After two quarters of decline in net income for 1996, Genentech Inc.recorded a 27 percent increase for the third quarter, boosting profitsto nearly $51 million compared with $40 million for the same periodlast year.

Income for the first nine months of 1996, however, was off 8 percentto $110.9 million compared with $120.8 million for the first threequarters of 1995.

Per share earnings for the third quarter this year jumped to 41 centsfrom 33 cents the year before. For nine months, earnings dropped to90 cents per share from $1 in 1995.

Fueling South San Francisco-based Genentech's third quarterearnings rise was an increase in contract revenue of more than $34million, derived primarily from its majority stockholder, RocheHolding Ltd., of Basel, Switzerland.

Roche, which owns about 70 percent of Genentech, paid the company$28.7 million to exercise an option on development of Genentech'snerve growth factor (NGF) outside the U.S. The Swiss drug maker'spayment followed positive results for NGF in Phase II U.S. studiesfor treatment of diabetic peripheral neuropathy. A Phase III trial isscheduled to begin by the end of the year.

Roche's funding helped boost Genentech's contract revenue to $38.9million for the third quarter of 1996 from $4.5 million in the samethree months in 1995.

Genentech's overall revenues increased to $251.7 million for thequarter from $223.9 million during the third quarter last year.

Although overall product sales for the third quarter of 1996decreased to $142.5 million from $158.5 million for the same periodin 1995, royalty revenue was up 19 percent to $54.4 million from$45.6 million.

In late 1995, Genentech began receiving royalties on Canadian salesof its drugs and on European sales of Pulmozyme from Roche.Previously Genentech's revenues included figures for sales of thoseproducts.

Sales of Genentech's growth hormone drugs, Protropin and Nutropin,increased to $57.6 million in the third quarter of 1996 compared with$53.4 million for the same quarter in 1995. The company's cysticfibrosis drug, Pulmozyme, generated $18 million in sales comparedwith $17.1 the year before.

Sales of Activase (tPA), Genentech's biggest selling drug, dropped to$65.4 million in the third quarter from $69.7 million last year.Despite the decrease, the company said its clot-buster for acute heartattacks dominates 80 percent of the market for thrombolytics. Thedrug's label also was expanded in June 1996 when it was approvedby the FDA for treating ischemic stroke.

Protropin and Nutropin, the company said, account for two-thirds ofgrowth hormone sales in the U.S.

Genentech also received a boost in its third quarter 1996 earningsfrom a decision not to form overseas subsidiaries for developmentand manufacturing of certain drug candidates. The plan was designedas a long-term tax savings maneuver, but would have generated ashort-term tax increase. By scuttling the program, the company said itsaved $1.8 million in the third quarter this year.

Contributing to Genentech's nine-month earnings decrease was a 28percent increase in research and development spending to $343million from $268 million the previous year. Total revenues for thefirst three quarters of 1996 rose to $738 million from $696 million in1995.

Research and development expenses for the third quarter jumped to$115 million from $86 million during the same period last year.Genentech said 46 percent of third quarter 1996 revenues wereinvested in research and development.

In addition to the progress with NGF, Genentech noted its insulin-like growth factor (IGF-1) is in Phase III trials for Type I diabetesand Phase III trials are complete for IDEC-C2B8, a monoclonalantibody for non-Hodgkin's B cell lymphoma.

Data from the study of IDEC-C2B8, which is under developmentwith San Diego-based IDEC Pharmaceuticals Corp., are expected bythe end of this year.

Genentech's stock (NYSE:GNE) closed Monday unchanged at$53.25.

Roche has an option to buy all shares of Genentech it doesn't alreadyown at a price that escalates to $82 per share in 1999. If Rochedoesn't buy out the company, Genentech's minority shareholders cansell to Roche at $60 per share. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.