Thursday, Jan 18, 1996

Genentech Posts Strong Year-End Results

1995 earnings up 18 percent; 35 percent without special charges. Significant clinical progress in fourth quarter

South San Francisco, Calif. -- January 18, 1996 --

Genentech, Inc. (NYSE: GNE) announced today that earnings for 1995 increased 18 percent to $146.4 million, or $1.21 per share ($1.38 without special charges described below), from $124.4 million, or $1.04 per share, in 1994. Earnings for the fourth quarter of 1995 were $25.6 million, or 21 cents per share, compared to $18.6 million, or 15 cents per share in the fourth quarter of 1994.

1995 earnings reflect special charges of $25.0 million ($8.0 million in the fourth quarter) -- which, after taxes, equals 17 cents per share (6 cents in the fourth quarter) -- in connection with expenses related to Genentech's 1995 new arrangement with Roche Holdings, Inc. and to severance costs associated with Genentech's previously announced leadership change.

Revenues for 1995 increased 15 percent to $917.8 million from $795.4 million in 1994. Revenues for the fourth quarter of 1995 increased 7 percent to $221.9 million from $207.8 million in the fourth quarter of 1994.

"Our strong 1995 earnings stem from growth in all revenue areas," said Genentech President and Chief Executive Officer Arthur D. Levinson. "Combined with our significant clinical progress in 1995, our cash available for product in-licensing, and the many promising clinical candidates coming out of our research, we are well poised to move forward with our efforts to build significant stockholder value."

Research and development expenses for 1995 were $363.0 million compared to $314.3 million in 1994. R&D as a percentage of revenues ran at a similar level to 1994, approximately 40 percent.

"While we intend to maintain aggressive R&D spending to move important products through our pipeline," said Levinson, "in coming years, as our revenues increase, we will increase the percentage of those revenues going to the bottom line."

New Relationship with Roche Ratified in Fourth Quarter

On October 25, Genentech's non-Roche stockholders approved Genentech's transaction with Roche Holding, Ltd. The transaction extends for four years Roche's option to have Genentech redeem the outstanding common stock of the company, and it provides stockholders the right to sell ("put") their shares to Genentech at $60.00 per share for thirty business days following the close of the four-year extension if Roche has not exercised its option. As part of the arrangement, Roche has certain options for non-U.S. rights to Genentech clinical products in exchange for certain royalty payments and expense reimbursements to Genentech. The nature and timing of such product elections is expected to have an impact on future earnings.

Also as part of the new Roche arrangement, Roche now has exclusive rights and pays a royalty (in most cases 20 percent) on European sales of Pulmozyme® (dornase alfa) Inhalation Solution as well as on Canadian sales of all of Genentech's currently marketed products except Actimmune® (Interferon gamma-1b). As a result of the transfer of European and Canadian operations to Roche, product sales indicated below do not reflect European sales of Pulmozyme from November 1, 1995, or Canadian sales of each product from December 1, 1995. Because this change in Canadian product sales affected only one month of the fourth quarter of 1995, the impact for the quarter for each product is minimal. The impact of the change for European sales of Pulmozyme is more significant.

Marketed Products

Sales of Pulmozyme increased 26 percent to $111.3 million in 1995 compared to $88.3 million in 1994, reflecting a growing acceptance by cystic fibrosis patients and their physicians as well as continued success in attaining approval for coverage from insurance and government payers. Since November 1, 1995, Genentech records royalties from Roche's European sales of Pulmozyme rather than sales. Principally due to this change, recorded sales of Pulmozyme in the fourth quarter of 1995 decreased to $22.4 million from $26.2 million in the fourth quarter of 1994. Royalties from all sources in the fourth quarter of 1995 were $48.6 million compared to $33.1 million in the fourth quarter of 1994.

Activase® (Alteplase, recombinant) sales increased 7 percent to $301.0 million from $280.9 million in 1994. Genentech's share of the thrombolytic market has increased from about 70 percent at the end of 1994 to 75 percent since the U.S. Food and Drug Administration (FDA) licensed the accelerated infusion of Activase for the management of acute myocardial infarction (heart attack) in April, 1995. While the percentage of heart attack patients who receive direct angioplasty rather than thrombolytic therapy has increased slightly -- from both thrombolytic-eligible and nonthrombolytic-eligible patients, the overall thrombolytic market continued to grow at approximately 6 percent.

