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Genentech shares fall as Avastin disappoints
2008-01-14
Biotechnology company Genentech Inc (DNA.N) said on Monday its fourth-quarter profit rose 6.4 percent, but sales of several drugs, including blockbuster cancer drug Avastin, fell short of investor expectations, sending the company's shares lower. "Every single product relative to Street consensus was light," said Mike King, an analyst at Rodman and Renshaw. "When you've got the biggest products that are the biggest growth drivers, Avastin and Lucentis, light, that's disappointing." The world's second-largest biotechnology company by sales posted a net profit of $632 million, or 59 cents a share, compared with a profit of $594 million, or 55 cents a share, a year earlier. Excluding items, South San Francisco, California-based Genentech earned 69 cents a share, beating the average analyst estimate of 67 cents a share, as compiled by Reuters Estimates. For full-year 2008, the company expects earnings per share of $3.30 to $3.45, compared with the $3.38 per share forecast by Wall Street analysts. "We did not expect them to give very bullish guidance," due to a variety of unknowns, said Jason Kantor, an analyst with RBC Capital Markets. "It was solid, but on the conservative side." Quarterly U.S. sales of Avastin -- the colon-cancer and lung-cancer drug viewed as a key barometer of Genentech's fortunes -- rose 23 percent to $603 million, but still fell short of Wall Street expectations for sales near $616 million. "What everyone looks at ... is the Avastin number and Avastin revenue came in light," said Chris Raymond, an analyst with Robert Baird. "Because this is such a still high-growth drug, any little miss tends to have a disproportionate reaction." The U.S. Food and Drug Administration is expected to decide by late next month whether Avastin can also be used to treat advanced breast cancer, but an advisory panel to the agency recommended in December that the application be turned down. Susan Desmond-Hellmann, president of product development at Genentech, said the company believes clinical data for Avastin in breast cancer "are consistent with an approvable medicine." She said the company expects to have results from two other breast cancer trials of Avastin later this year, but neither is designed to show whether the drug improves survival. Genentech's fourth-quarter revenue rose 9 percent to $2.97 billion, which, helped by higher-than-expected royalty revenue, was in line the $2.96 billion expected by Wall Street. U.S. product sales rose 7 percent to $2.2 billion. Swiss drugmaker Roche Holding AG (ROG.VX), which owns a majority stake in Genentech, records sales of Genentech drugs outside the United States. Royalty revenue for the quarter jumped to $558 million from $389 million a year ago. Domestic sales of non-Hodgkin's lymphoma drug Rituxan rose 6 percent to $596 million, while U.S. sales of breast cancer treatment Herceptin rose 2 percent to $327 million. Wall Street had expected quarterly sales of $603 million for Rituxan and $332 million for Herceptin. Sales of eye-disease medicine Lucentis fell 9 percent to $197 million, while analysts had expected around $200 million. Last month, Genentech resolved a dispute with doctors over the use of Avastin, a much less costly alternative to Lucentis, as a treatment for macular degeneration. David Ebersman, the company's chief financial officer, said the 2008 outlook translates to compound annual earnings growth of 12 percent to 17 percent. Under its 2005-2010 plan, Genentech projected a CAGR of 25 percent. Since earnings growth was 74 percent in 2006 and 32 percent in 2007, growth does not have to rebound from projected 2008 rates to meet the 5-year forecast, the CFO said. Ebersman also said achievement of the high-end of the company's 2008 outlook is dependent on "timely approval" of Avastin for breast cancer. Genentech shares, which fell about 17 percent last year, fell 1.8 percent in after-hours trading to $69.40 from a close of $70.64 on the New York Stock Exchange. (Additional reporting Ransdell Pierson, Peter Henderson, Lisa Baertlein and Lewis Krauskopf; Editing by Andre Grenon)
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