<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A-1
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from
to .
Commission File Number
1-9813
GENENTECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2347624
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
460 Point San Bruno Boulevard, South San Francisco, California 94080
(Address of principal executive offices and zip code)
(415) 225-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / X / No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $.02 par value 67,133,409
Class Outstanding at March 31, 1995
Redeemable Common Stock $.02 par value 50,447,727
Class Outstanding at March 31, 1995
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GENENTECH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As discussed in Note 6 in the Notes to Condensed Consolidated Financial
Statements, under the proposed agreement with Roche, Roche will have exclusive
rights to Canadian sales of the Company's existing products, and European sales
of Pulmozyme. In return the Company will receive royalties at the rate of 20% of
sales. Roche will receive at commercial terms an option to collaborate on the
development and sales of future drugs. Subject to stockholder approval of the
agreement and Roche's exercise of rights to develop or sell the Company's
products, product sales, royalties and contract revenue, as well as R & D and
other expenses, could be significantly affected in future periods.
RESULTS OF OPERATIONS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------
REVENUES 1995 1994 % Change
--------- -------- -------- ---------
<S> <C> <C> <C>
Revenues $239.0 $198.9 20%
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
PRODUCT SALES
----------------------
<S> <C> <C> <C>
Activase $ 78.2 $ 70.2 11%
Protropin and Nutropin 54.4 53.6 1
Pulmozyme 28.5 22.4 27
Actimmune 1.0 1.6 (38)
-------- -------- ---------
Total product sales $162.1 $147.8 10%
======== ======== =========
</TABLE>
Sales of Activase, registered trademark, (Alteplase, recombinant)
tissue-plasminogen activator increased 11% in the quarter ended March 31, 1995
compared to the quarter ended March 31, 1994. Total Activase sales in 1995
included $3.8 million of sales to Japanese licensees. Sales in the U.S. and
Canada were higher due to an increase in the number of patients receiving
thrombolytic therapy and the continued positive impact of the results of the
worldwide Global Utilization of Activase and Streptokinase in Occluded Coronary
Arteries (GUSTO) clinical trial. This international trial showed that a new
accelerated infusion regimen for Activase was superior compared to another
clot-dissolving agent for the management of acute myocardial infarction (heart
attack). In April 1995, the Food and Drug Administration (FDA) approved for
marketing the accelerated infusion of Activase, allowing revised labeling for
the product incorporating data from the GUSTO study.
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Sales of the Company's two growth hormone products - Protropin, registered
trademark, (somatrem for injection) and Nutropin, registered trademark,
(somatropin [rDNA origin] for injection)- increased to $54.4 million in the
first quarter of 1995 from $53.6 million in the first quarter of 1994. In May
1995, a competitor received Food and Drug Administration approval to market its
growth hormone product in the United States. Decreases in sales may occur as
competitors enter the market.
Sales of Pulmozyme, registered trademark, (dornase alfa), increased 27% in the
first three months of 1995 over the comparable period in the prior year. The
product was launched in the United States and Canada during the first quarter of
1994, and launched in Europe at the end of that quarter. The increase between
quarters reflects market launches in additional European countries and continued
adoption of this new therapy by physicians to treat cystic fibrosis patients.
The Company currently markets the drug in the United States and, through its
Canadian subsidiary, in Canada. Under the existing collaboration with F.
Hoffmann-LaRoche, Ltd. (HLR), Genentech Europe Limited and its affiliates
promote Pulmozyme in the United Kingdom, Ireland, the Netherlands and Germany,
while HLR is responsible for promoting the product in the remaining Western
European countries in the collaboration.
<TABLE>
<CAPTION>
Three Months Ended March 31
ROYALTIES, CONTRACT AND ------------------------------
OTHER, AND INTEREST INCOME 1995 1994 % Change
----------------------------- -------- -------- --------
<S> <C> <C> <C>
Royalties $ 47.1 $33.7 40%
Contract and other 16.2 7.5 116
Interest income 13.6 9.9 37
</TABLE>
Royalty income increased primarily as a result of increases in licensees' net
sales subject to royalties and the recognition of $7.5 million of royalties in
the first quarter of 1995 relating to the December 1994 settlement with Eli
Lilly and Company. The impact on total royalties of changes in foreign currency
translation rates, net of gains and losses recognized on foreign exchange
hedging instruments and the amortization of expense related to foreign currency
options outstanding during the period, was not material.
