Genentech, Inc. Announces Full Year And Fourth Quarter 2005 Results

SOUTH SAN FRANCISCO, Calif., Jan. 10 /PRNewswire-FirstCall/ -- Genentech, Inc. today announced financial results for the full year and fourth quarter 2005. Key results for the full year 2005 included:

-- Non-GAAP earnings of $1.28 per share, a 54 percent increase over earnings of $0.83 per share in 2004; GAAP earnings of $1.18 per share, a 62 percent increase over earnings of $0.73 per share in 2004. -- Operating revenues of $6,633.4 million, a 44 percent increase over operating revenues of $4,621.2 million in 2004. -- Total product sales of $5,488.1 million, a 46 percent increase over product sales of $3,748.9 million in 2004. -- Non-GAAP net income of $1,387.3 million, a 55 percent increase over net income of $894.4 million in 2004; GAAP net income of $1,279.0 million, a 63 percent increase over net income of $784.8 million in 2004. Key results for the fourth quarter of 2005 included: -- Non-GAAP earnings of $ 0.34 per share, a 62 percent increase over earnings of $0.21 per share in the fourth quarter of 2004; GAAP earnings of $0.31 per share, a 63 percent increase over earnings of $0.19 per share in the fourth quarter of 2004. -- Operating revenues of $1,893.1 million, a 44 percent increase over operating revenues of $1,315.3 million in the fourth quarter of 2004. -- Total product sales of $1,577.0 million, a 48 percent increase over product sales of $1,066.3 million in the fourth quarter of 2004. -- Non-GAAP net income of $363.3 million, a 61 percent increase over net income of $225.4 million in the fourth quarter of 2004; GAAP net income of $339.2 million, a 64 percent increase over net income of $206.6 million in the fourth quarter of 2004.

"Looking back over 2005, Genentech had a year of unprecedented success in clinical trial results and FDA filings for potential therapeutics to treat cancer, blindness and rheumatoid arthritis," said Arthur D. Levinson, Ph.D., Genentech's chairman and chief executive officer. "We completed the last year of our 5x5 plan and are pleased with our average annual non-GAAP EPS growth of 33 percent between 1999 and 2005. We continue to build on our strong scientific foundation and to focus on research and development to fuel our long-term growth."

The company announced it expects approximately 35 to 45 percent growth in non-GAAP earnings per share for the full year 2006.

Note: The compound annual GAAP earnings per share growth rate was 31 percent from 1999 through 2005. (Given negative GAAP earnings per share in 1999 and 2000, a directly comparable calculation of the average annual growth rate for 1999 through 2005 is not available and compound annual growth rate instead of average annual growth rate is provided.) Genentech's 2005 non-GAAP net income and non-GAAP earnings per share exclude the after-tax impacts of recurring charges related to the 1999 Roche redemption of Genentech's stock and litigation-related special items. Genentech's forecasted 2006 non-GAAP earnings per share excludes the after-tax impacts of recurring charges related to the 1999 Roche redemption of Genentech's stock, litigation-related special items, and stock compensation expense associated with Genentech's adoption of SFAS No. 123R on January 1, 2006. The differences in non-GAAP and GAAP numbers are reconciled in the tables provided and on www.gene.com.

Product Sales

"Genentech set record sales across its product portfolio in 2005," said Ian T. Clark, executive vice president, Commercial Operations. "Total U.S. product sales were more than $5 billion for the full year 2005, an increase of 45 percent compared to 2004."

