Analyst Conference Summary


conference date: October 15, 2007 @ 2:15 PM Pacific Time
for quarter ending: September 30, 2007 (3rd quarter)

Forward-looking statements

Overview: Revenues and net income declined from Q2, but still had revenue growth of 22% from year-earlier.

Basic data:

$2.908 billion in revenues is down 3% sequentially from 3.0 billion and up 22% from $2.384 billion year-earlier. Non-GAAP revenues were $2.905 billion.

Net income $685 million, down 8% sequentially and up 21% from $568 million year-earlier. Non-GAAP net income was $778 million.

Earnings per Share (EPS) $0.64, down 8% sequentially but up 21% from $0.53 year-earlier. Non-GAAP EPS $0.73.


The company expects 28 to 32% growth in non-GAAP EPS for full year 2007 relative to 2006, for $2.85 to $2.95 per share.

Conference Highlights:

U.S. product sales were $2.155 billion, up 18% from year-earlier. $521 million in royalty revenues. $63 million in contract revenue.

Product sales:

 Sales (millions) Q3 2007 Q3 2006 % change








































GAAP to non-GAAP reconciliation includes $0.06 per share for stock based compensation expense, $0.03 for acquisition and special item expenses, $0.07 for in-process R&D expense due to acquisition, and a non-cash gain of $0.07 on acquisition of Tanox.

$11 million in Tanox acquisition expense will recur in future quarters.

Non-GAAP cost of sales was $390 million; R&D was $578 million; marketing general and administrative $497 million. Expects cost of sales to continue near 16% of revenue going forward. Tax rate was 37% and expect same going forward.

Avastin sales included $5 million from previously deferred revenue. Lung cancer promotional efforts going well. Percentage of patients increasing higher dose decreased and low dose adoption increased. Increased duration of treatment in colorectal cancer.

Holding Herceptin market share. Expect only limited growth from upcoming label expansion.

Tarceva had larger than expected product returns which offset a price increase.

Rituxan has seen increased retreatments.

Xolair benefited from new guidelines recommending it. Lucentis was down sequentially with reimbursement a concern. Expects limiting factors to persist this year.

Reviewed clinical developments, including resubmission of Avastin for first-line metastatic breast caner, with FDA action date of February 23, 2008. There are a large number of studies that are ongoing.

Cash from ongoing operations $700 million; $500 million free cash flow. Capital expenditures $200 million. $4.9 billion in cash and equivalents at end of quarter.

Fourth quarter is typically one of large investments. Growth rates in coming years likely to slow due to increased size of company and maturity of products.


Sales to collaborator fluxuations? Multiple variables impact it. We have process campaigns rather than consistent product production throughout year. Royalties are a better indicator for demand.

Probability of success in primary progressive MS and Lupis phase III trials in 2008? For Rituxan in Lupis (anti CD20) we are really excited; we may have an important new medicine, but other promising drugs have failed in this indication in the past due to diversity of patient popultion. PPMS has no approved therapies, so it is a more risky area. So we are less optimistic even though RRMS data exceeded expectations.

What are Genentech's rights if Biogen Idec has a change of control? We can make a bid on Rituxan and related molecules.

Shift to low-dose Avastin? Share of patients at high dose dropped from 75% to 60% in quarter and may go lower. Off label use for breast cancer is mostly at the high dose.

Weak sequential revenue growth for quarter, reason for? Herceptin growth will be difficult because of our high penetration of market. Tarceva returns hurt. Channel inventory is about normal.

Economics of anti-CD20 deals? Would change with approval of a second generation product. After that economics would stay in place for future molecules.

Lucentis growth going forward? Facing difficult environment with competition and reimbursement issues. Compounding pharmacy issue (stopping shipping to) may hurt. Don't see return to growth soon.

Generally against secondary distribution because of problems. Stopped that for all products last year. Physicians can still obtain Avastin.

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Copyright 2007 William P. Meyers