By Mary Welch

In another quarter fueled by Rituxan sales, Genentech Inc. reported net income for the second three months of 1998 increased 70 percent to $40.4 million, or $0.31 per share, from $23.8 million, or $0.19 a share for the second quarter of 1997.

The South San Francisco-based company saw revenues rise 15 percent to $268 million, from $233.5 million in the same quarter a year ago.

Product sales in the second quarter of 1998 hit $176.3 million, up 22 percent from $145 million in the comparable 1997 quarter. Recently launched Rituxan (rituximab) accounted for $34.8 million, or about one-fifth of product sales.

Introduced in the fourth quarter of 1997 for treatment of refractory or relapsed low-grade non-Hodgkin's lymphoma (NHL), Rituxan's sales have soared. During its introductory quarter, it posted sales of $5.5 million and for the first quarter of 1998 sales were $37.7 million.

U.S. sales with partner Idec Pharmaceuticals Corp., of San Diego, Calif., were $32 million in the second quarter of this year; the additional $2.8 million represents sales of Rituxan to Roche Holding Ltd., of Basel, Switzerland, for marketing in Europe.

Rituxan was approved during the second quarter for sale in Europe under the trade name MabThera. The drug was approved by the FDA in November 1997.

"Rituxan sales were down slightly from the first quarter, but we attribute that to pent-up demand," said Peter Drake, an analyst with Vector Securities International Inc., in Deerfield, Ill.

"We expect to see strong numbers in the third and fourth quarters so that Rituxan will reach the predicted $140 million to $150 million in sales for this year."

Rituxan's Up, But Activase Sales Are Falling

Further fueling Drake's enthusiasm was the increased awareness of Rituxan, which is a chimeric monoclonal antibody aimed at the CD20 antigen found on mature B cells and on most NHL tumors.

"Awareness with oncologists was at 55 percent in the first quarter; that's up to 67 percent," he said. "Fourteen percent of all patients with low-grade non-Hodgkins lymphoma are using it as are 29 percent of relapsed NHL patients. The uptake is that it's pretty solid."

As with last quarter, sales of some Genentech products declined. Activase (tPA) used to treat heart attacks and stroke, declined 21 percent to $54.1 million over the same period of 1997. In the first quarter of 1998, sales were $55.7 million.

Unlike the first quarter of 1998, sales were up for Genentech's three growth hormone products: Protropin, Nutropin and Nutropin AQ (an aqueous form of the drug). Sales increased 12 percent to $62.3 million from $55.6 million in the second quarter of 1997. Sales in the first quarter of 1998 were $50.9 million.

Pulmozyme (dornase alfa) sales increased 19 percent to $24.1 million from $20.2 million in the second quarter of 1997, partly as a result of FDA approval for a label change in February allowing the drug to be used for cystic fibrosis patients in all age groups, including patients under 5 years old.

Research and development, in line with the company's reported strategy, decreased 16 percent to $92.9 million compared with $110.9 million in the second quarter of 1997.

For the first six months of 1998, Genentech reported net income of $81.4 million, or $0.63 per share, on revenues of $533 million, compared with $55.4 million, or $0.44 per share, on revenues of $491 million in the first half of 1997.

The company is awaiting word from the FDA on Herceptin, an anti-HER2 receptor antibody, for the treatment of women with metastatic breast cancer. Genentech, which submitted the biologics license application in May, expects to hear from the FDA by early November.

Genentech partner Dako Corp., of Carpinteria, Calif., submitted a pre-market approval application (PMA) to the FDA in the second quarter to market a diagnostic kit that screens breast cancer for overexpression of HER-2 to determine whether Herceptin treatment might be appropriate.

Also in the second quarter, Genentech inked a deal with Roche giving it exclusive marketing rights outside the U.S. for Herceptin. The initial up-front fee of $40 million to Genentech will be recorded in the third quarter with cash milestones to come.

Genentech ended a positive Phase II trial during the second quarter of its recombinant human nerve growth factor (rhNGF) for HIV-associated neuropathy and began Phase II trials of vascular endothelial growth factor (VEGF) for coronary artery disease.

"I think it's a very good quarter," said Meirav Chovav, an analyst with Salomon Smith Barney, of New York.

Genentech officials agreed. "We see it as a strong second quarter, and it reaffirms our goal to increase earnings and increase the percentage of revenues to the bottom line," said Paul Laland, director of corporate communications.

"We have a good product pipeline, and good growth products — both that we've developed ourselves or through strong partnerships. We think we've soundly positioned ourselves for consistent growth through the 21st century."

Genentech's stock (NYSE:GNE) closed Tuesday at $67.562, down $0.312. *