Wednesday, Jul 10, 2002

Genentech Reports 28 Percent Increase in Product Sales for Second Quarter

21 Percent Increase in Pro Forma Earnings Per Share

South San Francisco, Calif. -- July 10, 2002 --

Genentech, Inc. (NYSE: DNA) today announced second quarter pro forma financial results of 23 cents per share, a 21 percent increase from the second quarter of 2001 driven by a 28 percent increase in product sales. Genentech's actual financial results for the second quarter of 2002 were a loss of 41 cents per share due to litigation-related charges in the second quarter 2002 and certain charges related to the 1999 redemption of Genentech's stock, partially offset by the increase in revenues and the prior adoption of new accounting rules² in the beginning of this year. Genentech's pro forma financial results exclude the 2002 litigation-related charges and certain charges related to the 1999 redemption of Genentech's stock.

For the three months ended June 30, 2002:

• Pro forma earnings per share for the second quarter of 2002 increased 21 percent to 23 cents per share, compared to 19 cents per share for the second quarter of 2001. In the second quarter of 2002, actual loss per share was 41 cents per share, compared to earnings of 7 cents per share in the second quarter of 2001.
  
  
• Pro forma net income for the second quarter of 2002 increased 19 percent to $120.5 million, compared to $101.5 million for the second quarter of 2001. In the second quarter of 2002, actual net loss was $213.6 million compared to net income of $38.6 million in the second quarter of 2001.
  
  
• Total revenues for the second quarter of 2002 increased 26 percent to $652.3 million from $515.9 million in the second quarter of 2001. This revenue growth was driven primarily by sales of Genentech's biooncology products, Rituxan® (Rituximab) and Herceptin® (Trastuzumab) and higher royalties from licensees. Total revenues were partially offset by lower interest income due to lower interest rates and lower cash balances due to share repurchases.
  
  

"On balance, the second quarter of 2002 was a successful one for Genentech, despite the special litigation-related charges, with Rituxan and Herceptin continuing to generate increasing sales, FDA approval of Nutropin AQ Pen, further advancement of many of our pipeline projects and significant progress in our strategic alliances efforts," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "Our quarterly results are directly in line with our corporate strategy for growth and we are on course towards our 5X5 goals including our goal of a 25 percent average annual increase in pro forma earnings per share."

"While we are taking a special litigation-related charge against our actual earnings this quarter primarily for the City of Hope verdict, no cash, if any, will be paid until the appeal process is completed. We continue to remain confident in our position," said Levinson.

Product Sales

Sales of marketed products increased 28 percent in the second quarter of 2002 to $523.5 million from $410.3 million in the second quarter of 2001, with biooncology sales consisting of 71 percent of total product revenues, up from 65 percent in the second quarter of 2001.

Rituxan sales in the second quarter of 2002 increased 46 percent to $274.9 million from $187.7 million in the second quarter of 2001. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma.

Herceptin sales in the second quarter of 2002 increased 21 percent to $95.1 million compared to $78.8 million in the second quarter of 2001. Since launch, the company has seen consistent quarter-over-quarter growth for Herceptin in the United States.

Sales of Genentech's growth hormone products in the second quarter of 2002 increased 20 percent to $75.3 million compared to $62.5 million in the second quarter of 2001.

During the second quarter of 2002, sales of Genentech's two cardiovascular products, Activase? (Alteplase, recombinant) and TNKase™ (Tenecteplase), decreased 16 percent to $43.1 million compared to $51.6 million in the second quarter of 2001.

Pulmozyme® (dornase alfa) Inhalation Solution sales in the second quarter of 2002 increased 25 percent to $35.1 million compared to $28.1 million in the second quarter of 2001.

Costs and Expenses

Costs and expenses in the second quarter of 2002 were higher compared to costs and expenses in the second quarter of 2001 driven by costs related to higher product sales, primarily Rituxan, and related profit sharing expenses. Research and development expenses were higher in the second quarter of 2002 compared to the second quarter of 2001 due to late stage clinical development.

Genentech is a leading biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs. Fifteen of the currently approved biotechnology products originated from or are based on Genentech science. Genentech manufactures and commercializes ten 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 under the symbol DNA.

