Genentech Announces Second Quarter 2008 Results

SOUTH SAN FRANCISCO, Calif.–(EMWNews)–Genentech, Inc. (NYSE: DNA) today announced financial results for the

second quarter of 2008. Key results for the second quarter of 2008

include:

• U.S. product sales of $2,351 million, a 9 percent increase from U.S.

  product sales of $2,149 million in the second quarter of 2007.

• Non-GAAP operating revenue of $3,232 million¹,

  an 8 percent increase from operating revenue of $3,004 million in the

  second quarter of 2007; GAAP operating revenue of $3,236 million, an 8

  percent increase from operating revenue of $3,004 million in the

  second quarter of 2007.

• Non-GAAP net income of $871 million, a 4 percent increase from $834

  million in the second quarter of 2007¹; GAAP

  net income of $782 million, a 5 percent increase from $747 million in

  the second quarter of 2007.

• Non-GAAP earnings per share of $0.82, a 5 percent increase from $0.78

  in the second quarter of 2007¹; GAAP earnings

  per share of $0.73, a 4 percent increase from $0.70 in the second

  quarter of 2007.

Reconciliations between non-GAAP and GAAP earnings per share for second

quarters of 2008 and 2007 are provided in the following table:

	Non-GAAP Diluted EPS	Employee Stock-Based Compensation Expense	Net Charges related to Redemption, Acquisition and Special Items	Reported GAAP Diluted EPS
Q2 2008	$0.82	($0.06)	($0.02)	$0.73
Q2 2007	$0.78	($0.06)	($0.02)	$0.70

Note: Amounts may not sum due to rounding.

The company is currently forecasting that full-year 2008 non-GAAP

earnings are likely to be in the range of $3.40 to $3.50 per share,

revised from $3.35 to $3.45 per share.¹

Product Sales and Royalty Revenue

Information on product sales for the three months ended June 30, 2008

and 2007, are provided in the following tables (dollars in millions):

	Three Months Ended June 30,
	2008	2007	% Change
Rituxan®	$651	$582	12%
Avastin®+	650	564	15
Herceptin®	338	329	3
Lucentis®	216	209	3
Xolair®	129	120	8
Tarceva®	119	102	17
Nutropin® Products	89	94	(5)
Thrombolytics	68	67	1
Pulmozyme®	63	55	15
Raptiva®	28	27	4
Total U.S. product sales ++	$2,351	$2,149	9
Net product sales to collaborators	185	294	(37)
Total product sales ++	$2,536	$2,443	4

+ Second quarter 2008 Avastin U.S. product sales results include a net

deferral of approximately $1 million in conjunction with the company’s

Avastin Patient Assistance Program. The net deferral related to the

program in the second quarter of 2007 was not significant.

++ Amounts may not sum due to rounding.

Non-GAAP royalty revenue for the second quarter of 2008 was $625

million, a 29 percent increase over the second quarter of 2007.¹

Excluding the impact of a collaboration agreement in the second quarter

of 2007, which resulted in one-time royalty revenue of approximately $65

million in that quarter, non-GAAP royalty revenue in the second quarter

of 2008 increased 49 percent. GAAP royalty revenue of $629 million in

the second quarter of 2008 increased 30 percent over the second quarter

of 2007. The increase was primarily due to growth in ex-U.S. sales of

Genentech’s products by collaborators and related foreign exchange

benefits of the weak dollar.

Total Costs and Expenses

Information on costs and expenses including cost of sales (COS),

research and development (R&D) and marketing, general and administrative

(MG&A) expenses for the three months ended June 30, 2008 and 2007, are

provided in the following tables (dollars in millions)²:

	Three Months Ended June 30,
	2008	2007	% Change
non-GAAP2
COS	$423	$413	2%
R&D	611	564	8
MG&A	518	485	7
GAAP
COS	441	429	3
R&D	649	603	8
MG&A	559	532	5

Reported non-GAAP and GAAP COS for the second quarter of 2008 both

include a charge of approximately $50 million, related to failed lots

from a manufacturing start-up campaign at one of Genentech’s facilities.

	Three Months Ended June 30,
	2008	2007
non-GAAP2
COS as a % of product sales	17%	17%
R&D as a % of operating revenue	19%	19%
MG&A as a % of operating revenue	16%	16%
GAAP
COS as a % of product sales	17%	18%
R&D as a % of operating revenue	20%	20%
MG&A as a % of operating revenue	17%	18%

Other Financial Items

The non-GAAP and GAAP income tax rates of 40 percent for the second

quarter of 2008 include a $33 million settlement with the Internal

Revenue Service related to prior years that was resolved in the second

quarter of 2008.

Clinical Development

Genentech announced that enrollment was completed in seven Phase II and

Phase III studies during the second quarter of 2008. These studies

included two combination Phase III studies for Avastin®

(bevacizumab) and Tarceva® (erlotinib) in

first-line and second-line metastatic non-squamous non-small cell lung

cancer (NSCLC) and a Phase II study for Trastuzumab-DM1 in HER2-positive

metastatic breast cancer patients who have progressed on HER2-directed

therapy.

Genentech also announced that, with its collaborator Abbott, it

initiated a Phase II trial of ABT-869, a VEGFR targeted kinase

inhibitor, in combination with chemotherapy for patients with advanced

NSCLC. In addition, Genentech initiated a Phase III combination study

(BETH) of Avastin and Herceptin®

(Trastuzumab) for patients with adjuvant HER2-positive breast cancer.