For 2005, including the three months ended December 31, 2005: -- U.S. product sales in 2005 increased 45 percent to $5,161.7 million from $3,551.2 million in 2004. Fourth quarter product sales increased 47 percent to $1,493.5 million from $1,017.7 million in the fourth quarter of 2004. -- U.S. sales of Rituxan(R) (Rituximab) in 2005 increased 16 percent to $1,831.4 million from $1,574.0 million in 2004. Fourth quarter Rituxan sales increased 13 percent to $484.4 million from $429.2 million in the fourth quarter of 2004. -- U.S. sales of Avastin(R) (bevacizumab) in 2005 increased 108 percent to $1,132.9 million from $544.6 million in 2004. Fourth quarter Avastin sales increased 89 percent to $359.1 million from $190.5 million in the fourth quarter of 2004. Sequential quarter-over-quarter Avastin sales increased 10 percent from third quarter 2005 sales of $325.2 million. -- U.S. sales of Herceptin(R) (Trastuzumab) in 2005 increased 56 percent to $747.2 million from $479.0 million in 2004. Fourth quarter Herceptin sales increased 98 percent to $250.1 million from $126.0 million in the fourth quarter of 2004. Sequential quarter-over-quarter Herceptin sales increased 16 percent from third quarter 2005 sales of $215.1 million. -- U.S. sales of Tarceva(R) (erlotinib) in 2005 were $274.9 million, compared to $13.3 million in 2004, following its approval on November 18, 2004. Sequential quarter-over-quarter Tarceva sales increased 15 percent to $83.9 million from third quarter 2005 sales of $73.2 million. -- U.S. sales of Xolair(R) (Omalizumab) in 2005 increased 71 percent to $320.6 million from $187.6 million in 2004. Fourth quarter Xolair sales increased 55 percent to $93.3 million from $60.3 million in the fourth quarter of 2004. -- U.S. sales of RAPTIVA(R) (efalizumab) in 2005 increased 51 percent to $79.2 million from $52.4 million in 2004. Fourth quarter RAPTIVA sales increased 24 percent to $20.4 million from $16.4 million in the fourth quarter of 2004. -- U.S. sales of legacy products in 2005, including growth hormone, cardiovascular products and Pulmozyme(R) (dornase alfa, recombinant) Inhalation Solution, increased 11 percent to $775.5 million from $700.3 million in 2004. Fourth quarter legacy product sales increased 11 percent to $202.3 million from $182.0 million in the fourth quarter of 2004. -- Product sales to collaborators increased 65 percent to $326.4 million from $197.7 million in 2004. Royalty and Contract Revenues -- Royalty revenues increased 46 percent to $935.1 million from $641.1 million in 2004. -- Contract revenues decreased 9 percent to $210.2 million from $231.2 million in 2004. Total Costs and Expenses -- Cost of sales as a percentage of product sales was 18 percent, comparable to 2004. Cost of sales increased 50 percent to $1,011.1 million from $672.5 million in 2004. -- Research and development (R&D) expenses increased 33 percent to $1,261.8 million from $947.5 million in 2004. R&D expenses as a percentage of operating revenues were 19 percent, compared to 21 percent in 2004. -- Marketing, general and administrative (MG&A) expenses increased 32 percent to $1,435.0 million from $1,088.2 million in 2004. MG&A expenses as a percentage of operating revenues were 22 percent, compared to 24 percent in 2004. -- Collaboration profit-sharing expenses in 2005 increased 39 percent to $823.1 million from $593.6 million in 2004, due primarily to strong sales performance for Rituxan, Xolair and Tarceva. Clinical Development

"Moving toward our Horizon 2010 goals, Genentech added 13 new projects into the pipeline in 2005, including three new molecular entities in oncology," said Susan D. Hellmann, M.D., M.P.H., president of Product Development. "Genentech received positive data from eight important Phase III clinical trials of Herceptin, Avastin, Rituxan and Lucentis. We also filed five submissions for product approval with the FDA, an unmatched accomplishment for Genentech."

Genentech anticipates filing multiple supplemental Biologics License Applications (sBLAs) in 2006, starting with Herceptin in the adjuvant setting in the first quarter of 2006. The company also expects to file two sBLAs for Avastin in the second quarter of 2006 - one in first-line non-squamous, non- small cell lung cancer, and another in first-line metastatic breast cancer. Genentech also announced that in February 2006 it expects U.S. Food and Drug Administration (FDA) action on two Rituxan filings, one for front-line intermediate grade or aggressive front-line non-Hodgkin's lymphoma (NHL) and one for rheumatoid arthritis for patients who have an inadequate response to anti-TNF therapy. In the fourth quarter of 2005, Genentech completed enrollment in the Phase III study of Rituxan in primary progressive multiple sclerosis, as well as in the Phase II combination study of Avastin and Tarceva in non-small cell lung cancer.

