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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended: December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-9813
GENENTECH, INC.
A Delaware Corporation 94-2347624
(I.R.S. employer identification number)
460 Point San Bruno Boulevard (415) 225-1000
South San Francisco, California 94080-4990 (telephone number)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Redeemable Common Stock, New York Stock Exchange
$.02 par value Pacific Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The approximate aggregate market value of voting stock held by nonaffiliates
of the registrant is $1,965,462,444 as of March 15, 1996. (A)
Number of shares of Common Stock outstanding as of March 15, 1996:
76,621,009
Number of shares of Special Common Stock outstanding as of March 15, 1996:
43,496,307
Number of shares of Redeemable Common Stock outstanding as of March 15, 1996:
None
Documents incorporated by reference:
PARTS INCORPORATED
DOCUMENT BY REFERENCE
(1) Annual Report to stockholders for the year ended II
December 31, 1995 (specified portions)
(2) Definitive Proxy Statement with respect to the 1996 III
Annual Meeting of Stockholders filed by Genentech, Inc.
(SEC file No. 1-9813) with the Securities and Exchange
Commission (hereinafter referred to as "Proxy Statement")
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(A) Excludes 82,768,861 shares of Common Stock and Special Common Stock
held by Directors, Officers and stockholders whose ownership exceeds five
percent of either the Common Stock or Special Common Stock outstanding at
March 15, 1996. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of
the registrant, or that such person is controlled by or under common control
with the registrant.
PART I
ITEM 1. BUSINESS
Genentech, Inc. (the Company) is a biotechnology company that discovers,
develops, manufactures and markets human pharmaceuticals produced by
recombinant DNA technology for significant unmet medical needs. The Company
manufactures and markets five products directly in the United States and to
F. Hoffmann-La Roche Ltd. (HLR) for sales outside of the United States, and
receives royalties from sales of five other products which originated from the
Company's technology.
Cautionary Statement Identifying Important Factors that Could Cause the
Company's Actual Results to Differ from those Projected in Forward Looking
Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Genentech, Inc. is hereby filing a cautionary
statement identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward looking
statements of the Company made by, or on behalf of, the Company.
The following factors could affect Genentech's actual future results,
including its product sales, royalties, expenses and net income, and could
cause them to differ from any forward looking statements made by or on behalf
of the Company:
- Decisions by HLR to exercise its rights to develop and sell products and
potential products of the Company in non-U.S. markets or, alternatively, to
not exercise such rights.
- Increased competition in the growth hormone market. Three companies
received Food and Drug Administration (FDA) approval in 1995 to market their
growth hormone products for treatment of growth hormone inadequacy in
children, and a fourth company is seeking approval to sell human growth
hormone to treat AIDS wasting. The Company expects competition to have an
adverse effect on its sales of Protropin, registered trademark, and Nutropin,
registered trademark. Other factors that may influence sales of these products
include the availability of third party reimbursement for the cost of growth
hormone therapy and the outcome of litigation involving the Company's patents
for growth hormone and related processes, including that referred to above.
- Acceptance of Pulmozyme, registered trademark, as a treatment for cystic
fibrosis. Factors that may influence the future sales of Pulmozyme include
physician perception of the number and kinds of patients who will benefit from
such therapy, the availability of third party reimbursement for the costs of
therapy, the timing of the development of alternative therapies for the
treatment and care of cystic fibrosis, whether and when additional indications
are approved for Pulmozyme, and the cost of Pulmozyme therapy.
- Variation of royalty, contract and other revenues. These revenues will
continue to fluctuate due to the timing of non-U.S. approvals, if any, for
products licensed to HLR, whether and when contract benchmarks are achieved,
the initiation of new contractual arrangements, including the exercise of
product options by HLR, and the conclusion of existing arrangements with other
companies and HLR.
- Successful development of products. The Company intends to continue to
develop new products. Successful pharmaceutical product development is highly
uncertain and is dependent on numerous factors, many of which are beyond the
Company's control. Products that appear promising in the early phases of
development may fail to reach market for numerous reasons. They may be found
to be ineffective or to have harmful side effects in clinical or preclinical
testing, may fail to receive necessary regulatory approvals, may turn out to
be uneconomical because of manufacturing costs or other factors, or they may
be precluded from commercialization by the proprietary rights of others.
Success in preclinical and early clinical trials does not ensure that large
scale clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations which may delay, limit or prevent
regulatory approvals. The length of time necessary to complete clinical trials
and from submission of an application for marketing approval to a final
decision by a regulatory authority varies significantly and may be difficult
to predict.
- Uncertainties surrounding proprietary rights. The patent positions of
pharmaceutical and biotechnology companies can be highly uncertain and involve
complex legal and factual questions. Accordingly the breadth of claims allowed
in such company's patents cannot be predicted. Patent disputes are frequent
and can preclude commercialization of products. The Company has in the past
and may in the future be involved in material patent litigation. Such
litigation is costly in its own right and could subject the Company to
significant liabilities to third parties and, if decided adversely, the
Company may need to obtain third party licenses or cease using the technology
or product in dispute. As discussed above, the presence of patent or other
proprietary rights belonging to other parties may lead to the termination of
research and development of a particular product.
Agreement with Roche Holdings, Inc.
On October 25, 1995, a new agreement (the Agreement) with Roche Holdings, Inc.
