Genentech Falls Short With 63% Profit Jump
Genentech Inc.’s net income swelled 63% in the fourth quarter on higher sales of cancer drugs, the biotechnology company said Monday.
But the results were short of Wall Street’s expectations, and Genentech shares slipped in after-hours trading.
Analysts were unhappy with sales of Avastin, an intravenous drug for colon cancer that received government approval last February. The medicine posted sales of $200.4 million in the fourth quarter and $554.5 million for all of 2004.
While Genentech described that as one of the best performances ever for a new cancer drug, analysts noted that the quarterly sales total was almost 10% shy of Wall Street projections.
“That’s not a great number,” said Eric Schmidt, an analyst at SG Cowen & Co. “I’m a little bit concerned by that number coming in short.”
Said Geoff Porges, an analyst at Sanford C. Bernstein: “This is a real dose of reality for investors in this stock.”
Genentech wasn’t apologetic.
“We are extremely pleased,” Ian T. Clark, senior vice president for oncology drug sales, said of Avastin’s sales growth.
Clark said Avastin was now being used as a first-line treatment in 55% of patients with metastatic colon cancer, up from 42% in the third quarter of 2004. The medication is approved as a front-line treatment when administered with standard chemotherapy drugs.
The South San Francisco-based company -- which is majority owned by Swiss drug maker Roche Holding -- announced the results after the market closed. In regular trading on the New York Stock Exchange, Genentech rose 18 cents to $53.43. After hours, the shares sank to about $52.
Net income in the quarter was $206.6 million, or 19 cents a share, compared with $126.7 million, or 12 cents, in the fourth quarter of 2003.
Excluding litigation expenses and other items, net income was $225.4 million, or 21 cents, compared with $145 million, or 14 cents, in the year-earlier quarter. Wall Street expected earnings per share of 22 cents, according to Thomson First Call. Louis J. Lavigne Jr. chief financial officer, attributed the difference to higher research and development costs.
Revenue in the quarter increased 41% to $1.3 billion from $933.9 million in the year-ago quarter. For 2004, Genentech’s net income increased 40% to $784.8 million, or 73 cents, from $562.5 million, or 53 cents, in 2003.
Excluding special items, the company’s net income rose 41% to $894.4 million, or 83 cents, compared with $634.9 million, or 60 cents, in 2003. Analysts surveyed by Thomson First Call had expected earnings per share of 83 cents. Revenue in 2004 was $4.62 billion, up 40% from $3.3 billion in 2003.
In announcing the results, Genentech prepared investors for slower sales growth in 2005. The company predicted that pro forma earnings per share would increase by more than 25%; Wall Street had been looking for a 33% gain in pro forma earnings.
Susan Desmond-Hellman, Genentech’s co-president for product development, said the company was prepared for possible competition to Avastin from a Novartis cancer pill now in clinical trials.
Wall Street lately has been abuzz about Novartis’ PTK787, which, like Avastin, attacks tumors by reducing the blood flow to them. If the clinical trials are successful, PTK787 could be available to colon cancer patients in 2006.
“There is not a lot of information about the Novartis drug,” Desmond-Hellman said, “so it is hard to give them odds.”
However, she said Avastin was being tested as a possible treatment for cancers of the lung, breast, pancreas and ovaries. Success in any of these trials probably would lead to broader use of the drug, she said. “We are well-positioned with well-designed studies.”
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Times wire services were used in compiling this report.
