Wednesday, Jan 15, 2003

Genentech Exceeds $2.7 Billion in Revenues with $1.5 Billion in Oncology Sales

21 Percent Increase in Pro Forma Earnings Per Share

South San Francisco, Calif. -- January 15, 2003 --

Genentech, Inc. (NYSE: DNA) today announced pro forma financial results of a 21 percent increase in pro forma earnings per share and a 23 percent increase in pro forma revenues driven by a 24 percent increase in product sales for 2002. Genentech's pro forma financial results exclude certain charges related to the 1999 Roche redemption of Genentech's stock and certain litigation-related special charges. Actual results are indicated below as well.

For 2002, including the three months ended December 31, 2002:

  • Pro forma earnings per share for 2002 increased 21 percent to 92 cents per share, compared to 76 cents per share for 2001. Pro forma earnings per share for the fourth quarter of 2002 also increased 20 percent to 24 cents per share, compared to 20 cents per share in the fourth quarter of 2001. Actual earnings per share for 2002 decreased 57 percent to 12 cents per share compared to 28 cents per share for 2001 due to certain litigation-related special charges. Actual earnings per share for the fourth quarter of 2002 increased 125 percent to 18 cents per share compared to 8 cents per share for the fourth quarter of 2001.

  • Pro forma net income for 2002 increased 20 percent to $483.6 million, compared to $404.5 million for 2001. Pro forma net income for the fourth quarter of 2002 also increased 17 percent to $124.2 million from $106.4 million in the fourth quarter of 2001. Actual net income for 2002 decreased 58 percent to $63.8 million compared to $150.3 million for 2001. Actual net income for the fourth quarter of 2002 increased 120 percent to $92.8 million compared to $42.1 million for the fourth quarter of 2001.

  • Actual revenues for 2002 increased 23 percent to $2,719.3 million from $2,212.3 million in 2001. This revenue growth was driven primarily by sales of Genentech's BioOncology products, Rituxan® (Rituximab) and Herceptin® (Trastuzumab). Total product sales increased 24 percent in 2002 to $2,163.6 million from $1,742.9 million in 2001.

"Genentech continues to be a profitable growth company with solid financial performance and significant progress with our product pipeline in 2002, including submissions for approval for Raptiva for psoriasis and Xolair for allergic asthma. In addition, we're looking forward to the potential for multiple product launches over the next few years," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "I'm pleased to report that four years into our seven-year strategy for growth, known as our 5X5, we've averaged 27 percent annual pro forma earnings-per-share growth. Our financial success and promising pipeline continue to lay the groundwork for future potential value for our stockholders and our patients."

Product Sales

Marketed products sales increased 24 percent in 2002 to $2,163.6 million from $1,742.9 million in 2001, with biooncology sales consisting of 72 percent of total product revenues, up from 67 percent in 2001.

Rituxan sales in 2002 increased 42 percent to $1,162.9 million from $818.7 million in 2001. This sales increase is due primarily to increased market penetration for the treatment of non-Hodgkin's lymphoma.

Herceptin sales in 2002 increased 11 percent to $385.2 million compared to $346.6 million in 2001.

During 2002, combined sales of Genentech's three cardiovascular products, Activase® (Alteplase, recombinant), TNKase™ (Tenecteplase) and Cathflo™ Activase® (Alteplase), decreased 9 percent to $180.2 million compared to $197.1 million in 2001.

Growth hormone sales during 2002 increased 19 percent to $297.2 million compared to $250.2 million in 2001.

Pulmozyme® (dornase alfa) Inhalation Solution sales increased 12 percent to $138.1 million in 2002 as compared to $122.9 million in 2001.

Total Costs and Expenses

Costs and expenses increased as anticipated in 2002 as compared to 2001.

Research and development (R&D) expenses increased in 2002 to $623.5 million compared to $526.2 million in 2001. R&D expenses as a percent of revenues in 2002 were 23 percent, compared to 24 percent in 2001. R&D expenses as a percent of revenues are expected to continue to vary over the next several quarters dependent on possible in-licensing agreements and as products progress through late-stage clinical trials.

