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Genentech Raises Outlook, Mulls Dividend

Reuters
Friday, 14 Mar 2008 | 1:40 PM ET

Genentech raised its 2008 earnings outlook and said it was on track to meet or exceed its key financial and product development goals through 2010.

The world's second-largest biotechnology company by sales also said it's considering a stock buyback or dividend payout.

Genentech raised its forecast for earnings excluding one-time items to between $3.35 a share and $3.45 a share, from a previous range of $3.30 to $3.45 a share.

Genentech shares , which are up about 20 percent for the year, skidded Friday as Wall Street seemed unimpressed by the news.

"I think people were looking for something more aggressive than this," said Christopher Raymond, an analyst for Robert W Baird.

Genentech, which is majority owned by the Swiss drug maker Roche Holding AG, said it expects to achieve a compound annual earnings-per-share growth rate excluding items of at least 25 percent through 2010.

The company expects to reach a goal of generating cumulative free cash flow of $12 billion between January 2006 through 2010, finance chief David Ebersman told analysts and investors at an annual meeting at a New York hotel.

Ebersman said the company is discussing how to get the best returns on its cash. Those options include licensing products from other companies and engaging in mergers and acquisitions.

"While in-licensing is our preferred approach, we're open to using M&A as a tactic," Ebersman said.

He said options also include expanding its share-repurchase program or initiating a dividend payment to shareholders, though nothing has been decided and there are pros and cons with each approach, he said.

The company said it aims to submit a marketing application to the U.S. Food and Drug Administration in 2008 seeking approval for its cancer drug Avastin as a treatment for relapsed brain cancer.

It also plans to begin a late-stage study of Avastin as an initial, or first-line, treatment for metastatic brain cancer.

Chief Executive Arthur Levinson, speaking at the analyst and investor meeting, said the company was on track to meet or exceed the major goals it set for 2006 to 2010 period, including a raised goal of introducing 30 new molecular entities into clinical development, up from 20.

"We realized that we need more success in the 2010 to 2015 period than we previously anticipated," Levinson said.

Genentech said it added 16 new molecules into development from January 2006 through the current quarter.

The company has received one new product approval and 10 approvals for additional uses for existing products during that period toward its goal of 15 by 2010.

Research chief Richard Scheller said he, too, was confident of meeting the long-term clinical development goals but added, "I'd rather miss a goal than bring a lousy molecule forward."

The most significant recent approval came last month for Avastin for metastatic breast cancer, a use analysts believe could add significantly to sales of what most consider Genentech's most important product.

Avastin, which is also approved for colon and lung cancer, had U.S. sales of nearly $2.3 billion in 2007. Roche sells the Genentech drugs outside the U.S.

Genentech shares have jumped this year, despite the broader market's declines, fueled by the positive data and breast-cancer approval for Avastin, recovering virtually all of the losses the stock suffered in 2007. The American Stock Exchange Biotech Index, meanwhile, is down about 11 percent this year.

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