Friday, Mar 4, 2005

Genentech Announces Strategic Updates at Investment Meeting

Company Anticipates Potential FDA Filings in Multiple Phase III Trials

South San Francisco, Calif. -- March 4, 2005 --

Genentech, Inc. (NYSE: DNA) today presented an overview of its strategy and financial goals for 2005 and beyond at its investment community meeting in New York. In addition, the company provided investors with an overview of recent developments, including highlights from its research, product development, commercial and manufacturing efforts. Genentech's Chairman and Chief Executive Officer Arthur D. Levinson, Ph.D. and other senior company executives presented at today's meeting.

"We recently completed an outstanding year of growth in 2004 and are well positioned for growth in 2005 and beyond," said Levinson. "Scientific research is our foundation and our future. We continue to build upon our strength in biology to find novel approaches to some of the most difficult medical challenges. "

Financial Goals and Targets
"We continue our focus on building both long- and short-term growth by investing in our research and development and product launches, while at the same time increasing our earnings," said Louis J. Lavigne, Jr., Genentech's executive vice president and chief financial officer (CFO). As previously announced, Lavigne is retiring after this meeting. Incoming CFO David Ebersman reaffirmed that for 2005, Genentech currently expects to deliver year-over-year non-GAAP EPS growth of greater than 25 percent (1). For the years 2006 through 2010, Genentech's target is for annual non-GAAP EPS growth to average 20 percent per year (1).

Commercial Strength
"We are proud to have successfully launched four products in a 16-month period, while also growing all of the products in our portfolio in 2004 compared to 2003," said Ian T. Clark, senior vice president and general manager, BioOncology. "In the next three years, Genentech could potentially introduce multiple new products or indications in significant growth markets."

The company discussed its upcoming milestones for 2005. The commercial organization has begun market preparation for potential product and line extension launches. Results from the Phase III Eastern Cooperative Oncology Group (ECOG) 4599 study of Avastin™ (bevacizumab) in first-line non-small cell lung cancer (NSCLC) are expected this year, and results from the Phase III ECOG 2100 study in first-line metastatic breast cancer are expected in 2005 or early 2006. Also within the BioOncology business, Genentech expects to file supplemental Biologics License Applications for Rituxan® (Rituximab) in front-line aggressive non-Hodgkin's lymphoma (NHL) this year and for Rituxan in indolent NHL maintenance in the first half of 2006. Genentech's collaborator, OSI Pharmaceuticals, Inc. (Nasdaq: OSIP), expects to file a supplemental New Drug Application for Tarceva™ (erlotinib) in pancreatic cancer in the second quarter of this year.

In the immunology business, Genentech expects results from its Phase III REFLEX study of Rituxan in rheumatoid arthritis in the first half of this year. The company expects results from its FOCUS and Phase III MARINA studies of Lucentis for wet age-related macular degeneration in the second quarter, and from its Phase III ANCHOR study in the fourth quarter of this year. The company also anticipates launching a liquid formulation of Xolair® (Omalizumab) in 2007.

Product Portfolio
"Our understanding of the biology underlying various disease states is more sophisticated than ever before," said Susan D. Hellmann, M.D., M.P.H., president, Product Development. "We are advancing new molecules and new approaches that leverage this expertise."

The next steps for Avastin development include additional studies in a variety of indications, as well as an early-stage program in combination with other targeted therapies. In addition to Phase III studies in NSCLC and metastatic breast cancer, extensive studies are also ongoing with Avastin plus chemotherapy in renal cell, pancreatic and ovarian cancers.

Genentech continues to build on Tarceva's potential to be a leading oncology product. The company indicated that it would work to improve its understanding of the biology of epidermal growth factor receptor (EGFR) in various forms of human cancer. It also announced that it added Tarceva for NSCLC in the adjuvant setting to its development pipeline.

A broad anti-CD20 program is an important component of Genentech's immunology strategy. The company will present Phase III data in the first half of this year for Rituxan in rheumatoid arthritis patients who previously failed or did not respond to anti-TNF alpha therapies. Rituxan is also being studied in multiple sclerosis, lupus, ulcerative colitis, and ANCA-associated vasculitis. The company is also moving forward with a Phase II study of a humanized anti-CD20 antibody in development for rheumatoid arthritis.

Research
"Basic science discoveries of the last few decades provide unparalleled opportunities in the life sciences. As one of the world's top biomedical research organizations, we are excited to explore the implications for drug discovery and development," said Richard Scheller, Ph.D., executive vice president, Research. "There is great potential to translate the important advances in basic science into breakthrough medicines for unmet medical needs."

Genentech believes that diagnostics are one key to efficient and effective drug development. Diagnostics can help guide clinical development by accelerating and increasing the probability of success for drug candidates. More importantly, diagnostics have the potential to help ensure that only those patients who could benefit from a particular drug will receive that drug.

Genentech researchers are working on a broad range of cancer therapeutics. They are looking at ways to augment Avastin by using other biologics to target tumor vasculature. In addition, Genentech researchers are targeting tumor life and death pathways to activate cell death (apoptosis) pathways and block cell survival and cell proliferation pathways. The company's systematic targeting of key cancer pathways includes extensive research into protein and antibody therapeutics for targets outside cells as well as expansion of small molecule drug discovery efforts for targets inside cells.

Genentech researchers are also making great strides in the understanding of immunological disorders. Unprecedented attention is now focused on the cellular components of human diseases, with research efforts built on broad B-cell and T-cell therapeutic platforms.

