Fueled by sales of Herceptin and Rituxan, Genentech Inc. reported 1998 revenues of $1.1 billion, compared to $1 billion for 1997, with net income jumping 41 percent to $181.9 million, or $1.40 per share, from $129 million, or $1.02 per share, in 1997.
"Genentech said it would spend three years - from 1995 - to concentrate on developing new drugs and they did what they said," Jay Silverman, senior analyst for BancBoston Robertson Stephens Inc. in New York, told BioWorld Today. "They're now clicking on all cylinders."
"They exceeded our estimates and the consensus handily," said John Alsenas, managing director of ING Baring Furman Selz LLC in New York. "They're way ahead of their program and they're prettying up earnings and controlling costs to increase net income."
Product sales increased by 23 percent, to $717.8 million, from $584.9 million in 1997, driven mostly by sales of Herceptin (trastuzumab) and Rituxan (rituximab). Launched Oct. 5, Herceptin recorded sales of $30.5 million. Herceptin is a monoclonal antibody approved for use in combination with paclitaxel, and as a single agent in second- and third-line therapy, for metastatic breast cancers that overexpress the HER2 (human epidermal growth factor receptor2) protein.
"If you want to look at the company as two companies, you could say that one part is their original products, and that's decaying due to competition and other things," Alsenas said. "The second is the next generation of products, led by Herceptin and Rituxan, and they're doing very well."
In its first full year on the market, Rituxan posted 1998 sales of $162.6 million and was used by more than 16,000 patients with relapsed or refractory low-grade non-Hodgkin's lymphoma. The drug won European approval in the second half of 1998. Sales for the fourth quarter, which ended Dec. 31, were $48.8 million. Rituxan is co-marketed with Idec Pharmaceuticals Corp., of San Diego, and Hoffmann-La Roche Ltd., of Basel, Switzerland.
Activase (Alteplase, recombinant) sales decreased to $213 million from $269.7 million in 1997 due to increased sales of competing thryombolytic agents and an overall decline in the market. Sales of growth hormone products decreased to $214 million in 1998 from $223.6 million in 1997, again due primarily to competition.
"We thought it was an excellent year with us as we met and well exceeded the estimates of $1.31 per share," Genentech spokeswoman Marie Kennedy said. "The performance reflected our long-range plan, which is to focus on our pipeline and deliver bottom-line results. And, if you look, our pipeline is really full."
Indeed, the South San Francisco-based company has six drugs in Phase III and five in Phase II.
"Instead of having 20 to 30 percent growth rate, they're going for a 20 percent this year, 30 percent next year and 40 percent in 2001. It's phenomenal," Silverman said. "With Rituxan and Herceptin, they'll have six new drugs in a few years. They should file three NDAs [new drug applications] this year, and at least one in 2000. It's remarkable productivity."
Added Alsenas: "Genentech has the best pipeline of any of the large-cap biotech companies."
Most likely next out of the pipeline is Nutropin Depot, a sustained-release growth hormone for the treatment of growth hormone deficiency in children. Genentech and partner Alkermes Inc., of Cambridge, Mass., expect to file an NDA this quarter.
Phase III results on Neuleze nerve growth factor in patients with diabetic peripheral neuropathy should be presented in June, and on TNK-tPA for patients with acute myocardial infarction in March. Genentech is partnered with Boehriger Ingelheim GmbH, of Ingelheim, Germany, on the latter drug.
Interim data on the Phase III trial of an anti-IgE antibody in allergic asthma and allergic rhinitis patients should be released sometime this year, with an NDA filing expected in 2000. That drug is being developed with Novartis AG, of Basel, Switzerland, and Tanox Biosystems Inc., of Houston.
Big Question Is Whether Roche Will Exercise Option
The big question hanging over Genentech, especially in light of such positive financial results, is whether Roche will exercise its option to acquire the entire company. Roche owns about 66 percent of Genentech and has a call option that expires June 30 to buy the remainder of the company.
"Obviously what we've done is set a vision and pursued it and not been distracted [by Roche's potential takeover]," Kennedy said. "What we hope we're doing is to prove our value to our shareholders and customers. Maybe Roche will think that we would be better off being left alone and prospering."
Analyst Silverman echoed Kennedy's views. "We're hoping they'll leave it alone. It's a shame for the investors and employees not to reap the rewards. Genentech's performance is the undisputed leader - it stands alone in the biotech industry. The question is whether Roche wants it all and could keep the employees as motivated, or whether it would be happy not having that one-third."
Alsenas said it's a quandary. "On Tuesday, I say Roche will exercise it; on Wednesday I say they won't. You could say that Roche has to because Genentech would be worth more to them. Plus, even if they spin it out, they'd still make a profit. Or, you could say that Roche must have a long-term strategy concerning Genentech's pipeline. Assets walk out the door every day and nobody there [at Genentech] has a retention agreement. You've got a company that doesn't want to be a Roche division."
Alsenas estimated Genentech's stock would quickly run up to about $100 per share if Roche doesn't exercise its option.
Genentech's stock (NYSE:GEN) closed Thursday at $79, up 37.5 cents per share. n