Updated from 5:13 p.m. EST
Investors sold off
in the postclose market on Monday, after the company missed the Street's earnings expectations and issued disappointing guidance.
The pharmaceutical company's fourth-quarter results came in a penny a share below consensus projections. Meanwhile, the company's outlook for full-year earnings was about 7 cents a share less than analysts' estimates.
In recent after-hours trading, shares of Genentech were off $2.60, or 4.8%, to $51.83.
On a conference call, Arthur Levinson, Genentech's chief executive, focused on the positives -- and on the company's goals for the year ahead.
"2004 was a highly eventful year with many successes and achievements," he said.
But the expectations game overshadowed what was on its face a strong quarter, with revenue surging 41%.
In the quarter ended Dec. 31, Genentech earned $206.9 million, or 19 cents a share, on revenue of $1.32 billion. In the year-ago period, the company posted a profit of $126.73 million, or 12 cents a share, on $933.9 million in revenue.
Excluding items, the company would have earned $225.4 million, or 21 cents a share. The consensus estimate of analysts polled by Thomson First Call was a pro forma profit of $229.5 million, or 22 cents a share, on revenue of $1.30 billion.
The lower-than-expected profit was the first time in at least eight quarters that Genentech hadn't matched or beaten First Call's consensus.
For the full year, the company earned $784.82 million, or 73 cents a share, on revenue of $4.62 billion.
In 2005, Genentech expects its earnings per share -- excluding expenses -- to grow by more than 25%. Given the company's 83 cents a share pro forma profit in 2004, that forecast would put its 2005 earnings per share at about $1.04, excluding expenses. The company did not give any revenue guidance.
Meanwhile, analysts have projected that the company will earn $1.11 a share this year -- a 33% year-over-year gain -- on $5.87 billion in revenue.
Weighing on the company's results this year will be expected increases in research and development, marketing, royalty and corporate expenses, Lou Lavigne, the company's CFO, said on the conference call.
Genentech expects its R&D, for instance, to be about 21% of revenue in 2005, or about the same portion as in 2004. The company expects overall R&D costs to increase as it prepares new drugs for the testing pipeline and conducts later-stage development on recently released drugs such as its colon cancer drug, Avastin, Lavigne said.
Meanwhile, marketing, general and administrative costs will also be about the same as a portion of revenue in 2005 as in 2004, or about 24%, he said. The company plans to up its overall marketing spending in support of its new drugs, particularly Tarceva, its lung cancer drug, the CFO said.
The company expects to post a significant gain on the bottom line next year, but that may not have much of an effect on its cash flow. Lavigne said the company expects to spend $1.2 billion in 2005 on capital expenditures, including land purchases and an expansion of its manufacturing plants. That's up from the $650 million the company spent on capital expenditures in 2004.
Genentech said Avastin produced $554.5 million in sales in 2004, after having been approved by the Food and Drug Administration in late February.
Tarceva had sales of $13.3 million since its mid-November approval by the FDA. Genentech is a marketing and development partner with
for this drug.
And the company noted that Rituxan's sales increased by 15% in 2004 to $1.7 billion. Genentech's partner in developing and marketing this drug for non-Hodgkins lymphoma is
Genentech's majority owner, the Swiss drug company
, also is a partner in marketing and developing these drugs.
During the last 12 months, Genentech's stock has been erratic, bouncing between the low $40s and the high $60s on a split-adjusted basis. But the stock has had more ups than downs, and for that period it's up about 21%.
In regular trading, shares of Genentech closed up 18 cents to $54.43.