The company exceeded its research and development goals in 2004 by moving six molecules into developmental research and six molecules into clinical development. For 2005, Genentech has set a goal of moving six molecules into developmental research and has already moved two so far this year. The company has set a goal of moving three molecules into clinical development this year and has already moved one oncology molecule which will be discussed upon finalization of development plans.

Product Operations
Genentech continues to make progress in its four strategies to increase bulk production: increasing output from existing facilities, adding new facilities, working with contract manufacturers and collaborators, and improving process yields. Genentech has begun using material from its facility in Porrino, Spain for clinical trials and is currently working towards licensure of commercial material from that facility. The company anticipates receiving that authorization by 2006.

Progress on 5x5 Plan
Genentech expects to exceed its 5x5 goal of 25 percent average annual non-GAAP EPS growth for 1999 through 2005. From 1999 to 2004, the average annual non-GAAP EPS growth rate has been 29 percent. From 1999 to 2004, the average annual GAAP EPS growth rate has been 69 percent (2). For 2005 the company is currently expecting year-over-year non-GAAP EPS growth of greater than 25 percent (1).

The goal of 25 percent non-GAAP net income as a percentage of operating revenues remains a significant challenge that will be difficult to meet due to the success of Rituxan and the associated profit split. For 2004, the non-GAAP net income as a percentage of revenues was 19 percent. For 2004, the GAAP net income as a percentage of revenues was 17 percent (2).

Genentech has already exceeded its 5x5 goal of five new products or indications approved, with nine products or indications approved since 1999: Nutropin Depot® [somatropin (rDNA origin) for injectable suspension] (1999), TNKase™ (Tenecteplase) (2000), Cathflo Activase® (Alteplase) (2001), Nutropin AQ Pen® (2002), Xolair (2003), RAPTIVA® (efalizumab) (2003), Avastin (2004), Tarceva (2004), and Cathflo Activase for catheter clearance in pediatric patients (2005).

Genentech is well positioned to exceed its 5x5 goal of five significant products in late-stage development.

The company expects to have substantive revenue progress but achieving the goal of $500 million in new revenues from strategic alliances or acquisitions is uncertain since the company has changed its strategic focus to pursue earlier stage opportunities. Importantly, due to its focus on earlier-stage opportunities, Genentech has entered into more than 50 significant agreements and in-licensing agreements since 1999 which positions it well for future growth prospects.

Horizon 2010
Genentech's vision for Horizon 2010 is to become a leader in revolutionizing the treatment of patients with cancer, immunological diseases and angiogenic disorders. The company's long-term business objectives are reflected in its Horizon 2010 strategy and goals as follows:

  • To aim to become the number one U.S. oncology company in sales by 2010.
  • To position ourselves for continued leadership in the oncology business by bringing at least five new oncology products or indications into clinical development and into the market by 2010.
  • To build a leading immunology business by expanding the fundamental understanding of immune disorders, and bringing at least five new immunology products or indications into clinical development and onto the market by 2010.
  • To increase our 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 more new projects into clinical development by 2010.
  • To achieve average annual non-GAAP EPS growth rates through 2010 sufficient to be considered a growth company.

Webcast
Genentech will be offering an archived webcast of the investment community meeting on its Website at http://www.gene.com. The webcast will be archived and available for replay until 8:00 p.m. Eastern Time on March 18, 2005.

About Genentech
Genentech is a leading biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs. A considerable number of the currently approved biotechnology products originated from, or are based on, Genentech science. Genentech manufactures and commercializes multiple biotechnology products directly in the United States, and receives royalties or other income from companies that are licensed to market its products outside of 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 http://www.gene.com.

The press release contains forward-looking statements related to adding six molecules into research and three molecules into clinical development; introducing multiple new products or indications in the next three years; bringing five potential oncology and immunology products or indications into clinical development and to the market by 2010; having five significant products in late-stage clinical development by the end of 2005; the potential of Tarceva to be a leading oncology product; the timing of data availability for Avastin Phase III trials in non small cell lung cancer and metastatic breast cancer, Lucentis Phase III trials for wet age-related macular degeneration and the Rituxan Phase III trial in rheumatoid arthritis; the timeframe for filing an sBLA for Rituxan in front-line aggressive non-Hodgkin's lymphoma (NHL) and indolent NHL maintenance and an NDA for Tarceva in pancreatic cancer; the timing of launching a liquid formulation of Xolair and for licensure of the Porrino facility for commercial production; becoming the number one U.S. oncology company in sales and building a leading immunology business; substantive revenue progress and long- and short-term growth, including targeted EPS growth. Actual results could differ materially. Among other things, adding programs into research and clinical development, the timing of data availability, regulatory filings, Porrino licensure, and bringing potential products/indications to market could be affected 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 a leader in oncology sales, building an immunology business and the potential for Tarceva to be a leading oncology product could be impacted by competition, pricing, reimbursement, the ability to supply product, product withdrawals, new product approvals and launches; and expected growth, including targeted EPS 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. Genentech disclaims any obligation, and does not undertake to, update or revise any forward-looking statements in this press release.

(1) Our 2005 year-over-year GAAP EPS growth rate and our annual GAAP EPS growth rate per year for the period 2006-2010 are 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 and litigation related charges. On a GAAP basis, these recurring charges and litigation charges are estimated to range from approximately $137 million in 2005 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.

(2) The 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.