Genentech Inc. beat expectations for the third quarter and posted strong sales of Lucentis, but weaker-than-expected performance from its oncology franchise cast a shadow over the numbers.
For the quarter ending Sept. 30, Genentech reported operating revenue of $2.4 billion, which beat analyst estimates of $2.3 billion and were a 36 percent increase over the third quarter of 2005. Non-GAAP net income of $637 million, or 59 cents per share, and GAAP net income of $568 million, or 53 cents per share, also beat analyst estimates of 51 cents per share. Genentech ended September with about $4 billion in cash and investments.
Updating its guidance, Genentech said it expects 2006 non-GAAP EPS growth of 65 percent to 70 percent more than the $1.28 per share it recorded in 2005. That's up from the 55 percent to 60 percent it estimated at the close of the second quarter.
The earnings were reported late Tuesday, and South San Francisco-based Genentech closed at $84.15 Wednesday, down $1.45.
"The stock is down on the oncology news, but the earnings estimates are up on the other components," said Jason Kantor, biotechnology analyst with RBC Capital Markets in San Francisco. He cited the "very robust" launch of Lucentis, increased royalty income and decreased expenses as key upside factors.
Lucentis (ranibizumab), a wet age-related macular degeneration drug, pulled in $153 million in its first full quarter on the market, far outstripping analyst expectations. Kantor attributed the high sales to "pent-up demand" that can occur when an anticipated drug reaches the market, and he projected continued strong sales in the fourth quarter followed by slower or declining growth in the first half of 2007 and eventually normal growth in later 2007.
On a conference call, Ian Clark, executive vice president of commercial operations for Genentech, said that approximately 80 percent of Lucentis patients switched from competitive products, while the remaining 20 percent were newly diagnosed. Lucentis was approved and launched on the last day of the second quarter, generating record sales of $10 million that day. (See BioWorld Today, July 5, 2006.)
On the other end of the spectrum is the oncology franchise: Several product suffered flagging sales, when compared to the second quarter. Among those were Rituxan (rituximab) with sales of $509 million, down from $526 million the previous quarter; Herceptin (trastuzumab) with sales of $302 million, down from $320 million the previous quarter; and Tarceva (erlotinib) with sales of $100 million, down slightly from $103 million last quarter.
In a research note, Kantor said Rituxan and Herceptin sales were a combined $93 million lower than he had expected, perhaps due to successful launches of Rituxan in rheumatoid arthritis and Herceptin as an adjuvant for breast cancer, resulting in large numbers of patients who had completed treatment cycles and therefore were off product in the third quarter. Kantor projected "significant growth" in Rituxan starting in early 2007, as the initial rheumatoid arthritis patients become eligible for re-treatment, and normalized sequential sales growth for Herceptin in 2007.
During the quarter, Rituxan received approval for two indications within the non-Hodgkin's lymphoma (NHL) market, bringing its total approved uses in NHL to four. Additionally, Genentech President of Product Development Susan Desmond-Hellman said in the conference call that the company expects to hear from the FDA by Nov. 16 on a label for potential amendment to Herceptin's sBLA in adjuvant/early stage HER2-positive breast cancer. (See BioWorld Today, Oct. 3, 2006.)
Products posting higher U.S. sales than in the previous quarter included Xolair (omalizumab) at $107 million, Raptiva (efalizumab) at $23 million and Avastin (bevacizumab) at $435 million. Although Avastin was up from $423 million in the second quarter, it still failed to meet Kantor's expectation of $473 million. The anti-VEGF cancer drug is approved for metastatic cancer of the colon or rectum, but last month the FDA asked for additional documentation regarding its use in breast cancer, setting Genentech's launch in this indication back a year. (See BioWorld Today, Sep. 12, 2006.)
After market close Wednesday, Genentech announced the approval of its sBLA for Avastin in combination with carboplatin and paclitaxel chemotherapy for the first-line treatment of patients with unresectable, locally advanced, recurrent or metastatic non-squamous, non-small-cell lung cancer. Kantor himself had expected the approval, because "the Phase III lung cancer trial used survival as a primary endpoint, while the breast cancer trial used progression-free survival, which requires more documentation," he said.