(Mark
One)
|
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended September 30,
2006
|
or
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
Delaware
(State
or other jurisdiction of incorporation or organization)
|
94-2347624
(I.R.S.
Employer Identification Number)
|
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Class
|
Number
of Shares Outstanding
|
Common
Stock $0.02 par value
|
1,054,000,743 Outstanding
at October 27, 2006
|
Page
No.
|
||
Item
1.
|
3
|
|
3
|
||
4
|
||
5
|
||
6-19
|
||
20
|
||
Item
2.
|
21-42
|
|
Item
3.
|
43
|
|
Item
4.
|
43
|
|
Item
1.
|
44
|
|
Item
1A.
|
44-56
|
|
Item
2.
|
56
|
|
Item
6.
|
57
|
|
58
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Revenues
|
|||||||||||||
Product
sales (including amounts from related parties:
three
months—2006-$87; 2005-$58; nine
months—2006-$220; 2005-$140)
|
$
|
1,941
|
$
|
1,451
|
$
|
5,395
|
$
|
3,911
|
|||||
Royalties
(including amounts from related parties:
three
months—2006-$230; 2005-$123; nine
months—2006-$603; 2005-$336)
|
364
|
238
|
966
|
670
|
|||||||||
Contract
revenue (including amounts from related parties:
three
months—2006-$52; 2005-$37; nine
months—2006-$114; 2005-$94)
|
79
|
63
|
208
|
159
|
|||||||||
Total
operating revenues
|
2,384
|
1,752
|
6,569
|
4,740
|
|||||||||
Costs
and expenses
|
|||||||||||||
Cost
of sales (including related party amounts: three
months—2006-$63; 2005-$45;
nine
months—2006-$178; 2005-$134)
|
297
|
236
|
843
|
766
|
|||||||||
Research
and development (including
related party amounts:
three
months—2006-$93; 2005-$55; nine
months—2006-$238; 2005-$150)
(including
contract related: three
months—2006-$48; 2005-$47;
nine
months—2006-$135; 2005-$111)
|
454
|
329
|
1,218
|
850
|
|||||||||
Marketing,
general and administrative
|
501
|
343
|
1,414
|
1,006
|
|||||||||
Collaboration
profit sharing (including amounts from related party:
three
months—2006-$46; 2005-$41; nine
months—2006-$137; 2005-$93)
|
250
|
220
|
735
|
595
|
|||||||||
Recurring
charges related to redemption
|
26
|
27
|
79
|
96
|
|||||||||
Special
items: litigation-related
|
13
|
14
|
40
|
44
|
|||||||||
Total
costs and expenses
|
1,541
|
1,169
|
4,329
|
3,357
|
|||||||||
Operating
income
|
843
|
583
|
2,240
|
1,383
|
|||||||||
Other
income (expense):
|
|||||||||||||
Interest
and other income, net
|
74
|
42
|
249
|
98
|
|||||||||
Interest
expense
|
(19
|
)
|
(20
|
)
|
(56
|
)
|
(27
|
)
|
|||||
Total
other income, net
|
55
|
22
|
193
|
71
|
|||||||||
Income
before taxes
|
898
|
605
|
2,433
|
1,454
|
|||||||||
Income
tax provision
|
330
|
246
|
914
|
514
|
|||||||||
Net
income
|
$
|
568
|
$
|
359
|
$
|
1,519
|
$
|
940
|
|||||
Earnings
per share
|
|||||||||||||
Basic
|
$
|
0.54
|
$
|
0.34
|
$
|
1.44
|
$
|
0.89
|
|||||
Diluted
|
$
|
0.53
|
$
|
0.33
|
$
|
1.41
|
$
|
0.87
|
|||||
Shares
used to compute basic earnings per share
|
1,053
|
1,061
|
1,053
|
1,055
|
|||||||||
Shares
used to compute diluted earnings per share
|
1,072
|
1,087
|
1,074
|
1,081
|
Nine
Months
Ended
September 30,
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities
|
|||||||
Net
income
|
$
|
1,519
|
$
|
940
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation
and amortization
|
298
|
276
|
|||||
Employee
stock-based compensation
|
225
|
-
|
|||||
Deferred
income taxes
|
(86
|
)
|
(67
|
)
|
|||
Deferred
revenue
|
(13
|
)
|
(33
|
)
|
|||
Litigation-related
liabilities
|
39
|
39
|
|||||
Tax
benefit from employee stock options
|
-
|
480
|
|||||
Excess
tax benefit from stock-based compensation arrangements
|
(142
|
)
|
-
|
||||
Gain
on sales of securities available-for-sale and other
|
(76
|
)
|
(4
|
)
|
|||
Write-down
of securities available-for-sale and other
|
1
|
5
|
|||||
Changes
in assets and liabilities:
|
|||||||
Receivables
and other assets
|
(423
|
)
|
(74
|
)
|
|||
Inventories
|
(311
|
)
|
(31
|
)
|
|||
Investments
in trading securities
|
(26
|
)
|
(13
|
)
|
|||
Accounts
payable, other accrued liabilities, and other long-term
liabilities
|
311
|
131
|
|||||
Net
cash provided by operating activities
|
1,316
|
1,649
|
|||||
Cash
flows from investing activities
|
|||||||
Purchases
of securities available-for-sale
|
(1,078
|
)
|
(694
|
)
|
|||
Proceeds
from sales and maturities of securities available-for-sale
|
663
|
575
|
|||||
Capital
expenditures
|
(888
|
)
|
(1,107
|
)
|
|||
Change
in other assets
|
24
|
(25
|
)
|
||||
Transfer
to restricted cash
|
(53
|
)
|
(53
|
)
|
|||
Net
cash used in investing activities
|
(1,332
|
)
|
(1,304
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Stock
issuances under employee stock plans
|
286
|
634
|
|||||
Stock
repurchases
|
(758
|
)
|
(1,090
|
)
|
|||
Excess
tax benefit from stock-based compensation arrangements
|
142
|
-
|
|||||
Repayment
of long-term debt and noncontrolling interests
|
-
|
(425
|
)
|
||||
Proceeds
from issuance of long-term debt
|
-
|
1,988
|
|||||
Net
cash (used in) provided by financing activities
|
(330
|
)
|
1,107
|
||||
Net
(decrease) increase in cash and cash equivalents
|
(346
|
)
|
1,452
|
||||
Cash
and cash equivalents at beginning of period
|
1,225
|
270
|
|||||
Cash
and cash equivalents at end of period
|
$
|
879
|
$
|
1,722
|
|||
Supplemental
cash flow data
|
|||||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
96
|
$
|
9
|
|||
Income
taxes
|
851
|
309
|
|||||
Non-cash
investing and financing activities
|
|||||||
Capitalization
of construction in progress related to financing lease
transaction
|
84
|
94
|
|||||
Exchange
of note receivable for a prepaid royalty and other long-term
asset
|
-
|
29
|
September
30,
2006
|
December
31,
2005
|
||||||
Assets
|
|||||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
879
|
$
|
1,225
|
|||
Short-term
investments
|
1,224
|
1,140
|
|||||
Accounts
receivable—product sales (net of allowances: 2006-$86;
2005-$83; including amounts from related parties: 2006-$12;
2005-$4)
|
790
|
554
|
|||||
Accounts
receivable—royalties (including amounts from related parties:
2006-$287;
2005-$173)
|
415
|
297
|
|||||
Accounts
receivable—other (including amounts from related parties: 2006-$169;
2005-$132)
|
234
|
199
|
|||||
Inventories
|
1,063
|
703
|
|||||
