Genentech's Net Rises 56% On Strong U.S. Drug Sales
By DAVID P. HAMILTON
Staff Reporter of THE WALL STREET JOURNAL
October 10, 2005 6:33 p.m.
Genentech Inc. rode expanding demand for several new-style cancer treatments to a substantial increase in revenue and profit, leading it to boost its full-year earnings forecast for the second quarter in a row.
The South San Francisco, Calif., biotechnology company reported third-quarter net income of $359.4 million, or 33 cents per diluted share, a 56% jump from $230.9 million, or 21 cents a share, in the year-earlier period. Revenue rose 46% to $1.75 billion from $1.2 billion.
Much the credit for that growth goes to Genentech's cancer drug Avastin, which starves tumors by cutting off the growth of new blood vessels. Although Avastin is only approved for use in colon cancer, recent clinical trials suggest it is also effective against lung and breast tumors. Avastin sales in the U.S. jumped 78% in the quarter, to $325.2 million from $183 million a year earlier, and Genentech officials said roughly 15% of those sales reflect use of the drug outside of colon cancer.
Several other Genentech drugs performed well in the quarter. U.S. sales of Herceptin, an older cancer treatment effective against 20% to 30% of breast tumors, soared 70% to $215.1 million from $126.3 million a year earlier. Earlier this year, data from a large-scale clinical trial showed that Herceptin can cut the risk of post-surgical cancer recurrence in half, and although the drug is not yet approved for that use, many cancer specialists are already using it that way as a so-called adjuvant therapy.
Similarly, an asthma drug known as Xolair saw U.S. sales jump by 51% to $81.6 million from $53.9 million a year earlier. By contrast, U.S. sales of Tarceva, a much-talked about cancer drug launched last November, rose only 4% to $73.2 million versus the previous quarter. Genentech said the drug continued to take market share from a competitor, AstraZeneca PLC's drug Iressa, but that its growth was slowed by the carryover of extra inventory from the previous quarter.
Prior to its earnings release, Genentech shares rose 85 cents, or 1%, to $82 in 4 p.m. trading on the New York Stock Exchange.
As a result of the greater demand, Genentech said the earnings per share, calculated in a way that doesn't conform to generally accepted accounting principles, will rise approximately 50% in 2005. Genentech had already boosted its estimate in the second quarter, when it said it expected growth of 35% or more in earnings per share. The earnings-per-share figures Genentech prefers to use exclude costs associated with the 1999 redemption of its shares by majority owner Roche Holding AG and other litigation expenses.
Analysts such as Eric Schmidt of S.G. Cowen & Co. said Genentech could still exceed that forecast, but warned that even such performance may not justify its current stock price. "Their markets aren't any bigger, they're just getting there faster," says Mr. Schmidt, who is neutral on the stock.
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