Genentech Announces Full Year and Fourth Quarter 2007 Results

SOUTH SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Jan 14, 2008 - 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 million(1), 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 2006(1); 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 2006(1); 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 share(1).

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 million(1), 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 2006(1); 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 2006(1); 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.

Reconciliations between non-GAAP and GAAP earnings per share for the full years 2007 and 2006 and the fourth quarters of 2007 and 2006 are provided in the following table: -0-

                                      In-process

                          Net Charges   Research

                           related to     and

       Non-    Employee    Redemption, Development Non-Cash   Reported

       GAAP   Stock-Based  Acquisition  Expense     Gain on     GAAP

      Diluted Compensation and Special Related to  Acquisition Diluted

        EPS     Expense       Items    Acquisition               EPS

----------------------------------------------------------------------

FY

 2007 $2.94     ($0.24)     ($0.10)     ($0.07)      $0.07     $2.59

----------------------------------------------------------------------

FY

 2006 $2.23     ($0.17)     ($0.09)        -           -       $1.97

----------------------------------------------------------------------

Q4

 2007 $0.69     ($0.07)     ($0.03)        -           -       $0.59

----------------------------------------------------------------------

Q4

 2006 $0.61     ($0.04)     ($0.02)        -           -       $0.55

----------------------------------------------------------------------

Note: Amounts may not sum due to rounding.

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): -0-

                       Three Months                Year

                           Ended                   Ended

                       December 31,            December 31,

---------------------------------------------- -----------------------

                        2007   2006  % Change   2007   2006  % Change

-----------------------======-======-========= ======-======-=========

Avastin(R)+            $  603 $  490       23% $2,296 $1,746       32%

---------------------------------------------- -----------------------

Rituxan(R)                596    560        6   2,285  2,071       10

---------------------------------------------- -----------------------

Herceptin(R)              327    322        2   1,287  1,234        4

---------------------------------------------- -----------------------

Lucentis(R)++             197    217       (9)    815    380      114

---------------------------------------------- -----------------------

Xolair(R)                 120    117        3     472    425       11

---------------------------------------------- -----------------------

Tarceva(R)                112    107        5     417    402        4

---------------------------------------------- -----------------------

Nutropin(R) Products       93    101       (8)    371    378       (2)

---------------------------------------------- -----------------------

Thrombolytics              66     62        6     268    243       10

---------------------------------------------- -----------------------

Pulmozyme(R)               58     53        9     223    199       12

---------------------------------------------- -----------------------

Raptiva(R)                 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): -0-

                 Three Months                    Year

                    Ended                        Ended

                 December 31,                December 31,

------------------------------------------ ---------------------------

                2007     2006    % Change    2007     2006   % Change

--------------============================ ===========================

non-GAAP(2)

==============---------------------------- ---------------------------

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) -0-

                                  Three Months Ended     Year Ended

                                     December 31,       December 31,

----------------------------------------------------- ----------------

                                     2007     2006     2007    2006

----------------------------------=================== ================

non-GAAP(2)

==================================------------------- ----------------

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.

About Genentech

Founded more than 30 years ago, 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 and licenses several additional products to other companies. The company has headquarters in South San Francisco, California and is listed on the New York Stock Exchange under the symbol DNA. For additional information about the company, please visit http://www.gene.com.

About Genentech's Commitment to Patient Access

Genentech is committed to helping patients have access to our therapies. For those eligible patients in the United States who do not have insurance coverage or who cannot afford their out-of-pocket co-pay costs, Genentech has several support programs. Since 1985, when its first product was approved, Genentech has donated approximately $1 billion in free medicine to uninsured patients through its Genentech(R) Access to Care Foundation (GATCF) and the Genentech Endowment for Cystic Fibrosis. Since 2005, Genentech has also donated more than $140 million to various independent public charities that provide financial assistance to eligible patients who cannot access needed medical treatment due to co-pay costs. Through its Single Point of Contact (SPOC) program, Genentech provides patients with assistance and information on a broad array of reimbursement services and support.

For information on Genentech's latest business and product development events please refer to http://www.gene.com/gene/news/press-releases/index.jsp.

