Genentech Inc. reported an 11.6 percent earnings increase for thefirst quarter of 1995, compared with the same period a year ago,fueled by higher royalty revenues, particularly those associated withsettlement of a growth hormone patent dispute with Eli Lilly and Co.

The South San Francisco-based Genentech's income of $43.7million, or 36 cents per share, for the quarter ending March 31, wasabout 6 cents higher than most Wall Street analysts anticipated.Earnings for the first quarter of 1994 were $38.9 million, or 33 centsper share.

"The difference was on the revenue side," said David Stone, ofCowen & Co. in Boston. "And they saw their first installment fromLilly."

In early January, Lilly, of Indianapolis, agreed to pay Genentech$145 million, most of it in quarterly payments of $7.5 million overthe next four years, to end an eight-year battle over patents relating torecombinant human growth hormone. (See BioWorld Today, Jan. 6,1995, p. 1.)

The two have the only FDA approved growth hormones, but othercompanies are poised to enter the competition. Genentech sells itsproducts under the brand names Protropin and Nutropin. The formerwas approved in 1985 for hormone deficiencies in children and thelatter was awarded market clearance in 1993 for growth failure inchildren due to renal insufficiency. Lilly's product, sold under thename Humatrope, was approved in 1987 for hormone deficiencies inchildren.

Genentech's first quarter revenues of $239 million were up 20.2percent from a year ago. Sales of Activase (tPA), a clot-buster to treatheart attacks, jumped 11.4 percent to $78.2 million from $70.2million in the first quarter of 1994.

Pulmozyme, used in treatment of cystic fibrosis, experienced a 27.2percent boost in sales from $22.4 million in the first quarter last yearto $28.5 million.

The company's combined Protropin and Nutropin sales were upslightly from $53.6 million in the first quarter of 1994 to $54.4million this year.

Genentech also increased spending for research and development.For the first quarter of 1995, research expenses totaled $94.9 millioncompared with $74.4 million in the same quarter a year ago.

One topic of discussion on Wall Street continues to be thespeculation about whether Swiss pharmaceutical giant, RocheHoldings Ltd., will exercise its option to buy out Genentech. Rochealready owns 65 percent and has until June 30 to purchase theremaining shares for $60 a piece. If it lets that deadline lapse, Rochestill has another year to buy Genentech at no less than $60 per share,but then it also must get approval from shareholders and outsidedirectors.

Genentech's stock (NYSE:GNE) closed Wednesday at $49.12, up 37cents.

Peter Drake, of Vector Securities International Inc. in Deerfield, Ill.,does not think Roche will make its move by the end of the secondquarter this year. He said Roche already is using considerablemanagement time trying to absorb Syntex Corp., of Palo Alto, Calif.,which it purchased last year.

"Roche will generate more value by waiting a year," Drake said.

Edmund Debler, of Mehta and Isaly in New York, said it's difficultto speculate, but he suggested Roche may wait for the outcome ofGenentech's Phase III trials of Pulmozyme for chronic obstructivepulmonary disease. Studies to expand the drug's label are expected tobe complete by the end of this year.

Stone, however, believes Roche "will pull the trigger" and exerciseits option before June 30.

"The best indications," he said, "are Roche's open market purchasesof 1.5 million [Genentech] shares in the last several months."n

-- Charles Craig

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

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