(Roche) was approved by Genentech's non-Roche stockholders to extend for four
years Roche's option to cause Genentech to redeem (call) the outstanding
callable putable common stock (special common stock) of the Company at
predetermined prices. In conjunction with that Agreement, HLR was granted an
option at terms discussed below for ten years for licenses to use and sell
certain of Genentech's products in non-U.S. markets. As a general matter,
such option for a Genentech product must be exercised at, or prior to if
Genentech mutually agrees, the conclusion of phase II clinical trials for each
product. In general, for each product for which HLR exercises its option
(option product), the Company and HLR will share equally all development
expenses, including preclinical, clinical, process development and related
expenses, incurred by the Company through that date and prospectively, with
respect to the development of the product in the United States. HLR will pay
all non-U.S. development expenses. In general, Genentech will supply HLR's
clinical requirements of option products at cost and its commercial
requirements at cost plus 20%. In general, HLR will pay a royalty of 12.5%
until a product reaches $100 million in aggregate sales outside of the United
States, at which time the royalty rate increases to 15%. In addition, HLR has
exclusive rights to, and pays the Company 20% royalties on, Canadian sales of
the Company's existing approved products in Canada, and European sales of
Pulmozyme, registered trademark. Consequently, in the fourth quarter of 1995,
the Company transferred to HLR the rights to its Canadian product sales, and
its European sales of Pulmozyme, and commenced recording royalty revenue from
HLR on such sales. The Company supplies its products to HLR, and has agreed
to supply products for which HLR exercises its option, for sales outside of
the United States at cost plus 20%. In 1995, the Company recorded special
charges totaling $25 million, of which $21 million related to expenses
associated with the Agreement. Depending on whether HLR does or does not
exercise its option to develop and sell each of the Company's future products,
future levels of the Company's product sales, royalties and contract revenue,
as well as R&D and other expenses, could vary significantly from 1995 levels
both on an annual and quarter-to-quarter basis.
Products
Genentech has developed and currently manufactures and markets five products
in the United States: Activase, registered trademark, (Alteplase, recombinant)
recombinant tissue plasminogen activator; Protropin, (somatrem for injection)
recombinant growth hormone; Nutropin, [somatropin (rDNA origin) for injection]
human growth hormone; Pulmozyme, (dornase alfa) inhalation solution; and
Actimmune, registered trademark, (Interferon gamma-1b) recombinant interferon
gamma.
Activase: Tissue plasminogen activator (t-PA) is an enzyme that is produced
naturally by the body to dissolve blood clots. However, when a blood clot
obstructs blood flow in the coronary artery and causes a heart attack, the
body is unable to produce enough t-PA to dissolve the clot rapidly enough to
prevent damage to the heart. Through recombinant DNA technology, Genentech
produces Activase, a recombinant form of t-PA, in sufficient quantity for
therapeutic use. The United States Food and Drug Administration (FDA)
approved Activase for marketing in the United States in 1987 for the treatment
of acute myocardial infarction (AMI or heart attack) and in 1990 for use in
the treatment of acute pulmonary embolism (blood clots in the lungs).
Genentech submitted a Product License Application in March 1996, for Activase
for treatment of patients suffering from acute ischemic stroke, based on
results of a multi-year Phase III clinical study conducted by the National
Institute of Neurological Disorders and Stroke (NINDS).
Phase II studies are being performed to evaluate a second generation of t-PA
which is anticipated to be easier to administer, work faster, cause less
unwanted bleeding and require smaller doses than Activase.
In exchange for royalty payments, Genentech has licensed marketing rights to
recombinant t-PA in Japan to Kyowa Hakko Kogyo, Ltd. (Kyowa) and Mitsubishi
Kasei Corporation (Mitsubishi). Kyowa and Mitsubishi are marketing forms of
recombinant t-PA under the trademarks Activacin, registered trademark, and
GRTPA, registered trademark, respectively. In a number of countries outside
of the United States, Canada and Japan, Genentech has licensed t-PA marketing
and manufacturing rights to Boehringer Ingelheim International GmbH
(Boehringer). Genentech has also licensed certain rights to Boehringer
regarding future sales of the second generation of t-PA, which is currently
under development. Boehringer markets recombinant t-PA under the trademark
Actilyse, registered trademark. Prior to February 1995 t-PA was marketed in
Canada by Genentech under the Activase trademark and by Boehringer under the
trademark Lysatec. In February 1995, Genentech purchased all t-PA Canadian
marketing rights from Boehringer. Pursuant to the Agreement with Roche,
Genentech subsequently granted these rights to HLR, which began selling
Activase in Canada on December 1, 1995, and Genentech began receiving a
royalty on such sales.
Protropin: Human growth hormone is a naturally occurring human protein
produced in the pituitary gland. It regulates metabolism and is responsible
for growth in children. A recombinant growth hormone product developed by
Genentech, Protropin was approved by the FDA in 1985 for marketing in the
United States for the treatment of growth hormone inadequacy in children.
In exchange for royalty payments, Genentech licensed rights to recombinant
growth hormone outside the United States and Canada to Pharmacia & Upjohn,
which manufactures and markets recombinant growth hormone under the trademarks
Somatonorm, registered trademark, and Genotropin, registered trademark. Under
the terms of the agreement with Pharmacia & Upjohn, and effective in late
1995, Genentech now has the right to sell growth hormone in certain European
countries and Pharmacia & Upjohn have the right to sell their own growth
hormone in the United States and Canada. Pursuant to the Agreement with
Roche, Genentech granted exclusive rights to sell Protropin in Canada to HLR,
which began selling Protropin in Canada on December 1, 1995, and Genentech
receives a royalty on such sales.
