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DNA Reports 3Q07 Results

[3Q07 Lucentis sales were $198M, +29% vs 3Q06 (the first full quarter on the market) but down 5% vs 2Q07. These figures are for the US only; NVS owns the rights to Lucentis in all other countries.]

http://biz.yahoo.com/bw/071015/20071015006395.html?.v=1

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Monday October 15, 4:03 pm ET

Genentech's Completion of Tanox Acquisition Reflected in Q3 Results

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

• U.S. product sales of $2,155 million, an 18 percent increase over U.S. product sales of $1,830 million in the third quarter of 2006.
• Non-GAAP operating revenues of $2,905 million, a 22 percent increase over operating revenues of $2,384 million in the third quarter of 2006(1); GAAP operating revenues of $2,908 million, which include recognition of $3 million of deferred royalty revenue associated with the acquisition of Tanox, Inc.
• Non-GAAP net income increase of 22 percent to $778 million from $637 million in the third quarter of 2006(1); GAAP net income increase of 21 percent to $685 million from $568 million reported for the third quarter of 2006.
• Non-GAAP earnings per share increase of 24 percent to $0.73 per share from $0.59 per share in the third quarter of 2006(1); GAAP earnings per share increase of 21 percent to $0.64 per share from $0.53 per share reported for the third quarter of 2006.

The company continues to expect 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

Product sales for the three months ended September 30, 2007 and 2006 are provided in the following table (dollars in millions):

Three months
Ended September 30,
-----------------------==========================---------------------
2007 2006 % Change
-----------------------===============================================
Net U.S. product sales
----------------------------------------------------------------------
Avastin(R)+ $597 $435 37%
----------------------------------------------------------------------
Rituxan(R) 572 509 12
----------------------------------------------------------------------
Herceptin(R) 320 302 6
----------------------------------------------------------------------
Lucentis(R) 198 153 29
----------------------------------------------------------------------
Xolair(R) 121 107 13
----------------------------------------------------------------------
Tarceva(R) 101 100 1
----------------------------------------------------------------------
Nutropin(R) Products 93 92 1
----------------------------------------------------------------------
Thrombolytics 67 60 12
----------------------------------------------------------------------
Pulmozyme(R) 57 50 14
----------------------------------------------------------------------
Raptiva(R) 29 23 26
----------------------------------------------------------------------

----------------------------------------------------------------------
Total U.S.++
product sales 2,155 1,830 18
----------------------------------------------------------------------

----------------------------------------------------------------------
Net product
sales to collaborators 166 111 50
----------------------------------------------------------------------
Total++
product sales $2,321 $1,941 20
----------------------------------------------------------------------

(+) Third quarter 2007 Avastin U.S. product sales results include a net recognition of approximately $5 million in previously deferred revenue in conjunction with the company's Avastin Patient Assistance Program launched in February 2007.
(++) Amounts may not sum due to rounding.

Total Costs and Expenses

Information on costs and expenses for the three months ended September 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 31 percent to $390 million, from $297 million in the third quarter of 2006(2). Non-GAAP COS as a percentage of product sales was 17 percent, compared to 15 percent for the third quarter of 2006. On a GAAP basis, COS increased 37 percent to $406 million, including employee stock-based compensation expense of $16 million. GAAP COS for the third quarter of 2007 was 17 percent of product sales, compared to 15 percent in the third quarter of 2006. COS for the third quarter of 2007 includes approximately $53 million in charges related to the termination of a contract manufacturing agreement.
• Research and development (R&D) expenses, on a non-GAAP basis, increased 38 percent to $578 million, from $419 million in the third quarter of 2006(2). Non-GAAP R&D expenses as a percentage of operating revenues were 20 percent, compared to 18 percent for the third quarter of 2006. On a GAAP basis, R&D expenses increased 35 percent to $615 million, including employee stock-based compensation expense of $37 million, from $454 million in the third quarter of 2006. GAAP R&D expenses for the third quarter of 2007 were 21 percent of operating revenues, compared to 19 percent in the third quarter of 2006.
• Marketing, general and administrative (MG&A) expenses, on a non-GAAP basis, increased 8 percent to $497 million, from $460 million in the third quarter of 2006(2). Non-GAAP MG&A expenses as a percentage of operating revenues were 17 percent, compared to 19 percent in the third quarter of 2006. On a GAAP basis, MG&A expenses increased 8 percent to $541 million, including employee stock-based compensation expense of $44 million, from $501 million in the third quarter of 2006. GAAP MG&A expenses for the third quarter of 2007 were 19 percent of operating revenues, compared to 21 percent in the third quarter of 2006.
• GAAP results included a one-time in-process research and development (IPR&D) charge of $77 million, or $0.07 per share, for acquired IPR&D projects and technologies associated with the acquisition of Tanox, Inc., which was completed on August 2, 2007. GAAP results also reflected a gain of $0.07 per share (after tax) related to the acquisition of Tanox, resulting from the application of fair value measurement principles required in the accounting for the acquisition of a company with which a prior business relationship existed.(3)

Clinical Development

Genentech announced that in the third quarter of 2007 it resubmitted the supplemental Biologic License Application for Avastin® (bevacizumab) with chemotherapy in first-line metastatic breast cancer based on data from the E2100 trial. The U.S. Food and Drug Administration (FDA) notified the company that the Oncologic Drugs Advisory Committee (ODAC) meeting would occur in December 2007 and the FDA action date is February 23, 2008.

Genentech also announced that enrollment was completed in the Phase III first-line HER2-negative metastatic breast cancer study RIBBON-1 evaluating physicians' choice of chemotherapy with Avastin, the Phase III study of Rituxan® (rituximab) in second-line relapsed chronic lymphocytic leukemia, and the Phase II study of topical VEGF (telbermin) as a treatment for diabetic foot ulcers. Additionally, Genentech initiated enrollment in a Phase III combination study of Rituxan and Avastin in first-line diffuse large B-cell lymphoma, a Phase II combination study of Avastin and sunitinib malate in renal cell carcinoma, and a Phase I study of the anti-cMET molecule MetMab in patients with solid tumor malignancies.

Webcast

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Monday, October 15, 2007, at 2:15 p.m. Pacific Time (PT). The live webcast 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 November 5, 2007. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on October 15, 2007 through 5:15 p.m. PT on October 22, 2007. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 17476409.
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