Genentech adjusts outlook, on target for 2010 goal

NEW YORK (Reuters) - Genentech Inc DNA.N on Friday raised the lower end of its 2008 earnings forecast and said it was on track to meet or exceed its key financial and product development goals through 2010.

Wall Street, however, was not thrilled by the new forecast and Genentech shares were down $2.87 or 3.5 percent to $78.56 in afternoon trading.

The world's second-largest biotechnology company by sales said it now expects 2008 earnings excluding one-time items of between $3.35 per share and $3.45 per share, raising the low end by 5 cents.

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

Genentech said it expects to achieve a compound annual earnings per share growth rate excluding items of at least 25 percent through 2010.

"People may be disappointed now, but they'll walk out of the meeting and say, 'they were just being conservative,'" predicted Ian Somaiya, analyst for Thomas Weisel Partners.

The company said it is considering expanding its share repurchases or initiating a dividend payment to shareholders as it begins to have more cash than needed to run the business, although no decision has yet been made.

Genentech expects this year to seek U.S. 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.

Those are among more than 20 potential product label expansions between this year and 2010 that the company outlined during a four-hour presentation for analysts and investors at a New York hotel on Friday.

Cowen and Co analyst Eric Schmidt said a brain cancer approval could eventually add $300 million to $500 million to Avastin sales.

Chief Executive Arthur Levinson said Genentech is on track to meet or exceed the major goals it set for the 2006 through 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 of 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."

Already the leader in U.S. sales of oncology drugs, Genentech said it is beginning to focus early research on new therapeutic areas of neuroscience and infectious disease.

The most significant recent approval came last month for Avastin for metastatic breast cancer, a use analysts believe will 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. Swiss drugmaker Roche Holding AG (ROG.VX) owns a majority stake in Genentech and sells its drugs outside the United States.

As with Avastin, Genentech is working to expand uses for Rituxan, the non-Hodgkin's lymphoma and rheumatoid arthritis drug it shares with Biogen Idec Inc (BIIB.O), with data from important studies of the medicine in lupus and multiple sclerosis expected in the first half of this year.

"Lupus has been very, very difficult for both clinical trials and approvals," cautioned Susan Desmond-Hellman, Genentech's head of product development.

Spurred on by positive data and the breast cancer approval for Avastin, Genentech shares are up about 20 percent this year, recovering virtually all of the losses the stock suffered in 2007. That stands in sharp contrast to the American Stock Exchange Biotech Index, which is down about 11 percent this year in lock-step with trends in the broader markets.

(Additional reporting by Toni Clarke in Boston; Editing by Steve Orlofsky and Gerald E. McCormick)