Genentech Inc. - Exhibit 99.1

EX-99.1 2 dna-8kex99_1.htm GENENTECH, INC. - EXHIBIT 99.1 Genentech Inc. - Exhibit 99.1

EXHIBIT 99.1

NEWS RELEASE

Media Contact:	Debra Charlesworth Caroline Pecquet	(650) 225-2742 (650) 467-7078

Investor Contact:	Kathee Littrell Sue Morris	(650) 225-1034 (650) 225-6523

http://www.gene.com

GENENTECH ANNOUNCES THIRD QUARTER 2005 RESULTS

-- Quarterly Non-GAAP EPS Increases 46 Percent to $0.35 --

-- Quarterly Oncology U.S. Product Sales Top $1 Billion
for First Time in Company History --

SOUTH SAN FRANCISCO, Calif. -- October 10, 2005 -- Genentech, Inc. (NYSE: DNA) today announced financial results for the third quarter of 2005. Key results for the third quarter of 2005 included:

Non-GAAP earnings per share increase of 46 percent to $0.35 per share from $0.24 per share in the third quarter of 2004; GAAP earnings per share increase of 57 percent to $0.33 per share from $0.21 per share in the third quarter of 2004;
Total product sales of $1,451.0 million, a 44 percent increase over product sales of $1,005.5 million in the third quarter of 2004;
Operating revenues of $1,751.8 million, a 46 percent increase over operating revenues of $1,202.6 million in the third quarter of 2004;
Non-GAAP net income increase of 48 percent to $383.8 million from $259.6 million in the third quarter of 2004; GAAP net income increase of 56 percent to $359.4 million from $230.9 million in the third quarter of 2004.

"Genentech's first nine months of 2005 have been exceptional, with a string of five consecutive positive Phase III trial results and record product sales and earnings," said Arthur D. Levinson,

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Ph.D., Genentech's chairman and chief executive officer. "We are pleased with our continued strong financial results as we enter the last quarter of our 5x5 program."

"For the full year 2005, we are currently expecting year-over-year non-GAAP earnings per share growth of approximately 50 percent," said David Ebersman, senior vice president and chief financial officer.

Note: Genentech's non-GAAP net income and non-GAAP earnings per share exclude recurring charges related to the 1999 Roche redemption of Genentech's stock and litigation-related special items. The differences in non-GAAP and GAAP numbers are reconciled in the tables below and on www.gene.com. All share and per share amounts reflect the May 2004 two-for-one split of Genentech common stock.

Product Sales

"We are very proud of the strong bio-oncology business that we have built; for the first time in Genentech's history, quarterly oncology U.S. product sales topped one billion dollars," said Ian T. Clark, senior vice president, Commercial Operations. "While our policies only allow our sales force to promote our products for on-label usage, we see increasing use of Avastin in other cancer areas outside of the approved indication of first-line metastatic colorectal cancer, and of Herceptin in the adjuvant setting, also an unapproved use."

For the three months ended September 30, 2005:

Total product sales, comprised of U.S. product sales and product sales to collaborators (primarily ex-U.S. sales), increased 44 percent to $1,451.0 million from $1,005.5 million in the third quarter of 2004.
U.S. product sales increased 44 percent to $1,365.3 million, from U.S. product sales of $950.0 million in the third quarter of 2004.
U.S. sales of Avastin® (bevacizumab) increased 78 percent to $325.2 million, from U.S. sales of $183.0 million in the third quarter of 2004. Sequential quarter-over-quarter Avastin sales increased 32 percent from second quarter 2005 U.S. sales of $245.7 million.

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U.S. sales of Herceptin® (Trastuzumab) increased 70 percent to $215.1 million, from U.S. sales of $126.3 million in the third quarter of 2004. Sequential quarter-over-quarter Herceptin sales increased 41 percent from second quarter 2005 U.S. sales of $152.4 million.
U.S. sales of Tarceva® (erlotinib) were $73.2 million. Sequential quarter-over-quarter Tarceva sales increased 4 percent from second quarter 2005 U.S. sales of $70.2 million. Tarceva was launched in the United States in November 2004.
U.S. sales of Rituxan® (Rituximab) increased 16 percent to $456.2 million, from U.S. sales of $393.0 million in the third quarter of 2004.
U.S. sales of Xolair® (Omalizumab) increased 51 percent to $81.6 million, from U.S. sales of $53.9 million in the third quarter of 2004.
U.S. sales of RAPTIVA® (efalizumab) increased 28 percent to $20.9 million, from U.S. sales of $16.3 million in the third quarter of 2004.
U.S. sales of legacy products, including growth hormone, cardiovascular products and Pulmozyme® (dornase alfa, recombinant) Inhalation Solution, increased 9 percent to $193.1 million, from U.S. sales of $177.6 million in the third quarter of 2004.
Product sales to collaborators increased 54 percent to $85.7 million, from sales of $55.5 million in the third quarter of 2004. The increase in product sales to collaborators primarily consisted of Avastin sales to Roche.

