Interview: R.B.C. Capital Markets
>> genentech out after the bell with profit and sales that topped analyst expectations, reporting 30 cents a share for the second quarter. if you exclude certain items, that’s four cents better than analysts had been looking for. the company report ago 35% boost in sales to $1.53 billion. analysts looking for $1.49 billion. let’s get some analysis of this and what is good. jason kantor of r.b.c. capital markets joins us from san francisco. what do you make of the numbers?
>> you got to think this is a good quarter. pretty much excluding some one- time things that came in fairly in line with our expectations. clearly strength from avastin, herceptin, tarceva.
>> let’s talk about avastin. that’s one of the major focuses for investors when they look at company. second quarter sales of avastin up 85%. what had you been looking for and what do you forecast from here?
>> we were looking for $220 million in the quarter. it was about $246 million in the quarter. this is going to be over a $2 billion drug in the u.s. next year. clearly when used for all of its projected aprofited indications, it’s well over a $3 billion a year drug.
>> i aou mentioned projected. give us a time frame thaw as an analyst anticipate in terms of when the company may file for and receive approval for some of those other use. currently really colon cancer the main use.
>> currently approved for metastatic colorectal cancer. they have positive data in metastatic lung cancer and metastatic breast cancer. they have not given additional indications. but clearly sometime by early next year at latest we expect those to be filed. we could see approval for both of those new indications in 2006. i think the important thing that we see from this earnings release and the projections going forward is there’s a favorable shift in product mix towards proprietary drugs. avastin is solely owned in the u.s. by genentech so is herceptin. these are the new drivers of growth for the company. it helps to improve margins as well going forward.
>> the company saying in today’s earnings release that it says nine products will receive f.d.a. filings. is that in line with what you had been anticipating? any surprises there?
>> no. that’s pretty much what we’re looking at. we’re looking at six of them as major drivers, either new products altogether or existing products moving into major new indications. some of them are a little more subtle. there are six major drivers which together we say have visibility on at least three billion and closer to five billion in incremental revenue over the next three to five years.
>> is that in line with what the company said in terms of its forecast? it said 2005 earnings per share if you exclude certain items should be up more than 35%. how does that strike you?
>> i think―the company intended to be even conservative in their estimates. for this year we’re looking at e up 43% from last year. that without factoring in the up side today and any changes to the model. so they’re in a period of very robust earnings growth driven by the top line and like i said the improving margin. there was also in this quarter what appears to be a one-time tax benefit. the tax rate was significantly lower in the second quarter. i think that drove a sense of the up side from our number.
>> what is interesting is the stock today reached a record high. you recently boosted your price target by $7 to $97 a share. pointing out for our viewers about 55 times your earnings forecast. what makes you so optimistic that the stock will continue to climb from a record high?
>> well, i think there are several things that aren’t fully appreciated in the model. there are―the number of blockbuster drugs and blockbuster indications that the company will launch in 2006 is unprecedented. looking at just some of the new drugs and new indications that are coming out, revenue growth and the expansion of profits is going to be very robust in 2006 and 2007 and 2008. some things we look for, rheumatoid arthritis is underappreciated. we have yet to seat data for lucentis. all indications are it will be very robust when presented later this month. that’s for macular degeneration. that should be on the market next year as well. so there’s a lot of big revenue drivers that we have yet to see hit the top line.
>> jason, thank you for joining us. we appreciate it.
>> thank you.
>> jason kantor of r.b.c. capital markets . we take a quick break. when we come back, we talk about some economists who say investors should pay close attention to canada’s petro. we’ll explain in our chart of the day.
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>>also making news today, a federal judge has given preliminary approval to a settlement that will leave former chief executive bernie ebbers with $50,000 as well as the home in jackson, mississippi. ebbers was once worth $1 billion. he will pay $5 million in cash and forfeit up to $40 million in assets. final approval of the settlement may come next month after the judge has a chance to hear objections. investor vs. previously won more than $6 billion from worldcom’s accountants, directors and banks in the biggest securities fraud settlement in u.s. history. worldcom investors lost $11 billion. well, hewlett-packard calling its new line of printers designed for digital photographs the fastest home printing system. bob bowdon following this story. he joins us with more on this initiative. h.p. trying to double printing revenue.
>> that’s the goal for h.p. while digital cameras have all but killed traditional photography, consumers still like a printed picture but don’t like waiting for them. new photo printers can produce a four by six-inch picture in 14 seconds, much faster than a 34 to 100 hundred seconds that other home photo printers take. the new technology can also be applied to other products.
>> this platform is radically changing platform. it will not only be applied to photo printing but we’re also introducing office printers which is two times faster than the color laser jet. in the next few months we’ll introduce retail photofinishing and industrial printing you can print using this platform. this investment will go to multiple markets .
>> competition forced h.p. to cut prices last quarter. printing profits fell 14% despite the fact that shipments rose 12%. the company expects the revenue slide to turn around. h.p.’s goal is to increase printing sales by $2 billion every year doubling them in 10 years from the $24 billion last year. technology analysts are not convinced the market will deliver the growth rates that h. expects.
>> in h.p.’s scheme of things, they have a lot of little things but that market will not grow very fast. i’m not sure that market will do much of anything over the next three to four years. it doesn’t seem like something that is convenient enough for people. we have to make things convenient. if we want to sell to six billion people, it has to be convenient and easy. i don’t think those products and products like it are ones that will do it.
>> if we want to sell to six billion people, he says. that’s a high order, too. checking other printing stocks, lexmark down a fraction. brother down over 2.36%.
>> we stick with telecom for another moment. sprint saoeul epbsing a critic. sprint agrees to buy u.s. unwired. $6.25 a share in cash is expected. it is a company that sells wireless services under the sprint brand. it asked a federal court to block the sprint-nextel deal. the agreement for the purchase ends that litigation. it paves the way for sprint’s $35 billion purchase of nextel. taking a quick break. when we come back, genentech beating second quarter earnings estimates thanks to higher sales of its cancer drug avastin. we get reaction from jason kidder with r.b.c. capital markets . he joins us straight ahead.