Prepaid
expenses and other current assets
|
300
|
268
|
|||||
Total
current assets
|
4,905
|
4,386
|
|||||
Long-term
marketable debt and equity securities
|
1,787
|
1,449
|
|||||
Property,
plant and equipment, net
|
4,047
|
3,349
|
|||||
Goodwill
|
1,315
|
1,315
|
|||||
Other
intangible assets
|
499
|
574
|
|||||
Restricted
cash and investments
|
788
|
735
|
|||||
Other
long-term assets
|
511
|
339
|
|||||
Total
assets
|
$
|
13,852
|
$
|
12,147
|
|||
Liabilities
and stockholders’ equity
|
|||||||
Current
liabilities
|
|||||||
Accounts
payable (including amounts to related parties: 2006-$21;
2005-$1)
|
$
|
279
|
$
|
339
|
|||
Deferred
revenue
|
42
|
44
|
|||||
Taxes
payable
|
90
|
62
|
|||||
Other
accrued liabilities (including amounts to related parties:
2006-$164;
2005-$132)
|
1,394
|
1,215
|
|||||
Total
current liabilities
|
1,805
|
1,660
|
|||||
Long-term
debt
|
2,164
|
2,083
|
|||||
Deferred
revenue
|
209
|
220
|
|||||
Litigation-related
and other long-term liabilities
|
784
|
714
|
|||||
Total
liabilities
|
4,962
|
4,677
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
equity
|
|||||||
Common
stock
|
21
|
21
|
|||||
Additional
paid-in capital
|
9,881
|
9,263
|
|||||
Accumulated
other comprehensive income
|
210
|
253
|
|||||
Accumulated
deficit, since June 30, 1999
|
(1,222
|
)
|
(2,067
|
)
|
|||
Total
stockholders’ equity
|
8,890
|
7,470
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
13,852
|
$
|
12,147
|
Note
1.
|
Summary
of Significant Accounting
Policies
|
· |
We
recognize revenue from product sales when there is persuasive evidence
that an arrangement exists, title passes, the price is fixed and
determinable, and collectibility is reasonably assured. Allowances
are
established for estimated
rebates, healthcare provider contractual chargebacks, prompt pay
sales
discounts, product returns, wholesaler inventory management incentives,
and bad debts.
In our domestic commercial collaboration agreements, we have primary
responsibility for the United States (or “U.S.”) product sales
commercialization efforts, including selling and marketing, customer
service, order entry, distribution, shipping and billing. We record
net
product sales and related production and selling cost in our income
statement line items on a gross basis since we have the manufacturing
risk
and/or inventory risk, and credit risk, and meet the criteria as
a
principal under Emerging Issues Task Force (or “EITF”)
Issue No. 99-19, “Reporting
Revenue Gross as a Principal Versus Net as an Agent”
(or “EITF 99-19”).
|
· |
We
recognize revenue from royalties based on licensees’ sales of our products
or technologies. Royalties are recognized as earned in accordance
with the
contract terms when royalties from licensees can be reasonably estimated
and collectibility is reasonably assured. For the majority of our
royalty
revenues, estimates are made using historical and forecasted sales
trends
and used as a basis to record amounts in advance of amounts
collected.
|
· |
Contract
revenue generally includes upfront and continuing licensing fees,
manufacturing fees, milestone payments and net reimbursements from
collaborators on development, post-marketing and commercial costs.
Most of
our contract arrangements with up-front license fees were entered
into
prior to the effective date of July 1, 2003 for EITF Issue No. 00-21
“Revenue
Arrangements with Multiple Deliverables”
(or “EITF 00-21”). Accordingly, our accounting policy on contract revenue,
as described below, is focused on describing transactions entered
into
prior to the effective date of EITF 00-21.
|
· |
Nonrefundable
upfront fees, including product opt-ins, for which no further performance
obligations exist, are recognized as revenue on the earlier of when
payments are received or collection is
assured.
|
· |
Nonrefundable
upfront licensing fees, including product opt-ins, and certain guaranteed,
time-based payments that require our continuing involvement in the
form of
development, manufacturing or other commercialization efforts by
us are
recognized as revenue:
|
· |
ratably
over the development period if development risk is significant,
or
|
· |
ratably
over the manufacturing period or estimated product useful life if
development risk has been substantially
eliminated.
|
· |
Upfront
manufacturing fees are recognized as revenue as the related manufacturing
services are rendered, generally on a straight-line basis over the
performance period of the longer of the manufacturing obligation
period or
the expected product life. Manufacturing profit is recognized when
the
product is shipped and title
passes.
|
· |
Fees
associated with substantive milestones, which are contingent upon
future
events for which there is reasonable uncertainty as to their achievement
at the time the agreement was entered into, are
recognized as revenue when these milestones, as defined in the contract,
are achieved.
|
· |
Multiple
element agreements, or amendments to such agreements, entered into
after
July 1, 2003, are evaluated under the provisions of EITF 00-21. We
evaluate whether there is stand-alone value for the delivered elements
and
objective evidence of fair value to allocate revenue to each element
in
multiple element agreements. When the delivered element does not
have
stand-alone value or there is insufficient evidence of fair value
for the
undelivered element(s), we recognize the consideration for the combined
unit of accounting in the same manner as the revenue is recognized
for the
final deliverable, which is generally ratably over the longest period
of
involvement.
|
· |
Commercial
collaborations resulting in a net reimbursement of development,
post-marketing and commercial costs are recognized as revenue as
the
related costs are incurred. The corresponding development and
post-marketing expenses are included in research and development
(or
“R&D”) expenses and the corresponding commercial costs are included in
marketing, general and administrative expenses in the Condensed
Consolidated Statements of Income.
|
· |
Rebate
allowances and accruals are comprised of both direct and indirect
rebates.
