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[DewDiligence]

DNA Reports 4Q07 Results

[Avastin was the one and only big driver with 4Q07 sales of $603M, +23%. Rituxan ($596M, +6%), Herceptin ($327M, +2%), and Lucentis ($197M, -9%) have hit plateaus. Avastin has finally overtaken Rituxan in sales for a calendar quarter to become DNA’s top-selling product. It’s unlikely, IMO, that Rituxan will ever regain the lead.]

http://biz.yahoo.com/bw/080114/20080114006365.html

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Monday January 14, 4:02 pm ET

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

U.S. product sales of $8,540 million, a 19 percent increase over U.S. product sales of $7,169 million in 2006.

Non-GAAP operating revenues of $11,718 million1, a 26 percent increase over operating revenues of $9,284 million in 2006; GAAP operating revenues of $11,724 million, which include recognition of approximately $6 million of deferred royalty revenue associated with the acquisition of Tanox, Inc.

Non-GAAP net income increase of 31 percent to $3,142 million from $2,390 million in 20061; GAAP net income increase of 31 percent to $2,769 million from $2,113 million reported in 2006.

Non-GAAP earnings per share increase of 32 percent to $2.94 per share from $2.23 per share in 20061; GAAP earnings per share increase of 31 percent to $2.59 per share from $1.97 per share reported in 2006.

"We are pleased with our strong financial performance in 2007, which was our tenth consecutive year of double-digit revenue growth," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "We remain steadfast in our focus on building a pipeline of novel therapies that have the potential to make an important difference for patients suffering from significant diseases. In 2008, we will continue to invest in the 20 new molecular entities in clinical development and look forward to new data from a number of potentially important line extensions, including Rituxan for multiple sclerosis and lupus and Avastin in combination with Tarceva for advanced non-small cell lung cancer."

The company announced it expects full-year 2008 non-GAAP earnings to be in the range of $3.30 to $3.45 per share1.

Other Financial Results

Key results for the fourth quarter of 2007 include:

U.S. product sales of $2,199 million, a 7 percent increase over U.S. product sales of $2,053 million in the fourth quarter of 2006.

Non-GAAP operating revenues of $2,966 million1, a 9 percent increase over operating revenues of $2,714 million in the fourth quarter of 2006; GAAP operating revenues of $2,970 million, which include recognition of approximately $4 million of deferred royalty revenue associated with the acquisition of Tanox, Inc.

Non-GAAP net income increase of 12 percent to $737 million from $659 million in the fourth quarter of 20061; GAAP net income increase of 6 percent to $632 million from $594 million reported for the fourth quarter of 2006.

Non-GAAP earnings per share increase of 13 percent to $0.69 per share from $0.61 per share in the fourth quarter of 20061; GAAP earnings per share increase of 7 percent to $0.59 per share from $0.55 per share reported for the fourth quarter of 2006.

Product Sales

Information on product sales for the three months and years ended December 31, 2007 and 2006, are provided in the following tables (dollars in millions):
Three Months
Ended

December 31, Year
Ended

December 31,
2007 2006 % Change 2007 2006 % Change
Avastin®+ $ 603 $ 490 23 % $ 2,296 $ 1,746 32 %
Rituxan® 596 560 6 2,285 2,071 10
Herceptin® 327 322 2 1,287 1,234 4
Lucentis®++ 197 217 (9 ) 815 380 114
Xolair® 120 117 3 472 425 11
Tarceva® 112 107 5 417 402 4
Nutropin® Products 93 101 (8 ) 371 378 (2 )
Thrombolytics 66 62 6 268 243 10
Pulmozyme® 58 53 9 223 199 12
Raptiva® 28 24 17 107 90 19

Total U.S. product sales +++ 2,199 2,053 7 8,540 7,169 19

Net product

sales to collaborators 150 191 (21 ) 903 471 92
Total product sales +++ $ 2,349 $ 2,244 5 % $ 9,443 $ 7,640 24 %
+ Fourth-quarter and full-year 2007 Avastin U.S. product sales results include a net recognition of approximately $5 million and $7 million, respectively, in previously deferred revenue in conjunction with the company’s Avastin Patient Assistance Program launched in February 2007.

