Genentech profit rises, Avastin disappoints

Typography

NEW YORK (Reuters) - Genentech Inc <DNA.N> reported higher first-quarter profit on Thursday on increased demand for its cancer drugs and a jump in royalty revenue, but sales of its most important product, Avastin, disappointed investors.

By Bill Berkrot

NEW YORK (Reuters) - Genentech Inc <DNA.N> reported higher first-quarter profit on Thursday on increased demand for its cancer drugs and a jump in royalty revenue, but sales of its most important product, Avastin, disappointed investors.

Avastin, Genentech's most closely watched product and a key barometer of the company's fortunes, had U.S. sales of $600 million for the quarter.

While that was up 13 percent from a year ago, it was down slightly from the previous quarter and some $24 million shy of Wall Street expectations, despite a recent approval for breast cancer in addition to colon and lung cancer.

!ADVERTISEMENT!

That tempered enthusiasm despite a profit that topped Wall Street by 2 cents per share and solid sales of other key medicines, and shares were down slightly in after-hours trading.

"It looks like the stock weakness is mostly reflective of Avastin, still Genentech's most important franchise," said Cowen and Co analyst Eric Schmidt.

"All else was OK, though nothing to write home about."

"Genentech beat our earnings estimate, but Avastin sales were definitely light," said RBC Capital Markets analyst Jason Kantor.

The world's second-largest biotechnology company posted a net profit of $790 million, or 74 cents per share, compared with a profit of $706 million, or 66 cents per share, a year earlier.

Excluding items, Genentech earned 84 cents per share, edging above analysts' average expectations, according to Reuters Estimates.

"People are looking for Avastin growth in breast cancer," said Rodman & Renshaw analyst Michael King, adding that FDA approval for that use came too late in the quarter to have a major impact on sales.

Revenue for the quarter rose to $3.06 billion from $2.84 billion a year ago, just shy of the $3.10 billion Wall Street was expecting.

U.S. sales of the breast cancer drug Herceptin rose 9 percent to $339 million for the quarter, topping analyst expectations of $329 million.

Sales of Rituxan for non-Hodgkin's lymphoma and rheumatoid arthritis rose 13 percent to $605 million, slightly ahead of expectations.

Royalty revenue jumped 46 percent to $612 million, helped by favorable foreign exchange rates against the weak dollar. Roche Holding AG <ROG.VX>, which owns a majority stake in Genentech and sells its drugs outside the United States, pays it royalties in Swiss francs.

Sales of the eye drug Lucentis were down 6 percent from a year ago to $198 million, but roughly in line with expectations as it faces competition from off-label use of Avastin, which works in a similar manner at a fraction of the cost.

Genentech said it still expects full-year earnings of $3.35 to $3.45 per share, excluding items.

Genentech shares fell as much as 2.5 percent in after-hours trading but recovered to trade less than 1 percent below their close of $78.00 per share on the New York Stock Exchange.

South San Francisco, California-based Genentech's shares are up about 17 percent this year, easily outperforming the American Stock Exchange Biotech Index <.BTK>, which is about flat for the year.

(Additional reporting by Ransdell Pierson and Deena Beasley; Editing by Gary Hill)