Avastin Drives Genentech Quarter

Updated from July 7

Genentech ( DNA) shares rose early Thursday after the company kicked off the biotech earnings season with a bang Wednesday evening, announcing strong sales of its cancer-treatment Avastin, while boosting earnings guidance going forward.

On a non-GAAP basis, Genentech announced second-quarter net income of $201.8 million, or 19 cents a share, matching rising Wall Street estimates and rising 23% from the $163.5 million, or 16 cents a share, it had a year ago. On a GAAP basis, the company said it earned $170.8 million, or 16 cents a share, up from $132.3 million, or 13 cents a share, a year ago.

Genentech's quarterly operating revenue came in at $1.1 billion, up 41% from last year and topping the Wall Street estimate of $1.060 billion. Product sales came in at $913.4 million, up 42% year over year, driven by strong sales of the company's cancer fighter, Avastin, which booked $133 million in its first full quarter on the market.

Shares gained $1.40, or 2.6%, to $55.30 in premarket trading.

"Genentech topped $1 billion in quarterly revenues for the first time in our history, and we are exiting the first half of the year with revenues of more than $2 billion," said Arthur D. Levinson, Genentech's chairman and CEO. "Our unrelenting focus on science has led us to launch three successful products, Avastin, Xolair and Raptiva, in a recent nine-month period.

Indeed, Avastin successfully outperformed Wall Street expectations. Heading into the earnings release, analysts had been tweaking sales estimates on the drug, with the average sales estimate coming in around $85 million. Earlier in the week, even Genentech's bulls were growing more skittish on Avastin's prospects, with Merrill Lynch quietly snipping its estimate to $115 million from $130 million.

And sales of the drug could continue to outperform. On a conference call, the company said wholesalers did not increase stocking levels in the quarter, which would imply that the $133 million in Avastin sales could be the tip of the iceberg. The company also said 80% of those who took shipments of Avastin reordered the drug vs. about 50% during the brief span the drug was on sale in the previous quarter.

While the company's in-line earnings may disappoint some who expected the company to easily top estimates, the good news on Avastin drove shares higher after hours, which gained $1.47, or 2.7%, to $55.37. Ahead of its postclose earnings release, shares of the company fell 77 cents, or 1.4%, to $53.89 on about 6 million shares traded, 1.5 million more than usual.

Combined, Genentech said its three new products accounted for $190.1 million, or 23%, of the total net sales for the quarter -- and boosted guidance for 2004 as a result. The company said it expects to earn between 75 and 80 cents on a non-GAAP basis in 2004, which is in line with the current consensus estimate of 79 cents a share.

Other Genentech drugs also were strong. Sales of Rituxan, a non-Hodgkin's lymphoma treatment that the company shares with Biogen Idec ( BIIB), rose 17% annually, to $424.7 million. Sales of Herceptin, a breast-cancer treatment that stems from a partnership with Protein Design Labs ( PDLI), rose 8% year over year, to $117.7 million.

Costs continue to rise because of increased research and development, as well as the launch of new products, but were offset by rising sales of the company's drugs. All told, costs came in at $873.1 million on a GAAP basis, up 35% from the year-ago $647.1 million.

More from Markets

Jim Cramer: The 10-Year Yield Could Go to 2.75%

Jim Cramer: The 10-Year Yield Could Go to 2.75%

Oil Slumps, Gas Spikes Ahead of Holiday Weekend; Assessing the Chipmakers--ICYMI

Oil Slumps, Gas Spikes Ahead of Holiday Weekend; Assessing the Chipmakers--ICYMI

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker