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Stock Analyst Update

Genentech's Earnings a Mixed Bag

Herceptin sales fall short, but Rituxan soars ahead.

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Genentech's (DNA) earnings report wasn't quite as strong as last quarter, but the stock still holds long-term appeal.

The biotechnology firm reported earnings of $0.29 a share Monday--excluding costs related to last year's redemption of Genentech stock by its parent company Roche. Earnings were right in line with analyst estimates, and 7% higher than a year ago.

But behind that earnings growth was a more complicated revenue-growth story. On the positive side, sales of Rituxan, Genentech's monoclonal antibody treatment for non-Hodgkins lymphoma, increased 21% from the first quarter of 2000 to $102.8 million for the second period.

But sales of breast-cancer therapy Herceptin were somewhat disappointing. The company reported revenues of $66.7 million this quarter, about 3% lower than last quarter's. Many analysts had anticipated Herceptin sales to range between $70 million and $75 million.

On the conference call, management attributed lower Herceptin sales to lower demand from its parent company, Roche (ROHHY). The Swiss drug giant is preparing to launch the breast cancer treatment in Europe later this year, pending its approval there.

Genentech also indicated that U.S. sales of the drug were up about 10% from the previous quarter, which should soothe investors' concerns somewhat.

Certainly, sales growth of Herceptin should bear watching in the coming quarters. But with several products out on the market and several more in late-stage development, Genentech is one of the best-positioned mature biotechnology companies.

Of course, like most biotechs, Genentech doesn't come cheap. The company is currently trading at a heady 130 times its 2000 estimated earnings--even higher than many of its biotech peers. The stock is by no means a bargain, although as a long-term play in the biotech arena it remains one of the most appealing options.

Emily Hall does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.