SOUTH SAN FRANCISCO, Calif. - January 10, 2007 - Genentech, Inc. (NYSE: DNA) today announced financial results for the full year and fourth quarter 2006. Revenue and key operating results for the full year 2006 included:
| · | U.S. product sales of $7,169 million, a 39 percent increase over U.S. product sales of $5,162 million in 2005; |
| · | Operating revenues of $9,284 million, a 40 percent increase over operating revenues of $6,633 million in 2005; |
| · | Non-GAAP net income of $2,390 million, a 72 percent increase over net income of $1,387 million in 2005; GAAP net income of $2,113 million, a 65 percent increase over net income of $1,279 million in 2005;1, 2 |
| · | Non-GAAP earnings of $2.23 per share, a 74 percent increase over earnings of $1.28 per share in 2005; GAAP earnings of $1.97 per share, a 67 percent increase over earnings of $1.18 per share in 2005. 1, 2 |
“In 2006, we received eight FDA approvals, including Lucentis, a significant new therapy for patients with wet age-related macular degeneration,” said Arthur D. Levinson, Ph.D., Genentech’s chairman and chief executive officer. “We remain committed to scientific excellence and continue to focus our R&D projects in areas of unmet medical need. We are pleased with the progress we made building our pipeline in 2006, including adding seven new molecular entities to the development pipeline, entering into agreements for eight significant new strategic collaborations, and receiving positive data from four important Phase II clinical trials in oncology and immunology.”
Revenue and key operating results for the fourth quarter of 2006 included:
| · | U.S. product sales of $2,053 million, a 38 percent increase over product sales of $1,493 million in the fourth quarter of 2005; |
| · | Operating revenues of $2,714 million, a 43 percent increase over operating revenues of $1,893 million in the fourth quarter of 2005; |
| · | Non-GAAP net income of $659 million, an 82 percent increase over net income of $363 million in the fourth quarter of 2005; GAAP net income of $594 million, a 75 percent increase over net income of $339 million in the fourth quarter of 2005 1, 2; |
| · | Non-GAAP earnings of $0.61 per share, a 79 percent increase over earnings of $0.34 per share in the fourth quarter of 2005; GAAP earnings of $0.55 per share, a 77 percent increase over earnings of $0.31 per share in the fourth quarter of 2005. 1, 2 |
Reconciliations between non-GAAP and GAAP earnings per share for the full years 2006 and 2005 and the fourth quarters of 2006 and 2005 are provided in the following table:
| | Non-GAAP Diluted EPS | Employee Stock-Based Compensation Expense | Roche Redemption and Special Items | Reported GAAP Diluted EPS |
FY 2006 | $2.23 | ($0.17) | ($0.09) | $1.97 |
FY 2005 | $1.28 | --- 1 | ($0.10) | $1.181 |
Q4 2006 | $0.61 | ($0.04) | ($0.02) | $0.55 |
Q4 2005 | $0.34 | --- 1 | ($0.02) | $0.311 |
Note: Amounts may not sum due to rounding.
