Fueled by a 26 percent increase in 1995 sales of its cystic fibrosistreatment, Pulmozyme, Genentech Inc. posted net income for the yearof $146.4 million, or $1.21 per share, an 18 percent increase over1994.

The company's earnings reflected $25 million in special chargesrelated to a four-year extension of the buyout option for its majorityshareholder, Roche Holdings Ltd., of Basel, Switzerland, and to theouster in July 1995 of president and CEO Kirk Raab.

Net income for the fourth quarter of 1995 was $25.6 million, or 21cents per share, a 38 percent increase over the $18.6 million, or 15cents per share, earned during the same period the previous year.Earnings for 1994 totaled $124.4 million, or $1.04 per share.

Without the special charges, Genentech, of South San Francisco, saidits 1995 earnings reached $167.3 million, or $1.38 per share, whichrepresented a 35 percent increase over the year before. Totalrevenues for the year were $917.8 million, a 15 percent increase overthe $795.4 million in 1994.

The $221.9 million in revenues for the fourth quarter of 1995 was a 7percent jump over the $207.8 million generated in the same threemonths of 1994.

Favorable Patent Ruling

In addition to its earnings report Thursday, Genentech received goodnews the day before from the U.S. Patent and Trademark Office(PTO) Board of Patent Appeals and Interferences. The board ruled infavor of the priority of Genentech's patent application forrecombinant mature alpha interferon over the application of BiogenInc., of Cambridge, Mass. The alpha interferon covered in the patentapplications is the form currently on the market.

The decision, which stems from a dispute dating to 1980, has noimmediate effect on Genentech and its alpha interferon marketingpartner, Roche, or on Biogen and its marketing partner, Schering-Plough Corp., of Madison, N.J. Both Genentech and Biogen receiveroyalties on alpha interferon sales.

Roche markets the recombinant alpha interferon as Roferon A andSchering-Plough sells it as Intron A. Worldwide sales are estimated$1.5 billion.

Both Roche and Schering-Plough received FDA approval in 1986 tosell the drug for hairy cell leukemia. Schering-Plough since hasexpanded its label to include genital warts, Kaposi's sarcoma, andhepatitis.

Biogen has 60 days to appeal the board's ruling. The company said ithas not decided what action to take. Biogen also said the ruling doesnot affect its patent, issued in 1985, on DNA sequences for alphainterferon and recombinant production of the protein.

In 1985 Roche and Schering-Plough cross-licensed their patents foralpha interferon. Since then Schering-Plough has paid Rocheroyalties related to its patent on natural alpha interferon.

If the PTO board's priority award to Genentech stands and a patent isissued, Schering-Plough's royalties to Roche would increase. IfBiogen appeals and its patent is awarded, Roche would pay royaltiesto Schering-Plough.

Biogen's royalty revenue from alpha interferon is much higher thanGenentech's. Analysts said Biogen in 1994 received $51 million,which was more than one-third of its total royalty revenue. Bycontrast, Genentech's royalties on alpha interferon for 1994 were $27million, which was about one-fifth of its royalty revenues.

In its 1995 earnings report, Genentech said sales of Pulmozyme forthe year jumped to $111.3 million from $88.3 million in 1994. Fourthquarter 1995 sales of the drug decreased to $22.4 million comparedwith $26.2 million the year before.

The company said the drop in Pulmozyme revenue reflected a Nov.1, 1995, change in which Genentech now receives only royalties fromRoche on European sales of Pulmozyme.

Genentech's biggest selling product remains its heart attack drug,Activase (tPA). Sales for 1995 increased 7 percent to $301 millionfrom $280.9 million in 1994. The company said it controls 75 percentof the thrombolytic market in the U.S. with its clot buster.

Growth Hormone Sales Were Down

Yearly sales of Genentech's growth hormone products, Protropin andNutropin, decreased slightly from $225.4 million in 1994 to $219.4million in 1995.

Genentech's research and development expenses for 1995 were $363million, a 16 percent increase over the $314 million spent in 1994.

The extension of Roche's buyout option gives the pharmaceuticalfirm until June 30, 1999, to takeover Genentech. Roche already ownsabout 70 percent.

In the agreement, the price per share Roche has to pay escalatesquarterly to a maximum of $82.50. If Roche does not exercise thebuyout option, the minority stockholders can sell their shares toRoche for $60.

Genentech's stock (NYSE:GNE) closed Thursday at $53.25 down 12cents.

Following Raab's ouster, Arthur Levinson, former senior vicepresident of research and development, was named Genentechpresident and CEO.

Charges taken by Genentech related to Raab's departure involved hisseverance pay. He received a one-time payment of $1.2 million andwill be paid 34 percent of that amount, or $408,000, each year for thenext 15 years. He also has stock compensation and will continue toreceive full health care benefits. n

-- Charles Craig

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