By Frances Bishopp

In pursuit of a promising pipeline, Genentech Inc. reported heavy investment in research and development in the first quarter of 1997 as the reason for a 17 percent earnings drop compared to first quarter 1996.

Revenues for the first quarter 1997, however, jumped 6 percent compared to the same quarter in 1996.

The South San Francisco company reported earnings of $31.6 million, or 25 cents a share, for the first quarter 1997, compared to $38.2 million, or 31 cents a share, in the first quarter of 1996.

Reported revenues increased to $257.3 million from $242.9 million in the same quarter of 1996. This reflects a significant increase in royalties from increased sales of products by licensees as well as a slight increase in product sales, the company said.

Research and development spending jumped 6 percent in the first quarter of 1997 to $122.7 million compared to $115.6 million in the first quarter of 1996.

Analyst Sharon Seiler, of New York-based Oppenheimer & Co., said Genentech's research and development spending came as no surprise given the number of products the company has in late-stage trials and, in fact, Genentech's first-quarter earnings were right in line with general expectations.

Half Of Revenue Went To R & D

For the first quarter of 1997, Genentech invested approximately 48 percent of revenues into research and development, as it did in the first quarter of 1996, reflecting an anticipated leveling off of research and development spending as a percentage of revenues for 1997.

With products closer to commercialization, Genentech officials said, the company expects to reduce the research and development spending ratio to approximately 25 to 30 percent of revenues by the turn of the century.

During the quarter, Genentech's U.S. thrombolytic market share with its most popular drug, Activase, reached approximately 85 percent, compared to 75 percent in the first quarter of 1996 and approximately 80 percent at the end of 1996.

Offsetting Activase's strong market share, the overall size of the thrombolytic therapy market declined since the first quarter of 1996 as a result of an increasing number of heart attack patients receiving angioplasty rather than thrombolytic therapy and some heart attack patients receiving therapy through ongoing, large-scale clinical trials, company officials said.

As a result, Activase sales during the first quarter of 1997 decreased slightly to $75 million compared to $76.6 million in the first quarter of 1996.

Genentech officials said Activase's competitor, new thrombolytic agent Retavase, demonstrated in a Phase III study that it did not provide a statistically significant benefit in 30-day mortality as compared to Activase.

Retavase was developed by Boehringer Mannheim Corp., a Gaithersburg, Md.-based division of the Boehringer Mannheim Group, which is part of Bermuda-based Corange Ltd. Retavase was approved by the FDA for acute myocardial infarction in October 1996 and launched in January 1997.

Sales of Pulmozyme Inhalation Solution for moderate cystic fibrosis increased to $22.3 million in the first quarter of 1997 from $18.9 million in the first quarter of 1996.

Sales of Genentech's three growth hormone products, Protropin, Nutropin and Nutropin AQ, were at $55.9 million for the first quarter of 1997, compared to $56 million in the first quarter of 1996.

Genentech and Alkermes Inc., of Cambridge, Mass., are developing a sustained-release formulation of growth hormone designed to free patients from the need for daily injections.

In the first quarter of 1997, Genentech received regulatory clearance to market Nutropin AQ for the treatment of short stature from Turner's syndrome. Nutropin AQ now has regulatory clearance for the same indications as Nutropin growth hormone.

Also, in the first quarter, Genentech and Hoffman-La Roche Inc., of Nutley, N.J., which owns 70 percent of Genentech, entered into a marketing agreement under which Genentech will promote Roche's Roferon-A, recombinant interferon alfa-2a, in the U.S. for its approved oncology indications.

During the quarter, with partners IDEC Pharmaceuticals Corp., of San Diego, and Roche, Genentech submitted filings in the U.S. and Europe seeking clearance to market the C2B8 antibody for the treatment of relapsed low-grade non-Hodgkin's B-cell lymphoma.

Genentech's product sales for the quarter were $154.2 million, compared to $152.3 million for the same time in 1996.

Marketing, general and administrative expenses increased to $62 million in the first quarter of 1997 compared to $52 million in the first quarter 1996. The increase was attributed to marketing and sales expenses in preparation for the launch of Roferon-A, the potential launch of C2B8 antibody and an increase in overall corporate expenses.

Genentech also completed enrollment in one of two international Phase II trials for the second-generation thrombolytic TNK.

Genentech's stock (NYSE:GNE) closed Tuesday at $57.875, up $0.125. *