Contract revenues increased between quarters due to variations in the timing of
contract benchmark achievements, varying payment amounts and the initiation of
new arrangements. Other revenues in 1995 included $4.0 million of gains recorded
from the sales of biotechnology equity securities owned by the Company.
The increase in interest income occurred due to higher available interest rates
and a larger investment portfolio in 1995. The total investment portfolio,
consisting of cash, cash equivalents, short-term marketable securities and
long-term marketable securities increased from $780.7 million as of March 31,
1994 to $942.3 million as of March 31, 1995.
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<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
COSTS AND EXPENSES 1995 1994 % Change
-------------------------- -------- -------- --------
<S> <C> <C> <C>
Cost of sales $ 26.8 $ 22.1 21%
Research and development 94.9 74.4 28
Marketing, general and
administrative 64.3 60.1 7
Interest expense 1.9 1.8 6
-------- -------- --------
Total costs and expenses $187.9 $158.4 19%
======== ======== ========
</TABLE>
Cost of sales increased in the first quarter of 1995 due to a change in product
mix, a 10% increase in product sales, and an additional $1 million reserve for
expected product expiration of certain Activase inventories.
R&D expenses for the first three months of 1995 increased over the comparable
period in 1994 due to increased production of products for clinical trials and
higher in-licensing expenses. In-licensing expenses in the first quarter of 1995
included $4.0 million paid to IDEC Pharmaceutical Corporation (IDEC) under the
previously disclosed collaboration to develop IDEC's anti-CD20 monoclonal
antibody, IDEC-C2B8.
Marketing, general and administrative expenses increased in the first quarter of
1995 due to higher marketing and selling expenses in Europe, as Pulmozyme is now
sold in more European countries than in the first quarter of 1994, and due to an
overall increase in other corporate expenses.
Interest expense relates primarily to interest on the Company's 5% convertible
subordinated debentures, net of capitalized interest, and interest on a new
$25.0 million long-term borrowing arrangement of the Company's Canadian
subsidary.
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
INCOME TAXES 1995 1994 % Change
------------- -------- -------- ---------
<S> <C> <C> <C>
Income taxes $ 7.7 $ 1.6 381%
</TABLE>
The increase in income tax expense was due to higher income before taxes and an
increase in the effective income tax rate, from 4% in the first quarter of 1994
to 15% in the first quarter of 1995. The increase in the effective tax rate was
primarily related to a higher alternative minimum tax (AMT) in 1995, due to the
complete utilization of available AMT loss carryforwards in 1994.
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
NET INCOME 1995 1994 % Change
------------------- -------- -------- --------
<S> <C> <C> <C>
Net income $43.4 $38.9 12%
Earnings per share .36 .33 9
</TABLE>
Net income increased in 1995 due to overall higher revenues from all sources,
partially offset by increases in research and development and other expenses,
including income taxes.
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<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL
RESOURCES March 31, 1995 December 31, 1994
-------------------------- ---------------- -------------------
<S> <C> <C>
Cash, cash equivalents,
short-term investments
and long-term marketable
securities $942.3 $920.9
Working capital 810.4 776.6
</TABLE>
Cash generated from operations, maturities of short-term investments, stock
issuances and proceeds from borrowings, was used to make investments in
long-term marketable securities, other assets and capital expenditures. Cash and
cash equivalents at March 31, 1995 increased $43.4 million compared to December
31, 1994. Working capital increased $33.8 million. The Company believes that its
cash, cash equivalents, and short-term and long-term investments, together with
funds provided by operations and leasing arrangements, will be sufficient to
meet its operating cash requirements.
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GENENTECH, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 18, 1995 GENENTECH, INC.
Registrant
By: /S/ LOUIS J. LAVIGNE, JR.
-----------------------------
Louis J. Lavigne, Jr.
Senior Vice President and
Chief Financial Officer
By: /S/ BRADFORD S. GOODWIN
-----------------------------
Bradford S. Goodwin
Vice President and Controller
