With first-quarter results that significantly surpassed analyst expectations, investors might find themselves shaking their heads or smiling widely - depending on whether or not they bought Genentech Inc.'s stock a year ago when it was running in the mid-$30 range.

The stock (NYSE:DNA) ended Thursday at $112, up $3.55, and should go up from there, analysts say.

The company, which announced its first-quarter results late Wednesday, posted total product sales for the quarter of $763.7 million - a 28 percent increase over sales from the first quarter last year.

"Very strong quarter," said Matt Geller, analyst with New York-based CIBC World Markets Corp. "I think the most noteworthy aspect are the Avastin numbers. It was a very strong launch for Avastin."

Indeed, it was. Avastin received approval in February for colorectal cancer and was launched the same day. In only six weeks, the product had sales of $38.1 million. CIBC estimated Genentech would bring in about $25 million during the quarter from Avastin, while Leerink Swann & Co. estimated about $20 million. SG Cowen Securities Corp. was looking for about $14 million.

"They exceeded our estimate by 50 percent," Geller told BioWorld Today.

Earnings per share were 38 cents in the first quarter - six cents above consensus estimates. Many analysts believe the stock will continue to outperform, as Avastin sales could reach $2 billion annually in the U.S. alone. Some analysts tinkered with the numbers on Thursday, edging revenue expectations up to account for the higher first-quarter Avastin sales. SG Cowen, for instance, raised its 2004 expectations for Avastin to $403 million, up from its original estimate of $350 million. Every $100 million in Avastin sales translates into about 10 cents in earnings per share, SG Cowen's research note said.

Genentech said it expects a non-GAAP earnings-per-share increase this year of 20 percent to 25 percent, based on its strong performance of Avastin.

Meanwhile, the stock keeps climbing.

"Based on traditional [methods], it's fully valued," Geller said. "However, based on the fact that this is a company that's going to have great earnings growth and great momentum behind it, we could see the stock going higher."

In other first-quarter financial results, the company reported operating revenues of $975.1 million, up 30 percent from the first quarter of 2003. The company's net income climbed 14 percent to $207.6 million, up from the $182.6 million collected last year at this time.

The only disappointment for the quarter was Rituxan sales, which were about $401 million, down from estimates of $415 million, according to a research note by SG Cowen analyst Eric Schmidt.

"Sales of Rituxan remain strong," said Myrtle Potter, president of Genentech's commercial operations, in a prepared statement, "although we did observe impacts from lower inventory levels at distributors."

Rituxan's sales, however, did increase by 17 percent from last year when they were at $341 million. Potter also said some physicians showed caution in using Rituxan due to new Medicare reimbursements.

Several of the company's other products also beat estimates. Sales of Herceptin, Xolair and Raptiva were $113.5 million, $30 million and $6.3 million, respectively. Pulmozyme sales increased 10 percent to $43.4 million, while the company's sales of growth hormone products increased 11 percent to $85.5 million. The only element that decreased was the company's thrombolytics sales - down 3 percent to $46.3 million, below analysts' estimates.

Genentech took in $154.1 million in royalties during the first quarter. It also received $57.3 million from its ongoing collaborations.

Geller said Genentech's guidance for the year is "extraordinarily conservative." He believes investors might do even better than they expect.

The company plans to report Phase III data in the second quarter from Tarceva's U.S. trial as a second-line therapy of non-small-cell lung cancer. Phase III pancreatic cancer results of the drug are expected sometime in the middle part of this year. Genentech also plans on completing enrollment by the third quarter of a Lucentis trial in predominantly classic age-related macular degeneration, and it plans to conduct further trials of Avastin in expanded cancer indications.

"I think we're set up for positive surprises going forward," Geller said. "I think people would be surprised to not be surprised. People are expecting surprises - if that's not an oxymoron."

In just nine months, the company successfully has launched three products. In addition to the Avastin approval in February, it received approval for Raptiva and Xolair in 2003.

The stock dipped slightly - about $3 - last month when Genentech reported poor preliminary Phase II results of Raptiva in psoriatic arthritis patients. The 107-patient Phase II study did not reach statistical significance at 12 weeks, showing at least a 20 percent improvement in the signs and symptoms of arthritis. Raptiva, which is partnered with Berkeley, Calif.-based XOMA Ltd., was approved in October for chronic moderate to severe plaque psoriasis in adults who are candidates for systemic therapy or phototherapy. (See BioWorld Today, Oct. 29, 2003, and March 23, 2004.)

Xolair, an asthma drug, was developed with Houston-based Tanox Inc. and Novartis Pharma AG, of Basel, Switzerland. It received FDA approval in June for asthma. (See BioWorld Today, June 23, 2003.)

Among its other products, Herceptin (trastuzumab) and Rituxan (rituximab) were approved for metastatic breast cancer and non-Hodgkin's lymphoma, respectively. And Pulmozyme was approved for cystic fibrosis in 1993.

But that stock. Since announcing positive Phase III data of Avastin last year, Genentech's stock has climbed steadily, closing at $93.57 at the end of 2003.

"We think it's a company with a great long-term growth story, but with a stock that isn't cheap at this point," Geller said.