Sales of the growth hormone products Protropin® (somatrem for injection) and Nutropin® [somatropin (rDNA origin) for injection] were $219.4 million in 1995 compared to $225.4 million in 1994. This decrease results from the impact of pricing programs for distribution channels.

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, Bio-Technology General (BTG), Novo Nordisk and Pharmacia, 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 initiated launch activities in January, 1996.

Genentech gained an important potential competitive advantage on December 29, 1995, when it received clearance from the FDA to market Nutropin AQ(TM) [somatropin (rDNA origin) injection], the first and only liquid (aqueous) recombinant human growth hormone product available. Nutropin AQ has the same indications as Nutropin. Genentech has a clear competitive strategy in place, but additional competition will have some impact on growth hormone sales.

Actimmune sales were $3.6 million in 1995 compared to $6.4 million in 1994. This decrease stems from timing of licensee purchases. Sales of this product remain modest because of the rarity of the approved indication, chronic granulomatous disease.

Important Clinical Progress in Fourth Quarter

Genentech made significant progress with the products in its pipeline in the fourth quarter of 1995. This progress includes the following:

  • On December 13, 1995, Genentech announced positive results of a Phase III clinical trial of Activase for the treatment of patients suffering from acute ischemic stroke, conducted by the National Institute of Neurological Disorders and Stroke (NINDS). Genentech simultaneously announced that it plans to submit in 1996 a Product License Application to the FDA for Activase for this indication.

  • On October 4, 1995, Genentech filed a New Drug Application with the FDA seeking approval to market Nutropin for the treatment of growth failure associated with Turner syndrome.

  • Genentech's Phase III trials of Actimmune in the area of renal cell carcinoma are fully enrolled, with results anticipated in the first half of 1996.

  • During the fourth quarter, Genentech moved two important preclinical products 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; and an oral IIb/IIIa antagonist, designed, in collaboration with Roche, to bind to the IIb/IIIa receptor on the surface of platelets to inhibit their ability to aggregate, and therefore to potentially help prevent blood clotting in certain cardiovascular conditions.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures and markets human pharmaceuticals for significant unmet medical needs. The company has headquarters in South San Francisco, California and is traded on the New York and Pacific Stock exchanges under the symbol GNE.

(In thousands, except per share amounts)

                                                Three Months                                      Year                           
                                             Ended December 31                              Ended December 31                    
                                           1995             1994              1995              1994      
Product sales                           $   153,482      $   158,137      $    635,263      $    601,064  
Royalties                                    48,596           33,126           190,811           126,022  
Contract and other                            2,632            4,000            31,209            25,556  
Interest                                     17,204           12,497            60,562            42,748  
Total revenues                              221,914          207,760           917,845           795,390  
Costs and expenses:                                                                                       
Cost of sales                                22,499           24,673            97,930            95,829  
Research and development                     94,952           93,730           363,049           314,322  
Marketing, general and administrative        64,267           68,335           251,653           248,604  
Special charge (primarily merger              8,000                -            25,000                 -  
Interest                                      2,036            1,683             7,940             7,058  
Total costs and expenses                    191,754          188,421           745,572           665,813  
Income before taxes                          30,160           19,339           172,273           129,577  
Income tax provision                          4,524              773            25,841             5,183  
Net income                              $    25,636      $    18,566      $    146,432      $    124,394  
Net income per share                    $       .21      $       .15      $       1.21      $       1.04  
Weighted average number of shares                                                                         
in computing per share amounts              122,153          120,193           121,220           119,465  
Selected balance sheet data:                                                                              
Cash and short-term investments                                           $    740,339      $    719,174  
Accounts receivable                                                            172,160           146,267  
Inventories                                                                     93,648           103,200  
Long-term marketable securities                                                356,475           201,726  
Property, plant and equipment, net                                             503,654           485,293  
Other long-term assets                                                         105,452            60,989  
Total assets                                                                 2,010,995         1,745,124  
Total current liabilities                                                      233,444           220,499  
Long-term debt                                                                 150,000           150,358  
Total liabilities                                                              408,948           396,340  
Total stockholders' equity                                                   1,602,047         1,348,784  

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