Direct rebates are contractual price adjustments payable to wholesalers
and specialty pharmacies that purchase products directly from us.
Indirect
rebates are contractual price adjustments payable to healthcare providers
and organizations, such as clinics, hospitals, pharmacies and group
purchasing organizations that do not purchase products directly from
us.
Both types of allowances are based upon definitive contractual agreements
or legal requirements (such as Medicaid) related to the dispensing
of the
product by a pharmacy, clinic or hospital to a benefit plan participant.
Rebate accruals are recorded in the same period the related revenue
is
recognized resulting in a reduction to product sales revenue and
the
recognition of a contra asset (if due to a wholesaler or specialty
pharmacy) or a liability (if due to a third party, such as a healthcare
provider) as appropriate, which are included in accounts receivable
allowances or other accrued liabilities, respectively. Rebates are
estimated using historical and other data, including patient usage,
customer buying patterns, applicable contractual rebate rates and
contract
performance by the benefit providers. Rebate estimates are evaluated
quarterly and may require adjustments to better align our estimates
with
actual results. As part of this evaluation, we review changes to
Medicaid
legislation, changes to state rebate contracts, changes in the level
of
discounts, and changes in product sales trends. Although rebates
are
accrued at the time of sale, rebates are typically paid out, on average,
up to six months after the sale.
|
· |
Healthcare
provider contractual chargebacks are the result of contractual commitments
by us to provide products to healthcare providers at specified prices
or
discounts. These contracted health care providers include (i) hospitals
that service a disproportionately high share of economically indigent
and
Medicaid patients for which they receive little or no reimbursement
(i.e.
Disproportionate Share Hospitals or “DSH”), (ii) government-owned
hospitals that receive discounts, and (iii) hospitals that have contract
pricing for certain products usually by way of a group purchasing
agreement. Chargebacks occur when a contracted health care provider
purchases our products through an intermediary wholesaler at fixed
contract prices that are lower than the list prices we charge the
wholesalers. The wholesaler, in turn, charges us back for the difference
between the price initially paid by the wholesaler and the contract
price
paid to the wholesaler by the healthcare providers. Chargebacks are
accrued at the time of sale and are estimated based on historical
trends,
which closely approximate actual results as we generally issue credits
within a few weeks of the time of
sale.
|
· |
Prompt
pay sales discounts are credits granted to wholesalers for remitting
payment on their purchases within contractually defined cash repayment
incentive periods. The contractually defined cash repayment periods
are
generally 30 days; however, for newly launched products, we have
offered
and we may offer in the future, for a limited period of time, extended
payment terms to wholesalers. In connection with the launch of Lucentis
we
have offered an extended payment terms program to certain of our
wholesalers. This program will be in effect for 12 months ending
June 30,
2007. Based upon our experience that it is rare that a wholesaler
does not
comply with the contractual terms to earn the prompt pay sales discount,
we accrue, at the time of original sale 100% of the prompt pay discounts
related to the sale.
|
· |
Wholesaler
inventory management allowances are credits granted to wholesalers
for
compliance with various contractually-defined inventory management
programs. These programs provide monetary incentives in the form
of a
credit for wholesalers to maintain consistent inventory levels at
approximately two to three weeks of sales depending on the product.
These
wholesaler inventory management credits are calculated based on quarterly
product purchases multiplied by a factor to determine the maximum
possible
credit for a product for the preceding quarter. Adjustments to reduce
the
maximum credit are made if the wholesaler does not meet and/or comply
with
the contractually defined metrics. These metrics include data timeliness,
completeness and accuracy and deviations outside of the contracted
inventory days on hand for each product. The maximum credits are
accrued
at the time of sale, and are typically granted to wholesaler accounts
within 90 days after the sale.
|
· |
Product
returns allowances are established in accordance with our returns
policy,
which allows buyers to return our products within two months prior
to and
six months following product expiration. Most of our products are
sold to
our wholesalers with at least six months of dating prior to expiration.
As
part of our estimation process, we calculate historical return data
on a
production lot basis. Historical rates of return are determined by
product
and are adjusted for known or expected changes in the marketplace
specific
to each product. In addition, we review expiration dates to determine
the
remaining shelf life of each product not yet returned. Although product
return allowances are accrued at the time of sale, the majority of
returns
take place up to two years after the
sale.
|
· |
Bad
debt allowances are based on our estimated uncollectible accounts
receivable. Given our historical experience with bad debts, combined
with
our credit management policies and practices, we do not presently
maintain
significant bad debt allowances.
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Numerator:
|
|||||||||||||
Net
income
|
$
|
568
|
$
|
359
|
$
|
1,519
|
$
|
940
|
|||||
Denominator:
|
|||||||||||||
Weighted-average
shares outstanding used to compute basic EPS
|
1,053
|
1,061
|
1,053
|
1,055
|
|||||||||
Effect
of dilutive stock options
|
19
|
26
|
21
|
26
|
|||||||||
Weighted-average
shares outstanding and dilutive securities used to compute diluted
EPS
|
1,072
|
1,087
|
1,074
|
1,081
|
September
30, 2006
|
December
31, 2005
|
||||||
Net
unrealized gains on securities available-for-sale
|
$
|
206
|
$
|
230
|
|||
Net
unrealized gains on cash flow hedges
|
4
|
23
|
|||||
Accumulated
other comprehensive income, net of income taxes
|
$
|
210
|
$
|
253
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Net
income
|
$
|
568
|
$
|
359
|
$
|
1,519
|
$
|
940
|
|||||
Increase
(decrease) in unrealized gains on securities
available-for-sale
|
16
|
(12
|
)
|
(24
|
)
|
(67
|
)
|
||||||
Increase
(decrease) in unrealized gains on cash flow hedges
|
1
|
(1
|
)
|
(19
|
)
|
35
|
|||||||
Comprehensive
income, net of income taxes
|
$
|
585
|
$
|
346
|
$
|
1,476
|
$
|
908
|
Note
2.
