Big Beats at Genentech - TheStreet

Updated from April 7



built on its yearlong runup Thursday morning after posting much stronger than expected earnings and revenue in its first quarter.

The company said late Wednesday that it earned $176.6 million, or 33 cents a share, in the latest quarter, compared with earnings of $151.5 million, or 29 cents a share, last year. Total revenue was $975.1 million in the latest quarter compared with $749.7 million a year ago.

The stock, which has more than tripled over the last 12 months, added another $3.25, or 3%, to $111.70 Thursday morning. Early Wall Street research was mostly positive, with most analysts praising the quarter but noting the costliness of the shares.

Excluding a litigation reserve and the impact of a stock redemption by a former affiliate, the company earned 38 cents a share in the latest quarter. Analysts surveyed by Thomson First Call had been forecasting earnings of 32 cents a share on revenue of $952.1 million. Sales of Avastin, the company's new drug for colon cancer, totaled $38.1 million, a little better than estimates that ranged from $2 million to $80 million.

Genentech said it currently believes a 20% to 25% jump in 2004 non-GAAP earnings "is possible," adding that "were revenues to increase further we would consider additional investment in the R&D and Commercial areas." That implies earnings of $1.44 to $1.50 a share, somewhat below the $1.54 analysts were forecasting but is slightly better than an outlook it gave analysts on March 12.

The difference between the company's forecast and analysts reflects a suspicion on Wall Street the company is being too conservative in its earnings estimates -- particularly given that earnings grew by 30% in 2003 without Avastin. On a conference call, an analyst asked if earnings were being capped by the company.

Louis Lavigne, Genentech's CFO, said that rather than lowballing guidance, the company wants to have the flexibility to use excess profit as additional money for research and development, along with commercial investment opportunities.

So far it looks as though analysts are betting Genentech's Avastin, Rituxan, and Herceptin will deliver numbers that will result in much higher earnings than the company is currently forecasting.

While Avastin started strongly, Genentech's two blockbusters -- Rituxan for lymphoma and Herceptin for breast cancer -- continued to represent the lion's share of the company's top line. Rituxan sales rose 17% year-over-year to $400.6 million, including a 17% jump in the U.S. to $361.8 million, while Herceptin sales totaled $113.5 million in the first quarter, up 21% from a year ago. A handful of analysts noted Thursday that the sales gain in Rituxan was slightly below expectations.

Overall product sales rose 28% to $763.7 million.