Friday, Mar 12, 2004

Genentech Announces Long-Term Strategy and Financial Goals

South San Francisco, Calif. -- March 12, 2004 --

Genentech, Inc. (NYSE: DNA) today provided an overview of its long-range strategy, called Horizon 2010, and financial expectations for 2004 at its investment community meeting in New York. Building upon the company's ongoing 5x5 plan, which lasts through 2005, Genentech outlined its vision and goals for continuing to create sustainable, long-term growth in stockholder value through 2010. In addition, the company provided investors with an overview of recent developments, including highlights from its extensive research, development, manufacturing and commercial efforts. Genentech's Chairman and Chief Executive Officer Arthur D. Levinson, Ph.D., and other senior executives presented at today's meeting.

"Genentech has developed a comprehensive plan for the rest of the decade, which positions us to provide sound and consistent growth for the future," said Levinson. "Translating science into successful product development and commercialization takes significant effort and planning throughout all areas of the company."

Genentech's vision for Horizon 2010 is to become a leader in revolutionizing the treatment of patients with cancer, immunological diseases and angiogenic disorders. Horizon 2010 includes the following specific goals:

  • To aim to become the number one U.S. oncology company in sales by 2010.
  • To position itself for continued leadership in its oncology franchise by bringing five new oncology products or indications for existing products into clinical development and into the market.
  • To build a leading immunology franchise by expanding the fundamental understanding of immune disorders, bringing at least five new immunology products or indications into clinical development, and obtaining U.S. Food and Drug Administration (FDA) approval of at least five new indications or products by 2010.
  • To increase its leadership in developing biotherapeutics for disorders of tissue growth and repair, with a major focus on angiogenic disorders, and to move at least three new projects into late-stage research or developmental research and three or more new projects into clinical development by 2010.
  • To achieve average annual EPS growth rates sufficient to be considered a growth company.

Focus on Growth
At the meeting, Genentech said it has made steady progress towards its current 5x5 goals, which are the five goals that the company outlined in 1999 to achieve by the end of 2005. Levinson stated that the company's highest priority is to meet the 5x5 non-GAAP EPS growth target while ensuring that Genentech leaves 2005 with continued strong prospects for growth on a higher revenue base.

The 5x5 goals include:
1. 25 percent average annual non-GAAP EPS growth Status: From 1999 to 2003, the average annual non-GAAP EPS growth rate has been 28 percent1. Genentech remains comfortable that it will meet or exceed this goal through 2005.

2. 25 percent non-GAAP net income as a percentage of revenues Status: For 2003, the non-GAAP net income as a percentage of revenues was 19.2 percent(1). We continue to improve our operating margin, although given the importance of Rituxan® (Rituximab) to the overall numbers and the associated profit split, as well as our need to continue to develop new innovative products for the pipeline, the financial productivity goal of 25 percent of revenues as net income remains a significant challenge that will probably not be met.

3. $500 million in new revenue from alliances and/or acquisitions Status: The 5x5 goal of $500 million in incremental revenue due to new alliances will probably not be met, but importantly, due to the focus on earlier stage opportunities, Genentech has entered into approximately 40 significant agreements and in-licensing deals since 1999.

4. Five new products or indications approved Status: We have already exceeded this 5x5 goal with seven products or indications approved since 1999.

5. Five significant products in late stage clinical trials Status: In 2003, Genentech entered more than 10 different projects into the development pipeline, with two of the projects being new molecular entities. Our development pipeline remains rich and diverse, with over 30 projects currently in various phases of clinical development, which positions us well to exceed our goal of five significant products in late-stage clinical development by the end of 2005.

Financial Expectations and Goals
"Genentech is focused on delivering on its most important 5x5 goals while positioning ourselves for sound and consistent growth going forward," stated Louis J. Lavigne, Jr., executive vice president and chief financial officer. "At the same time, we are working towards building both short- and long-term value by investing in both our product launches and in increasing our R&D investment for future potential growth."

For 2004, Genentech currently expects a minimum of 20 percent annual non-GAAP EPS growth year-over-year. For 2005, the company's goal is for a minimum annual non-GAAP EPS growth rate of 20 percent over 2004 expectations. For the years 2006 through 2010, Genentech's goal is for annual non-GAAP EPS growth to average 20 percent per year over this period(2).