This press release contains forward-looking statements regarding investing in new molecular entities, data from clinical trials including trials for Rituxan, Avastin and Tarceva, the initiation of a clinical trial for a systemic hedgehog antagonist, and expected growth in non-GAAP earnings per share for 2008. Such statements are predictions and involve risks and uncertainties such that actual results may differ materially. Among other factors, actual results could be affected by unexpected safety, efficacy or manufacturing issues, additional time requirements for biologic license application (BLA) preparation or decision making, need for additional data or clinical studies, U.S. Food and Drug Administration (FDA) actions or delays, the failure to obtain or maintain FDA approval, changes in dosing or duration of product use, competition, pricing, reimbursement, intellectual property or contract rights, the ability to supply product, product withdrawals, new product approvals and launches, product sales, contract revenues and royalties, cost of sales, R&D or MG&A expenses, stock-based compensation expense, unanticipated expenses such as litigation or legal settlement expenses or equity securities write-downs, fluctuations in tax and interest rates, and changes in accounting or tax laws or the interpretation of such laws. Please also refer to Genentech's periodic reports filed with the Securities and Exchange Commission. Genentech disclaims, and does not undertake, any obligation to update or revise forward-looking statements in this press release.

(1) Genentech's non-GAAP operating revenues exclude recognition of deferred royalty revenue associated with the acquisition of Tanox, Inc. Genentech's non-GAAP net income and non-GAAP earnings per share exclude the after-tax impact of certain items associated with the acquisition of Tanox, Inc., including in-process research and development expenses (a non-recurring expense in the third quarter of 2007), recurring recognition of deferred royalty revenue, recurring amortization of intangible assets, and a gain pursuant to Emerging Issues Task Force (EITF) Issue No. 04-1 (a non-recurring gain in the third quarter of 2007). Non-GAAP net income and non-GAAP earnings per share also exclude recurring charges related to the 1999 redemption of Genentech's stock by Roche Holdings, Inc., litigation-related and similar special items, and employee stock-based compensation expense. The differences in non-GAAP and GAAP amounts are reconciled in the accompanying tables and on http://www.gene.com.

(2) Genentech's non-GAAP reported COS, R&D and MG&A expenses exclude the effects of employee stock-based compensation expense associated with Genentech's adoption of FAS 123R on January 1, 2006. Stock-based compensation expense was recognized in COS for the first time in the first quarter of 2007 as the company capitalized employee stock-based compensation into inventory produced in 2006 and began to sell those products in 2007. The differences in non-GAAP and GAAP amounts are reconciled in the accompanying tables and on http://www.gene.com. -0-

                           GENENTECH, INC.

                  CONSOLIDATED STATEMENTS OF INCOME

               (In millions, except per share amounts)

                             (Unaudited)


                                       Three Months         Year

                                      Ended December  Ended December

                                            31,              31,

                                      --------------- ----------------

                                        2007    2006     2007    2006

                                      ------- ------- -------- -------

Revenues:

 Product sales                        $2,349  $2,244  $ 9,443  $7,640

 Royalties                               558     389    1,984   1,354

 Contract revenue                         63      81      297     290

                                      ------- ------- -------- -------

       Total operating revenues        2,970   2,714   11,724   9,284


Costs and expenses:

 Cost of sales (includes employee

  stock-based compensation expense:

  three months-2007-$22; 2006-$0; full

  year-2007-$71; 2006-$0)                344     338    1,571   1,181

 Research and development (includes

  employee stock-based compensation

  expense: three months-2007-$39;

  2006-$38; full year-2007-$153; 2006-

  $140)                                  618     555    2,446   1,773

 Marketing, general and administrative

  (includes employee stock-based

  compensation expense: three months-

  2007-$42; 2006-$45; full year-2007-

  $179; 2006-$169)                       692     600    2,256   2,014

 Collaboration profit sharing            275     270    1,080   1,005

 In-process research and

  development(1)                           -       -       77       -

 Gain on acquisition(1)                    -       -     (121)      -

 Recurring charges related to

  redemption and acquisition              43      26      132     105

 Special items: litigation-related        14      14       54      54

                                      ------- ------- -------- -------

       Total costs and expenses        1,986   1,803    7,495   6,132


Operating income                         984     911    4,229   3,152


Other income (expense):

