With a 23 percent increase in product sales, Genentech Inc. chalked up earnings in the second quarter of 31 cents per share, a 35 percent jump in EPS, figured on a non-GAAP (generally accepted accounting principles, formerly known as pro forma) basis.
The number beat the Wall Street consensus estimate of 26 cents per share.
"It's a situation where Genentech can do no wrong," said Ronald Renaud, analyst with Bear Stearns in New York. "Since Avastin, they have a two-year hall pass. Everything's going to be rosy."
In early June, South San Francisco-based Genentech disclosed much-lauded positive data from a Phase III trial of Avastin (bevacizumab) for colorectal cancer - results that offset what might have been perceived as a slippage in demand for Rituxan (rituximab), the company's drug for non-Hodgkin's lymphoma. (See BioWorld Today, June 3, 2003.)
On a GAAP basis, Genentech's EPS increased to 25 cents, compared to a loss of 41 cents per share for the second quarter of 2002.
Distinguishing between GAAP and non-GAAP earnings is the result of an SEC rule adopted as part of the Sarbanes-Oxley Act, signed into law last year by President Bush and intended to clarify the way companies have arrived at their financial results. If the company uses a non-GAAP method of accounting, results must also be offered using GAAP.
Genentech's EPS and net income on the non-GAAP basis exclude charges related to the redemption in 1999 by Roche Holdings Inc. of Genentech's stock, along with some litigation-related special charges. But either way the numbers are viewed, Genentech came through strong again.
Non-GAAP net income jumped 36 percent to $163.5 million compared to $120.5 million in the second quarter of last year. GAAP net income increased to $132.3 million compared to a loss of $213.6 million last year.
Operating revenues increased 29 percent to $799.7 million compared to $622.3 million for the period last year, driven - once again - mainly by sales of Rituxan and the breast-cancer drug Herceptin (trastuzumab).
Total product sales topped out at $644.3 million compared to $523.5 million for last year's second quarter. Rituxan sales rose 32 percent to $363.4 million ($274.9 million in the second quarter of last year) and Herceptin sales climbed 15 percent to $109.1 million ($95.1 million for the period in 2002).
If the powerhouse Genentech has an Achilles' heel, a point where it's vulnerable to criticism, that might be Rituxan, Renaud told BioWorld Today.
"I think it's still doing well," he said. "Year over year, it grew more than 30 percent. This is a terrific drug, still in very high demand, but it's been a screaming high-growth product for so long, with 40 [percent] to 50 percent growth, that those first couple quarters are difficult to swallow when they happen."
Whether the trend will continue is hard to say, he added.
Sales beat many estimates, but Genentech and partner IDEC Pharmaceutical Inc. raised the drug's price by 5.5 percent in March, and the success by Rituxan during the quarter (which showed sales higher than the first quarter by 6.57 percent worldwide and 5.8 percent in the U.S.) may have been more attributable to the price hike than end-user demand.
At the same time, inventory was at the low end of the range at the end of the second quarter, Genentech said - a state of affairs that could make sales appear artificially low as compared to end-user demand.
"It's a little difficult to tease out," Renaud said. "There were some slight increases in demand." Genentech said 3.8 percent of the 5.8 percent growth in the U.S. was attributable to the price increase.
"Had Avastin not worked, then the Rituxan sales would have had a much more dramatic negative impact on Genentech," Renaud said. "And the same had [Rituxan partner] IDEC not entered into this merger with Biogen."
Last month, San Diego-based IDEC said it was planning a "merger of equals" with Biogen Inc., of Cambridge, Mass., creating a combined entity with a $13.7 billion market cap. (See BioWorld Today, June 24, 2003.)
The quarter has been a lively one for Genentech, which saw not only positive Avastin data but also approval of Xolair, the monoclonal antibody for asthma that targets immunoglobulin E and is the subject of a three-way deal with Houston-based Tanox Inc. and Novartis Pharma AG, of Basel, Switzerland. (See BioWorld Today, June 23, 2003.)
Genentech entered a distribution deal for Xolair with AdvancePCS, the latter said Wednesday. Irving, Texas-based AdvancePCS will provide Xolair to patients whose pharmacy benefits are managed by the firm, but terms were not disclosed.
Genentech said it has established a network of five specialty pharmacies to dispense Xolair and provide support services. A 250-person sales force (half from Genentech and half from Novartis) will be dedicated to the drug, shipping of which began this week.
Genentech expects to submit a biologics license application for Avastin by the end of September, and the drug could be approved by the end of this year, with data from a supportive study in colorectal cancer coming in the third quarter. Roche is expected to submit a marketing application in the European Union by the end of this year or the first quarter of next.
Meanwhile, plenty more juice might be wrung from Rituxan, Renaud said.
"We're expecting data from the maintenance setting later this year, which is probably 5 percent of overall sales," he said. "If that data is very strong, you could see another big acceleration of Rituxan sales." It's too early to say how much, he added, but the number could rise as high as 20 percent.
Other applications beyond NHL might be idiopathic thrombocytopenia purpura, rheumatoid arthritis and lupus. Rituxan was approved in 1997 for relapsed or refractory, low-grade or follicular, CD20-positive B-cell NHL. "In any situation where a B-cell issue is implicated, I think Rituxan's at the top of mind," Renaud said.
Genentech's stock (NYSE:DNA) gained 13 cents Thursday to close at $77.51. IDEC shares (NASDAQ:IDPH) fell $1.15 to close at $37.40.