Nutropin: Nutropin is a human growth hormone similar to Protropin; however,
it does not have the additional amino acid, methionine, found in the Protropin
chemical structure. It was approved by the FDA in March 1994 for marketing
for the treatment of growth hormone inadequacy in children. Nutropin was
approved in November 1993 and launched in January 1994 for marketing in the
United States for the treatment of growth hormone inadequacy in children due
to chronic renal insufficiency (CRI). CRI causes irreversible damage to the
kidneys and a variety of other medical problems, including growth hormone
inadequacy. The condition affects an estimated 3,000 children in the United
States. Nutropin has been designated an Orphan Drug for treatment of growth
hormone inadequacy in children with CRI in the United States. In December
1995, the Company received regulatory approval to market Nutropin AQ,
trademark, [somatropin (rDNA origin) injection], a liquid formulation of
Nutropin, aimed at providing improved convenience in administration. In
October 1995, Genentech submitted a New Drug Application for approval to
market Nutropin human growth hormone for the treatment of growth failure
associated with Turner syndrome. Phase II clinical trials are currently
underway with Nutropin to treat growth hormone inadequacy in adults. Pursuant
to the Agreement with Roche, Genentech granted the right to sell Nutropin in
Canada to HLR, and Genentech will receive a royalty on any such sales.
Pulmozyme: Pulmozyme is marketed in the United States for the management of
cystic fibrosis, for which it has Orphan Drug designation in the United
States. There are an estimated 22,000 patients with cystic fibrosis in the
U.S., a significant portion of whom are expected to be candidates for
treatment. Pursuant to the Agreement with Roche, and effective during the
fourth quarter of 1995, the Company granted Roche the exclusive right to sell
Pulmozyme in Europe and Canada in return for a royalty on such sales.
The Data Safety Monitoring Board for the trial recommended in July 1995 to
terminate the Phase III trial of Pulmozyme in patients hospitalized for acute
episodes of chronic obstructive pulmonary disease, due to lack of demonstrable
benefit shown in the interim analysis of the study. Genentech accepted this
recommendation and halted enrollment.
Actimmune: Actimmune is approved in the United States for the treatment of
chronic granulomatous disease (CGD), a rare, inherited disorder of the immune
system which affects an estimated 250 to 400 Americans. Actimmune received
designation by the FDA in 1990 as an Orphan Drug for the treatment of CGD in
the United States. Phase III clinical trials are ongoing to investigate the
use of Actimmune to treat renal cell carcinoma, a cancer of the kidneys.
Depending on clinical trial results, the Company hopes to expand the market
potential of Actimmune over time by obtaining new approvals for indications
with larger populations, but such expansion is not assured. Additionally, the
Company receives royalty payments from Boehringer from the sale of interferon
gamma in certain countries outside of the United States, Canada and Japan.
Licensed Products:
In addition to the royalties mentioned above, the Company also receives
royalties on the following products:
Product Trademark Company
____________________________ ____________ ______________________________
Recombinant human insulin Humulin Eli Lilly and Company (Lilly)
Human growth hormone Humatrope Eli Lilly and Company
Recombinant interferon alpha Roferon-A Hoffmann-La Roche, Inc.
Hepatitis B vaccine Recombivax Merck and Company, Inc.
Hepatitis B vaccine Engerix-B Smith-Kline Beecham
Pharmaceuticals (SKB)
Factor VIII Kogenate Bayer Corporation
Bovine growth hormone Posilac Monsanto Corporation
In December 1994, the Company and Lilly reached an agreement regarding all
patent infringement and contract actions then pending between the two parties.
Under the terms of the settlement, Lilly agreed to pay the Company up to $145
million ($25 million in 1994, and 16 quarterly payments of $7.5 million, $30.0
million of which was received and recorded as revenue by Genentech in 1995),
subject to possible offsets and contingent upon Humulin continuing to be
marketed in the United States, and the Company granted Lilly licenses, options
to licenses, or immunities from suit for certain of the Company's patents.
Future payments are required from Lilly on sales of these products.
Products in Development: As part of Genentech's program of research and
development, a number of other products are in various stages of development.
Product development efforts cover a wide range of disorders or medical
conditions, including cancer, respiratory disorders, cardiovascular diseases,
endocrine disorders, inflammatory and immune problems, and neurological
disorders.
In addition to the new indications for existing products discussed above,
below is a summary of products in clinical development:
Product Description
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Phase III
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Anti-HER2 Humanized Monoclonal A humanized monoclonal antibody targeted against
Antibody a protein receptor, which may be useful in the
treatment of breast cancer.
Auriculin (registered trademark) A hormone that occurs naturally in the heart
Anaritide which may be useful in treating acute renal
failure (being developed under a collaboration
between the Company and Scios Nova Inc.).
IDEC-C2B8 A monoclonal antibody which may be useful
in the treatment of non-Hodgkin's B-cell
lymphomas (being developed under a collaboration
between the Company and IDEC Pharmaceuticals, Inc.).
Phase II
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Anti-IgE Humanized Monoclonal A humanized IgE monoclonal antibody designed to
Antibody interfere early in the process that leads to
symptoms of allergy such as allergic rhinitis
and asthma.
Nerve Growth Factor A protein that may aid the treatment of peripheral
neuropathy.
IGF-I A protein that is being studied to determine if
it can improve blood glucose control in type I and
II diabetics (type I trials are in phase III).
Oral IIbIIIa antagonist An inhibitor of platelet aggregation that may
be useful in the prevention of unwanted
clotting in certain cardiovascular conditions
(being developed under a collaboration between
the Company and Roche).
Phase I
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Thrombopoietin (TPO) A protein that is being studied for treatment of
thrombocytopenia, a reduction in clot-inducing
platelets, in cancer patients treated with
chemotherapy.
In conjunction with the Agreement with Roche, HLR was granted an option for
ten years for licenses to use and sell certain of Genentech's products in non-
U.S. markets. As a general matter, such option for a Genentech product must
be exercised at, or prior to if Genentech mutually agrees, the conclusion of
phase II clinical trials for each product. In general, for each product for
which HLR exercises its option, the Company and HLR will share equally all
development expenses, including preclinical, clinical, process development and
related expenses, incurred by the Company through that date and prospectively,
with respect to the development of the product in the United States. HLR will
pay all non-U.S. development expenses. In the past Genentech has licensed the
foreign rights to some of its products to major foreign pharmaceutical
companies and actively coordinated development and clinical programs with
these partners. In some cases Genentech has retained manufacturing rights to
the licensed products. The Company has retained United States marketing rights
for its products currently under development.
In March 1995, Genentech entered into a collaboration with IDEC
Pharmaceuticals Corp. (IDEC) to develop IDEC's anti-CD20 monoclonal antibody,
IDEC-C2B8, for the treatment of non-Hodgkin's B-cell lymphomas. A Phase III
clinical trial has begun. Under the terms of the agreement, Genentech and
IDEC have agreed to copromote IDEC-C2B8 in the United States and Canada, with
IDEC receiving a share of the profits. Genentech has commercialization rights
throughout the rest of the world except Japan. Genentech exercised its option
rights regarding Asia (except Japan) during the fourth quarter of 1995. In
conjunction with the Agreement with Roche, Genentech has granted an option to
HLR to use and sell IDEC-C2B8 in all countries, except the United States, in
which Genentech has rights under its agreement with IDEC. HLR exercised that
option. IDEC will receive royalties on sales outside the United States and
Canada. In connection with the collaboration, Genentech provided $9 million
in preferred equity investments and licensing fees, and will provide $17.5
million in additional equity funding prior to U.S. approval ($2.5 million of
which was provided in 1995), and up to $30.5 million in milestone and option
payments. In February 1996, Genentech expanded its collaboration with IDEC to
include IDEC-Y2B8, a complementary radioisotopic version of the drug, for the
treatment of more severe forms of B-cell lymphomas. Genentech's equity
investment in IDEC at December 31, 1995 has a book value, which equals market
value, of $28.8 million.
In February 1996, the Company agreed to invest in Genenvax, Inc., a new
company created to develop gp120, Genentech's potential vaccine for the
prevention of HIV. Genentech will provide an initial equity investment of $1
million and then an additional $1 million along with other private investors.
After the close of private financing, Genentech will have the right to
maintain a 25% equity investment in Genenvax. Genenvax will receive exclusive
rights to gp120.
Genentech has a collaboration with Scios Nova Inc. (Scios Nova) for the
development of Scios Nova's Auriculin for the treatment of acute renal failure
in the United states and Canada. The results of the Phase III trial announced
in May 1995 were equivocal in all primary endpoints with the exception of a
prospectively defined endpoint relating to Oliguric (low urine output)
patients. Scios Nova is pursuing another Phase III trial for acute renal
failure in relation to this sub-population of oliguric patients. Under terms
of the collaboration, the companies have agreed to copromote Auriculin in the
United States and Canada, sharing profits from its commercialization. The
Company received exclusive rights to all markets outside the United States and
Canada subject to a royalty obligation to Scios Nova. In connection with the
collaboration, Genentech purchased Scios Nova non-voting preferred stock for
$20 million, which is convertible into shares of Scios Nova common stock. A
portion of this preferred stock was subsequently sold. Genentech's equity
holding in Scios Nova at December 31, 1995 has a book value, which equals
market value, of $7.6 million. The Company established a line of credit for
$30 million that Scios Nova may draw down at Scios Nova's discretion through
December 31, 1997 directly from the bank with immediate repayment of the funds
due to the bank by the Company. Amounts drawn by Scios Nova under the bank
letter of credit or directly from the Company are repayable in the form of
cash or Scios Nova common stock (at the market price prevailing on the date of
repayment) at Scios Nova's option any time through December 30, 2002.
Interest on amounts borrowed by Scios Nova accrue to the Company at the prime
rate of interest. At December 31, 1995, no amounts were drawn. In addition
the Company agreed to pay $50 million in benchmark payments, conditional on
achieving certain predetermined commercialization goals. Under the Roche
Agreement, HLR has an option with respect to the development and non-U.S.
sales of Auriculin.
Distribution
Genentech has a marketing department and a United States-based pharmaceutical
sales and distribution organization for its human pharmaceuticals.
Genentech's sales efforts are focused on specialist physicians based at major
medical centers in the United States. In general, products are sold to
distributors or directly to hospital pharmacies or medical centers. Genentech
utilizes common pharmaceutical company marketing techniques, including
advertisements, direct mail, and other methods.
Genentech's products are available at no charge to qualified patients under
Genentech's uninsured patient programs in the United States. Genentech has
established the Genentech Endowment for Cystic Fibrosis so qualified cystic
fibrosis patients in the United States who need Pulmozyme can gain assistance
in obtaining it.
During 1995, Genentech provided certain marketing programs relating to
Activase. The Activase Stocking Assistance Program provided extended payment
terms, up to 195 days, to wholesalers on certain orders, subject to certain
restrictions on the timing and quantities of the orders. Additionally, a
comprehensive wastage replacement program exists for Activase which, subject
to specific conditions, provides customers the right to return Activase to
Genentech for replacement related to both patient related product wastage and
product expiry. Genentech maintains the right to renew, modify or discontinue
the above programs.
As discussed in the "Notes to Consolidated Financial Statements" in the
Company's 1995 Annual Report to Stockholders (Part II, Item 8 of the Form
10-K), the Company has certain customers who provided over 10% of total
revenues. Also discussed in the note are revenues from foreign customers in
1995, 1994 and 1993.
Raw Materials
Raw materials and supplies required for the production of Genentech's
principal products are generally available in quantities adequate to meet the
Company's needs.
Proprietary Technology - Patents and Trade Secrets
Genentech has a policy of seeking patents on inventions arising from its
ongoing research and development activities. Patents issued or applied for
cover inventions ranging from basic recombinant DNA techniques to processes
relating to specific products and to the products themselves. The Company has
either been granted patents or has patent applications pending which relate to
a number of current and potential products, including products licensed to
others. Genentech considers that in the aggregate its patent applications,
patents and licenses under patents owned by third parties are of material
importance to its operations. Important legal issues remain to be resolved as
to the extent and scope of available patent protection for biotechnology
products and processes in the United States and other important markets
outside of the United States. Genentech expects that litigation will likely
be necessary to determine the validity and scope of certain of its proprietary
rights. Genentech is currently involved in a number of patent lawsuits, as
either a plaintiff or defendant, and administrative proceedings relating to
the scope of protection of its patents and those of others. These lawsuits
and proceedings may result in a significant commitment of Company resources in
the future. There can be no assurance that the patents Genentech obtains or
the unpatented proprietary technology it holds will afford Genentech
significant commercial protection.
In general, Genentech has obtained licenses from various parties which it
deems to be necessary or desirable for the manufacture, use or sale of its
products. These licenses (both exclusive and non-exclusive) generally require
Genentech to pay royalties to the parties on product sales.
The Company's trademarks, ACTIVASE, PROTROPIN, NUTROPIN, NUTROPIN AQ,
PULMOZYME and ACTIMMUNE in the aggregate are considered to be of material
importance and are registered in the United States Patent and Trademark Office
and in other countries throughout the world.
Royalty income recognized by the Company during 1995, 1994 and 1993 for patent
licenses, know-how and other related rights amounted to $190.8 million, $126.0
million and $112.9 million, respectively. In 1995, 1994 and 1993 the Company
incurred royalty expenses amounting to $54.8 million, $50.5 million and $41.9
million, respectively, under licenses from others.
Competition
Genentech faces competition, and believes significant long-term competition
can be expected, from large pharmaceutical and chemical companies as well as
biotechnology companies. This competition can be expected to become more
intense as commercial applications for biotechnology products increase. Some
competitors, primarily large pharmaceutical companies, have greater clinical,
regulatory and marketing resources and experience than Genentech. Many of
these companies have commercial arrangements with other companies in the
biotechnology industry to supplement their own research capabilities.
The introduction of new products or the development of new processes by
competitors or new information about existing products may result in price
reductions or product replacements, even for products protected by patents.
However, the Company believes its competitive position is enhanced by its
commitment to research leading to the discovery and development of new
products and manufacturing methods. Other factors which should help the
Company meet competition include ancillary services provided to support its
products, customer service, and dissemination of technical information to
prescribers of its products and to the health care community including payers.
Over the longer term, the Company's (and its partners') ability to successfully
market current products, expand their usage and bring new products to the
marketplace will depend on many factors, including the effectiveness and safety
of the products, FDA and foreign regulatory agencies' approvals for new
indications, the degree of patent protection afforded to particular products,
and the effect of the advent of managed care as an important purchaser of
pharmaceutical products. The Company believes it has strong patent protection
or the potential for strong patent protection for a number of its products that
generate sales and royalty revenue or that it is developing; however, the
courts will determine the ultimate strength of patent protection of the
Company's products and those on which the Company earns royalties.
Activase: In 1990, the Company began co-sponsorship of a major comparative
mortality trial in AMI known as GUSTO (Global Utilization of Streptokinase and
Activase for Occluded coronary arteries). The GUSTO trial results, as
reported in the "New England Journal of Medicine" in 1993, demonstrated that
the use of an accelerated administration of Activase with intravenous heparin
is a key to saving more lives following a heart attack than the use of
streptokinase. The GUSTO trial showed that among patients receiving treatment
using an accelerated dose of Activase, combined with the blood thinning agent
heparin, administered intravenously, heart attack patient mortality was
reduced by as much as 14% over other thrombolytic regimens studied in the
trial. The positive results from the GUSTO trial have helped increase
Activase's market share in 1995 to 75% in the United States for the treatment
of AMI. In April 1995, the FDA approved for marketing the accelerated dosage,
allowing revised labeling for Activase incorporating data from the GUSTO
study. Factors which may influence future Activase sales include: the
increase in market demand for thrombolytic therapies; the continued impact of
the GUSTO trial results; physicians' personal experiences in the
administration of thrombolytic therapy; and the increased use of angioplasty
as an alternative to thrombolytic therapy.
Genentech is aware of other companies actively pursuing the development for
the United States market of nonrecombinant or recombinant t-PA or derivatives
of that substance, and additional companies or combinations of companies
pursuing the development of other types of potentially competitive
thrombolytic agents. Genentech is conducting Phase II clinical trials on a
second generation of t-PA which, subject to the ultimate outcome of the
studies, could have a favorable impact on the Company's competitive position.
Although Genentech believes it will have a strong patent position with respect
to t-PA, its patents may not cover products with similar functions which are
not based on t-PA, and competitors have been and may continue to be successful
in developing effective thrombolytic agents which are not covered by
Genentech's patents.
Protropin and Nutropin: Protropin was approved in late 1985 and was
designated an Orphan Drug which provided seven years of market exclusivity for
its use in the treatment of growth hormone inadequacy in children. In 1987, a
product similar to Nutropin, produced by Lilly and marketed under the
trademark Humatrope, was approved for treatment of growth hormone inadequacy
in children and was designated an Orphan Drug. Protropin was protected from
some possible additional competition until March 1994, by virtue of the
designation of Lilly's Humatrope as an Orphan Drug. Three other companies -
Bio-Technology General, Novo Nordisk and Pharmacia & Upjohn - received FDA
approval in 1995 to market their growth hormone products for the treatment of
growth hormone inadequacy in children. Pharmacia & Upjohn initiated product
launch activities in late 1995. On December 29, 1995, Genentech received
clearance from the FDA to market Nutropin AQ, the first and only liquid
(aqueous) recombinant human growth hormone product available. Nutropin AQ is
approved for the same indications as Nutropin.