 Interest and other income, net(2)        40      77      273     325

 Interest expense                        (22)    (18)     (76)    (74)

                                      ------- ------- -------- -------

       Total other income, net            18      59      197     251


Income before taxes                    1,002     970    4,426   3,403

Income tax provision                     370     376    1,657   1,290

                                      ------- ------- -------- -------

Net income                            $  632  $  594  $ 2,769  $2,113

                                      ======= ======= ======== =======


Earnings per share:

 Basic                                $ 0.60  $ 0.56  $  2.63  $ 2.01

                                      ======= ======= ======== =======

 Diluted                              $ 0.59  $ 0.55  $  2.59  $ 1.97

                                      ======= ======= ======== =======


Weighted average shares used to compute earnings per

 share:

 Basic                                 1,053   1,054    1,053   1,053

                                      ======= ======= ======== =======

 Diluted                               1,068   1,072    1,069   1,073

                                      ======= ======= ======== =======


----------------------------------------------------------------------


(1) Represents one-time items related to our acquisition of Tanox,

 Inc. in the third quarter of 2007.

(2) "Interest and other income, net" includes interest income, net

 realized gains from the sale of certain biotechnology equity

 securities and write-downs for other-than-temporary impairments in

 the fair value of certain debt and biotechnology equity securities.

 For further detail, refer to our web site at www.gene.com.

-0-
                           GENENTECH, INC.

            RECONCILIATION OF GAAP to NON-GAAP NET INCOME

               (In millions, except per share amounts)

                             (Unaudited)


                                         Three Months       Year

                                            Ended      Ended December

                                          December 31,       31,

                                         -----------------------------

                                          2007   2006    2007    2006

                                         ------ ------ ------- -------

GAAP net income                           $632   $594  $2,769  $2,113

Royalty revenue(1)                          (4)     -      (6)      -

Employee stock-based compensation expense

 under FAS 123R(2) included in the

 following operating expenses:

 Cost of sales                              22      -      71       -

 Research and development                   39     38     153     140

 Marketing, general and administrative      42     45     179     169

In-process research and development(3)       -      -      77       -

Gain on acquisition(3)                       -      -    (121)      -

Recurring charges related to redemption

 and acquisition(4)                         43     26     132     105

Special items: litigation-related(5)        14     14      54      54

Income tax effect(6)                       (51)   (58)   (166)   (191)

                                         ------ ------ ------- -------

Non-GAAP net income                       $737   $659  $3,142  $2,390

                                         ====== ====== ======= =======


Non-GAAP earnings per share:

 Diluted                                 $0.69  $0.61   $2.94   $2.23

                                         ====== ====== ======= =======


Non-GAAP weighted average shares used to

 compute earnings per share(7):

 Diluted                                 1,066  1,072   1,068   1,074

                                         ====== ====== ======= =======


----------------------------------------------------------------------


(1) Represents recognition of deferred royalty revenue.

(2) Represents employee stock-based compensation expense associated

 with FAS 123R. No employee stock-based compensation expense was

 recognized in GAAP-reported cost of sales in any period ending prior

 to January 1, 2007.

(3) Represents one-time items related to our acquisition of Tanox,

 Inc. in the third quarter of 2007.

(4) Represents the amortization of intangible assets related to the

 1999 redemption of our common stock by Roche Holdings, Inc. and our

 acquisition of Tanox, Inc. in the third quarter of 2007.

(5) Includes accrued interest and bond costs in the fourth quarters

 and full year of 2007 and 2006 related to the City of Hope trial

 judgment.

(6) Reflects the income tax effects of excluding employee stock-based

 compensation expense under FAS 123R, recurring charges related to the

 redemption of our common stock, litigation-related and similar

 special items and items related to our acquisition of Tanox, Inc.

(7) Weighted average shares used to compute non-GAAP diluted earnings

 per share were computed exclusive of the methodology used to

 determine dilutive securities under FAS 123R.


