Monday, Apr 12, 1999

Genentech Reports 1999 First Quarter Results

Product Sales Increased 42 Percent Driven by Sales of Herceptin and Rituxan

South San Francisco, Calif. -- April 12, 1999 --

Genentech, Inc. (NYSE: GNE) announced today that due to a special charge described below, net income for the first quarter of 1999 decreased to $14.4 million, or 11 cents per share*, from $41.0 million, or 32 cents per share*, in the first quarter of 1998. Exclusive of the special charge, net income for the first quarter of 1999 would have been $58.5 million, an increase of 43 percent over the first quarter of 1998; earnings for the quarter would have been 44 cents per share*, a 38 percent increase. The first quarter of 1999 includes a special charge legal settlement expense of $50 million, or 33 cents per share* (on an after-tax basis), for a potential settlement with the Office of the U.S. Attorney for the Northern District of California related to past promotion of human growth hormone.

Revenues increased 22 percent to $322.3 million from $264.7 million in the same quarter of 1998. This revenue growth was driven primarily by sales of Herceptin® (Trastuzumab), indicated for the treatment of certain patients with metastatic breast cancer, and Rituxan® (Rituximab), indicated for the treatment of patients with relapsed or refractory low-grade or follicular, CD20-positive, B-cell non-Hodgkin's lymphoma. Revenues were offset partially by a decrease in royalties, primarily related to the expiration of royalties from Eli Lilly in August 1998.

"Our strong product sales for the quarter are directly in line with our corporate strategy for growth," said Arthur D. Levinson, Ph.D., Genentech's president and chief executive officer. "We continue to make significant progress in moving projects through our pipeline, including beginning the preparation of a regulatory filing for TNK-t-PA and making a decision to move anti-CD11a into Phase III clinical trials."

*Per share amounts presented are diluted earnings per share.

During the quarter, Genentech announced that based on positive Phase III results the company is starting the preparation of a regulatory filing seeking approval to market in the United States a thrombolytic therapy with improved product attributes, called TNK-t-PA (tenecteplase), for the treatment of heart attacks. Meanwhile, partner Boehringer Ingelheim is preparing regulatory filings for TNK-t-PA in Europe. Genentech decided to continue development of the anti-CD11a (hu1124) monoclonal antibody product for psoriasis in collaboration with Xoma Ltd., through Phase III clinical trials.

Product Sales

Sales of marketed products increased 42 percent in the first quarter of 1999 to $234.1 million from $164.7 million in the first quarter of 1998.

Sales of Herceptin in the first quarter of 1999 were $39.9 million. Genentech first recorded sales for Herceptin of $30.5 million in the fourth quarter of 1998. While Genentech is encouraged by these sales figures, not enough time has passed for these figures to be necessarily indicative of future sales. An increase of physician acceptance of Herceptin, as an important therapy for woman with metastatic breast cancer who have tumors that overexpress HER2, has contributed to a positive sales trend and successful penetration into the breast cancer market. Genentech also is currently preparing for Phase II clinical trials of Herceptin in non-breast, solid-tumor indications.

Sales of Rituxan in the first quarter of 1999 increased 51 percent to $57.1 million from $37.7 million in the first quarter of 1998. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma. With partners IDEC Pharmaceuticals Corporation and Roche, Genentech continues to explore other uses of Rituxan as a single agent as well as in combination with other traditional therapies through clinical trials.

Sales of Activase® (Alteplase, recombinant), a tissue plasminogen activator (t-PA), during the first quarter of 1999 decreased to $52.0 million from $55.7 million in the first quarter of 1998. This decrease is due to a continued decline in the overall size of the thrombolytic therapy market due to mechanical reperfusion and continued competition.

Sales of Genentech's three growth hormone products, Protropin® (somatrem for injection), Nutropin® [somatropin (rDNA origin) for injection] and Nutropin AQ® [somatropin (rDNA origin) injection], increased to $56.2 million from $50.9 million in the first quarter of 1998. This increase primarily reflects fluctuations in distributor ordering patterns.

During the quarter, Genentech entered into an agreement with Schwarz Pharma AG for the development and distribution of Nutropin AQ and the sustained-release Nutropin Depot for the treatment of certain pediatric and adult growth disorders in Europe and certain other countries outside of the United States, Canada and Japan. Genentech and partner Alkermes, Inc. are currently preparing U.S. regulatory filings seeking marketing approval for Nutropin Depot.

Sales of Pulmozyme® (dornase alfa) Inhalation Solution increased to $28.2 million in the first quarter of 1999 compared to $19.5 million in the first quarter of 1998. This increase is primarily due to increased Pulmozyme sales to Roche and increased market penetration for the treatment of cystic fibrosis.

