Global Insight Perspective | |
Significance | Total operating revenues for the year steepled 40.0% to US$9.3 billion, as sales of Avastin (bevacizumab) began to reaccelerate, and after a better-than-expected launch of new age-related macular degeneration (AMD) treatment Lucentis (ranibizumab). |
Implications | Genentech managed to keep a tight grip on its expenses and its overall margins once again improved. This allowed the company to achieve net income growth of 65.2% for the full year 2006, to US$2.1 billion. |
Outlook | Fears had been growing that Genentech's pipeline was beginning to look a bit thin. However, Genentech has duly reported significant pipeline progress in 2006, as it attempts to redress this perceived weakness. This progress includes the addition of seven new molecular entities to its development pipeline, entering into agreements for eight significant new strategic collaborations, and receiving positive data from four important mid-stage clinical trials. |
Genentech, the world's largest biotech in terms of market capitalisation, continued its run of impressive financial figures yesterday, by recording revenue growth for full year 2006 of 40% from the prior year. This impressive revenue gain was reflected in the company's bottom-line performance for the year, as Genentech once again managed to keep a lid on its costs and improve its margins. Net earnings for the year hit US$2.1 billion, up 65.2% year-on-year (y/y) from US$1,279 billion in full-year 2005.
Genentech: Selected Results (US$ mil.) | ||||
Q4 2006 | % Change, Year-on-Year | Full-Year 2006 | % Change, Year-on-Year | |
Product Sales | 2,244 | 42.3 | 7,640 | 39.2 |
Total Revenues | 2,714 | 43.4 | 9,284 | 40.0 |
Cost of Sales | 338 | 38.0 | 1,181 | 16.8 |
R&D Expenses | 555 | 34.7 | 1,773 | 40.5 |
Marketing, General & Administrative | 600 | 39.9 | 2,014 | 40.3 |
Profit Sharing a | 270 | 18.4 | 1,005 | 22.1 |
Operating Income * | 1,221 | 51.3 | 4,316 | 47.5 |
Net Income | 594 | 75.2 | 2,113 | 65.2 |
Source: Company report except * Global Insight estimate, calculated by revenues minus R&D, cost of sales and SGA expenses | ||||
Revitalised Avastin and Lucentis Boost Revenues
While Genentech's products recorded sales growth across the board, there were a number of stand-out performances, especially from Lucentis and Avastin. Meanwhile, Rituxan sales fell a little short of expectations, but still managed to reach the significant milestone of US$2 billion in sales for the full year.
- Sales of colorectal cancer drug Avastin reaccelerated in 2006, rising by a massive 54% y/y to US%1.7 billion. This was primarily driven by the U.S. FDA's approval for the drug in combination with carboplatin and paclitaxel for the first-line treatment of patients with unresectable, locally advanced, recurrent or metastatic non-squamous non-small cell lung cancer (NSCLC).
- Herceptin (Trastuzumab) sales also grew strongly during 2006, with sales hitting US$1.2 billion. This represents a 65% y/y expansion on sales from 2005. This was primarily due to the impact of clinical trials data which showed that the addition of Herceptin therapy to standard adjuvant therapy reduced the risk of breast cancer recurrence among patients with HER-2-positive, node-positive breast cancer by 52%.
- One product that particularly caught analysts by surprise was Genentech's new age-related macular degeneration (AMD) treatment Lucentis. This drug had been widely tipped to make a huge impact on the AMD market, but the success of the launch took even some of the most optimistic observers by surprise. The eye-drug garnered sales of US$380 million in 2006 since its third quarter launch. Although this spectacular growth is expected to moderate over the medium-term as the drug is used in longer dosing intervals, it appears to be a sure-fire bet to reach blockbuster status this year.
- Meanwhile, sales of Rituxan (rituximab) slowed in 2006, achieving only 13% y/y growth. Nevertheless, this still pushed the drug’s revenues over the US$2 billion mark for the year. There is a significant question mark over the continued expansion of Rituxan, however. The drug has begun to see maturing sales for its approved cancer indication, but its development as a treatment for a range of immunological and neurological indications such as rheumatoid arthritis, multiple sclerosis and lupus erythematosus, was expected to light the afterburners for sales. However, a number of safety concerns have recently emerged for the drug, including a potential link with the rare brain disease progressive multifocal leukoencephalopathy(PML), as well as the potential for bowel obstruction. These factors could therefore dampen its future prospects.
Genentech: Q4 and Full Year 2006 Net U.S. Sales (US$ mil.) | ||||
Brand | Q4 2006 | % Change, Year-on-Year | Full Year 2006 | % Change, Year-on-Year |
Rituxan | 560 | 16 | 2,071 | 13 |
Avastin | 490 | 36 | 1,746 | 54 |
Herceptin | 322 | 29 | 1,234 | 65 |
Tarceva | 107 | 27 | 402 | 46 |
Nutropin Products | 101 | 6 | 378 | 2 |
Xolair | 117 | 26 | 425 | 33 |
Thrombolytics | 62 | 7 | 243 | 11 |
Pulmozyme | 53 | 8 | 199 | 7 |
Raptiva | 24 | 20 | 90 | 14 |
Lucentis | 217 | - | 380 | - |
Total U.S. Product Sales | 2,053 | 38 | 7,169 | 39 |
Source: Genentech company report | ||||
Outlook and Implications
The outlook for Genentech looks strong, but few analysts are predicting that the company can sustain earnings growth at above 65% for much longer. Many observers believe that from next year, the markets will see Genentech's incomes returning to a level which will probably be above the industry average but will also make the company look a little more normal among its peers. This does not mean that there is a risk to the company's revenue base coming any time soon. Growth in revenues over the short-to-medium term are expected to be driven by further approvals for Avastin in breast cancer and as an adjuvant therapy for colorectal cancer, and through the continued strong uptake of Lucentis for treating AMD. Future strong revenues and the company's continued focus on its margins will in turn ensure that investors continue to see a bottom-line improvement from the company.
Looking more long-term, Genentech has also managed to make some significant pipeline progress over the past year, by adding seven new molecular entities to its development pipeline. This has been partly achieved by the company using some of its huge cash reserves—which stood at US$2.5 billion as of 31 December 2006—to enact an unprecedented foray into mergers and acquisitions (M&A). This included the acquisition of its Xolair (omalizumab) partner Tanox, and eight significant new strategic collaborations. This huge activity has been spurred by a perception that a significant gap had appeared between Genentech’s currently–marketed products and the next generation of growth-driving products that will come through the pipeline to sustain forward momentum.
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