Based on information currently available, Protropin and Nutropin have
approximately a 66% share of the United States market for treatment of
children with growth hormone inadequacy. It is expected that new and potential
competition in the growth hormone market discussed above will have an adverse
effect on the Company's Protropin and Nutropin sales which, depending on the
extent and type of competition, could be material to the Company's total
growth hormone sales. Other factors that may influence future growth hormone
sales include the availability of third party reimbursement for the costs of
such therapies, and the outcome of litigation involving the Company's patents
for growth hormone and related processes, including actions described above.
Pulmozyme: Sales of Pulmozyme for the management of cystic fibrosis in the
United States, Canada and some countries in Europe began in early 1994. In
accordance with the Agreement with Roche, in the fourth quarter of 1995, HLR
obtained exclusive rights to sell Pulmozyme outside of the United States, and
Genentech receives a royalty on such sales. Factors which may influence
future sales of Pulmozyme for the management of cystic fibrosis include: the
number and kinds of patients benefiting from such therapy; physicians'
personal experiences in the use and administration of the therapy; the
availability of third party reimbursement for the cost of such therapy; the
development of alternative therapies for the treatment and cure of cystic
fibrosis; the development of additional indications for using Pulmozyme; and
the cost of Pulmozyme therapy.
Actimmune: Actimmune received designation as an Orphan Drug by the FDA in
1990 for the treatment of CGD.
Government Regulation
The pharmaceutical industry is subject to stringent regulation with respect to
product safety and efficacy by various federal, state and local authorities.
Of particular significance are the FDA's requirements covering research and
development, testing, manufacturing, quality control, labeling and promotion
of drugs for human use. A pharmaceutical product cannot be marketed in the
United States until it has been approved by the FDA, and then can only be
marketed for the indications and claims approved by the FDA. As a result of
these requirements, the length of time, the level of expenditures and the
laboratory and clinical information required for approval of an NDA (New Drug
Application), a PLA (Product License Application) or an ELA (Establishment
License Application) are substantial and can require a number of years,
although recently revised regulations are designed to reduce somewhat the time
for approval of new products.
Although it is difficult to predict the ultimate effect, if any, these matters
or any other pending or future legislation, regulations or government actions
may have on its business, the Company believes that the development of new and
improved products which address unmet medical needs should enable it to
compete effectively within this environment.
Research and Development
A major portion of the Company's operating expenses to date have been related
to the research and development of products either on its own behalf or under
contracts. During 1995, 1994 and 1993 the Company's research and development
expenses were $363.0 million, $314.3 million and $299.4 million, respectively.
The Company has sponsored approximately 95%, 98% and 99% of its research and
development for the years 1995, 1994 and 1993, respectively.
The Company's research efforts have been the primary source of the Company's
products. The Company intends to maintain its strong commitment to research
as an essential component of its product development effort. In the future,
licensed technology developed by outside parties could become an additional
source of potential products.
Human Resources
As of December 31, 1995 Genentech had 2,842 employees in the United States,
Europe, Canada and Japan.
Environment
Genentech seeks to comply with all applicable statutory and administrative
requirements concerning environmental quality. The Company has made, and will
continue to make, the necessary expenditures for environmental compliance and
protection. Expenditures for compliance with environmental laws have not had
and are not expected to have a material effect on the Company's capital
expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
Genentech's major facilities are located in a research and industrial park in
South San Francisco, California in both leased and owned properties. The
Company currently utilizes approximately 1.6 million square feet of its
facilities for research and development, manufacturing, marketing and
administrative activities. Approximately two-thirds of the square footage is
in owned property, a portion of which is subject to a $0.4 million mortgage,
and the remainder is leased. The Company has made and continues to make
improvements to these properties to accommodate its growth. In addition, the
Company owns approximately 16 acres adjacent to its current facilities that
may be used for future expansion. In 1995, the Company began development of a
new manufacturing facility of approximately 0.4 million square feet in
Vacaville, California under a leasing arrangement. Completion of the project
is expected in three years. The Company also has leases for certain
additional office facilities in several locations in the United States.
Genentech believes its facilities are in good operating condition and that the
real property owned or leased, combined with the new Vacaville site, are
adequate for all present and foreseeable future uses. Genentech believes any
additional facilities could be obtained or constructed with the Company's
capital resources.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings including patent
infringement cases involving human growth hormone products and Activase; a
patent infringement and trade secret misappropriation case involving
antibodies to IgE; product liability cases; and employment related cases.
The Company and its directors are defendants in two suits filed in California
challenging their actions in connection with the Company's 1990 merger with a
wholly owned subsidiary of Roche Holdings, Inc. (Roche). There has been no
activity in these actions since 1990 and no further reference will be made to
them in future filings unless they again become active. In addition, the
Company, its directors, two former directors and Roche are defendants in a
number of suits filed in Delaware, which have been consolidated in a single
action, by certain individual stockholders purporting to represent
stockholders as a class alleging, in general, breach of their fiduciary duties
to the Company in connection with the then proposed extension of Roche's
option to cause the Company to redeem the outstanding non-Roche owned
redeemable common stock and transactions related thereto. The Company, Roche
and the attorneys representing the plaintiff stockholders have entered into a
memorandum of understanding settling all claims against the defendants in
these actions except the 1990 suits. In connection with the settlement, if
approved by the court, Roche would increase the prices at which it could cause
Genentech to redeem the non-Roche owned special common stock by $0.50 per
share per quarter, to a final price of $82.50 in the quarter ending June 30,
1999, and Genentech would pay the plaintiffs' attorneys up to $3.5 million in
attorneys' fees, and in connection with the then proposed merger, Genentech
would absorb the termination costs of up to six Europe-based Genentech
employees.
On June 28, 1995 and August 10, 1995 the U.S. District Court for the Southern
District of New York issued preliminary injunctions against Novo Nordisk A/S
and certain of its affiliates (Novo) and Bio-technology General Corporation
and its affiliate (BTG), respectively, which prohibit each of them, pending
the Court's final determination of the action, from importing, making, using
and selling their human growth hormone products in the United States. Each of
Novo and BTG appealed the Court's decision. On February 26, 1996, the U.S.
Court of Appeals for the Federal Circuit overturned the preliminary injunction
against Novo, but has not yet ruled on BTG's appeal. Future court decisions
will determine whether Novo's and BTG's products will be permanently enjoined
from the U.S. market.
The Company has received and responded to grand jury document subpoenas from
the United States District Court for the Northern District of California for
documents relating to Genentech's clinical, sales, and marketing activities
associated with human growth hormone.
On August 19, 1994 and August 30, 1994 two class action suits were filed in
the U.S. District Court for the District of Minnesota against Genentech, one
of its executives, Caremark International, Inc. (Caremark), certain of its
executives and Dr. David R. Brown alleging, in general, causes of action under
the Racketeer Influenced and Corrupt Organizations Act and various state
statutory and common law theories. In addition, the suits allege that the
defendants made improper payments to Dr. Brown in connection with Dr. Brown's
prescription of Protropin for the plaintiffs rather than a competing product,
and that the plaintiffs were injured by purchasing Protropin at costs
approximately 30% higher than a competing product. A similar suit was filed
in the U.S. District Court for the District of South Dakota, Southern
Division, on July 13, 1995 against Genentech, Caremark and Dr. Brown, alleging
the same causes of action as above as well as intentional infliction of
emotional distress but not state and common law claims. The two Minnesota
actions and the South Dakota action are in the discovery phase.
Based upon the nature of the claims made and the investigations completed to
date by the Company and its counsel, the Company believes the outcome of the
above actions will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company. However, were
an unfavorable ruling to occur in any quarterly period, there exists the
possibility of a material impact on the net income of that period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders on October 25, 1995, one matter was voted
upon. The Company's non-Roche stockholders approved the transaction with
Roche. A tabulation of the votes is as follows:
For: 28,448,215
Against: 449,603
Abstain: 133,568
Broker non-votes: 1,204,212
See also the section "Agreement with Roche Holdings, Inc." under Item 1.
"BUSINESS" for a further discussion of the transaction with Roche.
GENENTECH, INC.
EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages and positions
with the Company are as follows:
Name Age Position
Arthur D. Levinson, Ph.D. 45 President and Chief Executive Officer
John P. McLaughlin 44 Executive Vice President and Secretary
William D. Young 51 Executive Vice President
Louis J. Lavigne, Jr. 47 Senior Vice President and Chief Financial Officer
Barry M. Sherman, M.D. 54 Senior Vice President and Chief Medical Officer
Gregory Baird 45 Vice President - Corporate Communications
R. Jerald Beers 47 Vice President - Marketing
David W. Beier 47 Vice President - Government Affairs
Robert Garnick, Ph.D. 46 Vice President - Quality
Marty Glick 46 Vice President and Treasurer
Bradford S. Goodwin 41 Vice President and Controller
Dennis J. Henner, Ph.D. 44 Vice President - Research Technology
Paul F. Hohenschuh 53 Vice President - Manufacturing
Edmon R. Jennings 48 Vice President - Corporate Development
Stephen G. Juelsgaard 47 Vice President, General Counsel and
Assistant Secretary
Cynthia J. Ladd 40 Vice President - Corporate Law
M. David MacFarlane, Ph.D. 55 Vice President - Regulatory Affairs
Polly Moore, Ph.D. 48 Vice President - Information Resources
James P. Panek 42 Vice President - Engineering and Facilities
Kim Popovits 37 Vice President - Sales
Stephen Raines, Ph.D. 58 Vice President - Intellectual Property and
Assistant Secretary
Nicholas J. Simon 41 Vice President - Business and Corporate
Development
David Stump, M.D. 46 Vice President and Genentech Fellow
All officers are elected annually by the Board of Directors. There is no
family relationship among any of the officers or directors.
Business Experience
Dr. Levinson was appointed President and Chief Executive Officer in July 1995.
He was elected Senior Vice President in December 1992. Dr. Levinson has held
a number of other positions, including Vice President of Research, subsequent
to joining the Company in May 1980 as a Senior Scientist.
Mr. McLaughlin was appointed Executive Vice President in January 1996. He had
served as Senior Vice President and Secretary since July 1994. He was elected
Senior Vice President, General Counsel and Secretary in 1993, and elected Vice
President, General Counsel and Secretary in 1989. He joined the Company as
Vice President of Government Affairs in September 1987 from Royer, Shacknai &
Mehle, a Washington, D.C. law firm, where he was a partner. Mr. McLaughlin
was Counsel to the House Energy and Commerce Subcommittee on Health and the
Environment and earlier served as counsel to the House Subcommittee on
Consumer Protection and Finance.
Mr. Young was appointed Executive Vice President in January 1996. He was
elected Senior Vice President in August 1988. He was Vice President of
Manufacturing and Process Science from April 1983 until 1988. Mr. Young
joined the Company in September 1980 as Director of Manufacturing from Eli
Lilly and Company.
Mr. Lavigne was elected Senior Vice President in July 1994. He was elected
Chief Financial Officer in August 1988 and elected Vice President in July
1986. Mr. Lavigne joined the Company in July 1982, became Controller in May
1983 and an officer of the Company in February 1984.
Dr. Sherman was elected Senior Vice President and Chief Medical Officer in
February 1995 and had served as Vice President of Medical Affairs since
February 1989. He joined the Company in 1985 as Director of Clinical
Research. Prior to joining the Company, he was Professor of Medicine,
Associate Chairman of the Department of Internal Medicine and Director of the
Clinical Research Center at the University of Iowa.
