Shares of

Genentech

(DNA)

eased Tuesday as investors weighed stellar first-quarter earnings against unspectacular sales of the cancer drug Avastin and the stock's robust valuation.

After the bell Monday, Genentech said it earned $311.6 million, or 29 cents a share, on revenue of $1.46 billion, excluding one-time items, for the three months ended March 31. Analysts polled by Thomson First Call were expecting a first-quarter profit of $266.5 million, or 25 cents a share, on revenue of $1.38 billion.

For the same period last year, Genentech's non-GAAP profit was $207.6 million, or 19 cents a share, on revenue of $975.1 million.

The stock was recently down 45 cents to $56.15 a share.

First-quarter revenue from Avastin, which is used to treat colon cancer, jumped to $202.8 million from $38.1 million for the same period last year. The sales fell below several analysts' predictions, however, which hovered in the range of $220 million. Avastin has been available for roughly 13 months.

The biggest-selling drug, Rituxan, for non-Hodgkins lymphoma, recorded first-quarter sales of $440.6 million, up from $361.8 million. Sales of the breast cancer drug Herceptin rose 19% to $129.6 million.

When one-time items are included for the first quarter of 2005, the company's GAAP-based profit was $284.2 million, or 27 cents a share.

The company also said non-GAAP profit growth will be "greater than 30%" for 2005. The growth projection excludes accounting for stock options. In January, Genentech predicted a gain of more than 25% in non-GAAP profit for the year.

Analysts polled by Thomson First Call were predicting a 2005 profit of $1.18 billion, or $1.09 a share, on revenue of $6 billion. Based on non-GAAP earnings per share of 83 cents last year, a 30% gain would yield an EPS of $1.08 in 2005.

On a postearnings conference call, CFO David Ebersman told analysts that they shouldn't expect the same kind of earnings outperformance in other quarters this year. He said Genentech will accelerate its R&D spending and will continue to spend substantially in new-product launches during the year.

Total product sales jumped 55% to $1.19 billion during the first quarter of 2005 vs. the first quarter of 2004. Another $275 million in first-quarter 2005 revenue came from royalties and contract revenue.

Genentech says it plans to begin a phase III clinical trial of Avastin as a treatment for prostate cancer. Phase III is the final stage of clinical testing before a drug application is submitted to health care regulators.

The company recently announced favorable preliminary results of a test of Avastin as a treatment for non-small cell lung cancer. A more detailed presentation is expected to be submitted at a major cancer conference next month.

Genentech also has begun enrollment of patients in a phase II test of Avastin as a treatment for ovarian cancer patients.

The growth in clinical trials for Avastin and other products helped raise the R&D expense to $243.2 million for the first quarter of 2005 vs. $190.3 million for the same period last year. R&D expenses accounted for 17% of operating revenue for the first quarter, but the company expects to step up its R&D spending during the year.

By year-end, these costs will be about 21% of operating revenue -- the same percentage as last year.

Marketing and administrative expenses jumped to $315.2 million from $247.3 million, due to several product launches. Still, these expenses as a percentage of operating revenue declined to 22% from 25%.

Genentech released its financial results after markets had closed. In regular trading, the stock lost $1.06, or 1.8%, to close at $56.60. In after-hours trading, it lost another 32 cents.