Path: bloom-picayune.mit.edu!enterpoop.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Executive Update Date: Tue, 24 Nov 92 12:40:58 EST Message-ID: <3.1992Nov24.124058@AmeriCast.com> Lines: 114 11/24/92 TITLE Executive Update Will Genentech Union With Roche Soon Bear Fruit? Jury Is Still Out, But Biotech Pioneer's Product Pipeline Is Brimming Christine Shenot Genentech Inc. began as a story of two men and became a story of two companies. But whether the latter collaboration - the 1990 marriage of Genentech with Roche Holding Ltd. - will prove as fruitful as the first remains an open question. Founders Robert Swanson, a venture capitalist, and Herb Boyer, a Alliances scientist, started Genentech after a chat over a beer in a San Francisco pub in 1976. They saw a promising future in the appli- cation of new genetic engineering techniques to the business of drug development. Their hopes proved well-founded. Genentech developed several drugs whose commercial success helped launch the biotechnology industry. But after a time, the young venture ran into trouble, and Genentech linked up with Roche. The Swiss drug giant's $2.1 billion investment in a 60% Genentech stake gave the biotech pioneer a fresh start, eliminating the financial turmoil that had proved a greater challenge than the science of biotechnology itself. Today, the company is widely recognized as an industry leader in research and development. But it has launched no major new drugs since 1987, when it introduced a heart attack treatment known as TPA, or Activase. The sales record of that drug, which never met the high expecta- tions for it, played a major role in the company's decision to seek a deep- pocketed partner in the late 1980s. "We felt that we had so much to do from a research and development point of view that we needed the kind of financial stability that such an arrangement would provide us," said G. Kirk Raab, Genentech's president and chief executive. Two years later, Genentech clear- ly aims to make good on that decision. It currently devotes about half of its revenue to R&D, and it recently opened an $85 million research center at its South San Francisco, Calif., headquarters that is said to be the world's largest biotech R&D facility. A number of veteran industry analysts have become bullish on the biotech giant. "The (research) pipeline is very broad, very deep and very excit- ing," said Mark Simon, an analyst with Robertson, Stephens & Co. in San Francisco. Beyond conducting extensive in-house research, Genentech also has stepped up drug development collaborations with smaller biotech firms. "Genentech will ultimately be in the position to license the best of the rest of biotechnology," predicted Simon. He and others are looking to several products in development to bolster revenue and earnings growth after a dramatic slowdown in recent years. Last year, Genentech's sales grew 8% to $515.9 million, breaking a string of double-digit gains dating to 1983. Earnings, which have taken a back seat to the company's R&D goals, came in at 39 cents a share in 1991, after a loss in 1990. This year, analysts expect Genentech's profits to be only slightly better than the 13 cents a share it reported in 1986. Analysts cite DNase, a treatment for cystic fibrosis and chronic bronchitis, as Genentech's most promising drug for the near future. The product is a gene-spliced version of a human enzyme that has been shown in testing to break up the thick, infected mucus that forms in the lungs as a result of these diseases. Human clinical trials of the drug were completed this year in cystic fibrosis patients. Most industry observers expect Genentech to file a marketing ap- plication with the Food and Drug Administration for that use by mid-1993, and they forecast approval as early as 1994. Analyst Joyce Lonergan of Cowen & Co. in Boston estimates the drug's market potential at $500 million to $1 billion. DNase is merely the front-runner in a list of more than a dozen experimen- tal compounds the company has discussed publicly. Other drugs in various stages of human testing include: GP 120, an AIDS vaccine, as an immune system booster for pa- tients infected with HIV who have not yet developed AIDS. The product is also being explored as a traditional vaccine to prevent HIV infection. HER2 antibody, to treat breast and ovarian cancer. Insulin-like growth factor, to treat the debilitating weight loss that occurs in the late stages of AIDS. Nerve growth factor, a treatment for numbness in the hands and feet caused by cancer chemotherapy. With its recent progress on so many scientific fronts, Genentech is edging back into the biotech spotlight. Nevertheless, some industry experts say it's too early to judge Genentech's partner- ship with Roche on the ultimate measure of new products coming to market. "You can't say that anything tangible has emerged from the relationship," commented Jeffrey Casdin, an analyst with Op- penheimer & Co. Cynthia Robbins- Roth, a former Genentech researcher who publishes an industry journal called BioVenture View, acknowledges that there is value in having a broad research effort but adds, "You can go too far." She fears the company's financial and human resources may be diluted. Others frame the issue differently. Because Genentech has so many drugs in development, says Cowen & Co.'s Lonergan, it has the luxury of pursuing only those that hold the greatest commercial promise. "Genentech has the freedom to do what a lot of companies cannot do -make decisions on products based solely on their market size, patent position and competitive position," she said. And with over $600 million in the bank, the company's R&D timetable is not dictated by the constantly shifting financing environment that characterizes the industry. "They can accelerate product development (and) . . . do basic research like nobody else can," Lonergan said. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM