Biotech Values

[DewDiligence]

DNA Reports 2Q07 Results

[Avastin +33% Y-o-Y, is now selling at a $2.3B annual run rate, becoming only the second "targeted" cancer drug (along with Rituxan) to exceed the $2B threshold. It seems that the more black-box warnings Avastin gets, the more the sales go up. Rituxan and Herceptin increased modestly Y-o-Y. Lucentis (which has no meaningful Y-o-Y comparison) declined by 2% relative to 1Q07.]

http://biz.yahoo.com/bw/070711/20070711006021.html?.v=1

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Wednesday July 11, 4:03 pm ET

Quarterly Operating Revenues Reach $3 Billion

SOUTH SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Genentech, Inc. (NYSE: DNA ) today announced financial results for the second quarter of 2007. Key results for the second quarter of 2007 include:

• U.S. product sales of $2,149 million, a 25 percent increase over U.S. product sales of $1,716 million in the second quarter of 2006.
• Operating revenues of $3,004 million, a 37 percent increase over operating revenues of $2,199 million in the second quarter of 2006.
• Non-GAAP net income increase of 39 percent to $834 million from $602 million in the second quarter of 2006(1); GAAP net income increase of 41 percent to $747 million from $531 million reported for the second quarter of 2006.
• Non-GAAP earnings per share increase of 39 percent to $0.78 per share from $0.56 per share in the second quarter of 2006(1); GAAP earnings per share increase of 43 percent to $0.70 per share from $0.49 per share reported for the second quarter of 2006.

…The company announced that it currently expects 28 to 32 percent growth in non-GAAP earnings per share for the full year 2007, relative to 2006, for a range of $2.85 to $2.95.(1)

Product Sales and Royalty Items

Product sales for the three months ended June 30, 2007 are provided in the following table (dollars in millions).

Three months
Ended June 30,
---------------------------------------------- ============== --------
2007 2006 % Change
---------------------------------------------- ======= ====== ========
Net U.S.
product sales
----------------------------------------------------------------------
Rituxan(R) $582 $526 11%
---------------------------------------------- ------- ------ --------
Avastin(R) + 564 423 33
---------------------------------------------- ------- ------ --------
Herceptin(R) 329 320 3
---------------------------------------------- ------- ------ --------
Lucentis(R) 209 10 ++
---------------------------------------------- ------- ------ --------
Xolair(R) 120 105 14
---------------------------------------------- ------- ------ --------
Tarceva(R) 102 103 (1)
---------------------------------------------- ------- ------ --------
Nutropin(R) Products 94 98 (4)
---------------------------------------------- ------- ------ --------
Thrombolytics 67 62 8
---------------------------------------------- ------- ------ --------
Pulmozyme(R) 55 47 17
---------------------------------------------- ------- ------ --------
Raptiva(R) 27 22 23
---------------------------------------------- ------- ------ --------
---------------------------------------------- -------------- --------
Total U.S.
product sales +++ 2,149 1,716 25
---------------------------------------------- ------- ------ --------
---------------------------------------------- -------------- --------

Net product
sales to collaborators 294 94 213
---------------------------------------------- ------- ------ --------
Total
product sales +++ $2,443 $1,810 35%
---------------------------------------------- ------- ------ --------

+ Second quarter 2007 Avastin U.S. product sales results include an immaterial net deferral in conjunction with the company's Avastin Patient Assistance Program which was launched in February 2007.
++ Calculation not meaningful.
+++ Amounts may not sum due to rounding.

Royalty revenues of $484 million in the second quarter of 2007 included approximately $65 million in one-time revenues related to a new collaboration agreement. As part of this new agreement, three years' worth of future royalty revenues were accelerated to the second quarter of 2007. The new agreement also included an up-front license cost of an approximately equal amount, which Genentech recorded as R&D expense, so overall the transaction had no material earnings per share impact for the quarter.