Primarily due to the increase in product sales, cost of sales increased to $441.6 million in 2002 from $354.5 million in 2001. Cost of sales as a percentage of product sales was 20 percent in 2002 and 2001.

Marketing, general and administrative (MG&A) expenses increased during 2002 to $573.3 million compared to $474.4 million in 2001 primarily due to increased promotional programs, pre-launch commercial activities, investment write downs and higher royalty expenses.

Collaboration profit-sharing expenses increased to $350.7 million in 2002 from $246.7 million in 2001. The increase was due primarily to increased Rituxan profit-sharing expense due to higher Rituxan sales.

Genentech, Inc. 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.

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Webcast:

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Wednesday, January 15, 2003 at 2:15pm 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 January 22, 2003. An audio replay of the webcast will be available beginning at 5:15pm PT on January 15, 2003 until 5:15pm PT January 22, 2003. Access numbers for this replay are: 1-800-642-1687 (domestic) and 1-706-645-9291 (international); passcode number is 6961386.

Genentech Business and Product Development Events in the Fourth Quarter, 2002 and early 2003

Marketed and Pipeline Product Events

Oncology

  • Herceptin® (Trastuzumab): With Roche announced preliminary positive results from a Phase III Herceptin and chemotherapy combination study at the San Antonio Breast Cancer Symposium. The study evaluated Herceptin, paclitaxel and carboplatin in first-line HER2 positive metastatic breast cancer patients.

  • Rituxan® (Rituximab): With partner IDEC Pharmaceuticals Corporation, announced the results of a study presented at the annual meeting of the American Society of Hematology (ASH) that examined the role of extended single-agent Rituxan therapy in patients with indolent non-Hodgkin's lymphoma (NHL). Nearly 200 abstracts related to Rituxan were presented at ASH.

Immunological Disease

  • Xolair™ (Omalizumab): With partner Novartis Pharmaceuticals Corporation, announced the submission of an amendment to the Biologics License Application (BLA) for Xolair to the Food and Drug Administration (FDA). The amendment addressed the FDA's requests outlined in a July 2001 Complete Response Letter.

  • Raptiva™ (Efalizumab): With partner XOMA Ltd., announced the BLA submission to the FDA for Raptiva.

  • Rituxan: With IDEC and Roche, announced at the Annual American College of Rheumatology (ACR) meeting preliminary positive interim results from a randomized, double-blind, placebo-controlled Phase II study examining the use of Rituxan in the treatment of rheumatoid arthritis (RA).

Cardiovascular Disease

  • TNKase™ (Tenecteplase): Announced at the American Heart Association (AHA) meeting that results from the ASSENT 3 PLUS trial demonstrated pre-hospital administration of TNKase™ to patients suffering from acute myocardial infarction (AMI, or heart attack) to be technically feasible and faster than in-hospital treatment.

Corporate Events

  • Announced that Genentech was named one of FORTUNE's "100 Best Companies to Work For" for the fifth consecutive year.

  • Genentech signed a collaboration with TolerRx to develop and commercialize licensed products, including TRX1, an anti-CD4 humanized monoclonal antibody designed to generate tolerogenic immune responses.

  • Genentech signed a collaboration with Lexicon Genetics for a three-year research alliance to discover the physiological function and potential medical use of high-priority genes identified through Genentech's drug discovery research program.

The statements made in this press release relating to the potential for multiple product launches over the next few years and future potential value for stockholders are forward-looking, and actual results could differ materially. Among other things, the number and timing of product launches could be affected by unexpected safety or manufacturing issues, poor efficacy results, slow enrollment in clinical studies or additional clinical studies, additional time requirements for data analysis, BLA preparation, or discussions with the FDA, FDA actions or delays, or failure to receive FDA approval; and Genentech's future potential value could be impacted by all of the foregoing as well as competition, pricing, costs of sales and R&D expenses.