Commercial Strength
Genentech informed investors it will be focusing on the recent multiple product launches of Avastin™ (bevacizumab), RAPTIVA™ (efalizumab) and Xolair® (Omalizumab), as well as potential future launches of new indications and/or products, which will contribute to delivering the near-term and Horizon 2010 goals. Rituxan is the number one anti-tumor product in the United States and the number two anti-tumor product in the world (in terms of sales). Herceptin® (Trastuzumab) is the number seven anti-tumor product in the United States and the number nine in the world.

The company said its future sales growth would be dependent on increasing market penetration for labeled indications and developing new markets for its existing products, as well as commercializing potential new therapies in oncology, immunological disease, vascular medicine and other areas of high unmet need. "Genentech's disciplined, scientific approach to commercializing our products has allowed us to launch three new products in nine months, while continuing to grow our established products," said Myrtle S. Potter, president, Commercial Operations. "Our balanced product portfolio and focus on strategy and execution positions us to deliver our near-term and long-term growth objectives."

The Commercial organization identified the key commercial capabilities that will position the company to achieve its Horizon 2010 goals. Genentech is focused on building new markets by introducing first-in-class products and educating the medical community on new therapeutic protocols. Genentech has executed successfully with its consultative selling model, and is supporting its marketing and sales organizations with tools and real-time data to allow for enhanced decision-making.

Successful Product Launches
The Avastin launch is the fastest launch in Genentech's history and is one of the fastest launches in biotech and pharmaceutical history. The drug received FDA approval on Thursday, February 26, 2004, and Genentech shipped product to wholesalers within hours of approval on the same day. On Monday, March 1, the first patient was treated with newly approved, commercial Avastin.

Genentech also successfully introduced Xolair into the asthma market, with $25 million in product sales in the first five months on the market. In 2003, prescribers submitted more than 10,500 cases for drug treatment. By the end of 2003, more than 3,300 physicians, or approximately 30 percent of the target physician audience, were prescribing Xolair. Xolair's target patient population of 500,000 continues to offer significant growth opportunity for Genentech.

Also in 2003, Genentech successfully introduced RAPTIVA into the competitive psoriasis market. The company is seeing a positive trend of acceptance of biologics for the treatment of psoriasis. Amongst the biologics, RAPTIVA is performing well, and the company is seeing the conversion of statements of medical necessity (SMNs) to drug shipments, indicating a positive reimbursement trend. The RAPTIVA sales force has focused on the early adoption of its target prescriber base. Since launch, Genentech has been able to reach more than 18 percent of its target prescriber base. In addition, monthly SMNs have increased from 440 in November of 2003 to 1,300 in January of 2004.

Expanding the Product Portfolio
Genentech also provided investors with an update on its robust and diverse product pipeline. Susan Desmond-Hellmann, M.D., M.P.H., president, Product Development, reported, "At Genentech, we are rewriting the medical textbooks with our first-in-class therapies. We are focused on sustaining innovation, creativity, productivity and momentum in our pipeline to move us towards our product development goals for Horizon 2010."

Genentech has a broad and diverse clinical pipeline with more than 30 ongoing projects, 25 of which are in Phase II or Phase III clinical trials. In the first quarter of 2004, working in collaboration with Curis, Inc., Genentech added a new molecule to its early-stage pipeline, G-024856, an inhibitor of the Hedgehog signaling pathway. Genentech is exploring an initial indication in basal cell carcinoma, a form of skin cancer. The company has data showing activity in a variety of pre-clinical models in basal cell carcinoma. Abnormal activation of the Hedgehog signaling pathway also has been implicated in the progression of several other cancers, including small cell lung cancer, gastric tumors and medulloblastoma. In June 2003, Genentech licensed G-024856 from Curis.

The next steps for Avastin development include additional studies in colorectal cancer in first-line metastatic colorectal cancer with oxaliplatin, as well as plans to initiate exploratory combinations with Erbitux™ (Cetuximab), Omnitarg™ (Pertuzmab) and other biologic compounds. Genentech is pursuing a late-stage clinical development program with Avastin, evaluating its potential use in adjuvant colorectal cancer, renal cell (kidney), breast, pancreatic and non-small cell lung cancers. Avastin is also being evaluated in earlier stage trials as a potential therapy in pancreatic, prostate, ovarian, melanoma and several types of blood cancers.