Other Company Events

On December 23, 2005, the U.S. Patent Office received from another third party an additional request for reexamination of the Cabilly, et al. U.S. Patent No. 6,331,415 (Cabilly patent). The Patent Office has not yet acted upon this request.

On October 31, 2005, the U.S. Food and Drug Administration granted approval for the production of Avastin bulk drug substance for commercial use from two 10,000-liter bioreactors at Genentech's Porrino, Spain manufacturing facility.

Webcast:

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Tuesday, January 10, 2006, 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, 2006. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on January 10, 2006 through 5:15 p.m. PT on January 17, 2006. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 3689902.

About Genentech:

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.

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 the expected time frame for the Herceptin and Avastin sBLA filings and long-term growth, including 2006 non-GAAP EPS growth. Such statements are just predictions and involve risks and uncertainties such that actual results may differ materially. Among other things, the time frame for the sBLA filings could be affected by unexpected safety, efficacy or manufacturing issues, delays in receiving study data from third parties, additional time requirements for data analysis and BLA preparation, or FDA actions or delays; and our long-term growth, including 2006 non-GAAP EPS growth, could be affected by all of the foregoing and by failure to receive FDA approval, competition, pricing, reimbursement, the ability to supply product, product withdrawals, new product approvals and launches, achieving product sales revenue consistent with internal forecasts, unanticipated expenses such as litigation or legal settlement expenses or equity securities write-downs, costs of sales, R&D expenses, fluctuations in royalties and contract revenues, 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.

Media Contact: Debra Charlesworth (650) 225-2742 Caroline Pecquet (650) 467-7078 Investor Contact: Kathee Littrell (650) 225-1034 Sue Morris (650) 225-6523 http://www.gene.com GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited) Three Months Ended December 31, 2005 GAAP(1) Difference Non-GAAP(2) Revenues: Product sales $1,576,964 $1,576,964 Royalties 265,099 265,099 Contract revenue and other 51,032 51,032 Total operating revenues 1,893,095 1,893,095 Costs and expenses: Cost of sales 244,914 244,914 Research and development 411,610 411,610 Marketing, general and administrative 429,357 429,357 Collaboration profit sharing 228,417 228,417 Recurring charges related to redemption 26,591 $(26,591)(3) -- Special items: litigation-related 13,483 (13,483)(4) -- Total costs and expenses 1,354,372 (40,074) 1,314,298 Operating income 538,723 40,074 578,797 Other income (expense): Interest and other income, net(5) 43,743 43,743 Interest expense (23,035) (23,035) Total other income, net 20,708 20,708 Income before taxes 559,431 40,074 599,505 Income tax provision 220,192 16,029 236,221 Net income $339,239 $24,045 $363,284 Earnings per share: Basic $0.32 $0.02 $0.34 Diluted $0.31 $0.03 $0.34 Weighted average shares used to compute earnings per share: Basic 1,054,724 1,054,724 Diluted 1,080,152 1,080,152 Three Months Ended December 31, 2004 GAAP(1) Difference Non-GAAP(2) Revenues: Product sales $1,066,302 $1,066,302 Royalties 181,220 181,220 Contract revenue and other 67,778 67,778 Total operating revenues 1,315,300 1,315,300 Costs and expenses: Cost of sales 205,373 205,373 Research and development 310,196 310,196 Marketing, general and administrative 299,495 299,495 Collaboration profit sharing 170,070 170,070 Recurring charges related to redemption 34,534 $(34,534)(3) -- Special items: litigation-related (3,189) 3,189(4) -- Total costs and expenses 1,016,479 (31,345) 985,134 Operating income 298,821 31,345 330,166 Other income (expense): Interest and other income, net(5) 24,041 24,041 Interest expense (2,718) (2,718) Total other income, net 21,323 21,323 Income before taxes 320,144 31,345 351,489 Income tax provision 113,560 12,540 126,100 Net income $206,584 $18,805 $225,389 Earnings per share: Basic $0.20 $0.01 $0.21 Diluted $0.19 $0.02 $0.21 Weighted average shares used to compute earnings per share: Basic 1,049,700 1,049,700 Diluted 1,070,708 1,070,708 (1) Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP). (2) Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects. (3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock. (4) Includes accrued interest and bond costs related to the City of Hope trial judgment in Q4 2005 and 2004, net of a released accrual in Q4 2004 on a litigation matter. (5) "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 biotechnology debt and equity securities. For further detail, refer to our web site at www.gene.com. 2006 Reconciliation of GAAP and Non-GAAP EPS Our 2006 non-GAAP EPS estimate does not include: (i) recurring amortization charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $105 million on a pretax basis in 2006, (ii) litigation-related special items for accrued interest and associated bond costs on the City of Hope judgment and net amounts paid on other litigation settlements, which are currently estimated to be approximately $52 million on a pretax basis in 2006, and (iii) stock compensation expense associated with Genentech's adoption of Statement of Financial Accounting Standards No. 123R on January 1, 2006, which we expect the net of tax diluted EPS impact to be in the range of $0.15 to $0.17 per share for 2006. Our 2006 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 accounting principles, all of which may be significant. GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited) Year Ended December 31, 2005 GAAP(1) Difference Non-GAAP(2) Revenues: Product sales $5,488,058 $5,488,058 Royalties 935,112 935,112 Contract revenue and other 210,202 210,202 Total operating revenues 6,633,372 6,633,372 Costs and expenses: Cost of sales(6) 1,011,069 1,011,069 Research and development 1,261,824 1,261,824 Marketing, general and administrative(6) 1,435,025 1,435,025 Collaboration profit sharing 823,083 823,083 Recurring charges related to redemption 122,746 $(122,746)(3) -- Special items: litigation-related 57,774 (57,774)(4) -- Total costs and expenses 4,711,521 (180,520) 4,531,001 Operating income 1,921,851 180,520 2,102,371 Other income (expense): Interest and other income, net(5) 140,927 140,927 Interest expense (49,929) (49,929) Total other income, net 90,998 90,998 Income before taxes 2,012,849 180,520 2,193,369 Income tax provision 733,858 72,207 806,065 Net income $1,278,991 $108,313 $1,387,304 Earnings per share: Basic $1.21 $0.11 $1.32 Diluted $1.18 $0.10 $1.28 Weighted average shares used to compute earnings per share: Basic 1,054,952 1,054,952 Diluted 1,080,949 1,080,949 Year Ended December 31, 2004 GAAP(1) Difference Non-GAAP(2) Revenues: Product sales $3,748,879 $3,748,879 Royalties 641,119 641,119 Contract revenue and other 231,159 231,159 Total operating