Tuesday, Apr 15, 1997

Genentech Reports 1997 First Quarter Results

Earnings Decline on Increased Revenues as Significant R&D Investment Continues

South San Francisco, Calif. -- April 15, 1997 --

Genentech, Inc. (NYSE: GNE) announced today that earnings for the first quarter of 1997 were $31.6 million, or 25 cents per share, from $38.2 million, or 31 cents per share, in the first quarter of 1996. Reported revenues increased 6 percent to $257.3 million from $242.9 million in the same quarter of 1996. This revenue change reflects a significant increase in royalties from increased sales of products by licensees as well as a slight increase in product sales.

"Our results for the first quarter of 1997 reflect our continued commitment toward building long-term stockholder value as we pursue the potential of our promising product pipeline with a heavy investment in research and development," said Arthur D. Levinson, Ph.D., Genentech's president and chief executive officer. "Because of this commitment, our earnings today are modest, but we continue to make important progress toward bringing to market new products with significant potential for both medical and market impact."


Research and development expenses in the first quarter of 1997 were $122.7 million compared to $115.6 million in the first quarter of 1996. For the quarter, Genentech invested approximately 48 percent of revenues into R&D, as it did in the first quarter of 1996, reflecting an anticipated leveling off of R&D spending as a percentage of revenues for 1997.

"While we expect that our investment in R&D will continue to be significant," said Dr. Levinson, "we do expect that over time R&D spending as a percent of revenues will decline as we strive to bring additional revenues resulting from the commercialization of our pipeline products to the bottom line. With an increase in revenue growth, our goal is to reduce the R&D spending ratio to about 25 to 30 percent of revenues by the turn of the century."

Marketing, general and administrative expenses increased to $62.0 million in the first quarter of 1997 compared to $52.0 million in the first quarter of 1996. This increase resulted from an increase in marketing and sales expenses to prepare for the launch of Roferon®-A (Interferon alfa-2a, recombinant) and the potential launch of the C2B8 antibody and from an increase in overall corporate expenses.

Marketed Products

During the quarter, Genentech's U.S. thrombolytic market share with Activase® (Alteplase, recombinant) reached approximately 85 percent compared to approximately 75 percent in the first quarter of 1996 and approximately 80 percent at the end of 1996. Offsetting Activase's strong market share, the overall size of the thrombolytic therapy market declined since the first quarter of 1996 as a result of an increasing number of heart attack patients receiving angioplasty rather than thrombolytic therapy and some heart attack patients receiving therapy through ongoing large scale clinical trials. As a result, Activase sales during the first quarter of 1997 decreased slightly to $75.0 million compared to $76.6 million in the first quarter of 1996.

Results from the GUSTO III study, announced at the American College of Cardiology annual meeting, demonstrated that a new thrombolytic agent, Retavase® (reteplase), marketed by Boehringer Mannheim, does not save more lives than Activase. Investigators of the GUSTO group reported that in the trial, Retavase did not provide a statistically significant benefit in 30-day mortality as compared to Activase.

"Years of clinical practice and important clinical studies have made Activase a standard of care in the management of acute myocardial infarction," said Dr. Levinson. "GUSTO III has not changed the situation, and we believe there is no clinical reason for physicians to modify their prescribing habits."

Sales of Pulmozyme® (dornase alfa) Inhalation Solution increased to $22.3 million in the first quarter of 1997 from $18.9 million in the first quarter of 1996. Pulmozyme is currently cleared for marketing for the management of patients with moderate or advanced cystic fibrosis. In a continuing effort to help the full spectrum of cystic fibrosis patients, Genentech is conducting a Phase III clinical trial to determine whether early intervention with Pulmozyme can benefit young patients by maintaining lung function.

