Success Burdens Genentech

Fourth-quarter profits meet estimates, but shares slip in extended trading.
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Updated from 5:15 p.m. EST

Genentech's

(DNA)

fourth-quarter earnings met analysts' estimates, but investors were hoping the biotech company would find a way to surpass Wall Street's target.

Meeting expectations might be fine for some companies, but when a firm generates the kind of excitement Genentech does, stockholders aren't easily satisfied with in-line numbers. As a result, shares were down after the close, falling 2.2% to $91.26.

Genentech earned $339.2 million, or 31 cents a share, in the fourth quarter. Excluding certain charges, the company earned 34 cents, matching the average forecast of analysts surveyed by Thomson First Call.

In the same quarter last year, the company earned $206.6 million, or 19 cents a share. For the full year, the biotech giant earned $1.28 a share, in line with analysts' predictions and ahead of its own forecast of $1.25.

Operating revenue totaled $1.89 billion in the quarter, a 44% increase from last year. Product sales rose 48% to $1.58 billion.

During the fourth quarter and for the full year, Genentech saw stellar sales of the colorectal cancer drug Avastin, as doctors increasingly prescribed it in cases beyond the indication for which it was approved by the Food and Drug Administration.

Avastin brought in $359.1 million in U.S. sales during the fourth quarter, up from $190.5 million in the prior year. Avastin sales for the full year were $1.13 billion, more than double the prior year, after being boosted by positive clinical trial data

presented in May.

Data from a late-phase trial showed that Avastin could extend the lives of patients with a certain type of nonsmall-cell lung cancer, resulting in increased demand for the drug and driving Genentech to practically max out its production. The company is now operating at about 100% of its manufacturing capacity and is boosting its output at some plants.

Fourth-quarter U.S. sales of the breast cancer drug Herceptin jumped 98% to $250.1 million. Genentech reported a 70% increase in Herceptin sales in the

third quarter.

Last year, Avastin came closer to topping Rituxan as Genentech's top-selling drug. Sales of Rituxan, a non-Hodgkin's lymphoma treatment, were $484.4 million in the fourth quarter, an increase of 13%. Some analysts expect to see Avastin supplant the older drug in the top spot as early as next year.

"Looking back over 2005, Genentech had a year of unprecedented success in clinical trial results and FDA filings for potential therapeutics to treat cancer, blindness and rheumatoid arthritis," said Arthur Levinson, Genentech's chairman and chief executive in a prepared statement.

With Genentech's exceptional growth in 2005, however, come questions about whether the company can continue at that level

going forward.

Still, Genentech said it expects 35% to 45% growth in earnings before items for 2006. On that basis, the company earned $1.28 a share last year, and the forecast implies earnings of $1.73 to $1.86 a share. Wall Street is looking for a profit of $1.81 this year.