revenues 4,621,157 4,621,157 Costs and expenses: Cost of sales(6) 672,526 672,526 Research and development 947,513 947,513 Marketing, general and administrative(6) 1,088,111 1,088,111 Collaboration profit sharing 593,616 593,616 Recurring charges related to redemption 145,485 $(145,485)(3) -- Special items: litigation-related 37,087 (37,087)(4) -- Total costs and expenses 3,484,338 (182,572) 3,301,766 Operating income 1,136,819 182,572 1,319,391 Other income (expense): Interest and other income, net(5) 89,997 89,997 Interest expense (7,400) (7,400) Total other income, net 82,597 82,597 Income before taxes 1,219,416 182,572 1,401,988 Income tax provision 434,600 73,031 507,631 Net income $784,816 $109,541 $894,357 Earnings per share: Basic $0.74 $0.11 $0.85 Diluted $0.73 $0.10 $0.83 Weighted average shares used to compute earnings per share: Basic 1,055,165 1,055,165 Diluted 1,079,209 1,079,209 (1) Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP). (2) Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects. (3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock. (4) Includes accrued interest and bond costs related to the City of Hope trial judgment in 2005 and 2004 and net amounts paid in 2005 related to other litigation settlements, net of a released accrual in 2004 on a litigation matter. (5) "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 biotechnology debt and equity securities. For further detail, refer to our web site at www.gene.com. (6) Certain minor amounts for the nine months ended September 30, 2005 have been reclassified to conform to the current year-end presentation. 2006 Reconciliation of GAAP and Non-GAAP EPS Our 2006 non-GAAP EPS estimate does not include: (i) recurring amortization charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $105 million on a pretax basis in 2006, (ii) litigation-related special items for accrued interest and associated bond costs on the City of Hope judgment and net amounts paid on other litigation settlements, which are currently estimated to be approximately $52 million on a pretax basis in 2006, and (iii) stock compensation expense associated with Genentech's adoption of Statement of Financial Accounting Standards No. 123R on January 1, 2006, which we expect the net of tax diluted EPS impact to be in the range of $0.15 to $0.17 per share for 2006. Our 2006 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 accounting principles, all of which may be significant. GENENTECH, INC. CONSOLIDATED BALANCE SHEETS DATA (in thousands) (unaudited) December 31, 2005 2004 Selected balance sheet data: Cash, cash equivalents and short-term investments $2,365,161 $1,665,105 Accounts receivable - product sales, net 554,455 599,052 Accounts receivable - royalties, net 296,664 217,482 Accounts receivable - other, net 232,297 143,421 Inventories 702,515 590,343 Long-term marketable debt and equity securities 1,448,731 1,115,327 Property, plant and equipment, net 3,349,352 2,091,404 Goodwill 1,315,019 1,315,019 Other intangible assets 573,779 668,391 Other long-term assets 1,041,219 787,914 Total assets 12,146,879 9,403,395 Total current liabilities 1,659,832 1,238,030 Total liabilities 4,677,295(4) 2,621,205 Total stockholders' equity 7,469,584 6,782,190 Year-to-date: Capital expenditures $1,399,824(5) $649,858 Total GAAP(1) depreciation and amortization expense 370,166 353,221 Less: redemption related amortization expense(3) (122,746) (145,485) Non-GAAP(2) depreciation and amortization expense $247,420 $207,736 (1) In accordance with U.S. generally accepted accounting principles (or GAAP). (2) Non-GAAP amounts exclude amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock. (3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock. (4) Includes approximately $2 billion related to our debt issuance in July 2005. (5) Excludes approximately $94 million in capitalized costs related to our accounting for a construction project which we are considered to be the owner of during the construction period. We have recognized a corresponding amount as a construction financing obligation in long-term debt. GENENTECH, INC. NET PRODUCT SALES DETAIL (in thousands) (unaudited) Three Months Ended December 31, 2005 2004 Net U.S. Product Sales Rituxan $484,404 $429,184 Herceptin 250,069 125,952 Avastin 359,110 190,546 Nutropin products 94,891 91,894 Thrombolytics 58,389 47,300 Pulmozyme 49,008 42,757 Xolair 93,250 60,340 Raptiva 20,453 16,421 Tarceva 83,891 13,348 Total U.S. product sales 1,493,465 1,017,742 Net product sales to collaborators 83,499 48,560 Total Product Sales $1,576,964 $1,066,302 Year Ended December 31, 2005 2004 Net U.S. Product Sales Rituxan $1,831,529 $1,573,997 Herceptin 747,274 478,948 Avastin 1,132,805 544,680 Nutropin products 370,461 348,790 Thrombolytics 218,494 194,433 Pulmozyme 186,490 157,097 Xolair 320,433 187,672 Raptiva 79,256 52,392 Tarceva 274,884 13,348 Total U.S. product sales 5,161,626 3,551,357 Net product sales to collaborators 326,432 197,522 Total Product Sales $5,488,058 $3,748,879 GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, ex

Back to news