The company announced it expects approximately 25 to 30 percent growth in non-GAAP earnings per share for the full year 2007, relative to 2006.2
Product Sales
Product sales for 2006, including the three months ended December 31, 2006, are provided in the following table (dollars in millions):
| | Three Months Ended December 31, | | | | | Year Ended December 31, | | | |
| | 2006 | | 2005 | | % Change | | 2006 | | 2005 | | % Change |
Net U.S. product sales | | | | | | | | | | | | | |
Rituxan® | $560 | | $484 | | 16 | % | | $2,071 | | $1,832 | | 13 | % |
Avastin® * | 490 | | 359 | | 36 | | | 1,746 | | 1,133 | | 54 | |
Herceptin® | 322 | | 250 | | 29 | | | 1,234 | | 747 | | 65 | |
Tarceva® | 107 | | 84 | | 27 | | | 402 | | 275 | | 46 | |
Nutropin® products | 101 | | 95 | | 6 | | | 378 | | 370 | | 2 | |
Xolair® | 117 | | 93 | | 26 | | | 425 | | 320 | | 33 | |
| Thrombolytics | 62 | | 58 | | 7 | | | 243 | | 218 | | 11 | |
Pulmozyme® | 53 | | 49 | | 8 | | | 199 | | 186 | | 7 | |
Raptiva® | 24 | | 20 | | 20 | | | 90 | | 79 | | 14 | |
LUCENTIS® | 217 | | - | | - | | | 380 | | - | | - | |
Total U.S. product sales** | 2,053 | | 1,493 | | 38 | | | 7,169 | | 5,162 | | 39 | |
| | | | | | | | | | | | | | |
| Net product sales to collaborators | 191 | | 83 | | 130 | | | 471 | | 326 | | 44 | |
Total product sales** | $2,244 | | $1,577 | | 42 | | | $7,640 | | $5,488 | | 39 | |
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| * | Fourth quarter 2006 Avastin results include a deferral of approximately $9 million in Avastin product sales in conjunction with the company’s announced program to cap the annual per patient cost of therapy for Avastin for eligible patients. The company expects to launch the program during the first quarter of 2007. Because the program will apply retrospectively to patients currently on Avastin for all approved indications, a portion of fourth quarter 2006 Avastin product sales have been deferred to address our estimated free drug commitment to those patients. |
| ** | Amounts may not sum due to rounding. |
Total Costs and Expenses
Information on costs and expenses for 2006, including the three months ended December 31, 2006, is provided in the accompanying tables. Key cost and expense highlights include the following:
| · | Cost of sales in 2006 as a percentage of product sales was 15 percent, compared to 18 percent in 2005. |
| · | Research and development (R&D) expenses in 2006, on a non-GAAP basis, increased 29 percent to $1,633 million, from $1,262 million in 2005. Non-GAAP R&D expenses as a percentage of operating revenues were 18 percent, compared to 19 percent in 2005. On a GAAP basis, R&D expenses in 2006 increased 40 percent to $1,773 million, including employee stock-based compensation expense of $140 million, from $1,262 million in 2005. GAAP R&D expenses in 2006 were 19 percent of operating revenues, comparable to 19 percent in 2005. |
| · | Marketing, general and administrative (MG&A) expenses in 2006, on a non-GAAP basis, increased 29 percent to $1,845 million, from $1,435 million in 2005. Non-GAAP MG&A expenses as a percentage of operating revenues were 20 percent, compared to 22 percent in 2005. On a GAAP basis, MG&A expenses increased 40 percent to $2,014 million, including employee stock-based compensation expense of $169 million, from $1,435 million in 2005. GAAP MG&A expenses in 2006 were 22 percent of operating revenues, comparable to 22 percent in 2005. |
| · | Genentech’s non-GAAP and GAAP income tax rates for 2006 were 38 percent, compared to 37 percent in 2005. Genentech’s fourth quarter 2006 non-GAAP and GAAP income tax rates were approximately 40 percent and 39 percent, respectively. The 2006 annual and fourth quarter income tax rates were negatively impacted by the fourth quarter issuance of an Internal Revenue Service final regulation that required the company to reverse R&D tax credit benefits that had been recognized in prior years. |
Clinical Development
Genentech announced that in the fourth quarter of 2006 it enrolled the first patient in the Phase III study of humanized anti-CD20 for patients with rheumatoid arthritis (RA) who inadequately responded to methotrexate; and completed enrollment in two Rituxan® (Rituximab) immunology trials, SERENE, for RA patients who inadequately responded to methotrexate, and SUNRISE, a controlled re-treatment study for patients with RA who have had an inadequate response to previous treatment with one or more tumor necrosis factor (TNF) antagonist therapies. The company also submitted in the fourth quarter of 2006 a supplemental Biologics License Application (sBLA) for the use of Herceptin® (Trastuzumab) in node-negative patients with administration once every three weeks, based on the one-year adjuvant HERA (HERceptin Adjuvant) trial conducted internationally by Roche and the Breast International Group (BIG).
