Genentech's 4th-quarter profit rises 6 percent, stock falls

SAN FRANCISCO -- Genentech Inc. barely scraped past Wall Street's expectations Monday as the biotech giant renowned for its phenomenal growth posted a 6 percent rise in fourth-quarter profits.

Genentech's stock dropped in after-hours trading as sales of a key product also fell below expectations.

Shares of Genentech fell $1.03 to $69.61 in after-hours trading after closing Monday at $70.64.

Last year, Genentech posted a 75 percent surge in fourth-quarter profits, and investors have become accustomed to growth in the high double digits quarter after quarter.

The company earned $632 million, or 59 cents per share, compared with profit of $594 million, or 55 cents per share, during the same period a year earlier. Revenue rose to $2.97 billion from $2.71 billion.

Excluding stock-option expenses and other one-time expenses, the company said it earned 69 cents per share. Analysts polled by Thomson Financial expected earnings per share of 67 cents on total revenue of $2.97 billion.

Genentech executives said in an interview that it was unrealistic to expect such a large company to continue growing at the same rate as seen in the past.

"I don't think anyone would rightly expect us to sustain growing a business this size at those numbers," said Chief Financial Officer David A. Ebersman.

At the same time, Ebersman said, the 31 percent jump in the company's overall profits in 2007 offered proof that Genentech still had room to grow, even if more slowly than in the past. Earnings jumped 65 percent in 2006 over the previous year.

Genentech is the nation's biggest biotechnology company, based on market capitalization. The total value of its outstanding shares is $74.4 billion.

Some analysts said Genentech's earnings reports don't always have much of an impact on the company's stock.

"Genentech knocked the ball out of the park over the last year and a half in terms of earnings, and the stock price didn't reflect that at all," said RBC Capital Markets analyst Jason Kantor. Genentech shares fell about 18 percent in 2007.

To get investors excited, the company needs several ongoing clinical trials to produce positive results, Kantor said. "Right now what's going to get the stock moving in 2008 is not the earnings numbers," he said.

Two trials are testing Rituxan, already Genentech's second biggest source of revenue as a treatment for rheumatoid arthritis and non-Hodgkin's lymphoma. The company wants to offer Rituxan as a treatment for lupus and and multiple sclerosis.

Rituxan sales brought in $596 million last quarter, up 6 percent from the same period a year ago.

Genentech's breast cancer drug Herceptin brought in $327 million for the quarter, a two percent increase.

Analysts have worried the market for the South San Francisco, Calif.-based company's top-selling cancer drug Avastin was becoming saturated even as the company sought approval for new uses.

Sales growth slowed for Avastin the past several quarters. Sales reached $603 million during the fourth quarter, falling short of Wall Street expectation of $616 million. Its prospects grew cloudier last month when a Food and Drug Administration panel's decided not to recommend the drug for expanded use in breast-cancer patients.

A final FDA vote on whether to treat breast cancer patients with Avastin alongside chemotherapy is slated for February. The agency does not have to follow the advice of its panel, though it usually does.

"We continue to believe strongly that the testing of Avastin and metastatic breast cancer was a successful study," said Susan Desmond-Hellmann, Genentech's president of product development.

In 2008, the company said it expects profit, excluding charges, between $3.30 and $3.45 per share. Analysts expected earnings of $3.37 per share for the year.