|
Employee
Stock-Based Compensation
|
Three
Months
Ended
September
30, 2006
|
Nine
Months
Ended
September
30, 2006
|
||||||
Research
and development
|
$
|
35
|
$
|
101
|
|||
Marketing,
general and administrative
|
41
|
124
|
|||||
Total
employee stock-based compensation expense
|
76
|
225
|
|||||
Tax
benefit related to employee stock-based compensation
expense
|
(30
|
)
|
(84
|
)
|
|||
Net
effect on net income
|
$
|
46
|
$
|
141
|
|||
Effect
on earnings per share:
|
|||||||
Basic
|
$
|
0.04
|
$
|
0.13
|
|||
Diluted
|
$
|
0.04
|
$
|
0.13
|
Three
Months
Ended
September
30, 2006
|
Nine
Months
Ended
September
30, 2006
|
||||||
Net
income as reported
|
$
|
568
|
$
|
1,519
|
|||
Deduct: Total
employee stock-based compensation expense includable in cost of sales,
net
of related tax effects
|
(8
|
)
|
(24
|
)
|
|||
Pro
forma net income
|
$
|
560
|
$
|
1,495
|
|||
Earnings
per share:
|
|||||||
Basic-as
reported
|
$
|
0.54
|
$
|
1.44
|
|||
Basic-pro
forma
|
$
|
0.53
|
$
|
1.42
|
|||
Diluted-as
reported
|
$
|
0.53
|
$
|
1.41
|
|||
Diluted-pro
forma
|
$
|
0.52
|
$
|
1.39
|
Three
Months
Ended
September
30, 2005
|
Nine
Months
Ended
September
30, 2005
|
||||||
Net
income as reported
|
$
|
359
|
$
|
940
|
|||
Deduct: Total
employee stock-based compensation expense determined under the fair
value
based method for all awards, net of related tax effects
|
(43
|
)
|
(126
|
)
|
|||
Pro
forma net income
|
$
|
316
|
$
|
814
|
|||
Earnings
per share:
|
|||||||
Basic-as
reported
|
$
|
0.34
|
$
|
0.89
|
|||
Basic-pro
forma
|
$
|
0.30
|
$
|
0.77
|
|||
Diluted-as
reported
|
$
|
0.33
|
$
|
0.87
|
|||
Diluted-pro
forma
|
$
|
0.29
|
$
|
0.75
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||
2006
|
2005
|
2006
|
2005
|
||||
Risk-free
interest rate
|
4.6%
|
4.2%
|
4.6%
|
4.2%
|
|||
Dividend
yield
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
|||
Expected
volatility
|
27%
|
29%
|
27%
|
29%
|
|||
Expected
term (years)
|
4.6
|
4.2
|
4.6
|
4.2
|
Options
Outstanding
|
||||||||||
Shares
Available
for
Grant
|
Number
of
Shares
|
Weighted-
Average
Exercise
Price
|
||||||||
December 31,
2005
|
84
|
83
|
$
|
46.64
|
||||||
Grants
|
(17
|
)
|
17
|
79.75
|
||||||
Exercises
|
-
|
(7
|
)
|
30.17
|
||||||
Cancellations
|
2
|
(2
|
)
|
60.42
|
||||||
September
30, 2006
|
69
|
91
|
$
|
53.80
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||
Range
of
Exercise
Prices
|
Number
of
Shares
Outstanding
|
Weighted-Average
Remaining
Contractual
Life
(in
years)
|
Weighted-Average
Exercise
Price
|
Number
of
Shares
Outstanding
|
Weighted-Average
Remaining
Contractual
Life
(in
years)
|
Weighted-Average
Exercise
Price
|
||||||
$6.27
- $8.89
|
0.5
|
5.15
|
$7.66
|
0.5
|
5.16
|
$7.66
|
||||||
$10.00
- $14.35
|
12.0
|
5.14
|
$13.70
|
12.0
|
5.15
|
$13.70
|
||||||
$15.04
- $22.39
|
8.2
|
4.59
|
$20.84
|
8.1
|
4.57
|
$20.87
|
||||||
$22.88
- $33.00
|
0.3
|
4.72
|
$26.66
|
0.3
|
4.72
|
$26.66
|
||||||
$35.63
- $53.23
|
34.0
|
7.03
|
$46.83
|
20.5
|
6.62
|
$45.24
|
||||||
$53.95
- $75.90
|
1.4
|
8.03
|
$59.22
|
0.7
|
7.97
|
$58.30
|
||||||
$78.99
- $98.80
|
34.6
|
9.44
|
$82.95
|
4.3
|
8.97
|
$85.81
|
||||||
91.0
|
46.4
|
Note
3.
|
Condensed
Consolidated Financial Statement
Detail
|
September
30, 2006
|
December
31, 2005
|
||||||
Raw
materials and supplies
|
$
|
107
|
$
|
79
|
|||
Work
in process
|
712
|
438
|
|||||
Finished
goods
|
244
|
186
|
|||||
Total
|
$
|
1,063
|
$
|
703
|
Note
4.
|
Contingencies
|
Note
5.
|
Relationship
with Roche and Related Party
Transactions
|
Note
6.
|
Income
Taxes
|
/s/ ERNST
& YOUNG LLP
|
· |
Rituxan
for the first-line treatment of previously untreated patients with
follicular,
CD20-positive, B-cell non-Hodgkin’s
lymphoma in combination with CVP (cyclophosphamide, vincristine,
prednisone) chemotherapy;
|
· |
Rituxan
for the treatment of low-grade, CD20-positive, B-cell non-Hodgkin’s
lymphoma in patients with stable disease or who achieve a partial
or
complete response following first-line treatment with CVP chemotherapy;
and
|
· |
Avastin
for use in combination with carboplatin and paclitaxel chemotherapy
for
the first-line treatment of patients with unresectable, locally advanced,
recurrent or metastatic non-squamous, non-small cell lung cancer
(or
“NSCLC”), which was approved on October 11,
2006.
|
· |
Our
long-term business growth, commercial performance and clinical success
depend upon our ability to continue to develop and commercialize
important
novel therapeutics to treat unmet medical needs, such as cancer.