With the success of the Xolair and RAPTIVA launches in 2003, Genentech has established a strong foundation towards its Horizon 2010 goal of building a leading immunology franchise. Genentech scientists have expanded our understanding of the role that B-cells play in a variety of autoimmune diseases and have expertise in developing targeted therapies for B-cell mediated diseases that involve both B-cell depletion and modulation. Based on positive preliminary results from studies of Rituxan in rheumatoid arthritis, as well as several other small investigator-sponsored studies in various autoimmune mediated diseases, Genentech has advanced Rituxan into clinical development for a number of indications, including multiple sclerosis, systemic lupus erythematosis and ANCA-associated vasculitis.

Genentech is also building its leadership in biotherapeutics for angiogenic disorders, evaluating Lucentis™ (ranibizumab) in patients with age-related macular degeneration, VEGF (vascular endothelial growth factor) in patients with impaired wound healing, and Avastin for diseases outside of oncology.

Keeping the Pipeline Full
"Genentech has a robust and diverse research portfolio to maintain the current momentum of our pipeline into 2010," reported Richard H. Scheller, Ph.D., executive vice president, Research. "We are focused on letting the science lead us to therapies that can be developed in the clinic and will improve health and extend lives."

The goals for research in 2004 are to move two programs into clinical development, to move six molecules into developmental research and to identify several genes as therapeutic candidates from Genentech's Genomics Program.

Genentech's research organization is focused on cancer, immunology and vascular medicine -- integrating efforts across research and development to approach multiple therapeutic targets. Genentech reported that it is studying a variety of approaches to molecular oncology, including signaling pathways such as anti-angiogenesis, apoptosis and B-cell oncology.

Genentech currently has a large number of candidates in late-stage research for development decisions in 2004 and 2005, and the company provided details on its approach to research and focus areas that support Horizon 2010 goals. Genentech is taking a strategic approach to its immunology portfolio by applying a platform of therapies, such as modulating B-cells, to a spectrum of unmet medical needs.

Genentech is a leading biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs. Eighteen of the currently approved biotechnology products originated from or are based on Genentech science. Genentech manufactures and commercializes 13 biotechnology products 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. For additional information about the company, please visit

This press release contains forward-looking statements relating to adding two programs into clinical development and six molecules into developmental research by 2004, adding at least three new projects for angiogenic disorders into late-stage/developmental research and at least three into clinical development by 2010, adding five new oncology products/indications and five new immunology products/indications into clinical development and into the market by 2010, having five significant products in late-state clinical development by the end of 2005, initiating clinical studies in Avastin with oxaliplatin, becoming number one in U.S. oncology sales and building a leading immunology franchise by 2010 and expected near-term and long-term growth, including EPS growth. Actual results could differ materially. Among other things, adding programs into developmental research and clinical development, initiating clinical studies and bringing products/indications to market could be impacted by a number of factors, including safety, efficacy or manufacturing issues, time requirements for data analysis and decision making, FDA actions or delays or failure to receive FDA approval; becoming number one in oncology sales and building a leading immunology franchise could be impacted by competition, pricing, reimbursement, the ability to supply product, product withdrawals, new product approvals and launches; and expected growth could be affected by all of the foregoing and a number of other factors, including achieving sales revenue consistent with internal forecasts, unanticipated expenses such as litigation or legal settlement expenses or equity securities writedowns, costs of sales, R&D expenses, fluctuations in contract revenues and royalties, and fluctuations in tax and interest rates.

An archive of the audio webcast of Genentech's investment community meeting in New York can be accessed on Genentech's website at starting at 8:00 p.m. Eastern Time on March 12, 2004. The archived webcast will be available for replay until 8:00 p.m. Eastern Time on March 26, 2004.

(1) From 1999 to 2003, the average annual GAAP EPS growth rate has been 75 percent. For 2003, the GAAP net income as a percentage of revenues was 17 percent. The corresponding non-GAAP financial measures exclude recurring charges related to the 1999 redemption of our stock by Roche, special litigation related charges and the cumulative effects of changes in accounting principles.

(2) The annual GAAP EPS growth rate year-over-year for the period 2005-2010 is not estimable on a forward-looking basis. The GAAP EPS estimates for this time period would include recurring charges related to the 1999 redemption of our stock by Roche and the related taxes. On a GAAP basis, these recurring charges are estimated to range from approximately $145 million in 2004 to approximately $7 million in 2010. The non-GAAP EPS growth rate estimates do not include these redemption related charges or other potential special charges related to existing or future litigation or its resolution, or changes in accounting principles, all of which may be significant.