Tuesday, Jan 21, 1997

Genentech Reports 1996 Year-End Results

Three FDA clearances in 1996 and several products in late-stage testing exemplify results of significant R&D investment

South San Francisco, Calif. -- January 21, 1997 --

Genentech, Inc. (NYSE: GNE) announced today that in view of continued high R&D investment, earnings for 1996 declined to $118.3 million, or 96 cents per share, from $146.4 million, or $1.21 per share, in 1995. Earnings for the fourth quarter of 1996 were $7.4 million, or 6 cents per share, compared to $25.6 million, or 21 cents per share in the fourth quarter of 1995.

Revenues for 1996 increased 6 percent to $968.6 million from $917.8 million in 1995. Revenues for the fourth quarter of 1996 increased 4 percent to $230.3 million from $221.9 million in the fourth quarter of 1995.

Research and development expenses for 1996 were $471.1 million compared to $363.0 million in 1995. R&D expenses as a percentage of revenues in 1996 were 49 percent, compared to approximately 40 percent in 1995. R&D expenses for the fourth quarter were $128.1 million compared to $95.0 million in the fourth quarter of 1995.

"We have had a successful year moving toward our goal of realizing the benefits of our pipeline as we approach the next century," said Genentech President and Chief Executive Officer Arthur D. Levinson. "While the R&D investment required for these successes has kept our earnings modest, it has also positioned us for significant earnings potential as the late stage products in our pipeline progress toward the market. As we continue late-stage clinical testing of the products in our pipeline, we anticipate our R&D expenses will continue at a high percentage of revenues over the short-term," said Levinson.

Genentech received three regulatory clearances from the Food and Drug Administration in 1996, each for a new indication for one of Genentech's marketed products: Activase® (Alteplase, recombinant) for treating acute ischemic stroke; Nutropin® [somatropin (rDNA origin) for injection] for the treatment of short stature associated with Turner syndrome; and Pulmozyme® (dornase alfa) for the management of cystic fibrosis patients with advanced disease. During the year, Genentech completed Phase II trials on nerve growth factor (NGF), insulin-like growth factor-1 (IGF-1), and an oral IIb/IIIa antagonist. Genentech's development partner, IDEC Pharmaceuticals, successfully completed Phase III clinical trials for the IDEC-C2B8 antibody. Genentech now has five potential new products in late-stage clinical development (entering Phase III or beyond). Initial clinical testing began for two Genentech products, and Genentech filed an Investigational New Drug application (IND) for a third.

Increased Royalties as Roche Assumes ex-U.S. Sales

In late 1995, Genentech began receiving royalties rather than recording sales on European sales of Pulmozyme and Canadian sales of all Genentech products as Roche assumed responsibility for those sales per Genentech's 1995 arrangement with Roche. These changes have led to a reduction in reported product sales compared to 1995, but also to increased royalty revenues and decreased marketing and sales expenses. Product sales in 1996 increased to $582.8 million from $578.7 million in 1995 on a pro forma basis that takes into account the new arrangement with Roche by including sales to Roche in 1996 and excluding Canadian and European customer sales in 1995. Reported total product sales in 1996 were $582.8 million compared to $635.3 million in 1995. Royalties in 1996 increased to $214.7 million from $190.8 million in 1995. MG&A expenses in 1996 declined to $240.1 million from $251.7 million in 1995.

Marketed Products

On a pro forma basis, sales of Pulmozyme, the company's aerosol for the management of cystic fibrosis (CF), increased to $76.0 million in 1996 from $70.0 million in 1995, with the increase driven primarily by sales of Pulmozyme to Roche for ex-U.S. sales. Recorded Pulmozyme sales were $76.0 million compared to $111.3 million in 1995.

In November 1996, Pulmozyme received marketing clearance from the FDA for the management of CF patients with advanced disease. The FDA Advisory Committee recommended that Genentech continue to study long-term outcomes of CF patients.

During the year, Activase's market share as a thrombolytic therapy for the treatment of acute myocardial infarction (heart attack) climbed to approximately 80 percent from approximately 75 percent at the end of 1995. Despite Activase's strong market share, the overall size of the thrombolytic therapy market during 1996 has declined by approximately 6.5 percent compared to 1995 as a result of some heart attack patients receiving mechanical reperfusion rather than thrombolytic therapy and others receiving therapy through ongoing large scale clinical trials. Activase sales declined slightly to $284.1 million in 1996 from $288.3 million in 1995 on a pro forma basis. Recorded sales were $284.1 million in 1996 compared to $301.0 million in 1995.

Activase was licensed by the FDA in June 1996 for treating acute ischemic stroke within three hours of the onset of symptoms. Since Activase was approved for the treatment of acute ischemic stroke, the American Heart Association, the American Academy of Neurology and the National Institutes of Health have issued guidelines or proposed standards identifying stroke as a medical emergency and - following appropriate screening to identify eligible patients - recommending eligible patients receive Activase to enhance their chance of recovering with no or minimal disability. As anticipated, this new therapy is undergoing a review and adoption period while medical centers and physicians become acquainted with the therapy.

Sales of the growth hormone products Protropin® (somatrem for injection) and Nutropin increased slightly to $218.2 million in 1996 from $216.7 million in 1995 on a pro forma basis. Recorded sales were $218.2 million in 1996 compared to $219.4 million in 1995. Even in the face of new competitive growth hormone products, Genentech continues to maintain a two-thirds market share in the U.S. growth hormone market.

Early in 1996, 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. In December 1996, Genentech received clearance from the FDA to market Nutropin for the treatment of short stature associated with Turner syndrome, a chromosomal disorder in girls.

