Genentech Inc.'s (DNA) fourth-quarter profit rose 47% on strong sales of its cancer drugs, but it gave a disappointing earnings outlook as it faces uncertainties in key product developments and with the difficult economy.

The South San Francisco, Calif., biotech giant said it expects 2009 per-share earnings between $3.55 and $3.90, below expectations of $3.92 a share, noting there are a "large number of business uncertainties that make it a difficult year to forecast."

Those uncertainties include key data in the second quarter from blockbuster cancer drug Avastin's use in early colorectal cancer, regulatory issues surrounding a rare brain infection possibly linked to its Raptiva psoriasis treatment, as well as any fallout from the current economic slowdown.

Shares fell 0.7% to $84.45 in after-hours trading.

Analyst Eric Schmidt of Cowen & Co. said the guidance could be an issue for investors and expressed surprise at the company's uncharacteristically broad range.

Genentech's earnings continue to be overshadowed by questions of whether majority shareholder Roche Holding AG (RHHBY) will increase its already rejected takeover offer of $89 a share.

Earlier this week, Roche Chief Financial Officer Erich Hunziker said plans to acquire the 44% of Genentech it doesn't already own are on track. Despite Roche's consistent reassurance, many have questioned whether the Swiss company can raise the money needed in a difficult credit environment and with a stronger dollar.

Genentech's stock rose 24% in 2008, but has traded well under its August high of $99.14 on those concerns.

In a conference call Thursday, Genentech declined to answer questions related to the Roche bid.

For the quarter ended Dec. 31, Genentech reported net income of $931 million, or 87 cents a share, up from year-ago earnings of $632 million, or 59 cents a share.

Excluding per-share stock-based compensation costs and other charges, Genentech reported earnings of 95 cents a share, just below a Thomson Reuters average analyst estimate of 96 cents a share.

Revenue rose 25% to $3.71 billion, above the average Street projection of $$3.66 billion.

"Genentech is still more a top-line story than bottom," said Schmidt, noting that the company's top products did "about as well as expected" on the whole.

"People still want to see those top-line products grow; it doesn't bother me that they posted non-GAAP EPS a penny below consensus," he said.

 
   Product Growth Continues

Avastin, approved to treat advanced breast, lung and colorectal cancer, had U.S. sales of $731 million in the quarter, up 21% from a year ago and in line with a consensus estimate of $731.6 million, according to health-care market research firm MDRx Financial.

The company said sales growth was driven from increased use for lung cancer and advanced breast cancer.

Cancer and rheumatoid arthritis treatment Rituxan, co-marketed with Biogen Idec Inc. (BIIB), posted sales of $677 million for the quarter, up 14% and beating Wall Street expectations of $671.1 million.

Breast-cancer drug Herceptin's sales rose 3% to $336 million, missing expectations of $347.8 million.

Last quarter, Herceptin sales were impacted by an inventory increase from a wholesaler that boosted sales by $12 million. Genentech said that move hurt sales by a similar amount in the most recent quarter because of a drop in orders from that wholesaler.

Sales of Lucentis, which treats wet age-related macular degeneration, rose 20% to $236 million, beating expectations of $219.1 million.

Growth of the drug has been held back by some eye doctors substituting Avastin for it. Avastin is molecularly similar and much cheaper. But in the latest quarter, Genentech said that sales benefited from improved marketing relationships with key customers, as well as from increased patient dosing frequency.

 
   Key Study In Second Quarter

Genentech now expects the final analysis of a key study of Avastin in adjuvant colon cancer in the second quarter, said Susan Desmond-Hellmann, president of product development on the conference call

The trial - pivotal to the trajectory of Avastin's future growth - examines the drug's effectiveness when given to a patient after cancer is surgically removed, in order to kill any remaining disease.

Its success may yield billions in additional annual sales, open Avastin's future to other uses, and transform Genentech's business. If it fails, it could hurt the growth prospects for the drug and Genentech as a whole.

Separately, Genentech and its partner Merck KGaA (MRK.XE) on psoriasis drug Raptiva remain in discussions with European and U.S. regulators regarding two patients who developed a rare and often deadly brain infection called PML in the fall of last year.

Raptiva had only $25 million in fourth-quarter sales, but those discussions with regulators may lead to an inventory write-down prior to filing its official full-year results with the Securities and Exchange Commission, the company said.

The write-down would occur if the outcome of the talks limits the usage of the drug and currently usable inventory expires.

"What is unclear and hard to predict is the degree to which we will limit the access and usage of Raptiva given these two PML cases," said Desmond-Hellmann.

Furthermore, Genentech expects to get decisions from the Food and Drug Administration on expanding Avastin's use into relapsed glioblastoma, a form of brain cancer, in early May and as a combination therapy in newly diagnosed advanced kidney cancer in early August.

-By Thomas Gryta, Dow Jones Newswires; 201-938-2053; thomas.gryta@dowjones.com

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