We
recognize that the successful development of biotherapeutics is highly
difficult and uncertain and that it will be challenging for us to
continue
to discover and develop innovative treatments. Our business requires
significant investment in research and development (or “R&D”) over
many years, often for products that fail during the R&D process. Once
a product receives FDA approval, it remains subject to ongoing FDA
regulation, including changes to the product label, new or revised
regulatory requirements for manufacturing practices, written advisement
to
physicians, and/or product recalls.
|
· |
We
face significant competition in the diseases of interest to us from
pharmaceutical companies, and biotechnology companies. The introduction
of
new competitive products or follow-on biologics, new information
about
existing products or pricing decisions made by us or our competitors
may
result in lost market share for us, reduced utilization of our products,
and/or lower prices, even for products protected by
patents.
|
· |
Intellectual
property protection of our products is crucial to our business. Loss
of
effective intellectual property protection on one or more products
could
result in lost sales to competing products and may negatively affect
our
sales, royalty revenues and operating results. We are often involved
in
disputes over contracts and intellectual property and we work to
resolve
these disputes in confidential negotiations or litigation. We expect
legal
challenges in this area to continue. We plan to continue to build
upon and
defend our intellectual property
position.
|
· |
Manufacturing
biotherapeutics is difficult and complex, and requires facilities
specifically designed and validated to run biotechnology production
processes. The manufacture of a biotherapeutic requires developing
and
maintaining a process to reliably manufacture and formulate the product
at
an appropriate scale, obtaining regulatory approval to manufacture
the
product, and is subject to changes in regulatory requirements or
standards
that may require modifications to the manufacturing
process.
|
· |
As
the Medicare and Medicaid programs are
the largest payers for our products, rules relating to coverage and
reimbursement continue to represent an important area of focus. New
regulations relating to hospital and physician payment continue to
be
implemented annually. To
date, we have not seen any detectable effects of the new rules on
our
product sales, and we anticipate minimal effects on our revenues
in 2006.
|
· |
We
believe our business model is only sustainable with appropriate pricing
and reimbursement for our products to offset the costs and risks
of drug
development. The pricing of our products has received negative press
coverage and public scrutiny. We will continue to meet with patient
groups, payers and other stakeholders in the healthcare system to
understand their issues and concerns. However, the future reimbursement
environment for our products is
uncertain.
|
· |
Our
ability to attract and retain highly qualified and talented people
in all
areas of the company, and our ability to maintain our unique culture,
will
be critical to our success over the long-term. We are working diligently
across the company to make sure that we successfully hire, train
and
integrate new employees into the Genentech culture and environment.
In
keeping with our desire to maintain and protect our culture, we have
continued our broad-based stock option program in
2006.
|
· |
The
treatment of patients with relapsed or refractory, low-grade or
follicular, CD20-positive, B-cell non-Hodgkin’s lymphoma, including
retreatment and bulky disease;
|
· |
The
first-line treatment of patients with diffuse large B-cell, CD20-positive,
non-Hodgkin’s lymphoma in combination with CHOP (cyclophosphamide,
doxorubicin, vincristine and prednisone) or other anthracycline-based
chemotherapy;
|
· |
The
first-line treatment of previously untreated patients with follicular,
CD20-positive, B-cell non-Hodgkin’s lymphoma in combination with CVP
(cyclophosphamide, vincristine and prednisone) chemotherapy
regimens;
|
· |
The
treatment of patients with low-grade, CD20-positive, B-cell non-Hodgkin’s
lymphoma in patients with stable disease or who achieve a partial
or
complete response following first-line treatment with CVP chemotherapy;
and
|
· |
Use
in combination with methotrexate for reducing signs and symptoms
in adult
patients with moderately-to-severely active rheumatoid arthritis
(or “RA”)
who have had an inadequate response to one or more tumor necrosis
factor
antagonist therapies.
|
· |
Herceptin,
Pulmozyme, and Avastin outside of the U.S.,
|
· |
Rituxan
outside of the U.S., excluding Japan,
and
|
· |
Nutropin
products, Activase and TNKase in Canada.
|
· |
our
annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports as soon
as
reasonably practicable after such material is electronically filed
with
the Securities and Exchange Commission;
|
· |
our
policies related to corporate governance, including Genentech’s
Principles
of Corporate Governance, Genentech’s
Good Operating Principles (Genentech’s code of ethics applying to our
directors, officers and employees) as well as Genentech’s Code of Ethics
applying to our CEO, CFO and senior financial officials
and;
|
· |
the
charter of the Audit Committee of our Board of Directors.
|
· |
Rebate
allowances and accruals are comprised of both direct and indirect
rebates.
Direct rebates are contractual price adjustments payable to wholesalers
and specialty pharmacies that purchase products directly from us.
Indirect
rebates are contractual price adjustments payable to healthcare providers
and organizations such as clinics, hospitals, pharmacies and group
purchasing organizations that do not purchase products directly from
us;
|
· |
Prompt
pay sales discounts are credits granted to wholesalers for remitting
payment on their purchases within established cash repayment incentive
periods;
|
· |
Product
return allowances are established in accordance with our Product
Returns
Policy. Our returns policy allows product returns within the period
beginning two months prior to and six months following product
expiration;
|
· |
Wholesaler
inventory management allowances are credits granted to wholesalers
for
compliance with various contractually-defined inventory management
programs. These programs were created to align purchases with underlying
demand for our products and to maintain consistent inventory levels,
typically at two to three weeks of sales depending on the
product;
|
· |
Healthcare
provider contractual chargebacks are the result of contractual commitments
by us to provide products to healthcare providers at specified prices
or
discounts; and
|
· |
Bad
debt allowances are based on our estimated uncollectible accounts
receivable.