Sales of Genentech's three growth hormone products Protropin® (somatrem for injection), Nutropin® [somatropin (rDNA origin) for injection] and Nutropin AQ(TM) [somatropin (rDNA origin) injection] were $55.9 million compared to $56.0 million in the first quarter of 1996. Genentech now has four competitors in the U.S. growth hormone market. Though some market share loss is expected, Genentech has a comprehensive plan to defend its market position. Genentech also continues to defend its patent position. A potential competitive growth hormone product from Bio-Technology General remains off the market due to a preliminary injunction.

Through Genentech's agreement with Alkermes, Inc., the two companies are developing a sustained release formulation of growth hormone, designed to free patients from the need for daily injections. Alkermes is currently conducting Phase I/II clinical trials in children with growth hormone inadequacy.

In the first quarter of 1997, Genentech received regulatory clearance to market Nutropin AQ for the treatment of short stature from Turner syndrome. Nutropin AQ now has regulatory clearance for the same indications as Nutropin growth hormone.

As a result of an agreement made in the first quarter of 1997, Genentech is preparing to promote another product in addition to its line of marketed products. Genentech entered into an agreement with Roche under which Genentech will promote Roche's Roferon-A in the United States for its approved oncology indications. Genentech licensed the patents and scientific knowledge for Roferon-A to Roche in 1980. Genentech anticipates that the experience it gains through promoting Roferon-A will provide significant benefit as Genentech builds its oncology business.

R&D Progress

Genentech's aggressive investment in R&D was coupled with significant progress in product development during the quarter. In addition to the new indication cleared for Nutropin AQ, Genentech:

  • With partners IDEC Pharmaceuticals and Roche, submitted regulatory filings in the United States and Europe seeking clearance to market the C2B8 antibody for the treatment of relapsed low-grade non-Hodgkin's B-cell lymphoma.
  • Completed enrollment in pivotal Phase III clinical trials of anti-HER2 antibody for the treatment of metastatic breast cancer.
  • With partner Scios, Inc., discontinued development of Auriculin® (anaritide) after an interim analysis of data from an ongoing Phase III study in oliguric acute renal failure suggested a low probability that a positive outcome could be obtained with respect to its primary clinical endpoint, dialysis-free survival.
  • Completed enrollment in one of two international Phase II trials for the second-generation thrombolytic, TNK.

Management Changes

During the quarter, Genentech made several senior management changes through the promotion of veteran executives. William D. Young was promoted to chief operating officer from executive vice president. Louis J. Lavigne, Jr., was promoted to executive vice president from senior vice president, and continues as chief financial officer. And two long-time Genentech scientists were named to head up key R&D functions: Joffre Baker, Ph.D., as vice president - Research Discovery, and Paula Jardieu, Ph.D., as vice president - Pharmacological Sciences.

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, six 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 and Pacific Stock Exchanges under the symbol GNE.

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(in thousands, except per share amounts)

Three Months
Ended March 31,

1997 1996
   Product sales $ 154,213 $ 152,337
   Royalties   65,312 52,893
   Contract and other   21,409 22,100
   Interest   16,351 15,554
      Total revenues   257,285 242,884
Costs and expenses
   Cost of sales   27,685 25,879
   Research and development   122,743 115,633
   Marketing, general and administrative   61,981 52,042
   Interest   988 1,559
      Total costs and expenses   213,397 195,113
Income before taxes   43,888 47,771
Income tax provision   12,289 9,554
Net income $ 31,599 $ 38,217
Net income per share $ 0.25 $ 0.31
Weighted average number of shares used in
   computing per share amounts:
  125,283 123,360
March 31,
1997 1996
Selected balance sheet data
   Cash and short-term investments $ 660,606 $ 761,149
   Accounts receivable   205,561   174,865
   Inventories   93,667   88,853
   Long-term marketable securities   505,479   386,664
   Property, plant and equipment, net   617,895   514,461
   Other long-term assets   153,187   100,146
   Total assets   2,282,166   2,065,668
   Total current liabilities   248,464   224,377
   Long-term debt   150,000   150,000
   Total liabilities   422,351   400,356
   Total stockholders' equity   1,859,815   1,665,312