Genentech Inc., the hottest company in biotechnology, announced its third-quarter earnings late Wednesday, generally beating estimates and looking positively toward the end of the year.

And what a year it's been for South San Francisco-based Genentech. On Jan. 2, Genentech's stock opened at $34.20. It languished in the mid-to-high $30s until May, when positive Avastin (bevacizumab) news in colorectal cancer was released. The company hasn't looked back since, growing more than 100 percent. Thursday its stock (NYSE:DNA) added another $3.23, pushing it to $81.98.

If investors believe most analysts (and the company itself), there's room to grow in that $80 price - the average analyst rating for Genentech is "buy."

For the quarter ended Sept. 30, Genentech reported non-GAAP earnings per share of 27 cents, beating The Street's consensus estimate of 25 cents. GAAP earnings per share were 29 cents. It posted non-GAAP net income of $143.9 million, up from $120.2 million 2002's third quarter. GAAP net income increased to $152 million, up from $89.3 million in 2002.

The GAAP and non-GAAP reporting method is designed to clarify financial results, based on a law passed last year. If a company issues results in a non-GAAP format, it must do the same in GAAP format.

Genentech received $654.9 million in product sales in the third quarter, an increase from $551.8 million in 2002's third quarter. Rituxan (rituximab), its product for non-Hodgkin's lymphoma, led the way, bringing in $371.7 million, a 26 percent increase from the year-before period, although the drug saw a decrease in sales abroad for the quarter. The breast cancer drug Herceptin earned $107.7 million, up 11 percent, and newly launched Xolair (the asthma product hit the market in July) recorded sales of $6.8 million.

Helping bolster the bottom line was $45.6 million in contract revenues, up from $13.2 million in 2002's second quarter. The company finished September with about $1.4 billion in cash and short-term investments. Its weighted average number of shares for the quarter was 532.8 million.

While Genentech topped Wall Street's estimate for the quarter, it's what lies ahead that has some analysts offering praise. Although the company, along with partner Melville, N.Y.-based OSI Pharmaceuticals Inc., announced last week that their product, Tarceva (erlotinib HCI), in combination with chemotherapy did not fare well as a front-line treatment in two Phase III metastatic non-small-cell lung cancer (NSCLC) trials, industry observers had expected that and the stock wasn't affected. What currently holds much investor interest is Avastin. (See BioWorld Today, Oct. 2, 2003.)

Calling the anti-angiogenesis cancer drug "key" to Genentech's stock, Eric Schmidt, analyst with SG Cowen Securities Corp., wrote in a research note that his firm's consultants "believe [Avastin] will very rapidly be adopted as standard of care in front-line colorectal cancer." Schmidt said the drug has blockbuster potential in colorectal cancer alone, although it almost certainly will be applied elsewhere. Avastin's biologics license application for colorectal cancer sits with the FDA now, having been filed in September. Mike King, analyst at Banc of America Securities, believes the drug could be approved by the end of the year. (See BioWorld Today, Sept. 30, 2003.)

Also on the market horizon is Lucentis (ranibizumab), Genentech's anti-vascular endothelial growth factor antibody fragment in Phase III trials for age-related macular degeneration (AMD). The drug is partnered with Novartis AG, of Basel, Switzerland, abroad and if things progress well, the company could be in a position to file for approval in the second half of 2004, Schmidt wrote.

Genentech has said it plans to grow at an annual average rate of 25 percent through 2005 - it calls the plan its "5x5 goal." Louis Lavigne, executive vice president and chief financial officer at Genentech on Wednesday said the company is "on track to meet or exceed" its 2003 financial guidelines, including "more than $3 billion in revenues and non-GAAP growth of at least 20 percent."

"We are continuing to make solid progress toward our 5x5 goals, to be reached by the end of 2005," he added.

Schmidt likes what he sees. Noting the "solid base business," the anticipated launch of Avastin, growth of Xolair (omalizumab) and perhaps approval of psoriasis product Raptiva (efalizumab) this month, Genentech "appears to have an embarrassment of riches," he said.

While valuing Avastin is difficult, he said, his firm expects "Genentech's stock to trade on news flow. We believe the next six months will continue to be favorable to Genentech as the company should benefit from anticipation of Avastin's launch and the potential upside of Lucentis in AMD, Tarceva in [second- or third-line NSCLC] and other pipeline products. As we move into 2004, the real driver of Genentech's stock price will be Avastin's ability to meet or beat initial Street expectations."