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||||||||
2006
|
2005
|
% Change
|
2006
|
2005
|
% Change
|
||||||||||||||
Product
sales
|
$
|
1,941
|
$
|
1,451
|
34
|
%
|
$
|
5,395
|
$
|
3,911
|
38
|
%
|
|||||||
Royalties
|
364
|
238
|
53
|
966
|
670
|
44
|
|||||||||||||
Contract
revenue
|
79
|
63
|
25
|
208
|
159
|
31
|
|||||||||||||
Total
operating revenues
|
2,384
|
1,752
|
36
|
6,569
|
4,740
|
39
|
|||||||||||||
Cost
of sales
|
297
|
236
|
26
|
843
|
766
|
10
|
|||||||||||||
Research
and development
|
454
|
329
|
38
|
1,218
|
850
|
43
|
|||||||||||||
Marketing,
general and administrative
|
501
|
343
|
46
|
1,414
|
1,006
|
41
|
|||||||||||||
Collaboration
profit sharing
|
250
|
220
|
14
|
735
|
595
|
24
|
|||||||||||||
Recurring
charges related to redemption
|
26
|
27
|
(4
|
)
|
79
|
96
|
(18
|
)
|
|||||||||||
Special
items: litigation-related
|
13
|
14
|
(7
|
)
|
40
|
44
|
(9
|
)
|
|||||||||||
Total
costs and expenses
|
1,541
|
1,169
|
32
|
4,329
|
3,357
|
29
|
|||||||||||||
Operating
income
|
843
|
583
|
45
|
2,240
|
1,383
|
62
|
|||||||||||||
Other
income (expense):
|
|||||||||||||||||||
Interest
and other income, net
|
74
|
42
|
76
|
249
|
98
|
154
|
|||||||||||||
Interest
expense
|
(19
|
)
|
(20
|
)
|
(5
|
)
|
(56
|
)
|
(27
|
)
|
107
|
||||||||
Total
other income, net
|
55
|
22
|
150
|
193
|
71
|
172
|
|||||||||||||
Income
before taxes
|
898
|
605
|
48
|
2,433
|
1,454
|
67
|
|||||||||||||
Income
tax provision
|
330
|
246
|
34
|
914
|
514
|
78
|
|||||||||||||
Net
income
|
$
|
568
|
$
|
359
|
58
|
$
|
1,519
|
$
|
940
|
62
|
|||||||||
Earnings
per share:
|
|||||||||||||||||||
Basic
|
$
|
0.54
|
$
|
0.34
|
59
|
$
|
1.44
|
$
|
0.89
|
62
|
|||||||||
Diluted
|
$
|
0.53
|
$
|
0.33
|
61
|
$
|
1.41
|
$
|
0.87
|
62
|
|||||||||
Pretax
operating margin
|
35
|
%
|
33
|
%
|
34
|
%
|
29
|
%
|
|||||||||||
Cost
of sales as a % of product sales
|
15
|
16
|
16
|
20
|
|||||||||||||||
Research
and development as a % of operating revenues
|
19
|
19
|
19
|
18
|
|||||||||||||||
Marketing,
general and administrative as a % of operating revenues
|
21
|
20
|
22
|
21
|
|||||||||||||||
Net
income as a % of operating revenues
|
24
|
20
|
23
|
20
|
Percentages
in this table and throughout management’s discussion and analysis of
financial condition and results of operations may reflect rounding
adjustments.
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||||||||
2006
|
2005
|
% Change
|
2006
|
2005
|
% Change
|
||||||||||||||
Net
U.S. Product Sales
|
|||||||||||||||||||
Avastin
|
$
|
435
|
$
|
325
|
34
|
%
|
$
|
1,256
|
$
|
774
|
62
|
%
|
|||||||
Rituxan
|
509
|
456
|
12
|
1,511
|
1,347
|
12
|
|||||||||||||
Herceptin
|
302
|
215
|
40
|
912
|
497
|
84
|
|||||||||||||
Lucentis
|
153
|
-
|
-
|
163
|
-
|
-
|
|||||||||||||
Tarceva
|
100
|
73
|
37
|
296
|
191
|
55
|
|||||||||||||
Xolair
|
107
|
82
|
30
|
307
|
227
|
35
|
|||||||||||||
Raptiva
|
23
|
21
|
10
|
66
|
59
|
12
|
|||||||||||||
Nutropin
products
|
92
|
89
|
3
|
277
|
276
|
0
|
|||||||||||||
Thrombolytics
|
60
|
58
|
3
|
181
|
160
|
13
|
|||||||||||||
Pulmozyme
|
50
|
47
|
6
|
146
|
137
|
7
|
|||||||||||||
Total
U.S. product sales
|
1,830
|
1,365
|
34
|
5,116
|
3,668
|
39
|
|||||||||||||
Net
product sales to collaborators
|
111
|
86
|
29
|
280
|
243
|
15
|
|||||||||||||
Total
product sales
|
$
|
1,941
|
1,451
|
34
|
$
|
5,395
|
3,911
|
38
|
The
values shown above are exact, which may lead to the appearance of
footing
errors.
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||||||||
Research
and Development
|
2006
|
2005
|
% Change
|
2006
|
2005
|
% Change
|
|||||||||||||
Product
development (including post marketing)
|
$
|
316
|
$
|
266
|
19
|
%
|
$
|
900
|
$
|
652
|
38
|
%
|
|||||||
Research
|
83
|
51
|
63
|
232
|
160
|
45
|
|||||||||||||
In-licensing
|
55
|
12
|
358
|
86
|
38
|
126
|
|||||||||||||
Total
R&D
|
$
|
454
|
$
|
329
|
38
|
$
|
1,218
|
$
|
850
|
43
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||||||||
Other
Income, Net
|
2006
|
2005
|
% Change
|
2006
|
2005
|
% Change
|
|||||||||||||
(In
millions)
|
|||||||||||||||||||
Gains
on sales of biotechnology equity securities and other
|
$
|
11
|
$
|
4
|
175
|
%
|
$
|
81
|
$
|
4
|
*
|
%
|
|||||||
Write-downs
of biotechnology debt and equity securities
|
(1
|
)
|
(2
|
)
|
(50
|
)
|
(1
|
)
|
(5
|
)
|
(80
|
)
|
|||||||
Interest
income
|
64
|
40
|
60
|
166
|
99
|
68
|
|||||||||||||
Interest
expense
|
(19
|
)
|
(20
|
)
|
(5
|
)
|
(56
|
)
|
(27
|
)
|
107
|
||||||||
Other
miscellaneous income
|
-
|
-
|
-
|
3
|
-
|
*
|
|||||||||||||
Total
other income, net
|
$
|
55
|
$
|
22
|
150
|
$
|
193
|
$
|
71
|
172
|
*
|
Calculation
not meaningful.