A potential competitive growth hormone product from Bio-Technology General remains off the market due to a preliminary injunction issued against it, though a preliminary injunction against Novo Nordisk A/S was stayed by a U.S. appeals court in December 1996, allowing Novo's growth hormone product to enter the U.S. market pending future court decisions.

Actimmune® (interferon gamma-1b) sales were $4.5 million in 1996 compared to $3.6 million in 1995 on a pro forma basis. Recorded Actimmune sales also were $4.5 million in 1996 compared to $3.6 million in 1995. Sales of this product remain modest because of the rarity of the approved indication, chronic granulomatous disease.

In January of this year, Genentech and Hoffmann-La Roche Inc. entered into an agreement under which Genentech will promote Roche's Roferon-A® (Interferon alfa-2a, recombinant) in the United States for the treatment of several types of cancer, including hairy-cell leukemia, AIDS-related Kaposi's sarcoma and pH-positive chronic myelogenous leukemia.

Contract Revenues

Contract and other revenues in 1996 increased to $107.0 million from $31.2 million in 1995. This increase resulted primarily from various payments totaling $82.9 million from Roche for its exercise of its options and reimbursement of development costs (per Genentech's 1995 arrangement with Roche) to develop the following potential products outside the United States: the IDEC-C2B8 monoclonal antibody, IGF-1 for diabetes, and NGF.

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, six 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.

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GENENTECH, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Three Months
Year
Ended December 31
Ended December 31
1996
1995
1996
1995
Revenues:
Product sales $ 139,724 $ 153,482 $ 582,829 $ 635,263
Royalties 54,157 48,596 214,702 190,811
Contract and other 19,046 2,632 107,037 31,209
Interest 17,399 17,204 64,110 60,562
Total revenues 230,326 221,914 968,678 917,845
Costs and expenses:
Cost of sales 26,659 22,499 104,527 97,930
Research and development 128,135 94,952 471,143 363,049
Marketing, general and administrative 65,170 64,267 240,063 251,653
Special charge (primarily

merger related)

-

8,000

-

25,000
Interest 1,025 2,036 5,010 7,940
Total costs and expenses 220,989 191,754 820,743 745,572
Income before taxes 9,337 30,160 147,935 172,273
Income tax provision 1,867 4,524 29,587 25,841
Net income $ 7,470 $ 25,636 $ 118,348 $ 146,432
Net income per share $ .06 $ .21 $ .96 $ 1.21
Weighted average number of shares used
in computing per share amounts 124,575 122,153 123,695 121,220
Selected balance sheet data:
Cash and short-term investments $ 623,164 $ 740,339
Accounts receivable 197,612 172,160
Inventories 91,943 93,648
Long-term marketable securities 535,916 356,475
Property, plant and equipment, net 586,167 503,654
Other long-term assets 149,205 105,452
Total assets 2,226,372 2,010,995
Total current liabilities 249,951 233,444
Long-term debt 150,000 150,000
Total liabilities 425,313 408,948
Total stockholders' equity 1,801,059 1,602,047

GENENTECH PRODUCT DEVELOPMENT PROGRESS IN 1996

Genentech made significant progress with the products in its pipeline - including several stemming from business collaborations - in 1996. Besides three regulatory clearances for new indications for its marketed products, Genentech also made the following progress:

  • Genentech's development partner, IDEC Pharmaceuticals, completed Phase III clinical trials of the IDEC-C2B8 antibody for the treatment of non-Hodgkin's B-cell lymphoma - which confirmed the safety and efficacy seen in Phase II trials - and began preparing to submit regulatory filings in the first quarter of 1997.

  • Genentech expanded its collaborative agreement with IDEC to include the clinical development and commercialization of the IDEC-Y2B8 antibody, currently in Phase I clinical trials, as a potential complementary treatment for non-Hodgkin's B-cell lymphoma.

  • Completed Phase II trials for initial safety and efficacy of NGF for diabetic peripheral neuropathy. Genentech is currently planning for approval-directed Phase III clinical trials to begin in the first half of 1997.

  • Settled lawsuits with Tanox Biosystems, Inc., and Ciba-Geigy, Ltd. related to the development of anti-IgE antibodies. The companies reached an agreement in principle under which Genentech, Ciba-Geigy and Tanox combined their existing anti-IgE antibody programs under a cross license agreement in a cooperative development effort. Genentech's anti-IgE antibody is currently in Phase II clinical trials.

  • Completed a Phase II clinical trial with an oral IIb/IIIa antagonist, designed, in collaboration with Roche, to investigate pharmacokinetics and safety in patients with acute coronary syndrome.

  • Completed Phase II clinical trials utilizing insulin-like growth factor-1 (IGF-1) as an adjunct to insulin therapy in patients with Type I and Type II diabetes.

  • Entered into an agreement with XOMA Corporation for XOMA to develop Genentech's anti-CD11a antibody for the treatment of psoriasis and organ transplant rejection. XOMA began a Phase I safety trial of the antibody in patients with psoriasis.

  • Entered into an agreement with Roche to develop Genentech's anti-CD18 antibody for the treatment of hemorrhagic shock. In 1996, Roche initiated a Phase I safety trial in patients with hemorrhagic shock.

  • Filed an IND for development of vascular endothelial growth factor (VEGF) for the treatment of coronary ischemia.

  • Prepared for a first quarter 1997 IND filing for anti-VEGF antibody for the treatment of cancer.

  • Invested in VaxGen, Inc. which was created to continue the development and commercialization of gp120, Genentech's potential vaccine for the prevention of HIV-1 infection, and agreed to provide VaxGen with exclusive rights to gp120.

  • Entered into an agreement with CytoTherapeutics to develop several of Genentech's neurotrophic factors for the treatment of Huntington's disease, Parkinson's disease, and Amyotrophic Lateral Sclerosis (ALS).

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, six 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.

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