Updated from 5:20 p.m. EDT

Genentech

(DNA)

reported a second-quarter loss, depressed by a $500 million charge for a potential legal judgment. Pro forma earnings, however, beat Wall Street estimates.

Sales of Rituxan, the company's lead cancer drug, were very strong during the quarter and appear to be outpacing Wall Street growth estimates for the year. Genentech executives also said results from a highly anticipated study of its experimental cancer drug, Avastin, will be ready towards the end of the current quarter. Some Wall Street biotech observers were hoping to see results sooner.

The South San Francisco, Calif.-based biotech firm said pro forma earnings rose 21% from the year-ago quarter, to $120.5 million, or 23 cents a share. Genentech's pro forma earnings exclude charges related to a 1999 stock redemption and the effect of certain accounting changes.

Analysts were expecting second-quarter earnings of 22 cents a share, according to consensus estimates compiled by Thomson Financial/First Call.

According to GAAP standards, Genentech lost $213.6 million, or 41 cents a share in the quarter, compared with a gain of $38.6 million, or 7 cents a share in the year-ago quarter. The second-quarter loss includes a $500 million contingency charge to cover a jury award stemming from a contract

dispute with the City of Hope cancer center. Genentech plans to appeal the judgment.

Second-quarter revenue rose 26% year over year to $652.3 million, driven by sales of Rituxan, used to treat non-Hodgkin's lymphoma. Rituxan sales totaled $274.9 million in the quarter, up 46% from the year-ago quarter and above estimates from most Wall Street analysts.

Wall Street analysts have been expecting Rituxan sales growth in the 30% range for 2002. But actual sales growth is 45% for the first six months of the year, which could lead analysts to increase their estimates.

Sales of Herceptin, the company's breast cancer drug, totaled $95.1 million in the second quarter, a 21% gain over the year-ago quarter.

While Genentech beat expectations, its second-quarter financial report is somewhat a sideshow to the

main event: the upcoming release of late-stage test results for its experimental cancer drug, Avastin, which is being tested on patients with advanced breast cancer.

On its conference call, Genentech Chief Medical Officer Sue Hellmann said the study is complete with analysis still underway. Results will be ready late in the third quarter.

In past conference calls, Genentech has tried to manage expectations for the breast cancer trial, and today's call was no different. Hellmann reminded analysts of the risks involved with the study. The company is also conducting many studies of Avastin, so success or failure of the drug is not dependent on results from any single study, she added. Genentech expects to complete a clinical trial of 900 patients with advanced colon cancer in the middle of next year.

Looking forward, Genentech CFO said the company is comfortable with current Wall Street estimates for 2002 earnings, currently pegged at 90 cents per share. He also reiterated the company's confidence in achieving its long-stated goal of a 25% average earnings growth rate through 2005.

Genentech expects to seek U.S. regulatory approval for its asthma drug, Xolair, and its psoriasis drug, Xanelim, by the end of the year. Both drugs have been delayed.

Shares of Genentech closed Tuesday down $1.65, or 6%, to $25.50, a new 52-week low. The stock was up $1 in after-hours trading.