Genentech's cancer pipeline is deep. The company has one new drug -- pertuzumab -- in a phase III study for breast cancer. There are another six new drugs in phase II studies with data expected within the next 18 to 24 months, according to Sue Desmond-Hellman, the company's president of product development. Further back, another seven new drugs are in phase I studies.
Cancer drug partnerships with
Curis(CRIS Quote - Cramer on CRIS - Stock Picks),
Immunogen(IMGN Quote - Cramer on IMGN - Stock Picks),
Abbott Labs(ABT Quote - Cramer on ABT - Stock Picks),
Seattle Genetics(SGEN Quote - Cramer on SGEN - Stock Picks) and
Exelixis(EXEL Quote - Cramer on EXEL - Stock Picks) also were highlighted Friday.
Money to Burn
Genentech has $6.1 billion in cash on hand. That's more moolah now than the company says it needs to run the business. Which begs the question: What does it do with all that money?
The more mundane choices are a big stock repurchase plan or a dividend, both of which are under review by the company's board, said CFO David Ebersman.
Will Genentech go out and make a big acquisition? Historically, that has not been the company's style, but Friday, CEO Levinson didn't rule out M&A activity in the future.
"If we have a serious downturn, there will be wonderful opportunities for a company with financial strength," he said. Levinson added that he and other officers at the company have been fielding a lot more phone calls from smallish biotech firms - some feeling particularly cash strapped these days -- that want to explore "strategic relationships" with Genentech.
Not that Levinson needs my advice, but if the company wants to get into infectious disease in a big way, why not merge with
Gilead Sciences(GILD Quote - Cramer on GILD - Stock Picks)? Now, that would be a mega-blockbuster deal! (And, it would combine the two best management teams in biotech.)
Here and There
Other thoughts and observations from the Genentech investor meeting:
The next big clinical event to watch out for are results from two Rituxan phase III studies, one in lupus and the other in primary progressive multiple sclerosis. Positive data from either of these studies, especially the lupus trial, could have a big impact on Genentech's stock price.
Spending on research and development at Genentech totaled 19.5% of non-GAAP operating income in 2007, a ratio the company hopes to maintain in the future. By comparison, spending on marketing and sales as a percentage of operating incomes was just under 11% last year. That ratio has fallen since 2004, and the company said it will continue to drop in the future.
For most, if not all of, Big Pharma, these ratios are reversed, with spending on marketing higher than R&D as a percentage of operating income, mainly because their labs haven't been successful at developing new blockbuster drugs. That forces the marketing departments of Big Pharma to work harder - and spend more -- to grow sales of older drugs.
Generic copies of biologic drugs are coming, but Genentech's patent estate is fairly secure. Key patents are Avastin don't expire until 2017; for Rituxan, it's 2014. (By the way, Amgen(AMGN Quote - Cramer on AMGN - Stock Picks) has 24% of its 2006 sales vulnerable to patent expiration through 2012; that's second only to Pfizer.(PFE Quote - Cramer on PFE - Stock Picks))
Adam Feuerstein
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