Genentech Posts 30% Profit Jump

Genentech Inc. said its first-quarter earnings jumped 30% as increased demand for its innovative cancer drugs Rituxan and Herceptin drove a 22% rise in product sales.

Genentech, the world’s second-largest biotechnology company, is spearheading a new approach to cancer treatment in which drugs interact with specific disease-causing genes or proteins, reducing the side effects associated with traditional chemotherapy.

Operating profit grew to $118.6million, or 22 cents a share, from $91.2 million, or 17 cents, in the year-earlier period, matching the average estimate of analysts polled by Thomson Financial/First Call.

Net income including one-time charges rose to $95.3 million, or 18 cents a share, from $26.75 million, or 5 cents, a year ago, the South San Francisco company said. Revenue rose 14% to $613.4 million.

Sales of Genentech’s flagship product, non-Hodgkin’s lymphoma drug Rituxan, rose 44% to $247.5 million. The drug accounted for 37% of Genentech’s sales in 2001.

Sales of breast cancer drug Herceptin, the company’s second-biggest product, rose 7% to $86.8 million. Genentech in the fourth quarter of 2001 had shifted to distribution of the drug by wholesalers instead of direct shipment, causing wholesalers to order quantities in the fourth quarter sufficient for them to stock inventory.

Genentech’s net income has been held back for the last three years by an unusual, continuing charge that arose when Roche Holding Ltd. in 1999 acquired the remaining shares of Genentech that it did not already own.

Under an obscure accounting rule, when a company that owns a majority stake in another company subsequently acquires all of it, the cost of writing off goodwill is recorded by the acquired company.

Even though Roche later sold 42% of Genentech shares, Genentech has had to write off as much as $100 million a quarter since 1999. But this year, an unrelated change in accounting rules means companies no longer need to amortize goodwill--the difference between a firm’s book value and the amount paid for it by an acquirer.

Genentech expects its charges for goodwill to decline by $150 million this year. In the first quarter, the company recorded a charge of $38.9 million, compared to $81.5million a year earlier.

Shares of Genentech closed off $1.80 at $41.05 on the New York Stock Exchange before the earnings report was released.