# # #

Webcast:

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Wednesday, July 10, 2002 at 2:45pm PT. The live webcast may be accessed on Genentech's website at http://www.gene.com. This webcast will also be available after the call via the website until close of business July 17, 2002. An audio replay of the webcast will be available beginning at 5:45pm PT on July 10, 2002 until 5:45pm PT July 17, 2002. Access numbers for this replay are1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 4602278.

Genentech Business and Product Development Events in the Second Quarter, 2002

Marketed and Pipeline Product Events:

Oncology

• Rituxan® (Rituximab): At the annual meeting of the American Society of Clinical Oncology (ASCO) in May, Genentech and IDEC Pharmaceuticals Corp. announced initial positive results from studies examining the role of Rituxan in the treatment of various CD20- positive cancers, including front-line indolent and relapsed aggressive non-Hodgkin's lymphoma (NHL) and lymphocyte predominant Hodgkin's disease. In June, Genentech, IDEC and Roche announced initial positive results of a randomized multi-center study evaluating extended therapy with single agent Rituxan in patients with both front-line and relapsed indolent NHL. Also in June, Genentech, IDEC and Roche announced positive preliminary results of a randomized, controlled and double-blind Phase II study evaluating Rituxan (Rituximab/MabThera®) alone or in combination with other therapies in rheumatoid arthritis (RA). Based on those findings, Genentech added Rituxan for RA to its product pipeline as the fourth development project for 2002. Finally, an Investigational New Drug (IND) application was filed with the Food and Drug Administration (FDA) for Rituxan for idiopathic thrombocytopenic purpura.
  
  
• Herceptin® (Trastuzumab): Herceptin also had a large presence at ASCO, with over 60 abstracts presented on a variety of topics, including testing, different combination treatments and safety issues. In addition, the North Central Cancer Treatment Group and North American Breast Intergroup have reopened the suspended arm of a Phase III clinical trial evaluating the effectiveness of Herceptin in women with early-stage, HER2-positive breast cancer that has spread to lymph nodes after a planned interim safety data analysis.
  
  
• Avastin™ (rhuMAb-VEGF antibody): At ASCO, Genentech announced initial positive results from a randomized, double-blind, placebo-controlled Phase II study conducted by the National Cancer Institute Surgery Branch evaluating Avastin, an investigational therapeutic antibody directed at vascular endothelial growth factor (VEGF), in patients with metastatic renal cell carcinoma (kidney cancer). Patients enrolled in this three-arm trial had failed previous treatments with or were not eligible to receive Interleukin-2. Genentech researchers also presented data from 35 patients with advanced cancer (17 colorectal, 12 non-small cell lung, five breast, and one prostate) who had received single-agent Avastin therapy or Avastin plus chemotherapy for at least a year. These patients were a subset of 302 patients treated with Avastin in Genentech-sponsored Phase I/II clinical trials. Finally, Genentech completed enrollment in the second Phase III study of Avastin in colorectal cancer.
  
  
• Tarceva™ (erlotinib): Genentech and OSI Pharmaceuticals, Inc. announced that the FDA has designated Tarceva, a small molecule EGFR inhibitor, a Fast Track Product for the treatment of Stage III/IV non-small cell lung cancer patients who have not had any chemotherapy.
  
  

Immunological Disease & Other Unmet Needs

• Xanelim™ (Efalizumab): Genentech met with the FDA during the second quarter of 2002 to discuss the Xanelim filing strategy. Contingent upon a positive outcome in the ongoing Phase III efficacy trial using Genentech material, the company will plan on filing a Biologic License Application to the FDA by the fourth quarter of this year.
  
  
• Nutropin AQ Pen™ [somatropin (rDNA origin) injection]: Genentech announced that the Nutropin AQ Pen for delivery of Nutropin AQ recombinant growth hormone received clearance from the FDA. The Nutropin AQ Pen is designed for exclusive use with the Nutropin AQ Pen Cartridge [somatropin (rDNA origin) injection]. The Nutropin AQ Pen was developed to give patients the option of a simple, convenient and safe way to administer their growth hormone. The Pen launched today, July 10, 2002.
  