++ Lucentis was launched June 30, 2006.

+++ Amounts may not sum due to rounding.

Total Costs and Expenses

Information on costs and expenses including cost of sales (COS), research and development (R&D) and marketing, general and administrative (MG&A) expenses for the three months and years ended December 31, 2007 and 2006, are provided in the following tables (dollars in millions)2:
Three Months
Ended

December 31, Year
Ended

December 31,
2007 2006 % Change 2007 2006 % Change
non-GAAP2
COS $322 $338 (5 %) $1,500 $1,181 27 %
R&D 579 517 12 2,293 1,633 40
MG&A 650 555 17 2,077 1,845 13
GAAP
COS 344 338 2 1,571 1,181 33
R&D 618 555 11 2,446 1,773 38
MG&A 692 600 15 2,256 2,014 12
Note: Genentech's fourth-quarter 2007 non-GAAP reported COS, R&D and MG&A expenses exclude the effects of employee stock-based compensation expense of $22 million, $39 million, and $42 million, respectively, associated with Genentech's adoption of FAS 123R on January 1, 2006. Full-year 2007 non-GAAP reported COS, R&D and MG&A expenses exclude the effects of employee stock-based compensation expense of $71 million, $153 million, and $179 million, respectively.2
Three Months Ended

December 31, Year Ended

December 31,
2007 2006 2007 2006
non-GAAP2
COS as a % of product sales 14% 15% 16% 15%
R&D as a % of operating revenues 20% 19% 20% 18%
MG&A as a % of operating revenues 22% 20% 18% 20%
GAAP
COS as a % of product sales 15% 15% 17% 15%
R&D as a % of operating revenues 21% 20% 21% 19%
MG&A as a % of operating revenues 23% 22% 19% 22%

Clinical Development

Genentech announced results from the Rituxan Phase III SUNRISE trial, a controlled re-treatment study for patients with rheumatoid arthritis who have had an inadequate response to previous treatment with one or more tumor necrosis factor (TNF) antagonist therapies. The trial met its primary endpoint, as a larger proportion of patients retreated with Rituxan achieved an American College of Rheumatology (ACR) 20 response at week 48 compared to those retreated with a placebo. A preliminary review of the safety data revealed no new safety signals.

During the fourth quarter of 2007, Genentech and Roche initiated enrollment in two Phase III Avastin adjuvant HER2-negative breast cancer studies (ECOG 5103 and BEATRICE). Genentech also initiated patient enrollment in the second-generation humanized anti-CD20 Phase III study for systemic lupus erythematosus.

The company made a decision not to move forward with its topical VEGF product (telbermin) as a treatment for diabetic foot ulcers after negative results in its Phase II study.

Genentech and its collaborator Curis plan to initiate in the first half of 2008 a Phase II trial of a systemic hedgehog antagonist molecule as a treatment of solid tumors.

Other Company Activities

Genentech announced that the California Supreme Court set a hearing date of February 5, 2008, to review the contract dispute lawsuit between Genentech and the City of Hope (COH). A decision in the matter is anticipated no later than 90 days after the hearing. The California Supreme Court had announced in February 2005 that it would review the 2002 judgment of the Los Angeles County Superior Court award for COH in the amount of approximately $300 million in compensatory and $200 million in punitive damages. Genentech has already recorded litigation-related special charges for the amount of the judgment and related costs.

Webcast

Genentech will be offering a live webcast of a discussion by Genentech management of its financial and other business results on Monday, January 14, 2008, 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 February 4, 2008. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on January 14, 2008 through 5:15 p.m. PT on January 21, 2008. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 28051568.
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