|
Liquidity
and Capital Resources
|
September
30, 2006
|
December 31,
2005
|
|||||
(In
millions)
|
|||||||
Unrestricted
cash, cash equivalents, short-term investments and long-term marketable
debt and equity securities
|
$
|
3,891
|
$
|
3,814
|
|||
Net
receivable - equity hedge instruments
|
70
|
73
|
|||||
Total
unrestricted cash, cash equivalents, short-term investments, long-term
marketable debt and equity securities, and equity hedge
instruments
|
$
|
3,961
|
$
|
3,887
|
|||
Working
capital
|
$
|
3,100
|
$
|
2,726
|
|||
Current
ratio
|
2.7:1
|
2.6:1
|
Total
Number of Shares
Purchased in 2006 |
Average
Price Paid
per
Share
|
||||||
January
1-31, 2006
|
0.9
|
$
|
88.37
|
||||
February
1-28, 2006
|
0.7
|
85.31
|
|||||
March
1-31, 2006
|
1.0
|
84.24
|
|||||
April
1-30, 2006
|
0.7
|
80.31
|
|||||
May
1-31, 2006
|
2.1
|
78.83
|
|||||
June
1-30, 2006
|
1.2
|
79.30
|
|||||
July
1-31, 2006
|
0.9
|
79.39
|
|||||
August
1-31, 2006
|
0.9
|
80.89
|
|||||
September
1-30, 2006
|
0.9
|
79.84
|
|||||
Total
|
9.3
|
$
|
81.38
|
Options
Outstanding
|
||||||||||
Shares
Available
for
Grant
|
Number
of
Shares
|
Weighted-Average
Exercise
Price
|
||||||||
December 31,
2004
|
102
|
94
|
$
|
32.32
|
||||||
Grants
|
(20
|
)
|
20
|
84.01
|
||||||
Exercises
|
-
|
(29
|
)
|
25.88
|
||||||
Cancellations
|
2
|
(2
|
)
|
42.16
|
||||||
December 31,
2005
|
84
|
83
|
$
|
46.64
|
||||||
Grants
|
(17
|
)
|
17
|
79.75
|
||||||
Exercises
|
-
|
(7
|
)
|
30.17
|
||||||
Cancellations
|
2
|
(2
|
)
|
60.42
|
||||||
September
30, 2006 (Year to date)
|
69
|
91
|
$
|
53.80
|
Exercisable
|
Unexercisable
|
Total
|
|||||||||||||||||
As
of September 30, 2006
|
Shares
|
Weighted-Average
Exercise
Price
|
Shares
|
Weighted-Average
Exercise
Price
|
Shares
|
Weighted-Average
Exercise
Price
|
|||||||||||||
In-the-Money
|
42
|
$
|
31.45
|
31
|
$
|
65.47
|
73
|
$
|
45.83
|
||||||||||
Out-of-the-Money(1)
|
4
|
$
|
86.01
|
14
|
$
|
86.38
|
18
|
$
|
86.30
|
||||||||||
Total
Options Outstanding
|
46
|
45
|
91
|
(1)
|
Out-of-the-money
options are those options with an exercise price equal to or greater
than
the fair market value of Genentech Common Stock, $82.70, at the close
of
business on September 29, 2006.
|
· |
Preclinical
tests may show the product to be toxic or lack efficacy in animal
models.
|
· |
Clinical
trial results may show the product to be less effective than desired
or to
have harmful or problematic side
effects.
|
· |
Failure
to receive the necessary regulatory approvals or a delay in receiving
such
approvals. Among other things, such delays may be caused by slow
enrollment in clinical studies, extended length of time to achieve
study
endpoints, additional time requirements for data analysis or Biologic
Licensing Application (or “BLA”) preparation, discussions with the U.S.
Food and Drug Administration (or “FDA”), FDA requests for additional
preclinical or clinical data, analyses or changes to study design,
or
unexpected safety, efficacy or manufacturing
issues.
|
· |
Difficulties
formulating the product, scaling the manufacturing process or in
getting
approval for manufacturing.
|
· |
Manufacturing
costs, pricing or reimbursement issues, or other factors that make
the
product uneconomical.
|
· |
The
proprietary rights of others and their competing products and technologies
that may prevent the product from being developed or
commercialized.
|
· |
The
contractual rights of our collaborators or others that may prevent
the
product from being developed or
commercialized.
|
· |
The
number of and the outcome of clinical trials currently being conducted
by
us and/or our collaborators. For example, our R&D expenses may
increase based on the number of late-stage clinical trials being
conducted
by us and/or our collaborators.
|
· |
The
number of products entering into development from late-stage research. For
example, there is no guarantee that internal research efforts will
succeed
in generating sufficient data for us to make a positive development
decision or that an external candidate will be available on terms
acceptable to us.
|
· |
Decisions
by F. Hoffmann-La Roche
(or “Hoffmann-La Roche”) whether to exercise its options to develop and
sell our future products in non-U.S. markets and the timing and amount
of
any related development cost
reimbursements.
|
· |
In-licensing
activities, including the timing and amount of related development
funding
or milestone payments. For example, we may enter into agreements
requiring
us to pay a significant upfront fee for the purchase of in-process
R&D, which we may record as an R&D
expense.
|
· |
Participation
in a number of collaborative research arrangements. On many of these
collaborations, our share of expenses recorded in our financial statements
is subject to volatility based on our collaborators’ spending activities
as well as the mix and timing of activities between the
parties.
|
· |
Charges
incurred in connection with expanding our product manufacturing
capabilities, as described in “Difficulties or delays in product
manufacturing or in obtaining materials from our suppliers could
harm our
business and/or negatively affect our financial performance”
below.
|
· |
Future
levels of revenue.
|
· |
Significant
delays in obtaining or failing to obtain required approvals as described
in “The successful development of biotherapeutics is highly uncertain
and
requires significant expenditures”
above.
|
· |
Loss
of, or changes to, previously obtained approvals, including those
resulting from post-approval safety or efficacy
issues.
|
· |
Failure
to comply with existing or future regulatory
requirements.
|
· |
Changes
to manufacturing processes, manufacturing process standards or Good
Manufacturing Practices following approval or changing interpretations
of
these factors.
|
· |
the
inability of a supplier to provide raw materials used for manufacture
of
our products; equipment obsolescence, malfunctions or
failures;
|
· |
product
contamination problems;
|
· |
damage
to a facility, including our warehouses and distribution facilities,
due
to natural disasters, including, but not limited to, earthquakes
as our
South San Francisco, Oceanside and Vacaville facilities are located
in
areas where earthquakes could
occur;
|
· |
changes
in FDA regulatory requirements or standards that require modifications
to
our manufacturing processes;
|
· |
action
by the FDA or by us that results in the halting or slowdown of production
of one or more of our products or products we make for others due
to
regulatory issues;
|
· |
a
contract manufacturer going out of business or failing to produce
product
as contractually required;
|
· |
other
similar factors.
|
· |
The
timing of FDA approval, if any, of competitive
products.
|
· |
Our
pricing decisions, including a decision to increase or decrease the
price
of a product, the pricing decisions of our competitors, as well as
our
program to cap the overall expense of Avastin to $55,000 per year
per
eligible patient for any FDA approved
indication.
|
· |
Government
and third-party payer reimbursement and coverage decisions that affect
the
utilization of our products and competing
products.
|
· |
Negative
safety or efficacy data from new clinical studies conducted either
in the
U.S. or internationally by any party could cause the sales of our
products
to decrease or a product to be
recalled.
|
· |
Negative
safety or efficacy data from post-approval marketing experience could
cause sales of our products to decrease or a product to be
recalled.
|
· |
The
degree of patent protection afforded our products by patents granted
to us
and by the outcome of litigation involving our
patents.
|
· |
The
outcome of litigation involving patents of other companies concerning
our
products or processes related to production and formulation of those
products or uses of those products.
