Cancer Drug Boosts Genentech’s Earnings

Strong sales of the cancer drug Avastin drove Genentech Inc.’s profit 29% higher in the second quarter, the biotechnology company said Wednesday.

Genentech said it expected the pace of Avastin sales to continue and raised its 2004 earnings forecast.

The South San Francisco company reported net income of $170 million, or 16 cents a share, for the three months ended June 30, up from $132.3 million, or 13 cents, in the year-earlier quarter.

Revenue soared 41% to $1.1 billion from $799.7 million in last year’s second quarter.

The results were announced after the market closed. Genentech’s shares, which ended the regular session down 76 cents at $53.90 on the New York Stock Exchange, climbed as high as $56 in after-hours trading.

Wall Street was particularly pleased with Avastin. The drug was launched in February amid high sales expectations, but some analysts had become skeptical recently and downgraded Genentech’s shares.

Avastin’s sales of $133 million in the quarter exceeded all expectations and put the drug on course to post sales of $500 million for the year, according to Jennifer Chao, an analyst with Deutsche Bank North America.

“These are very impressive numbers and they will send a positive vibe through the [biotechnology] sector,” Chao said.

Excluding litigation-related expenses and other special items, Genentech’s net income was $201.7 million, or 19 cents a share. That matched the expectations of analysts surveyed by Thomson First Call. The forecasts didn’t include a one-time charge of $37.4 million for a discontinued product and manufacturing glitches that Genentech said had been resolved.

Genentech’s cancer drugs, including Rituxan for non-Hodgkin’s lymphoma and Herceptin for breast cancer, accounted for 74% of second-quarter revenue. Rituxan sales rose 17%, and sales of Herceptin gained 8%.

Avastin’s acceptance as a first treatment for metastatic colon cancer exceeded Genentech’s internal projections, said Myrtle Potter, the company’s co-president for commercial operations. She said about 20% of the patients eligible to receive Avastin as a first treatment had received the drug.

“We are really happy with those numbers,” she said.

Potter said insurance reimbursement had not been an issue for Avastin, which, at $4,400 a month, ranks as one of the costliest cancer treatments available. The intravenous treatment is the first to shrink tumors by choking the blood vessels that feed them.

Genentech said in a conference call with analysts that it noticed a higher rate of stroke and heart attacks in patients taking Avastin than in patients not taking the drug. The company said it wasn’t clear whether the strokes and heart attacks were caused by the drug or the fact that the drug, which can cause bleeding, was used in very sick patients.

Susan Desmond-Hellman, Genentech’s co-president for product development, said the Food and Drug Administration was reviewing the data.

Genentech didn’t offer a sales forecast for the year but it raised its pro forma earnings projection to 75 to 80 cents a share, an increase of 25% to 33% over 2003. The company previously expected per-share earnings to grow 20% to 25%.