Total Costs and Expenses

Information on costs and expenses for the three months ended June 30, 2007, is provided in the accompanying tables. Key cost and expense highlights include the following:

• Cost of sales (COS), on a non-GAAP basis, increased 45 percent to $413 million, from $284 million in the second quarter of 2006.(2) Non-GAAP COS as a percentage of product sales was 17 percent, compared to 16 percent for the second quarter of 2006. On a GAAP basis, COS increased 51 percent to $429 million, including employee stock-based compensation expense of $16 million. GAAP COS for the second quarter of 2007 was 18 percent of product sales, compared to 16 percent in the second quarter of 2006.
• Research and development (R&D) expenses, on a non-GAAP basis, increased 58 percent to $564 million, from $356 million in the second quarter of 2006.(2) Non-GAAP R&D expenses as a percentage of operating revenues were 19 percent, compared to 16 percent for the second quarter of 2006. On a GAAP basis, R&D expenses increased 55 percent to $603 million, including employee stock-based compensation expense of $39 million, from $390 million in the second quarter of 2006. GAAP R&D expenses for the second quarter of 2007 were 20 percent of operating revenues, compared to 18 percent in the second quarter of 2006.
• Marketing, general and administrative (MG&A) expenses, on a non-GAAP basis, increased 13 percent to $485 million, from $430 million in the second quarter of 2006.(2) Non-GAAP MG&A expenses as a percentage of operating revenues were 16 percent, compared to 20 percent in the second quarter of 2006. On a GAAP basis, MG&A expenses increased 13 percent to $532 million, including employee stock-based compensation expense of $47 million, from $471 million in the second quarter of 2006. GAAP MG&A expenses for the second quarter of 2007 were 18 percent of operating revenues, compared to 21 percent in the second quarter of 2006.

Clinical Development

Genentech announced that in the second quarter of 2007 it initiated eight Phase III clinical trials, including studies of Lucentis® (ranibizumab injection) in diabetic macular edema and retinal vein occlusion, Avastin® (bevacizumab) in adjuvant non-small cell lung cancer and second-line metastatic colorectal cancer, and two additional trials of second-generation humanized anti-CD20 (ocrelizumab) for patients with rheumatoid arthritis.

Genentech also submitted two supplemental Biologics License Applications (sBLAs) to the U.S. Food and Drug Administration (FDA) for Herceptin® (Trastuzumab) in adjuvant breast cancer based on data from the BCIRG-006 trial. One of the submissions has the potential to add a non-anthracycline-containing treatment regimen of docetaxel, carboplatin and Herceptin as a labeled option for women with HER2-positive breast cancer.

The company also provided information on the sBLA for Avastin with chemotherapy in first-line metastatic breast cancer based on data from the E2100 trial. Genentech indicated that it is planning to resubmit the sBLA to the FDA in August.

Genentech announced that an interim analysis of a second Phase III study of Avastin in advanced renal cell cancer showed that patients receiving Avastin in combination with interferon had increased progression-free survival and tumor response rate compared to patients receiving interferon alone. No new safety signals related to interferon and Avastin were observed. The trial, conducted and analyzed by the Cancer and Leukemia Group B (CALGB), is ongoing. A final analysis of overall survival, the primary endpoint, will be conducted when the data are mature. The company plans to include information from the CALGB study as support for a potential sBLA submission based on Roche's AVOREN study.

Other Company Activities

Genentech announced that on April 27, 2007, its cell culture manufacturing facility in Oceanside, California. received FDA licensure for the production of bulk Avastin drug product. The approval adds 90,000 liters of biologic manufacturing capacity.

Webcast

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Wednesday, July 11, 2007, at 2:15 p.m. Pacific Time (PT). The live webcast and accompanying slides may be accessed on Genentech's website at http://www.gene.com. This webcast will be available via the website until 5:00 p.m. PT on August 1, 2007. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on July 11, 2007 through 5:15 p.m. PT on July 18, 2007. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 4218999.
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