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

                                                           Three Months Ended                Year Ended
                                                              December 31,                  December 31,
                                                        ------------------------      ------------------------
                                                           2002(1)       2001            2002(1)       2001(2)
                                                        ----------    ----------      ----------    ----------
Revenues:
   Product sales                                        $  611,765    $  492,036      $2,163,665    $1,742,897
   Royalties                                               113,090        71,346         365,550       264,475
   Contract and other                                       31,184         6,002          88,652        74,361
   Interest income                                          22,274        30,772         101,379       130,544
                                                        ----------    ----------      ----------    ----------
      Total revenues                                       778,313       600,156       2,719,246     2,212,277

Costs and expenses:
   Cost of sales                                           119,838        98,428         441,630       354,442
   Research and development                                185,210       138,247         623,482       526,230
   Marketing, general and administrative                   177,332       129,325         573,289       474,410
   Collaboration profit sharing                            104,510        76,581         350,725       246,657
   Recurring charges related to redemption                  38,928        79,404         155,713       321,816
   Special charges: Litigation-related                      13,394             -         543,905             -
   Interest expense                                              -         1,182             753         5,736
                                                        ----------    ----------      ----------    ----------
      Total costs and expenses                             639,212       523,167       2,689,497     1,929,291

Income before taxes and cumulative effect of
   accounting change                                       139,101        76,989          29,749       282,986
Income tax provision (benefit)                              46,274        34,892         (34,038)      127,112
                                                        ----------    ----------      ----------    ----------
Income before cumulative effect of accounting change        92,827        42,097          63,787       155,874
Cumulative effect of accounting change, net of tax               -             -               -        (5,638)
                                                        ----------    ----------      ----------    ----------
Net income                                              $   92,827    $   42,097      $   63,787    $  150,236
                                                        ==========    ==========      ==========    ==========

Earnings per share:
    Basic: Earnings before cumulative effect of
             accounting change                          $     0.18    $     0.08      $     0.12    $     0.30
           Cumulative effect of accounting change,
             net of tax                                          -             -               -         (0.01)
                                                        ----------    ----------      ----------    ----------
           Net earnings per share                       $     0.18    $     0.08      $     0.12    $     0.29
                                                        ==========    ==========      ==========    ==========

  Diluted: Earnings before cumulative effect of 
             accounting change                          $     0.18    $     0.08      $     0.12    $     0.29
           Cumulative effect of accounting change,
             net of tax                                          -             -               -         (0.01)
                                                        ----------    ----------      ----------    ----------
           Net earnings per share                       $     0.18    $     0.08      $     0.12    $     0.28
                                                        ==========    ==========      ==========    ==========

Weighted average shares used to compute earnings
   per share:
   Basic                                                   514,156       527,955         519,192       527,022
                                                        ==========    ==========      ==========    ==========
   Diluted                                                 518,976       536,861         524,408       535,291
                                                        ==========    ==========      ==========    ==========

(1) 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 income increased by approximately $39.4 million, net of tax, (or $0.08 per share) in Q4 2002 and reported net income increased by approximately $157.6 million, net of tax, (or $0.30 per share) for the year ended December 31, 2002, due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset.

(2) 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 was not material.

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

                                                Three Months Ended                      Three Months Ended
                                                 December 31, 2002                       December 31, 2001
                                            ----------------------------------     ---------------------------------
                                                        Pro Forma                              Pro Forma
                                            Actual(1)  Adjustments   Pro Forma(2)   Actual    Adjustments   Pro Forma(2)
                                            --------   -----------   ---------     --------   -----------   ---------
Revenues:
   Product sales                            $611,765                  $611,765     $492,036                  $492,036
   Royalties                                 113,090                   113,090       71,346                    71,346
   Contract and other                         31,184                    31,184        6,002                     6,002
   Interest income                            22,274                    22,274       30,772                    30,772
                                            --------   -----------   ---------     --------   -----------   ---------
      Total revenues                         778,313                   778,313      600,156                   600,156

