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News and Information Article
- First Full Quarter Lucentis Sales Exceed $150 Million -
SOUTH SAN FRANCISCO, Calif., Oct. 10 /-FirstCall/ --
Genentech, Inc. (NYSE: DNA) today announced financial results for the third
quarter of 2006. Revenue results for the third quarter of 2006 include:
-- Total product sales of $1,941 million, a 34 percent increase over
product sales of $1,451 million in the third quarter of 2005.
-- Operating revenues of $2,384 million, a 36 percent increase over
operating revenues of $1,752 million in the third quarter of 2005.
Key operating results for the third quarter of 2006 include:
-- Non-GAAP net income increase of 66 percent to $637 million from $384
million in the third quarter of 2005; GAAP net income increase of 58
percent to $568 million, including employee stock-based compensation
expense, from $359 million reported for the third quarter of 2005.
(1),(2)
-- Non-GAAP earnings per share increase of 69 percent to $0.59 per
share from $0.35 per share in the third quarter of 2005; GAAP
earnings per share increase of 61 percent to $0.53 per share,
including employee stock-based compensation expense, from $0.33 per
share reported for the third quarter of 2005. (1),(2)
A reconciliation(2) between non-GAAP and GAAP earnings per share for
the third quarters of 2006 and 2005 is provided in the following table:
Non-GAAP Employee Stock- Roche Reported
Diluted EPS Based Redemption GAAP Diluted
Compensation and Special EPS
Expense Items
Q3 2006 $0.59 ($0.04) ($0.02) $0.53
Q3 2005 $0.35 --- (1) ($0.02) $0.33(1)
"We are encouraged by strong initial physician acceptance of Lucentis.
The rapid adoption of the recently available Lucentis product reflects the
fact that wet age-related macular degeneration is a key unmet medical need,
and we are proud to have brought this new therapy to thousands of patients
faced with potential blindness," said Arthur D. Levinson, Ph.D.,
Genentechs chairman and chief executive officer.
The company currently expects approximately 65 to 70 percent growth in
non-GAAP earnings per share for the full year 2006, relative to 2005.(2)
Product Sales
For the three months ended September 30, 2006:
-- U.S. product sales increased 34 percent to $1,830 million, from
$1,365 million in the third quarter of 2005.
-- U.S. sales of Rituxan(R) (Rituximab) increased 12 percent to $509
million, from $456 million in the third quarter of 2005.
-- U.S. sales of Avastin(R) (bevacizumab) increased 34 percent to $435
million, from $325 million in the third quarter of 2005.
-- U.S. sales of Herceptin(R) (Trastuzumab) increased 40 percent to
$302 million, from $215 million in the third quarter of 2005.
-- U.S. sales of Tarceva(R) (erlotinib) increased 37 percent to $100
million, from $73 million in the third quarter of 2005.
-- U.S. sales of LUCENTIS(TM) (ranibizumab injection) were $153
million. Approved and launched on June 30, 2006, sales in the
second quarter of 2006 were $10 million.
-- U.S. sales of Xolair(R) (Omalizumab) increased 30 percent to $107
million, from $82 million in the third quarter of 2005.
-- U.S. sales of RAPTIVA(R) (efalizumab) increased 10 percent to $23
million, from $21 million in the third quarter of 2005.
-- U.S. sales of legacy products, including growth hormone,
cardiovascular products and Pulmozyme(R) (dornase alfa,
recombinant) Inhalation Solution, increased 4 percent to $202
million, from $194 million in the third quarter of 2005.
-- Product sales to collaborators increased 29 percent to $111 million,
from $86 million in the third quarter of 2005.
Royalties and Contract Revenues
-- Royalties increased 53 percent to $364 million, from $238 million in
the third quarter of 2005.
-- Contract revenues increased 25 percent to $79 million, from $63
million in the third quarter of 2005.
Expenses and Other
-- Cost of sales as a percentage of product sales was 15 percent,
compared to 16 percent in the third quarter of 2005. Cost of sales
increased to $297 million from $236 million in the third quarter of
2005.
