By Debbie Strickland

Staff Writer

With market share and sales of its leading thrombolytic and hormone products slipping again in the third quarter, Genentech Inc. has launched an ambitious plan to improve revenues and margins while restocking the company's developmental pipeline.

The long-range plan, implemented in the just-ended third quarter, has these among its goals:

* Introduction of four developmental molecules annually by the year 2000;

* Revenue growth of 20 percent to 30 percent annually by 2001;

* Increase of net income to at least 25 percent of revenue by sometime between 2000 and 2002;

* Reduction of research and development expenses to between 20 percent and 25 percent of revenue sometime between 2000 and 2002.

"It's a very ambitious plan and one that we feel is really important to our future heading into next century," said spokeswoman Laura Leber.

In the third quarter, which ended Sept. 30, South San Francisco-based Genentech's net income accounted for 13 percent of revenues, while R&D spending came in at 47 percent. Year-to-date figures are a comparable 12 percent and 47.6 percent, respectively.

Revenues held steady during the quarter, though a bigger tax bite helped deflate earnings 37 percent. Net income fell to $32.1 million from $50.9 million in the third quarter of 1996. The company noted that taxes accounted for $7.9 million of the difference.

At $87.5 million, year-to-date net income is down 21 percent from the first nine months of 1996.

Revenues of $248.9 million were off a hair — 1.1 percent — from last year's third quarter total of $251.7 million. For the year to date, revenues are virtually unchanged at $739.7 million vs. last year's $738.4 million for the comparable period.

Explaining the slight third-quarter ebb, Genentech cited anticipated fluctuations in contract revenues — majority stockholder Roche Holding Ltd. alone anted up $28.4 million in the third quarter of 1996 primarily for the exercise of a nerve growth factor option. Contract revenues for 1997's third quarter were $29.4 million, down from $38.9 million in the comparable 1996 period.

Royalties, however gained $5.2 million, hitting $59.6 million.

The key category of product sales held steady at $142.3 million vs. $142.5 million a year ago.

Competitors Chip Away At Activase Sales

At $60.7 million, sales of the thrombolytic Activase (tPA) were down 7.2 percent vs. the 1996 third quarter. Market share continued to slip, falling to 76 percent from 79 percent in the second quarter of 1997 and 85 percent in the first quarter. For the year to date, Activase sales totaled $204 million, down from $214.3 over the first nine months of 1996.

Genentech cited the entry of "a new competitive thrombolytic agent" — Retavase, produced by Boehringer Mannheim GmbH, of Mannheim, Germany. (Boehringer was acquired in May by Roche.) Moreover, Genentech said, the size of the thrombolytic market is declining due to the growing popularity of mechanical reperfusion as an alternative.

Meanwhile, the company is readying its next-generation clot dissolver, TNK-tPA, for Phase III trials. Phase II studies indicated that an injection of TNK-tPA lasting five to 10 seconds had comparable efficacy and safety properties to the current standard treatment for heart attacks, the 90-minute infusion of tPA.

Third-quarter sales of the three Genentech growth hormone products were stable, at $57 million for the quarter, down just $600,000 from the year-ago period. Year-to-date sales of $168.5 million are running slightly ahead of last year's $167.6 million. Genenetech, which has four competitors in the U.S. growth hormone market, said it has a comprehensive plan to defend its market position.

"Genentech has maintained excellent relationships with the endocrine community," said Leber. "We've shown a true commitment to the growth hormone market, and that commitment is backed up with continued research and development."

The company, for example, maintains a post-marketing registry that tracks patients who have received the hormones. While originally mandated by the FDA when the agency approved Protropin for children with growth hormone deficiency, Genentech voluntarily expanded the program and now works with 500 participating physicians and 340 medical institutions to track 16,000 children in the U.S. and Canada.

Pulmozyme Gaining Market Strength

The company's other major product, Pulmozyme Inhalation Solution for cystic fibrosis, edged upward during the quarter with a 32 percent increase to $23.8 million and a 15 percent gain to $66.3 million for the year-to-date, compared with the same periods a year ago. Pulmozyme revenues are down, however, compared with 1995, when sales totaled $88.9 million in the first nine months.

During the third quarter, Genentech spent 47 percent of revenues — or $118.1 million — on research and development, up slightly from $114.8 million in the comparable 1996 quarter. So far this year, the company has introduced two new molecules to its pipeline, vascular endothelial growth factor (VEGF), in Phase I trials for coronary arterial disease, and anti-VEGF, in Phase I studies for solid tumors.

At the other end of the pipeline are two advanced-stage products: Rituxan, a monoclonal antibody created by IDEC Pharmaceuticals Corp., of San Diego, for the treatment of relapsed or refractory low-grade or follicular non-Hodgkin's B-cell lymphoma; and rhuMab-E25 (E25), a recombinant humanized monoclonal antibody to immunoglobulin E, under development for asthma with partners Novartis A.G., of Basel, Switzerland, and Tanox Biosystems Inc., of Houston.

Rituxan won an FDA advisory committee's recommendation in July, while E25 has passed a Phase II trial and is expected to enter Phase III in early 1998.

Genentech's shares (NYSE:GNE) closed Tuesday at $59, up $0.125.

Basel, Switzerland-based Roche currently owns about two-thirds of the company's shares and has the right to buy the company at a steadily escalating price until June 1999. At that point, Genentech shareholders may "put" their shares to Roche for $60 per share.

The company's stock has been trading between $56 and $59 for the last six months. *