Other Company Events
The company announced that on January 9, 2007 the U.S. Supreme Court issued a decision against Genentech in MedImmune v. Genentech. The issue before the Court was a procedural one and the decision has no effect on the validity or enforceability of Genentech's Cabilly patent. The Court decided that the U.S. Constitution does not require a patent licensee, such as MedImmune, to breach or terminate its license agreement before it can sue a patentee, such as Genentech, under the patent laws. The decision allows MedImmune to go forward with its claims against Genentech in the lower courts, but does not address the merits of those claims. Genentech intends to defend itself vigorously as the case proceeds in the lower courts.
Webcast
Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Wednesday, January 10, 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 January 24, 2007. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on January 10, 2007 through 5:15 p.m. PT on January 17, 2007. Access numbers for this replay are: 1-888-203-1112 (U.S./Canada) and 1-719-457-0820 (international); conference ID number is 6237984.
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 eligible patients having access to our therapies. For those eligible patients treated for approved indications in the United States who do not have insurance or who cannot afford their out-of-pocket co-pay costs, Genentech has several support programs. Since 1985, Genentech has donated free product to uninsured patients and those deemed uninsured due to payor denial through its Genentech® Access to Care Foundation (GATCF) and the Genentech Endowment for Cystic Fibrosis. In 2006 alone, GATCF supported over 14,000 patients by providing approximately $205 million of free product. Since 2005, Genentech has donated approximately $70 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 a forward-looking statement regarding growth in non-GAAP earnings per share (EPS) for 2007. Such statement is a prediction and involves risks and uncertainties such that actual results may differ materially. Among other factors, growth in non-GAAP EPS could be affected by a number of factors, including unexpected safety, efficacy or manufacturing issues, additional time requirements for analyses or decision making, need for additional clinical studies, FDA actions or delays, failure to obtain or maintain FDA approval, competition, pricing, reimbursement, intellectual property or contract rights, the ability to supply product, product withdrawals, new product approvals and launches, achieving sales revenue consistent with internal forecasts, costs of sales, R&D or MG&A expenses, unanticipated expenses such as litigation or legal settlement expenses or equity securities writedowns, stock-based compensation expense, contract revenues and royalties, and fluctuations in tax and interest rates. 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 the forward-looking statements in this press release.
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| 1 | The company adopted Statement of Financial Accounting Standards No. 123R (or FAS 123R) on a modified prospective basis beginning January 1, 2006. No employee stock-based compensation expense was recognized in GAAP-reported amounts in any prior period. Based on the pro forma application of FAS 123 for the calculation of employee stock-based compensation expense prior to January 1, 2006 (based upon the amounts previously reported in Genentech’s financial statement footnotes), pro forma employee stock-based compensation expense in the fourth quarter of 2005 was $49 million, net of tax, (or $0.05 per diluted share), and the resulting pro forma GAAP net income was $290 million (or $0.27 per diluted share). Pro forma employee stock-based compensation expense for the full year of 2005 was $175 million, net of tax, (or $0.16 per diluted share), and the resulting pro forma GAAP net income was $1.1 billion (or $1.02 per diluted share). |
| 2 | Genentech’s non-GAAP net income and non-GAAP earnings per share exclude the after-tax impact of recurring charges related to the 1999 redemption of Genentech’s stock by Roche Holdings, Inc., litigation-related special items, and employee stock-based compensation expense associated with Genentech’s adoption of FAS 123R on January 1, 2006. The differences in non-GAAP and GAAP numbers are reconciled in the accompanying tables and on http://www.gene.com. 2007 non-GAAP earnings guidance also does not include the effect of any in-process R&D charge and amortization of intangible assets that would result if Genentech acquires Tanox, Inc., as well as the cumulative effect of an accounting change related to sabbatical leave. |