Reconciliation of 2008 GAAP and Non-GAAP EPS

 Estimates

------------------------------------------------

Our 2008 non-GAAP EPS estimate excludes the effects of: (i) recurring

 amortization charges related to the 1999 redemption of our common

 stock by Roche Holdings, Inc. and our acquisition of Tanox, Inc.,

 which are estimated to be approximately $172 million on a pretax

 basis in 2008, (ii) litigation-related and similar special items for

 accrued interest and associated bond costs on the City of Hope

 judgment which are currently estimated to be in the range of $9

 million to $18 million on a pretax basis in 2008, (iii) recognition

 of deferred royalty revenue of approximately $15 million on a pretax

 basis in 2008, (vi) income tax effect of $65 million to $68 million

 on recurring charges related to the redemption of our common stock

 and our acquisition of Tanox, Inc., litigation-related and similar

 special items, and recognition of deferred royalty revenue, and (v)

 employee stock-based compensation expense, which we expect the net of

 tax diluted EPS impact to be in the range of $0.25 to $0.27 per share

 for 2008. Our 2008 GAAP EPS would include the items listed above as

 well as any other potential special charges related to existing or

 future litigation or its resolution, or changes in or adoption of

 accounting principles, all of which may be significant.


The statements regarding the amounts relating to the 1999 Roche

 redemption of our common stock, amortization of intangible assets and

 recognition of deferred royalty revenue associated with the

 acquisition of Tanox, Inc., litigation-related and similar special

 items and employee stock-based compensation expense are forward-

 looking and such statements are predictions and involve risks and

 uncertainties such that actual results may differ materially. The

 amounts identified above could be affected by a number of factors,

 including a re-valuation of certain intangible assets, greater than

 expected litigation-related and similar costs, changes in or adoption

 of accounting principles, the number of options granted to employees,

 our stock price and certain valuation assumptions concerning our

 stock. We disclaim, and do not undertake, any obligation to update or

 revise any of these forward-looking statements.

-0-
                           GENENTECH, INC.

                 SELECTED CONSOLIDATED FINANCIAL DATA

                            (In millions)

                             (Unaudited)


                                           December 31,   December 31,

                                               2007           2006

                                           ------------   ------------

Selected consolidated balance sheet data:

Cash, cash equivalents and short-term

 investments                                   $ 3,975        $ 2,493

Accounts receivable - product sales, net           847            965

Accounts receivable - royalties, net               620            453

Accounts receivable - other, net                   299            248

Inventories                                      1,493          1,178

Long-term marketable debt and equity

 securities                                      2,090          1,832

Property, plant and equipment, net               4,986          4,173

Goodwill                                         1,577          1,315

Other intangible assets                          1,168            476

Other long-term assets                             366          1,342

Total assets                                    18,940         14,842

Total current liabilities(1)                     3,918          2,010

Long-term debt(2)                                2,402          2,204

Total liabilities                                7,035          5,364

Total stockholders' equity                      11,905          9,478



                                             Year Ended December 31,

                                           ---------------------------

                                               2007           2006

                                           ------------   ------------

Selected consolidated cash flow data:

Capital expenditures(2)                        $   977        $ 1,214


Total GAAP(3) depreciation and

 amortization expense                              492            407

 Less: redemption and acquisition related

  amortization expense(4)                         (132)          (105)

                                           ------------   ------------

Non-GAAP depreciation and amortization

 expense                                       $   360        $   302

                                           ============   ============


----------------------------------------------------------------------


(1) Certain reclassifications have been made at December 31, 2006 to

 conform to the December 31, 2007 presentation.

(2) Capital expenditures exclude approximately $203 million at

 December 31, 2007 and $104 million at December 31, 2006 in

 capitalized costs related to our accounting for construction projects

 for which we are considered to be the owner during the construction

 period. We have recognized related amounts as a construction

 financing obligation in long-term debt. The balances in long-term

 debt related to the construction financing obligation are $399

 million at December 31, 2007 and $216 million at December 31, 2006.

(3) Reflects operating results in accordance with U.S. generally

 accepted accounting principles (or "GAAP").

(4) Represents the amortization of intangible assets related to the

 1999 redemption of our common stock by Roche Holdings, Inc. and our

 acquisition of Tanox, Inc. in the third quarter of 2007.

Contact

Genentech, Inc.
Media:
Geoff Teeter, 650-225-8171
Caroline Pecquet, 650-467-7078
or
Investor:
Kathee Littrell, 650-225-1034
Sue Morris, 650-225-6523
http://www.gene.com

Posted: January 2008


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