Costs and expenses:
   Cost of sales                             119,838                   119,838       98,428                    98,428
   Research and development                  185,210                   185,210      138,247                   138,247
   Marketing, general and administrative     177,332                   177,332      129,325                   129,325
   Collaboration profit sharing              104,510                   104,510       76,581                    76,581
   Recurring charges related to redemption    38,928   $   (38,928)(3)       -       79,404   $   (79,404)(5)       -
   Special charges: Litigation-related        13,394       (13,394)(4)       -            -                         -
   Interest expense                                -                         -        1,182                     1,182
                                            --------   -----------   ---------     --------   -----------   ---------
      Total costs and expenses               639,212       (52,322)    586,890      523,167       (79,404)    443,763

Income before taxes                          139,101        52,322     191,423       76,989        79,404     156,393
Income tax provision                          46,274        20,929      67,203       34,892        15,153      50,045
                                            --------   -----------   ---------     --------   -----------   ---------
Net income                                  $ 92,827   $    31,393    $124,220     $ 42,097   $    64,251   $ 106,348
                                            ========   ===========   =========     ========   ===========   =========
Earnings per share:
   Basic                                    $   0.18   $      0.06   $    0.24     $   0.08   $      0.12   $    0.20
                                            ========   ===========   =========     ========   ===========   =========
   Diluted                                  $   0.18   $      0.06   $    0.24     $   0.08   $      0.12   $    0.20
                                            ========   ===========   =========     ========   ===========   =========

Weighted average shares used to compute
   earnings per share:
   Basic                                     514,156       514,156     514,156      527,955       527,955     527,955
                                            ========   ===========   =========     ========   ===========   =========
   Diluted                                   518,976       518,976     518,976      536,861       536,861     536,861
                                            ========   ===========   =========     ========   ===========   =========

(1) 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 income increased by approximately $39.4 million, net of tax, (or $0.08 per share) in Q4 2002 due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset.

(2) Pro Forma amounts exclude litigation-related special charges in Q4 2002 and recurring charges related to the 1999 redemption of Genentech's Special Common Stock.

(3) Amount represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(4) Amount represents accrued interest expense on the City of Hope judgment recorded in Q2 2002 and amortization of service fees for posting the related bond.

(5) Amount represents the amortization of goodwill, trained and assembled workforce and other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