-- Research and development (R&D) expenses, on a non-GAAP basis,
increased 27 percent to $419 million, from $329 million in the third
quarter of 2005. Non-GAAP R&D expenses as a percentage of
operating revenues were 18 percent, compared to 19 percent for the
third quarter of 2005. On a GAAP basis, R&D expenses increased 38
percent to $454 million, including employee stock-based compensation
expense of $35 million, from $329 million in the third quarter of
2005. GAAP R&D expenses for the third quarter of 2006 were 19
percent of operating revenues, consistent with 19 percent in the
third quarter of 2005.
-- Marketing, general and administrative (MG&A) expenses, on a non-GAAP
basis, increased 34 percent to $460 million, from $343 million in
the third quarter of 2005. Non-GAAP MG&A expenses as a percentage
of operating revenues were 19 percent, compared to 20 percent in the
third quarter of 2005. On a GAAP basis, MG&A expenses increased 46
percent to $501 million, including employee stock-based compensation
expense of $41 million, from $343 million in the third quarter of
2005. GAAP MG&A expenses for the third quarter of 2006 were 21
percent of operating revenues, compared to 20 percent in the third
quarter of 2005.
-- Collaboration profit-sharing expenses in the third quarter of 2006
increased 14 percent to $250 million from $220 million in the third
quarter of 2005.
-- Genentechs non-GAAP and GAAP income tax rates for the third quarter
of 2006 were 37 percent, compared to the 41 percent non-GAAP and
GAAP income tax rates in the third quarter of 2005.(2)
Genentechs unrestricted cash and investments portfolio totaled
approximately $4 billion as of September 30, 2006.
Clinical Development
Genentech announced that in the third quarter of 2006 it completed
enrollment of a Phase III study of Avastin in adjuvant colon cancer as well
as a Phase II study of Omnitarg(TM) (pertuzumab) in combination with
chemotherapy in advanced ovarian cancer. Genentechs collaborator OSI
Pharmaceuticals initiated enrollment in its RADIANT Phase III study of
Tarceva for EFGR- positive patients with early-stage (adjuvant) non-small
cell lung cancer, and Genentech initiated enrollment in a Phase III
TNKase(R) (Tenecteplase) catheter clearance study. Genentech also announced
that its Phase II study of Rituxan with its collaborator Biogen Idec, Inc.
for patients with relapsing remitting multiple sclerosis met its primary
endpoint of reducing Gadolinium- enhancing lesions and showed a
statistically significant reduction in the number of relapses among
patients treated with Rituxan.
In the third quarter of 2006 Genentech added four new molecular
entities to the development pipeline, including the PARP inhibitor for
malignant melanoma with its collaborator Inotek Pharmaceuticals
Corporation, and a systemic hedgehog antagonist for solid tumors with its
collaborator Curis, Inc.
Other Company Events
In September 2006, the U.S. Food and Drug Administration granted
approval for the manufacture of Herceptin bulk drug substance at Wyeths
Andover, Mass. production facility.
Webcast
Genentech will be offering a live webcast of a discussion by Genentech
management of the earnings and other business results on Tuesday, October
10, 2006, at 2:15 p.m. Pacific Time (PT). The live webcast may be accessed
on Genentechs website at http://www.gene.com . This webcast will be
available via the website until 5:00 p.m. PT on October 24, 2006. A
telephonic audio replay of the webcast will be available beginning at 5:15
p.m. PT on October 10, 2006 through 5:15 p.m. PT on October 17, 2006.
Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and
1-706-645-9291 (international); conference ID number is 5587251.
About Genentech
Founded 30 years ago, Genentech is a leading biotechnology company that
discovers, develops, manufactures and commercializes biotherapeutics for
significant unmet medical needs. A considerable number of the currently
approved biotechnology products originated from or are based on Genentech
science. Genentech manufactures and commercializes multiple biotechnology
products and licenses several additional products to other companies. The
company has headquarters in South San Francisco, California and is listed
on the New York Stock Exchange under the symbol DNA. For additional
information about the company, please visit http://www.gene.com .