Webcast

Genentech will be offering a live webcast of a discussion by Genentech

management of its financial and other business results on Monday, July

14, 2008, at 1:45 p.m. Pacific Time (PT). The live webcast may be

accessed on Genentech’s website at http://www.gene.com.

This webcast will be available via the website until 5:00 p.m. PT on

August 4, 2008. A telephonic audio replay of the webcast will be

available beginning at 4:45 p.m. PT on July 14, 2008 through 4:45 p.m.

PT on July 21, 2008. Access numbers for this replay are: 1-800-642-1687

(U.S./Canada) and 1-706-645-9291 (international); conference ID number

is 49949746.

About Genentech

Founded more than 30 years ago, Genentech is a leading biotechnology

company that discovers, develops, manufactures and commercializes

medicines to treat patients with significant unmet medical needs. The

company has headquarters in South San Francisco, California and is

listed on the New York Stock Exchange under the symbol DNA. For

additional information about the company, please visit http://www.gene.com.

About Genentech’s Commitment to Patient Access

Genentech is committed to patients having access to our therapies.

Through its Genentech Access Solutions program, the company provides

patients and healthcare providers with coverage and reimbursement

support, patient assistance and informational resources. Patient

assistance support is for those eligible patients in the United States

who do not have insurance coverage or who cannot afford their

out-of-pocket co-pay costs. Since 1985, when its first product was

approved, Genentech has donated approximately $1 billion in free

medicine to uninsured patients through the Genentech®

Access to Care Foundation (GATCF) and other product donation programs.

Since 2005, Genentech has also donated more than $140 million to various

independent, non-profit organizations that provide financial assistance

to eligible patients who cannot access needed medical treatment due to

co-pay costs.

For information on Genentech’s latest

business and product development events please refer to http://www.gene.com/gene/news/press-releases/index.jsp.

This press release contains a forward-looking statement regarding

expected growth in non-GAAP earnings per share for 2008. Such a

statement is a prediction and involves risks and uncertainties such that

actual results may differ materially. Such risks and uncertainties

include, but are not limited to, the need for additional data, data

analysis or clinical studies; the results of clinical trials; Biologics

License Application preparation and decision making; U.S. Food and Drug

Administration (FDA) actions or delays; failure to obtain or maintain

FDA approval; difficulty in obtaining materials from suppliers;

unexpected safety, efficacy or manufacturing issues for us or our

contract/collaborator manufacturers; product withdrawals; competition;

efficacy data concerning any of our products which shows or is perceived

to show similar or improved treatment benefit at a lower dose or shorter

duration of therapy; pricing decisions by us or our competitors; our

ability to protect our proprietary rights; the outcome of, and expenses

associated with, litigation or legal settlements; our cost of sales,

other expenses and indebtedness; variations in collaborator sales and

expenses; fluctuations in contract revenue and royalties; actions by

Roche that are adverse to our interests; decreases in third party

reimbursement rates; and changes in accounting or tax laws or the

application or interpretation of such laws. Please also refer to

Genentech’s periodic reports filed with the Securities and Exchange

Commission. Genentech disclaims, and does not undertake, any obligation

to update or revise forward-looking statements in this press release.

¹ Genentech’s non-GAAP royalty revenue and

operating revenue for the second quarter of 2008 exclude recognition of

deferred royalty revenue associated with the acquisition of Tanox, Inc.

of $4 million. In the second quarter of 2008, GAAP royalty revenue and

GAAP operating revenue were $629 million and $3,236 million,

respectively. Genentech’s non-GAAP net income and non-GAAP earnings per

share exclude the after-tax impact of certain items associated with the

acquisition of Tanox, Inc. (including recurring recognition of deferred

royalty revenue and recurring amortization of intangible assets);

recurring charges related to the 1999 redemption of Genentech’s stock by

Roche Holdings, Inc.; litigation-related and similar special items; and

employee stock-based compensation expense. The differences in non-GAAP

and GAAP amounts are reconciled in the accompanying tables and on http://www.gene.com.

² Genentech’s second quarter 2008 non-GAAP

reported COS, R&D and MG&A expenses exclude the effects of employee

stock-based compensation expense of $18 million, $38 million, and $41

million, respectively. Second quarter 2007 non-GAAP reported COS, R&D

and MG&A expenses exclude the effects of employee stock-based

compensation expense of $16 million, $39 million, and $47 million,

respectively. The differences in non-GAAP and GAAP amounts are

reconciled in the accompanying tables and on http://www.gene.com.

GENENTECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
Revenues:
	Product sales	$	2,536			$	2,443			$	4,915			$	4,773
	Royalties		629				484				1,244				903
	Contract revenue		71				77				140				171
	Total operating revenues		3,236				3,004				6,299				5,847
Costs and expenses:
	Cost of sales (includes employee stock-based compensation expense: three months–2008–$18; 2007–$16; six months–2008–$41; 2007–$33)		441				429				831				821
	Research and development (includes employee stock-based compensation expense: three months–2008–$38; 2007–$39; six months–2008–$80; 2007–$77)		649				603				1,266				1,213
	Marketing, general and administrative (includes employee stock-based compensation expense: three months–2008–$41; 2007–$47; six months–2008–$87; 2007–$93)		559				532				1,076				1,023
	Collaboration profit sharing		313				277				592				529
	Recurring charges related to redemption and acquisition		43				26				86				52
	Special items: litigation-related		2				13				(300	)			26
	Total costs and expenses		2,007				1,880

Genentech, Inc. Media Contact: Geoff Teeter, 650-225-8171 Caroline Pecquet, 650-467-7078 Investor Contact: Kathee Littrell, 650-225-1034 Sue Morris, 650-225-6523 http://www.gene.com