Royalties and Contract Revenues

Royalties increased 55 percent to $237.8 million from $153.9 million in the third quarter of 2004.
Contract revenues increased 46 percent to $63.0 million from $43.2 million in the third quarter of 2004.

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Total Costs and Expenses

Cost of sales increased 39 percent to $230.1 million from $166.0 million in the third quarter of 2004, primarily due to higher product sales. Cost of sales as a percentage of product sales was 16 percent, compared to 17 percent in the third quarter of 2004.
Research and development (R&D) expenses increased 40 percent to $328.9 million from $234.1 million in the third quarter of 2004. R&D expenses as a percentage of operating revenues were 19 percent, comparable to the third quarter of 2004.
Marketing, general and administrative (MG&A) expenses increased 32 percent to $349.3 million from $264.6 million in the third quarter of 2004. MG&A expenses as a percentage of operating revenues were 20 percent, compared to 22 percent in the third quarter of 2004.
Collaboration profit-sharing expenses in the third quarter of 2005 increased 45 percent to $219.6 million from $151.9 million in the third quarter of 2004.

The unrestricted cash and investments portfolio totals approximately $4.1 billion as of September 30, 2005. Among other items, the cash balance reflects the receipt of $2 billion from the company's July 2005 debt offering and the use of approximately $929 million related to share repurchase activity in the third quarter. Also in the third quarter, the company paid approximately $585 million to buy out two synthetic lease obligations associated with its Vacaville and South San Francisco facilities.

Clinical Development

"We are making good progress in our efforts with the FDA to establish our filing timelines. We completed two sBLAs for Rituxan in the past quarter and plan to submit additional filings for Lucentis, Herceptin, Rituxan and Avastin within the next nine months," said Susan D. Hellmann, M.D., M.P.H., president of Product Development. "We plan to file sBLAs for Avastin in first-line non-squamous, non-small cell lung cancer and in first-line metastatic breast cancer during the first half of 2006."

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Genentech anticipates filing a supplemental Biologics License Application (sBLA) in the first quarter of 2006 for Herceptin in the adjuvant setting based on data from U.S. studies. Genentech announced that, in addition to initiating the Phase III study of Avastin in first-line metastatic ovarian cancer, it completed enrollment in both the Phase I/II second-generation Anti-CD20 study in rheumatoid arthritis and the Phase I BR3-Fc study in rheumatoid arthritis.

Other Company Activity

The company provided additional information on the pending reexamination of the Cabilly, et al. U.S. Patent No. 6,331,415 (Cabilly patent). Genentech estimates that the process leading up to a final Office action or a notice of intent to issue a reexamination certificate from the U.S. Patent and Trademark Office may take from two to 12 months and that any appeals process may take several years. The overall net pre-tax income to Genentech from revenues and expenses related to the Cabilly patent was approximately $20 million for the third quarter of 2005, or approximately $0.01 per share. Genentech believes that the third quarter 2005 Cabillly-related pre-tax income figure represents approximately one-quarter of the full year's expected results, excluding the effects of a one-time licensee payment related to 2004 sales that was recorded in the first quarter of 2005.

In September 2005 the FDA granted approval for the manufacture of Rituxan bulk drug substance at Lonza's Portsmouth, New Hampshire production facility.

Webcast:

Genentech will be offering a live webcast of a discussion by Genentech management of the earnings and other business results on Monday, October 10, 2005, at 2:15 p.m. Pacific Time (PT). The live webcast may be accessed on Genentech's Website at http://www.gene.com. This webcast will be available via the Website until 5:00 p.m. PT on October 24, 2005. A telephonic audio replay of the webcast will be available beginning at 5:15 p.m. PT on October 10, 2005 through 5:15 p.m. PT on October 17, 2005. Access numbers for this replay are: 1-800-642-1687 (U.S./Canada) and 1-706-645-9291 (international); conference ID number is 9678548.

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About Genentech:

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 directly in the United States and licenses several additional products to other companies. The company has headquarters in South San Francisco, California and is traded on the New York Stock Exchange under the symbol DNA. For additional information about the company, please visit http://www.gene.com.

For information on Genentech's latest business and product development events please refer to http://www.gene.com/gene/news/press-releases/index.jsp.