|
· |
The
increasing use and development of alternate
therapies.
|
· |
The
rate of market penetration by competing
products.
|
· |
Our
distribution strategy, including the termination of, or change in,
an
existing arrangement with any major wholesalers who supply our
products.
|
· |
Hoffmann-La
Roche’s decisions whether to exercise its options and option extensions
to
develop and sell our future products in non-U.S. markets and the
timing
and amount of any related development cost
reimbursements.
|
· |
Variations
in Hoffmann-La Roche’s sales and other licensees’ sales of licensed
products.
|
· |
The
expiration or termination of existing arrangements with other companies
and Hoffmann-La Roche, which may include development and marketing
arrangements for our products in the U.S., Europe and other countries
outside the U.S.
|
· |
The
timing of non-U.S. approvals, if any, for products licensed to Hoffmann-La
Roche and to other licensees.
|
· |
Fluctuations
in foreign currency exchange rates.
|
· |
The
initiation of new contractual arrangements with other
companies.
|
· |
Whether
and when contract milestones are
achieved.
|
· |
The
failure of or refusal of a licensee to pay
royalties.
|
· |
The
expiration or invalidation of our patents or licensed intellectual
property. For example, patent litigations, interferences, oppositions,
and
other proceedings involving our patents often include claims by
third-parties that such patents are invalid, unenforceable, or
unpatentable. If a court, patent office, or other authority were
to
determine that a patent under which we receive royalties and/or other
revenues is invalid, unenforceable, or unpatentable, that determination
could cause us to suffer a loss of such royalties and/or revenues,
and
could cause us to incur other monetary
damages.
|
· |
Decreases
in licensees’ sales of product due to competition, manufacturing
difficulties or other factors that affect the sales of
product.
|
· |
Require
the approval of the directors designated by Roche to make any acquisition
or any sale or disposal of all or a portion of our business representing
10% or more of our assets, net income or
revenues.
|
· |
Enable
Roche to maintain its percentage ownership interest in our Common
Stock.
|
· |
Require
us to establish a stock repurchase program designed to maintain Roche’s
percentage ownership interest in our Common Stock based on an established
Minimum Percentage. For information regarding Minimum Percentage,
see Note
5, “Relationship with Roche and Related Party Transactions,” in the Notes
to Condensed Consolidated Financial Statements in Part I, Item 1
of this
Form 10-Q.
|
· |
The
overall competitive environment for our products as described in
“We face
competition” above.
|
· |
The
amount and timing of sales to customers in the U.S. For example,
sales of
a product may increase or decrease due to pricing changes, fluctuations
in
distributor buying patterns or sales initiatives that we may undertake
from time to time.
|
· |
The
amount and timing of our sales to Hoffmann-La Roche and our other
collaborators of products for sale outside of the U.S. and the amount
and
timing of sales to their respective customers, which directly affects
both
our product sales and royalty
revenues.
|
· |
The
timing and volume of bulk shipments to
licensees.
|
· |
The
availability and extent of government and private third-party
reimbursements for the cost of
therapy.
|
· |
The
extent of product discounts extended to
customers.
|
· |
The
effectiveness and safety of our various products as determined both
in
clinical testing and by the accumulation of additional information
on each
product after the FDA approves it for
sale.
|
· |
The
rate of adoption by physicians and use of our products for approved
indications and additional indications. Among other things, the rate
of
adoption by physicians and use of our products may be affected by
results
of clinical studies reporting on the benefits or risks of a
product.
|
· |
The
potential introduction of new products and additional indications
for
existing products.
|
· |
The
ability to successfully manufacture sufficient quantities of any
particular marketed product.
|
· |
Pricing
decisions we have adopted or may adopt, including our program to
cap the
overall expense of Avastin to $55,000 per year per eligible patient
for
any FDA-approved indication.
|
· |
Announcements
of technological innovations or new commercial products by us or
our
competitors.
|
· |
Publicity
regarding actual or potential medical results relating to products
under
development or being commercialized by us or our competitors.
|
· |
Concerns
about the pricing of our products, or our pricing initiatives (including
our program to cap the overall expense of Avastin to $55,000 per
year per
eligible patient for any FDA-approved indication), and the potential
effect of such on their utilization or our product
sales.
|
· |
Developments
or outcome of litigation, including litigation regarding proprietary
and
patent rights.
|
· |
Regulatory
developments or delays concerning our products in the U.S. and foreign
countries.
|
· |
Issues
concerning the safety of our products or of biotechnology products
generally.
|
· |
Economic
and other external factors or a disaster or
crisis.
|
· |
Period
to period fluctuations in our financial
results.
|
Total
Number of
Shares
Purchased
|
Average
Price Paid
per
Share
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans or
Programs
|
Maximum
Number
of
Shares that May
Yet
Be Purchased
Under
the Plans or
Programs
|
||||||||||
July
1-31, 2006
|
0.9
|
$
|
79.39
|
||||||||||
August
1-31, 2006
|
0.9
|
80.89
|
|||||||||||
September
1-30, 2006
|
0.9
|
79.84
|
|||||||||||
Total
|
2.7
|
$
|
80.06
|
59
|
41
|
Exhibit
No.
|
Description
|
Location
|
10.1
|
Form
of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock
Option
Grant Agreement (Employee Version)
|
Filed
on a Current Report on Form 8-K with the U.S. Securities and Exchange
Commission on September 26, 2006, and incorporated herein by
reference.
|
10.2
|
Form
of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock
Option
Grant Agreement (Director Version)
|
Filed
on a Current Report on Form 8-K with the U.S. Securities and Exchange
Commission on September 26, 2006, and incorporated herein by
reference.
|
10.3
|
Genentech,
Inc Tax Reduction Investment Plan, as amended and restated
|
Filed
herewith
|
15.1
|
Letter
regarding Unaudited Interim Financial Information.
|
Filed
herewith
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended
|
Filed
herewith
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended
|
Filed
herewith
|
32.1
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
Furnished
herewith
|
GENENTECH,
INC.
|
|||
Date:
|
October
30, 2006
|
/s/ARTHUR
D. LEVINSON
|
|
Arthur
D. Levinson, Ph.D.
Chairman
and Chief Executive Officer
|
|||
Date:
|
October
30, 2006
|
/s/DAVID
A. EBERSMAN
|
|
David
A. Ebersman
Executive
Vice President and
Chief
Financial Officer
|
|||
Date:
|
October
30, 2006
|
/s/JOHN
M. WHITING
|
|
John
M. Whiting
Vice
President - Finance and
Chief
Accounting Officer
|