Staff Writer

Shares of Genentech Inc. received a 5 percent nudge Tuesday on earnings news released by the South San Francisco-based company. The company's stock (NASDAQ:DNA) closed up $3.86 to hit $79.25 at the day's end.

Investor optimism could have been boosted by sales success with several of Genentech's key products. Indeed, in addition to a 15 percent increase in Avastin sales, Genentech saw a 17 percent bump in Tarceva sales, a 15 percent rise in Pulmozyme earnings and a 12 percent boost in Rituxan revenues over the second quarter.

By the numbers, sales of Avastin increased from $564 million to $650 million over the past year. Genentech spokeswoman Caroline Pecquet told BioWorld Today that "with regard to Avastin, the year-over-year growth resulted from increased sales in metastatic breast cancer and first-line metastatic non-small-cell lung cancer."

Cowen and Co. LLC analyst Eric Schmidt also noted Avastin's strength, writing that "following three relatively flat quarters, U.S. sales of Avastin increased $50 million sequentially in Q2, the drug's first full quarter following FDA approval in BRCA." He said that Genentech estimates that its share of the first-line BRCA market increased from 25 to 35 percent, implying an overall U.S. market opportunity of $2 billion for Avastin in the metastatic breast cancer indication.

Moreover, Schmidt said that increase is in line with his firm's predictions that the drug's potential in adjuvant cancers remains a key determinant of Genentech's longer-term growth. As a result, his firm is maintaining its outperform rating for the stock.

Joel Sendek, a managing director and senior biotechnology analyst at Lazard Capital Markets, maintained a buy rating for the stock, and set a target price of $90. While he said Avastin sales were strong at $650 million, he noted that Avastin sales were "less than our above-consensus of $665 million."

He warned that failure of Avastin in adjuvant cancer settings could reduce the long-term EPS growth rate. Genentech could receive results of its Phase III trials of Avastin in colon cancer in the fourth quarter of this year.

Concerning Tarceva, Pecquet said that the company's "tracking data indicate that second-line lung cancer penetration has remained stable." Moreover, she added that front-line pancreatic cancer penetration increased to 40 percent, compared to the second quarter of last year. Sales of Tarceva increased from $102 million to $119 million between the second quarter of this year and Q2 of 2007.

Rituxan sales also boosted the company's bottom line. Sales of that product jumped from $582 million to $681 million.

Pecquet said that the second quarter typically has been a strong quarter for Rituxan. She noted that, "In hematology sales, growth continues to be driven primarily by use of Rituxan following first-line therapy in indolent non-Hodgkin's lymphoma."

In total, the company achieved U.S. product sales of nearly $2.4 million, a 9 percent increase from U.S. product sales of $2.1 million in the second quarter of 2007.

On top of the company's strong sales with Avastin, Tarceva and Rituxan, Genentech saw sales revenues increase by 3 percent for both Herceptin and Lucentis. Product sales also increased 8 percent for Xolair and 5 percent for Nutropin. Pulmozyme sales climbed 15 percent, to top $63 million. Additionally, Genentech's Non-GAAP operating revenue for the quarter peaked at $3.23 million, an 8 percent increase from operating revenue of $3 million in the second quarter of 2007. Similarly, GAAP operating revenue reached $3.24 million for the quarter, an 8 percent increase from operating revenue of $3 million in the second quarter of 2007.

Non-GAAP net income tallied $871 million, a 4 percent increase from $834 million in the second quarter of 2007. In addition, GAAP net income reached $782 million, increasing 5 percent from the second quarter of 2007. Non-GAAP earnings per share hit 82 cents, a 5 percent increase and GAAP earnings totaled 73 cents per share, a 4 percent increase.

Despite the fact that Genentech reported non-GAAP earnings per share that were 4 cents below consensus on in-line revenues of $3.23 billion, Schmidt said that the company had a solid quarter. Excluding items relating to manufacturing writedowns of $50 million and an income tax settlement of $33 million, Schmidt noted that the company's non-GAAP EPS would have been 88 cents.

The company currently is forecasting that full-year 2008 non-GAAP earnings are likely to be in the range of $3.40 to $3.50 per share, revised from $3.35 to $3.45 per share.

Schmidt said that increase appears very achievable. Furthermore, Sendek increased his 2008 EPS to $3.44 from $3.40 based on the company's strong second-quarter revenues.

In addition, Sendek said he believes Genentech's shares will continue to appreciate and that his firm anticipates additional label expansions for several of the company's approved drugs as well as multiple data releases from early stage products that could prove compelling.