This press release contains forward-looking statements regarding the timeframe of potential FDA filings for Lucentis, Herceptin, Rituxan and Avastin; growth in non-GAAP EPS for 2005; and expected 2005 Cabilly-related income. Actual results could differ materially. Among other things, the timeframe for potential FDA filings could be affected by product safety, efficacy or manufacturing issues, additional time requirements to achieve study endpoints or for data analysis or filing preparation, need for additional clinical studies, and FDA actions or delays; and Cabilly-related income could be affected by sales growth of our licensees' products and our own products, the outcome of the re-examination or other related legal proceedings, and fluctuations in tax rates; the growth of new oncology products and indications may be affected by variables such as demand, penetration, reimbursement and duration of use; and non-GAAP EPS growth could be affected by all of the foregoing and by failure to receive FDA approval; competition, pricing, the ability to supply product, product withdrawals, new product approvals and launches, achieving sales revenue consistent with internal forecasts, unanticipated expenses such as litigation or legal settlement expenses or equity securities write-downs, costs of sales, R&D expenses, fluctuations in royalties and contract revenues, and fluctuations in interest rates. Genentech disclaims, and does not undertake, any obligation to update or revise any forward-looking statements in this press release.

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GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited)

		Three Months Ended September 30,

		2005							2004

		GAAP⁽¹⁾		Difference			Non-GAAP⁽²⁾		GAAP⁽¹⁾		Difference			Non-GAAP⁽²⁾

Revenues:
Product sales		$	1,450,979				$	1,450,979	$	1,005,511				$	1,005,511
Royalties			237,777					237,777		153,942					153,942
Contract revenue			63,066					63,066		43,191					43,191

Total operating revenues			1,751,822					1,751,822		1,202,644					1,202,644

Costs and expenses:
Cost of sales			230,127					230,127		165,990					165,990
Research and development			328,850					328,850		234,086					234,086
Marketing, general and administrative			349,323					349,323		264,648					264,648
Collaboration profit sharing			219,591					219,591		151,894					151,894
Recurring charges related to redemption			27,191	$	(27,191)	⁽³⁾		-		34,534	$	(34,534)	⁽³⁾		-
Special items: litigation-related			13,507		(13,507)	⁽⁴⁾		-		13,419		(13,419)	⁽⁴⁾		-

Total costs and expenses			1,168,589		(40,698)			1,127,891		864,571		(47,953)			816,618

Operating margin			583,233		40,698			623,931		338,073		47,953			386,026

Other income, net⁽⁵⁾			22,391		-			22,391		23,510		-			23,510

Income before taxes			605,624		40,698			646,322		361,583		47,953			409,536
Income tax provision			246,211		16,280			262,491		130,709		19,181			149,890

Net income		$	359,413	$	24,418		$	383,831	$	230,874	$	28,772		$	259,646




Earnings per share:
	Basic	$	0.34	$	0.02		$	0.36	$	0.22	$	0.03		$	0.25



	Diluted	$	0.33	$	0.02		$	0.35	$	0.21	$	0.03		$	0.24




Weighted average shares used to compute earnings per share:
Basic			1,060,539					1,060,539		1,055,140					1,055,140



Diluted			1,086,964					1,086,964		1,077,093					1,077,093

___________________

(1)		Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).
(2)		Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects.
(3)		Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.
(4)		Represents accrued interest and bond costs in Q3 2005 and 2004 related to the City of Hope trial judgment.
(5)		"Other income, net" includes interest income, interest expense, 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 www.gene.com.

		2005 Reconciliation of GAAP and Non-GAAP EPS Our 2005 non-GAAP EPS estimate does not include recurring charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $123 million on a pretax basis in 2005. In addition, the 2005 non-GAAP EPS estimate does not include 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 were approximately $44 million through the third quarter of 2005 and currently estimated to be approximately $58 million on a pretax basis in 2005. Our 2005 GAAP EPS would include the redemption-related recurring charges and the litigation-related special items 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.

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GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited)

		Nine Months Ended September 30,

		2005							2004

		GAAP⁽¹⁾		Difference			Non-GAAP⁽²⁾		GAAP⁽¹⁾		Difference			Non-GAAP⁽²⁾

Revenues:
Product sales		$	3,911,095				$	3,911,095	$	2,682,577				$	2,682,577
Royalties			670,014					670,014		459,899					459,899
Contract revenue			159,170					159,170		163,381					163,381

Total operating revenues			4,740,279					4,740,279		3,305,857					3,305,857

Costs and expenses:
Cost of sales			750,649					750,649		467,153					467,153
Research and development			850,215					850,215		637,317					637,317
Marketing, general and administrative			1,021,174					1,021,174		788,616					788,616
Collaboration profit sharing			594,666					594,666		423,546					423,546
Recurring charges related to redemption			96,155	$	(96,155)	⁽³⁾		-		110,952	$	(110,952)	⁽³⁾		-
Special items: litigation-related			44,291		(44,291)	⁽⁴⁾		-		40,276		(40,276)	⁽⁴⁾		-

