Genentech Inc. reported Tuesday that fourth-quarter profit rose 64% on surging sales of its cancer medicines, but colon cancer drug Avastin fell short of lofty Wall Street expectations and the company's shares fell nearly 3% after hours.
Sales of Avastin, which Genentech expects to be approved eventually to treat several types of cancer, rose 89% from the year-earlier quarter to $359.1 million.
But that was short of analysts' estimate of sales of $381 million, indicating that "off-label," or not yet approved, use of the drug had not reached their expectations.
Ian Clark, Genentech's executive vice president of commercial operations, said that although there had been considerable interest from doctors in prescribing breast cancer drug Herceptin for off-label uses, there had been less interest in doing so for Avastin.
"The majority of the [Avastin] sales are still for the approved indication," Clark said.
The company, based in South San Francisco, delivered on its promise of at least 50% earnings growth in 2005, posting a quarterly net profit of $339.2 million, or 31 cents a share. This compares with a profit of $206.6 million, or 19 cents, a year earlier.
Excluding one-time items, the world's second-largest biotechnology company earned 34 cents a share, matching analysts' average expectations, according to Reuters Estimates.
Nevertheless, "the Avastin number was a little bit disappointing," said Sven Borho of Orbimed Advisors in New York, which has more than 3.8 million Genentech shares under management. "Expectations are very high and this was just in line."
Sanford C. Bernstein & Co. analyst Geoff Porges said the results would "be viewed as a disappointment to investors who are accustomed to Genentech surprising on the upside.... This is a stock that needs to beat expectations, not meet them."
Genentech also said that it expected earnings, excluding some items, to rise by 35% to 45% this year. Chief Financial Officer David Ebersman declined to give a more precise estimate.
U.S. sales of Herceptin jumped 98% to $250.1 million, handily beating Wall Street estimates of about $230 million.
But U.S. sales of Rituxan for non-Hodgkin's lymphoma also disappointed Wall Street as they rose 13% from a year earlier to $484.4 million. Analysts were looking for about $513 million for the quarter.
Genentech's new lung cancer drug Tarceva recorded sales of $83.9 million, a 15% improvement over the previous quarter. Tarceva was introduced in November 2004, too recently for meaningful year-to-year comparisons.
The company, which is majority owned by Swiss drug maker Roche Holding, said U.S. product sales for the quarter rose 47% to $1.49 billion, with operating revenue up 44% to $1.89 billion.
Riding a wave of positive results from clinical trials of new drugs and new uses for its already marketed medicines, Genentech shares soared nearly 70% in 2005.
By comparison, shares of a rival biotechnology giant, Thousand Oaks-based Amgen Inc., rose 23% last year.
Genentech shares fell to about $90.95 in after-hours trading after closing up 68 cents at $93.34.
Reuters and Bloomberg News were used in compiling this report.