quarter basis, this amount from Roche was partially offset by a $4.0 million gain in the first quarter of 1995 on sales of biotechnology securities and normal quarter-to-quarter variation in contract revenues. Genentech is codeveloping the IDEC-C2B8 antibody, currently in Phase III clinical trials, for the same indication in the United States with IDEC Pharmaceuticals Corporation.
Research and development expenses in the first quarter of 1996 were $115.6 million compared to $94.9 million in the first quarter of 1995. This increase was related to production of product and other expenses for clinical trials for Genentech's HER2 monoclonal antibody (in pivotal Phase III trials for the treatment of breast cancer) and for Genentech's various cardiovascular products under development, including trials related to Activase for the treatment of ischemic stroke (currently awaiting regulatory approval) and Genentech's second-generation t-PA, TNK (currently in Phase II clinical trials). The increase also stems from an up-front $5 million payment to Washington University to license worldwide rights to human neurturin, a homologue of glial cell-derived neurotrophic factor (GDNF) in preclinical research that might be useful for the treatment of neurodegenerative disorders. For the quarter, Genentech invested 48 percent of revenues into R&D.
"For the short term we plan to continue to invest close to half of our revenues back into R&D so we can realize the full potential of our strong product pipeline," said Dr. Levinson. "Over time, though we will continue to increase R&D investment in dollar terms as our revenues increase, we expect a decrease in this spending as a percentage of revenues as we bring more revenues to the bottom line. We anticipate spending about 25 to 30 percent of our revenues on R&D by the turn of the century."
Genentech's aggressive investment in R&D was coupled with significant progress in product development during the quarter. Besides launching Nutropin AQ, Genentech:
Also, during the quarter, Roche indicated that it will not exercise its option (per Genentech's 1995 arrangement with Roche) to develop and commercialize outside of the United States Genentech's anti-HER2 antibody for the treatment of breast cancer. Genentech is actively seeking another partner for ex-U.S. development of this product.
During the quarter, besides entering into a business development agreement with Washington University as described above, Genentech:
Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures and markets human pharmaceuticals for significant unmet medical needs. Ten of the currently marketed biotechnology products stem from Genentech science, five of which Genentech markets directly in the United States. Genentech is headquartered in South San Francisco, California, and is traded on the New York and Pacific Stock Exchanges under the symbol GNE.Genentech's world wide web address is http://www.gene.com.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Ended March 31,
|Contract and other||22,100||16,222|
|Costs and expenses|
|Cost of sales||25,879||26,750|
|Research and development||115,633||94,959|
|Marketing, general and administrative||52,042||64,323|
|Total costs and expenses||195,113||187,093|
|Income before taxes||47,771||51,064|
|Income tax provision||9,554||7,660|
|Net income per share||$||0.31||$||0.36|
|Weighted average number of shares used in
computing per share amounts:
|Selected balance sheet data|
|Cash and short-term investments||$||761,149||$||722,374|
|Long-term marketable securities||386,664||212,975|
|Property, plant and equipment, net||514,461||482,117|
|Other long-term assets||100,146||88,551|
|Total current liabilities||224,377||205,802|
|Total stockholders' equity||1,665,312||1,402,246|