Total costs and expenses			3,357,150		(140,446)			3,216,704		2,467,860		(151,228)			2,316,632

Operating margin			1,383,129		140,446			1,523,575		837,997		151,228			989,225

Other income, net⁽⁵⁾			70,290		-			70,290		61,274		-			61,274

Income before taxes			1,453,419		140,446			1,593,865		899,271		151,228			1,050,499
Income tax provision			513,666		56,178			569,844		321,040		60,491			381,531

Net income		$	939,753	$	84,268		$	1,024,021	$	578,231	$	90,737		$	668,968




Earnings per share:
	Basic	$	0.89	$	0.08		$	0.97	$	0.55	$	0.08		$	0.63



	Diluted	$	0.87	$	0.08		$	0.95	$	0.53	$	0.09		$	0.62




Weighted average shares used to compute earnings per share:
Basic			1,055,028					1,055,028		1,057,006					1,057,006



Diluted			1,080,921					1,080,921		1,082,081					1,082,081

___________________

(1)		Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).
(2)		Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects.
(3)		Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.
(4)		Represents accrued interest and bond costs in 2005 and 2004 related to the City of Hope trial judgment, and net amounts paid in 2005 related to other litigation settlements.
(5)		"Other income, net" includes interest income, interest expense, 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 www.gene.com.

		2005 Reconciliation of GAAP and Non-GAAP EPS Our 2005 non-GAAP EPS estimate does not include recurring charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $123 million on a pretax basis in 2005. In addition, the 2005 non-GAAP EPS estimate does not include 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 were approximately $44 million through the third quarter of 2005 and currently estimated to be approximately $58 million on a pretax basis in 2005. Our 2005 GAAP EPS would include the redemption-related recurring charges and the litigation-related special items 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.

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GENENTECH, INC. CONSOLIDATED BALANCE SHEETS DATA (in thousands) (unaudited)


	September 30,

	2005		2004

Selected balance sheet data:
Cash, cash equivalents and short-term investments	$	2,905,543	$	1,760,164
Accounts receivable - product sales, net		509,465		548,555
Accounts receivable - royalties, net		264,179		193,650
Accounts receivable - other, net		189,341		143,622
Inventories		621,389		559,920
Long-term marketable debt and equity securities		1,242,866		1,310,422
Property, plant and equipment, net		3,128,089		1,922,313
Goodwill		1,315,019		1,315,019
Other intangible assets		587,911		677,049
Long-term assets		1,030,842		774,435
Total assets		12,099,306		9,408,360
Total current liabilities		1,354,938		1,106,656
Total liabilities		4,376,048		2,441,064
Total stockholders' equity		7,723,258		6,967,566

Year-to-date:
Capital expenditures	$	1,106,930	$	418,214


Total GAAP⁽¹⁾ depreciation and amortization expense		275,632		259,583
Less: redemption related amortization expense⁽³⁾		(96,155)		(110,952)

Non-GAAP⁽²⁾ depreciation and amortization expense	$	179,477	$	148,631

___________________

(1)		In accordance with U.S. generally accepted accounting principles (or GAAP).
(2)		Non-GAAP amounts exclude amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.
(3)		Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

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GENENTECH, INC. NET PRODUCT SALES DETAIL (in thousands) (unaudited)

	Three Months Ended September 30,

	2005		2004

Net U.S. Product Sales
Rituxan	$	456,227	$	393,000
Herceptin		215,148		126,300
Avastin		325,156		183,003
Growth Hormone		88,585		84,931
Thrombolytics		57,903		52,867
Pulmozyme		46,593		39,816
Xolair		81,550		53,856
Raptiva		20,887		16,265
Tarceva		73,222		-

Total U.S. product sales		1,365,271		950,038

Net product sales to collaborators		85,708		55,473

Total Product Sales	$	1,450,979	$	1,005,511




	Nine Months Ended September 30,

	2005		2004

Net U.S. Product Sales
Rituxan	$	1,347,125	$	1,144,813
Herceptin		497,205		352,996
Avastin		773,695		354,134
Growth Hormone		275,570		256,896
Thrombolytics		160,105		147,133
Pulmozyme		137,482		114,340
Xolair		227,183		127,332
Raptiva		58,803		35,971
Tarceva		190,993		-

Total U.S. product sales		3,668,161		2,533,615

Net product sales to collaborators		242,934		148,962

Total Product Sales	$	3,911,095	$	2,682,577

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