Total Costs and Expenses

Costs and expenses increased during the first quarter of 1999 as compared to the first quarter of 1998. Consistent with the increase in product sales, cost of sales increased to $45.7 million in the first quarter of 1999 from $33.6 million in the first quarter of 1998. Marketing, general and administrative (MG&A) expenses increased to $97.2 million in the first quarter of 1999 from $74.9 million in the first quarter of 1998. Both increases were primarily driven by the introduction of Herceptin and by the growth of Rituxan and the resultant profit sharing.

Income taxes increased to $22.9 million in the first quarter of 1999 primarily due to the nature of the legal settlement expense as well as an increase in the income tax rate.

Research and development (R&D) expenses decreased 8 percent to $90.7 million in the first quarter of 1999 from $98.2 million in the first quarter of 1998. For the quarter, Genentech invested approximately 28 percent of revenues into R&D, compared to 37 percent in the first quarter of 1998. This decrease is in line with the goal of Genentech's Long-Range Plan to decrease R&D spending as a percent of revenues as products progress through late-stage clinical trials and revenues increase.

R&D, Business Development and Intellectual Property Events

Including the events mentioned above, Genentech recently announced the following:

  • Announced positive results of a 17,000-patient, international, multi-center Phase III trial comparing TNK-t-PA (tenecteplase), the new single-bolus thrombolytic, with Genentech's current market-leading thrombolytic, Activase, during the Annual Scientific Session of the American College of Cardiology in New Orleans in March.

  • Announced that the Phase III clinical trial of the company's recombinant human nerve growth factor (rhNGF) for use in treating patients with diabetic peripheral neuropathy did not meet its objectives.

  • Decided to continue development of the anti-CD11a (hu1124) monoclonal antibody product for psoriasis in collaboration with Xoma, Ltd., through Phase III clinical trials. Also, agreed with XOMA Ltd. to license its technology for pharmaceutical antibody production designed to reduce production costs and increase yields.
  • Announced that the 178-patient Phase II clinical trial of recombinant human vascular endothelial growth factor (VEGF) protein did not meet its primary objectives.

  • Began preparing for Phase I clinical trials of AMD-Fab for age-related macular degeneration.

  • Agreed with Abgenix, Inc. that it will provide Genentech access to Abgenix's Xenomouse™ technology for generating fully human antibodies.

  • Entered into a collaborative research and option agreement with Magainin Pharmaceuticals Inc. relating to a protein therapeutic in asthma. Under the agreement, Genentech will gain access to Magainin's therapeutic target, IL9, and the two companies will conduct a collaborative program to evaluate the potential of a blocking antibody to IL9 in suppressing the asthmatic response.

  • Received U.S. Patent No. 5,869,314, relating to variant forms of tissue plasminogen activator (t-PA) and filed a second suit against Centocor, Inc. for infringement of this new patent.

Genentech, Inc. is a leading biotechnology company that discovers, develops, manufactures, and markets human pharmaceuticals for significant unmet medical needs. Twelve of the currently marketed biotechnology products stem from Genentech science. Genentech markets seven biotechnology products directly 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, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(unaudited)

 

Three Months
Ended March 31,

1999

1998

Revenues:

Product sales

$

234,069

$

164,719

Royalties

 

46,618

64,493

Contract and other

 

19,266

14,865

Interest

 

22,399

20,623

Total revenues

322,352 264,700

Costs and expenses:

Cost of sales

 

45,723

33,621

Research and development

 

90,740

98,202

Marketing, general and administrative

 

97,201

74,950

Legal settlement

 

50,000

-

Interest

 

1,363

959

Total costs and expenses: 

285,027 207,732

Income before taxes

 

37,325

56,968

Income tax provision

 

22,910

15,951

Net income

$

14,415

$

41,017

Earnings per share

Basic

$

0.11

$

0.33

Diluted

$

0.11

$

0.32

Diluted (excluding legal settlement)

$

0.44

$

0.32

Weighted average shares used to

 

compute diluted earnings per share

 

132,522

128,807

 

March 31,

1999

1998

Selected balance sheet data (unaudited):

Cash and short-term investments

$

894,970

$

885,081

Accounts receivable

 

168,816

175,285

Inventories

 

146,712

117,711

Long-term marketable securities

 

767,450

487,867

Property, plant and equipment, net

 

698,887

688,363

Other long-term assets

 

197,333

165,000

Total assets

 

2,926,108

2,573,521

Total current liabilities

 

319,832

273,374

Long-term debt

 

149,990

150,000

Total liabilities

 

536,460

461,603

Total stockholders' equity

 

2,389,648

2,111,918

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