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Overview of Genentech: Innovating in Biotechnology and Oncology Advances

Genentech, a leading biotechnology firm, focuses on discovering, developing, and manufacturing medicines to meet unmet medical needs. The company primarily concentrates on oncology, immunology, and tissue growth and repair. Key products include Avastin, Herceptin, and Rituxan, which have achieved significant sales growth. With ambitious 2010 goals, a robust pipeline of products, and strong earnings, Genentech is positioned for continued success. Recent FDA approvals and a solid balance sheet further enhance its investment appeal.

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Overview of Genentech: Innovating in Biotechnology and Oncology Advances

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  1. Watch List Presentations April 17, 2008 David Light, Phil Rosen, Tim Tyson

  2. Company Overview • Leading Biotechnology firm • Discover, develop, and manufacture medicines for patients with unmet medical needs • 3 Main Areas of Focus • Oncology • Immunology • Tissue Growth and Repair

  3. 2007 Product Sales Herceptin 15% Rituxan 27% Avastin 27% • 3 Blockbuster Drugs • 38% Average Growth in Product Sales past 5 years http://www.gene.com/gene/ir/financials/annual-reports/2007/financials/marketedproducts.html, Accessed 15 Apr 08

  4. Q1 2008 Revenue 2008 Q1 % Change 2007 Q1

  5. Avastin • Approved to treat Lung, Colon, and Breast Cancer • Blocks blood vessels from forming in tumors • 31% sales growth from ’06 to ‘07 http://www.gene.com/gene/ir/financials/annual-reports/2007/financials/marketedproducts.html, Accessed 15 Apr 08

  6. Rituxan • Approved to treat non-Hodgkin’s Lymphoma, Leukemia, and some autoimmune diseases • Depletes B cells in diseases characterized by having too many B cells or dysfunctional B cells • 10% sales growth from ‘06 to ‘07 http://www.gene.com/gene/ir/financials/annual-reports/2007/financials/marketedproducts.html, Accessed 15 Apr 08

  7. Herceptin • Approved to treat various forms of breast cancer • Significant sales growth when new uses are discovered, but otherwise steady growth http://www.gene.com/gene/ir/financials/annual-reports/2007/financials/marketedproducts.html, Accessed 15 Apr 08

  8. Pipeline • Many extended uses of Avastin, Herceptin, and Rituxan • Majority already undergoing Phase III clinical trials

  9. Management • CEO/Chairman: Arthur Levinson, PH.D. • Started in the company as a senior scientist • President Product Development: Susan Desmond-Hellmann, M.D. • Joined the company as a clinical scientist • Executive VP/CFO: David Ebersman • Started as a business development analyst with the company • Executive VP of Research: Richard Scheller, PH.D. • Prior to joining DNA he was a professor of Molecular and Cellular Physiology and of Biological Sciences at Stanford

  10. Management’s 2010 Goals • Bring at least 20 new molecules into clinical development • Bring at least 15 major new products or indications onto the market • Achieve a compund annual non-GAAP earnings per share growth rate of 25% • Achieve cumulative free cash flow of $12 billion • Become the number one U.S. oncology company in sales

  11. Roche • Majority owner of Genentech • Holding company that helps market Genentech’s products internationally

  12. Recent News and Developments • On February 22, 2008, the FDA granted accelerated approval for Avastin in combination with paclitaxel chemotherapy for the first-line treatment of advanced HER2-negative breast cancer.

  13. Valuation

  14. Valuation • Current Price: $74.18 • DCF Valuation: $114.83 • Intrinsic Value: 103.35 – 126.31 • WACC: 8.25% • Beta: .75, L/T Growth: 4%

  15. Valuation

  16. Recommendation • Add Genentech to the RCMP Watch List • Increasing uses of big 3 drugs • Strong Drug Pipeline (Many Phase III Trials) • Strong earnings growth • Strong balance sheet (minimal debt, surplus cash) • Not greatly threatened by generic competition • Warrants further review in Fall 2008

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