Global Insight Perspective | |
Significance | U.S. biotech Genentech posted a strong set of second quarter results yesterday, which saw the company reporting a huge 79.4% year-on-year (y/y) rise in earnings growth. |
Implications | This huge leap in Genentech’s second quarter earnings was due primarily to strong growth in sales from the company’s cancer products, particularly Avastin and Herceptin, which posted 72% and 111% y/y gains respectively. |
Outlook | Genentech has again demonstrated its ability to post monumental growth figures, but questions remain among some investors over the sustainability of this growth. This concern is fuelled by the fact that, despite its strong gains over the quarter, Avastin missed some analysts’ ambitious sales expectations. However, Genentech has highlighted a number of pipeline advances that the company expects will sustain it well into the medium-term. |
Genentech, the world’s largest biotech by market cap, posted an excellent set of 2006 second quarter results yesterday. These saw earnings from the company surge by 79.4% year-on-year (y/y) to US$531 million, up from US$296 million in the second quarter of 2005. These rocketing profits came on the back of an extremely strong performance from its oncology products, especially Avastin (bevacizumab) and Herceptin (trastuzumab). Genentech also boosted its full-year 2006 forecast, saying that it now anticipates around 55% to 60% earnings-per-share (eps) growth, excluding items, compared to 2005. The company had previously predicted that it would see earnings growth of between 45% and 55%.
Genentech: (US$ mil.) | ||||
Q2 2006 | % Change, Year-on-Year | H1 2006 | % Change, Year-on-Year | |
Product Sales | 1,810 | 42.1 | 3,454 | 40.4 |
Total Revenues | 2,199 | 44.0 | 4,185 | 40.0 |
Cost of Sales | 284 | 3.6 | 546 | 3.0 |
R&D Expenses | 390 | 40.3 | 764 | 46.6 |
Marketing, General & Administrative | 471 | 33.8 | 912 | 37.6 |
Profit Sharinga | 259 | 30.2 | 485 | 29.3 |
Operating Income* | 1,054 | 69.4 | 1,963 | 54.1 |
Net Income | 531 | 79.4 | 952 | 64.1 |
Source: Company report except * Global Insight estimate, calculated by revenues minus R&D, cost of sales and SGA expenses a With Roche | ||||
Herceptin and Avastin Sales Lead the Way
Genentech’s strong second quarter performance can be strongly attributed to a massive increase in sales from its cancer drugs Avastin and Herceptin. Sales of Avastin rose by 72% y/y to US$423 million for the quarter, while sales of the older breast cancer drug Herceptin - which has been shown to effectively cut the risk of the recurrence of breast-cancer by half - more than doubled to US$320 million. The company also garnered US$10 million in sales for its newly approved age-related macular degeneration (AMD) drug, Lucentis (ranibizumab). This drug, which is anticipated to gain considerable market share in the rapidly expanding AMD market, is projected to add around US$100 million to Genentech’s full year 2006 sales, with sales expected to rise to around US$500 million by 2008.
Genentech: 2006 Net U.S Sales (US$ mil.) | ||||
Brand | Q2 2006 | %Change, Year-on-Year | H1 2006 | % Change, Year-on-Year |
Rituxan | 526 | 16.9 | 1,003 | 12.7 |
Avastin | 423 | 72.0 | 821 | 82.9 |
Herceptin | 320 | 110.5 | 610 | 116.3 |
Tarceva | 103 | 47.1 | 196 | 66.1 |
Nutropin Products | 98 | 1.0 | 185 | -1.1 |
Xolair | 105 | 31.3 | 200 | 37.9 |
Thrombolytics | 62 | 19.2 | 121 | 18.6 |
Pulmozyme | 47 | -2.1 | 96 | 4.3 |
Raptiva | 22 | 4.8 | 43 | 13.2 |
Lucentis | 10 | - | 10 | - |
Total U.S. Product Sales | 1,716 | 41.1 | 3,285 | 42.6 |
Source: Genentech company report | ||||
Outlook and Implications
What’s the future for Genentech?
Although the second quarter of 2006 was excellent for Genentech, a number of observers have noted that despite Avastin’s strong performance it failed to meet many analysts’ sales estimates. These weaker-than-expected sales will concern investors in the California-based biotech, who view Avastin as crucial to the medium-term growth of the company. Ongoing growth for Avastin sales largely depends on Genentech’s ability to demonstrate the drug’s efficacy in a raft of new indications. Genentech announced yesterday that the U.S. FDA had designated priority review status for its supplemental Biologics License Application (sBLA), for Avastin in combination with taxane chemotherapy for patients with first-line metastatic breast cancer. However, the U.S. regulatory authority has requested further documentation, as the study forming the basis for the sBLA has a progression-free-survival endpoint rather than one for overall survival. Genentech noted that this may prolong the review process beyond the 22 November FDA action date. Such delays to Avastin’s development progress seem sure to dampen investors’ belief that Genentech can continue the monumental gains in profits achieved over recent quarters. There is also a general perception that Genentech’s pipeline lacks depth and is primarily concerned with gaining new indications for current products.
In response to these concerns, the company highlighted a number of pipeline developments which it believes will secure growth in the future. One of the most advanced of these projects is a Phase II study of the company’s current top selling product, Rituxan (rituximab) for Rheumatoid Arthritis (RA), in combination with the steroid methotrexate and U.S. rival Amgen’s tumour necrosis factor drug, Enbrel (etanercept). It also pointed to a Phase II topical VEGF diabetic wound healing study. Finally, the company confirmed that it has given the go ahead for a Phase III study of its second-generation humanised anti-CD-20 molecule ocrelizumab, also in RA.
Related Articles:
- United States: 12 April 2006: Genentech's Q1 Profits Surge by 48% on Strong Herceptin and Avastin Sales
- United States: 3 July 2006: Genentech's Lucentis Receives Approval and Pricing
- United States: 27 June 2006: Genentech Halts Avastin Pancreatic Cancer Trial
- United States: 21 June 2006: Genentech Expands Colorectal Cancer Indications for Avastin
- United States: 26 May 2006: Genentech Applies for Avastin Line Extension for Breast Cancer