About Genentechs Commitment to Patient Access
Genentech is committed to eligible patients having access to our
therapies. For those eligible patients treated for approved indications in
the United States who do not have insurance or who cannot afford their
out-of- pocket co-pay costs, Genentech has several support programs. Since
1990, Genentech has donated approximately $850 million of free product to
uninsured patients and those deemed uninsured due to payor denial through
its Genentech(R) Access to Care Foundation (GATCF) and the Genentech
Endowment for Cystic Fibrosis. In 2005 alone, GATCF supported over 18,000
patients by providing approximately $200 million of free product. Since
2005, Genentech donates to various independent public charities that
provide financial assistance to eligible patients who cannot access needed
medical treatment due to co-pay costs. Through its Single Point of Contact
(SPOC) program, Genentech provides patients with assistance and information
on a broad array of reimbursement services and support.
For information on Genentechs latest business and product development
events please refer to
http://www.gene.com/gene/news/press-releases/index.jsp
This press release contains a forward-looking statement regarding
growth in non-GAAP earnings per share (EPS) for 2006. Such a statement is a
prediction and involves risks and uncertainties such that actual results
may differ materially. Among other things, growth in non-GAAP EPS could be
affected by a number of factors, including unexpected safety, efficacy or
manufacturing issues, additional time requirements for data analysis, BLA
preparation and decision making, need for additional clinical trials, FDA
actions or delays, failure to obtain or maintain FDA approval, competition,
pricing, reimbursement, intellectual property or contract rights, the
ability to supply product, product withdrawals, new product approvals and
launches, achieving sales revenue consistent with internal forecasts, costs
of sales, unanticipated expenses such as litigation or legal settlement
expenses or equity securities writedowns, R&D or MG&A expenses, stock-based
compensation expense, contract revenues and royalties, and fluctuations in
tax and interest rates. Please also refer to Genentechs periodic reports
filed with the Securities and Exchange Commission. Genentech disclaims, and
does not undertake, any obligation to update or revise any forward-looking
statement in this press release.
(1) The company adopted Statement of Financial Accounting Standards No.
123R (or FAS 123R) on a modified prospective basis beginning January 1,
2006. No employee stock-based compensation expense has been recognized in
GAAP- reported amounts in any prior period. Based on the pro forma
application of FAS 123 for the calculation of employee stock-based
compensation expense prior to January 1, 2006 (as previously disclosed in
Genentechs financial statement footnotes), pro forma employee stock-based
compensation expense in the third quarter of 2005 was $43 million, net of
tax, (or $0.04 per diluted share), and the resulting pro forma GAAP net
income was $316 million (or $0.29 per diluted share).
(2) Genentechs non-GAAP net income and non-GAAP earnings per share
exclude the after-tax impact of recurring charges related to the 1999
redemption of Genentechs stock by Roche Holdings, Inc., litigation-related
special items, and employee stock-based compensation expense associated
with Genentechs adoption of FAS 123R on January 1, 2006. The differences
in non- GAAP and GAAP numbers are reconciled in the accompanying tables and
on http://www.gene.com.
Contact: Debra Charlesworth, +1-650-225-2742, or Caroline Pecquet,
+1-650-467-7078; or Investor, Kathee Littrell, +1-650-225-1034, or Sue Morris,
+1-650-225-6523.
GENENTECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
2006 2005 2006 2005
Revenues:
Product sales $1,941 $1,451 $5,395 $3,911
Royalties 364 238 966 670
Contract revenue 79 63 208 159
Total operating revenues 2,384 1,752 6,569 4,740
Costs and expenses:
Cost of sales(1) 297 236 843 766
Research and development (includes
employee stock-based compensation
expense: three months--2006--$35;
2005--$0; nine months--2006--$101;
2005--$0) 454 329 1,218 850
Marketing, general and
administrative(1) (includes
employee stock-based compensation
expense: three months--2006--$41;
2005--$0; nine months--2006--$124;
2005--$0) 501 343 1,414 1,006
Collaboration profit sharing 250 220 735 595
Recurring charges related to
redemption 26 27 79 96
Special items: litigation-related 13 14 40 44
Total costs and expenses 1,541 1,169 4,329 3,357
Operating income 843 583 2,240 1,383
Other income (expense):
Interest and other income, net(2) 74 42 249 98
Interest expense (19) (20) (56) (27)
Total other income, net 55 22 193 71
Income before taxes 898 605 2,433 1,454
Income tax provision 330 246 914 514
Net income $568 $359 $1,519 $940
Earnings per share:
Basic $0.54 $0.34 $1.44 $0.89
Diluted $0.53 $0.33 $1.41 $0.87
Weighted average shares used to
compute earnings per share:
Basic 1,053 1,061 1,053 1,055
Diluted 1,072 1,087 1,074 1,081
(1) Certain minor amounts for the prior year have been reclassified to
conform to the presentation in our December 31, 2005 Form 10-K.
(2) "Interest and other income, net" includes interest income, net
realized gains from the sale of certain biotechnology equity securities and
write-downs for other-than-temporary impairments in the fair value of
certain biotechnology debt and equity securities. For further detail, refer
to our web site at http://www.gene.com.
Net income in the three and nine months ended September 30, 2006
includes employee stock-based compensation expense of $46 million and $141
million, net of tax, respectively, due to our adoption of Statement of
Financial Accounting Standards No. 123(R) (or "FAS 123R") on a modified
prospective basis on January 1, 2006. No employee stock-based compensation
expense was recognized in GAAP-reported amounts in any period prior to
January 1, 2006. Based on the pro forma application of FAS 123 for the
calculation of employee stock-based compensation prior to January 1, 2006
(as previously disclosed in our financial statement footnotes of our Form
10-Q for the quarter ended September 30, 2005), pro forma employee
stock-based compensation expense in the third quarter of 2005 was $43
million, net of tax, (or $0.04 per diluted share), and the resulting pro
forma GAAP net income was $316 million (or $0.29 per diluted share), and
pro forma employee stock-based compensation expense in the nine months
ended September 30, 2005 was $126 million, net of tax, (or $0.12 per
diluted share), and the resulting net income was $814 million (or $0.75 per
diluted share).
GENENTECH, INC.
RECONCILIATION OF GAAP to NON-GAAP NET INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
2006 2005 2006 2005
GAAP net income $568 $359 $1,519 $940
Employee stock-based compensation
expense under FAS 123R(1) included
in the following operating expenses:
Research and development 35 - 101 -
Marketing, general and
administrative 41 - 124 -
Recurring charges related to
redemption(2) 26 27 79 96
Special items: litigation-related(3) 13 14 40 44
Income tax effect(4) (46) (16) (132) (56)
Non-GAAP net income $637 $384 $1,731 $1,024
Non-GAAP earnings per share:
Diluted $0.59 $0.35 $1.61 $0.95
Non-GAAP weighted average shares used
to compute earnings per share:
Diluted 1,072 1,087 1,074 1,081
(1) Represents employee stock-based compensation expense associated
with Genentechs adoption of FAS 123R on January 1, 2006. In the three and
nine months ended September 30, 2006, the employee stock-based compensation
expense was allocated to the research and development and marketing,
general and administrative expense lines in the income statement.
(2) Represents the amortization of other intangible assets related to
the 1999 redemption of Genentechs Special Common Stock.
(3) Includes accrued interest and bond costs in the third quarters and
first nine months of 2006 and 2005 related to the City of Hope trial
judgment and amounts paid in the second quarter of 2005 related to a
litigation settlement, net of amounts received in the first quarter of 2005
on a separate litigation matter.
(4)Reflects the income tax benefit on employee stock-based compensation
expense under FAS 123R, recurring charges related to redemption, and
litigation-related special items.
2006 Reconciliation of GAAP and Non-GAAP EPS Estimates
Our 2006 non-GAAP EPS estimate does not include the effects of: (i)
recurring amortization charges related to the 1999 redemption of our stock
by Roche, which are estimated to be approximately $105 million on a pretax
basis in 2006, (ii) litigation-related special items for accrued interest
and associated bond costs on the City of Hope judgment and net amounts paid
on other litigation settlements, which are currently estimated to be
approximately $53 million on a pretax basis in 2006, (iii) income tax
effect of $63 million on recurring charges related to redemption and
litigation- related special items, and (iv) employee stock-based
compensation expense associated with our adoption of FAS 123R on January 1,
2006, which we expect the net of tax diluted EPS impact to be in the range
of $0.17 to $0.18 per share for 2006.
Our 2006 GAAP EPS would include the items listed above as well as any
other potential special charges related to existing or future litigation or
its resolution, or changes in accounting principles, all of which may be
significant. The statements regarding the amounts relating to the 1999
Roche redemption of our stock, litigation-related special items and
employee stock- based compensation expense are forward-looking and such
statements are predictions and involve risks and uncertainties such that
actual results may differ materially. The amounts identified above could be
affected by a number of factors, including a re-valuation of certain
intangible assets, greater than expected litigation-related costs, the
number of options granted to employees, our stock price and certain
valuation assumptions concerning our stock. We disclaim, and do not
undertake, any obligation to update or revise any of these forward-looking
statements.
GENENTECH, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(In millions)
(Unaudited)
September December
30, 2006 31, 2005
Selected consolidated balance sheet
data:
Cash, cash equivalents and short-term
investments $2,103 $2,365
Accounts receivable - product sales,
net 790 554
Accounts receivable - royalties, net 415 297
Accounts receivable - other, net(1) 234 199
Inventories 1,063 703
Long-term marketable debt and equity
securities 1,787 1,449
Property, plant and equipment, net 4,047 3,349
Goodwill 1,315 1,315
Other intangible assets 499 574
Other long-term assets(1) 1,299 1,074
Total assets 13,852 12,147
Total current liabilities 1,805 1,660
Long-term debt(2) 2,164 2,083
Total liabilities 4,962 4,677
Total stockholders equity 8,890 7,470
Nine Months
Ended September 30,
2006 2005
Selected consolidated cash flow data:
Capital expenditures(2) $888 $1,107
Total GAAP(3) depreciation and
amortization expense 298 276
Less: redemption related
amortization expense(4) (79) (96)
Non-GAAP(5) depreciation and
amortization expense $219 $180
(1) Certain reclassifications have been made at December 31, 2005 to
conform to the September 30, 2006 presentation.
(2) Capital expenditures exclude approximately $158 million at
September 30, 2006, and $94 million at December 31, 2005 and September 30,
2005 in capitalized costs related to our accounting for a construction
project of which we are considered to be the owner during the construction
period. We have recognized a related amount as a construction financing
obligation in long-term debt.
(3) Reflects operating results in accordance with U.S. generally
accepted accounting principles (or "GAAP").
(4) Represents the amortization of other intangible assets related to
the 1999 redemption of Genentechs stock.
(5) Non-GAAP amounts exclude amortization of other intangible assets
related to the 1999 redemption of Genentechs stock.
GENENTECH, INC.
NET PRODUCT SALES DETAIL
(In millions)
(Unaudited)
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
2006 2005 2006 2005
Net U.S. product sales
Rituxan $509 $456 $1,511 $1,347
Avastin 435 325 1,256 774
Herceptin 302 215 912 497
Tarceva 100 73 296 191
Nutropin products 92 89 277 276
Xolair 107 82 307 227
Thrombolytics 60 58 181 160
Pulmozyme 50 47 146 137
Raptiva 23 21 66 59
Lucentis 153 - 163 -
Total U.S. product sales $1,830 $1,365 $5,116 $3,668
Net product sales to collaborators 111 86 280 243
Total product sales $1,941 $1,451 $5,395 $3,911
The values shown above are exact, which may lead to the appearance of
footing errors.
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