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

                                                     Year Ended                              Year Ended
                                                 December 31, 2002                        December 31, 2001
                                       -------------------------------------    --------------------------------------
                                                     Pro Forma                                 Pro Forma
                                        Actual(1)  Adjustments     Pro Forma(3)  Actual(2)    Adjustments    Pro Forma(3)
                                       ----------   -----------   ----------    ----------   ------------   ----------
Revenues:
   Product sales                       $2,163,665                 $2,163,665    $1,742,897                  $1,742,897
   Royalties                              365,550                    365,550       264,475                     264,475
   Contract and other                      88,652                     88,652        74,361   $    (10,004)(2)   64,357
   Interest income                        101,379                    101,379       130,544                     130,544
                                       ----------   -----------   ----------    ----------   ------------   ----------
      Total revenues                    2,719,246                  2,719,246     2,212,277        (10,004)   2,202,273
Costs and expenses:
   Cost of sales                          441,630                    441,630       354,442                     354,442
   Research and development               623,482                    623,482       526,230                     526,230
   Marketing, general and 
      administrative                      573,289                    573,289       474,410                     474,410
   Collaboration profit sharing           350,725                    350,725       246,657                     246,657
   Recurring charges related to
      redemption                          155,713   $  (155,713)(4)        -       321,816       (321,816)(6)        -
   Special charges: Litigation-related    543,905      (543,905)(5)        -             -                           -
   Interest expense                           753                        753         5,736                       5,736
                                       ----------   -----------   ----------    ----------   ------------   ----------
      Total costs and expenses          2,689,497      (699,618)   1,989,879     1,929,291       (321,816)   1,607,475
Income before taxes and cumulative
   effect of accounting change             29,749       699,618      729,367       282,986        311,812      594,798
Income tax (benefit) provision            (34,038)      279,835      245,797       127,112         63,223      190,335
                                       ----------   -----------   ----------    ----------   ------------   ----------
Income before cumulative effect of
   accounting change                       63,787       419,783      483,570       155,874        248,589      404,463
Cumulative effect of accounting
   change, net of tax                           -                          -        (5,638)         5,638(2)         -
                                       ----------   -----------   ----------    ----------   ------------   ----------
Net income                             $   63,787   $   419,783   $  483,570    $  150,236   $    254,227   $  404,463
                                       ==========   ===========   ==========    ==========   ============   ==========
Earnings per share:
    Basic: Earnings before cumulative
             effect of accounting
             change                    $     0.12   $      0.81   $     0.93   $      0.30   $       0.47   $     0.77
           Cumulative effect of
             accounting change,
             net of tax                         -             -            -         (0.01)          0.01            -
                                       ----------   -----------   ----------    ----------   ------------   ----------
           Net earnings per share      $     0.12   $      0.81   $     0.93    $     0.29   $       0.48   $     0.77
                                       ==========   ===========   ==========    ==========   ============   ==========
  Diluted: Earnings before cumulative
             effect of accounting
             change                    $     0.12   $      0.80   $     0.92   $      0.29   $       0.47   $     0.76
           Cumulative effect of
             accounting change,
             net of tax                         -             -            -         (0.01)          0.01            -
                                       ----------   -----------   ----------    ----------   ------------   ----------
           Net earnings per share      $     0.12   $      0.80   $     0.92    $     0.28   $       0.48   $     0.76
                                       ==========   ===========   ==========    ==========   ============   ==========
Weighted average shares used to
   compute earnings per share:
   Basic                                  519,192       519,192      519,192       527,022        527,022      527,022
                                       ==========   ===========   ==========    ==========   ============   ==========
   Diluted                                524,408       524,408      524,408       535,291        535,291      535,291
                                       ==========   ===========   ==========    ==========   ============   ==========

(1) 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 income increased by approximately $157.6 million, net of tax, (or $0.30 per share) for the year ended December 31, 2002, due to the cessation of goodwill amortization and the amortization of our trained and assembled workforce intangible asset.

(2) 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 was not material.

(3) Pro Forma amounts exclude litigation-related special charges in 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 FAS 133 on Accounting for Derivative Instruments and Hedging Activities in Q1 2001.

(4) Amount represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(5) Amount represents the City of Hope judgment, including accrued interest and amortization of service fees for posting the related bond, and other litigation-related matters.

(6) Amount represents the amortization of goodwill, trained and assembled workforce and other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

GENENTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

                                                                   December 31,
                                                         --------------------------------
                                                            2002                  2001
                                                         ----------            ----------
Selected balance sheet data:
Cash, cash equivalents and short-term investments        $1,034,572            $1,348,078
Accounts receivable                                         418,481               315,340
Inventories                                                 393,542               356,946
Long-term marketable securities                             524,014             1,468,450
Property, plant and equipment, net                        1,068,734               865,668
Goodwill                                                  1,334,219             1,302,493
Other intangible assets                                     927,538             1,113,299
Other long-term assets                                      840,030(1)            175,585
Total assets                                              6,777,319             7,146,890
Total current liabilities                                   646,660               663,798
Total liabilities                                         1,438,435             1,227,071
Total stockholders' equity                                5,338,884             5,919,819

Year-ended:
Capital expenditures                                     $  322,832            $  213,351
Pro forma depreciation and amortization expense             119,243               110,477

(1) Includes $630.0 million of restricted cash pledged to secure a bond for the City of Hope judgment.