  
• AMD-Fab: Genentech finished enrolling patients for a Phase I/II trial for AMD-Fab, an anti-VEGF monoclonal antibody fragment for the potential treatment of age-related macular degeneration, and presented preliminary data from the trial at the annual meeting of the Association for Research in Vision and Ophthalmology (ARVO).
  
  

Corporate Business Events:

• Genentech announced that a Los Angeles County Superior Court jury voted to award the City of Hope (COH) approximately $300 million in compensatory damages and $200 million in punitive damages in the retrial of a contract dispute lawsuit brought by COH against Genentech. The company also announced it will appeal the judgment in the case, including the damage award, to the California Court of Appeal.
  
  
• Genentech signed a manufacturing agreement with Immunex to provide Immunex with additional manufacturing capacity for ENBREL® (etanercept) at Genentech's manufacturing facility in South San Francisco, CA.
  
  
• Genentech licensed Seattle Genetics' proprietary antibody-drug conjugate technology for use with therapeutic antibodies recognizing multiple target antigens. Genentech intends to utilize this technology in its efforts to develop therapeutic antibodies linked to toxic payloads that could increase their potency.
  
  
• Genentech granted Tercica Medica, Inc. certain exclusive licenses and options to its rights to Insulin-Like Growth Factor-1, a hormone central to human growth and metabolism. Genentech received an undisclosed ownership position and may also receive downstream payments based on milestones and eventual sales.
  
  
• Genentech signed an agreement with Xenova Group plc that provides Genentech with worldwide rights to develop and market products primarily targeting disorders of the immune system based on Xenova's OX40 receptor protein and anti-OX40 Ligand antibody programs.
  
  
• The Genentech Foundation for Biomedical Sciences announced that its Board of Directors has awarded 19 grants for 2002 totaling $869,411 to organizations in the San Francisco Bay Area.
  
  
• Genentech appointed Hal Barron vice president, Medical Affairs.
  
  

The statement made in this press release relating to the Xanelim BLA filing time frame is forward-looking and actual results could differ materially. Among other things, the BLA filing time frame could be affected by unexpected safety or efficacy issues, manufacturing issues, additional time requirements for data analysis, BLA preparation, discussions with the FDA, slow enrollment in clinical studies or additional clinical studies.

GENENTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended June 30,
	2002				2001
	Actual(2)		Pro Forma(1)		Actual		Pro Forma(1)
Revenues
Product sales	$	523,527	$	523,527	$	410,258	$	410,258
Royalties	85,535		85,535		52,446		52,446
Contract and other	13,286		13,286		20,935		20,935
Interest Income	29,964		29,964		32,235		32,235
Total revenues	652,312		652,312		515,874		515,874
Costs and expenses
Cost of sales	106,867		106,867		76,188		76,188
Research and development	147,922		147,922		123,448		123,448
Marketing, general and administrative	126,915		126,915		107,800		107,800
Collaboration profit sharing	84,090		84,090		57,908		57,908
Recurring charges related to redemption	38,928		-		81,490		-
Special charges: Litigation-related	518,000		-		-		-
Interest expense	-		-		1,345		1,345
Total costs and expenses	1,022,722		465,794		448,179		366,689
Income (loss) before taxes	(370,410)		186,518		67,695		149,185
Income tax (benefit) provision	(156,762)		66,009		29,047		47,739
Net income (loss)	$	(213,648)	$	120,509	$	38,648	$	101,446
Earnings (loss) per share:
Basic	$	(0.41)	$	0.23	$	0.07	$	0.19
Diluted	$	(0.41)	$	0.23	$	0.07	$	0.19
Weighted average shares used to    compute earnings (loss) per share:
Basic	520,001		520,001		526,998		526,998
Diluted	520,001		524,479		535,142		535,142
(1) Pro Forma amounts exclude litigation-related special charges in Q2 2002 and recurring charges related to the 1999 redemption of Genentech's Special Common Stock. (2) Genentech adopted Statement of Financial Accounting Standards (or "FAS") No. 141 on Business Combinations and FAS 142 on Goodwill and Other Intangible Assets on January 1, 2002. As a result of our adoption, reported net loss decreased by approximately $39.4 million, net of tax, (or $0.08 per share) in Q2 2002 due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset.
	Six Months Ended June 30,
	2002				2001
	Actual		Pro Forma(1)		Actual(3)		Pro Forma(1)
Revenues
Product sales	$	1,000,077	$	1,000,077	$	802,161	$	802,161
Royalties	167,378		167,378		127,077		127,077
Contract and other	40,051		40,051		59,419		49,415
Interest Income	58,258		58,258		67,299		67,299
Total revenues	1,265,764		1,265,764		1,055,956		1,045,952
Costs and expenses
Cost of sales	209,311		209,311		159,984		159,984
Research and development	294,613		294,613		259,788		259,788
Marketing, general and administrative	250,542		250,542		235,719		235,719
Collaboration profit sharing	156,168		156,168		104,281		104,281
Recurring charges related to redemption	77,856		-		163,007		-
Special charges: Litigation-related	518,000		-		-		-
Interest expense	753		753		2,836		2,836
Total costs and expenses	1,507,243		911,387		925,615		762,608
Income (loss) before taxes and cumulative effect of accounting change	(241,479)		354,377		130,341		283,344
Income tax (benefit) provision	(123,134)		115,209		59,305		90,670
Income (loss) before cumulative effect of accounting change	(118,345)		239,168		71,036		192,674
Cumulative effect of accounting change, net of tax	-		-		(5,638)		-
Net income (loss)	$	(118,345)	$	239,168	$	65,398	$	192,674
Earnings (loss) per share:
Basic: Earnings (loss) before cumulative effect of accounting change	$	(0.23)	$	0.46	$	0.13	$	0.37
Cumulative effect of accounting change, net of tax	-		-		(0.01)		-
Net earnings (loss) per share	$	(0.23)	$	0.46	$	0.12	$	0.37
Diluted: Earnings (loss) before cumulative effect of accounting change	$	(0.23)	$	0.45	$	0.13	$	0.36
Cumulative effect of accounting change, net of tax	-		-		(0.01)		-
Net earnings (loss) per share	$	(0.23)	$	0.45	$	0.12	$	0.36
Weighted average shares used to    compute earnings (loss) per share:
Basic	523,361		523,361		526,396		526,396
Diluted	523,361		529,279		535,181		535,181
(1) Pro Forma amounts exclude litigation-related special charges in Q2 2002 and recurring charges related to the 1999 redemption of Genentech's Special Common Stock. In addition, pro forma excludes the impact of our adoption of Statement of Financial Accounting Standards (or "FAS") No. 133 on Accounting for Derivative Instruments and Hedging Activities in Q1 2001 (see also note 3 below). (2) Genentech adopted FAS 141 on Business Combinations and FAS 142 on Goodwill and Other Intangible Assets on January 1, 2002. As a result of our adoption, reported net loss decreased by approximately $78.8 million, net of tax, (or $0.15 per share) in the six months ended June 30, 2002 due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset. (3) As a result of our adoption of FAS 133 in Q1 2001, we recorded a cumulative effect of a change in accounting principle, net of tax, and the changes in fair value of certain derivatives ($10.0 million) in contract and other revenues. The net of tax impact of our adoption on Q1 2001 was not material.
	June 30,
	2002				2001
Selected balance sheet data
Cash and short-term investments	$	969,076			$	1,392,806
Accounts receivable	327,505				272,680
Inventories	380,197				316,319
Long-term marketable securities	1,085,251				1,208,305
Property, plant and equipment, net	969,277				790,504
Goodwill	1,334,219				1,379,136
Other intangible assets	1,004,805				1,194,020
Other long-term assets	326,615				243,121
Total assets	6,593,734				6,893,108
Total current liabilities	522,614				561,448
Total liabilities	1,298,821				1,073,103
Total stockholders' equity	5,294,913				5,820,005
Year-to-date
Capital expenditures	163,816				85,676
Pro forma depreciation and amortization expense	58,388				53,503