Mr. Baird joined the Company in February 1992 as Vice President of Corporate
Communications. Prior to joining Genentech, Mr. Baird was employed by G.D.
Searle & Co. for five years as Vice President of Corporate Communications.
Mr. Beers was elected Vice President of Marketing in October 1995. He joined
the Company in November 1989 as Director of Marketing and New Product
Planning. In 1994, he was promoted to General Manager, Genentech Canada, Inc.
Prior to joining Genentech, Mr. Beers held various positions in sales,
marketing and business development in the pharmaceuticals industry for about
twenty years, most recently at Dupont Pharmaceuticals, Inc.
Mr. Beier joined the Company in March 1989 as Vice President of Government
Affairs. Prior to joining Genentech, Mr. Beier spent 10 years as counsel to
the Committee on the Judiciary of the United States House of Representatives
where he was responsible for intellectual property and international trade
issues.
Dr. Garnick was elected Vice President of Quality in April 1994. He was
Senior Director of Quality Control from 1990 to 1994 and Director of Quality
Control from 1988 to 1990. Dr. Garnick joined the Company in August 1984 from
Armour Pharmaceutical.
Mr. Glick was elected Vice President in July 1991. He joined the Company in
June 1987 as Director of Tax and was elected Treasurer in July 1990. Before
joining Genentech, Mr. Glick was employed by Levi Strauss & Co. for seven
years, most recently as Director of Tax Planning.
Mr. Goodwin was promoted to Controller in June 1989 and elected Vice President
in July 1993. Previously he was the Director of Financial Planning and
Analysis, the Assistant Controller and the General Auditor. He joined
Genentech in April 1987.
Dr. Henner was elected Vice President of Research Technology in July 1994.
From 1990 to 1994 he was Senior Director of Research Technology. Dr. Henner
joined the Company in 1981 as a Scientist in Research. Prior to joining
Genentech, Dr. Henner was at Scripps Clinic and Research Foundation.
Mr. Hohenschuh was elected Vice President of Manufacturing in September 1989.
He was Vice President of Biochemical Manufacturing from July 1986 until 1989
and Senior Director of Biochemical Manufacturing from June 1985 to June 1986.
Mr. Hohenschuh joined the Company in October 1982 as Director of Biochemical
Manufacturing.
Mr. Jennings transferred to Business and Corporate Development as Vice
President of Corporate Development in December 1995. He was elected to Vice
President of Sales and Marketing in January 1994 and had served as Vice
President of Sales since December 1990. He joined the Company in September
1985 as Western Area Sales Manager. Prior to joining Genentech, Mr. Jennings
was Western Region Sales Manager of Bristol-Myers' Oncology Division. Mr.
Jennings held various sales and management positions during his twelve-year
career with Bristol-Myers.
Mr. Juelsgaard was elected Vice President, General Counsel and Assistant
Secretary in July 1994, and was elected Vice President of Corporate Law in
February 1993. He joined the Company in 1985 as Corporate Counsel and
subsequently held the positions of Senior Corporate Counsel and Chief
Corporate Counsel.
Ms. Ladd was appointed Vice President of Corporate Law in February 1996.
Previously she was Chief Corporate Counsel. She joined the Company in 1989 as
Corporate Counsel.
Dr. MacFarlane joined the Company in August 1989 as Vice President of
Regulatory Affairs. Dr. MacFarlane was employed by Glaxo, Inc. from 1978
until he joined Genentech. At Glaxo, Dr. MacFarlane had served as Vice
President of Regulatory Affairs, Director of Regulatory Affairs, and Director
of Research and Professional Services.
Dr. Moore was elected Vice President of Information Resources in April 1994.
She was Senior Director of Information Resources from July 1992 to 1994 and
Director of Computer Resources from November 1987 to June 1992. Dr. Moore
joined Genentech in August 1982 as a Senior Systems Analyst in Scientific
Computing.
Mr. Panek was elected Vice President of Engineering and Facilities in July
1993. He joined the Company in 1982 and held a number of positions in the
manufacturing division before becoming Director of Engineering and Facilities
in 1988. Prior to joining Genentech, Mr. Panek was employed by Eli Lilly and
Company for six years.
Ms. Popovits was elected Vice President of Sales in October 1994. She was
Director of Field Sales from January 1993 to 1994 and Regional Manager of the
Sales Department from October 1989 to December 1992. Ms. Popovits was at
Dupont Critical Care for six years prior to joining the Company in November
1987 as Division Manager in the Southeast region.
Dr. Raines was elected Vice President of Intellectual Property in March 1989
and Assistant Secretary in April 1989. He joined the Company as Vice
President of Patents in May 1988. Dr. Raines was employed by Warner-Lambert
Company from 1973 to 1988 holding numerous positions in the Legal Division and
ultimately acted as Counsel for the Intellectual Property Department.
Mr. Simon was appointed Vice President of Business and Corporate Development
in December 1995, and was elected Vice President of Business Development in
December 1994. He was Senior Director of Business Development from December
1993 to 1994. Mr. Simon joined Genentech as a Director in Business
Development in December 1989 from Xoma Corporation.
Dr. Stump was named a Genentech Fellow in January 1996, and was elected Vice
President of Clinical Research in 1995. He was Senior Director of Clinical
Research from 1991 to 1995, and joined the Company as Director of Clinical
Research in 1989. Prior to joining Genentech, Dr. Stump was an Associate
Professor of Medicine and Biochemistry at the University of Vermont.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The section labeled "Common Stock, Special Common Stock and Redeemable Common
Stock Information", and footnotes labeled "Merger and New Agreement with Roche
Holdings, Inc." and "Capital Stock" in the Notes to Consolidated Financial
Statements, appearing on pages 66, 56 through 57, and 58 through 60,
respectively, of the Company's 1995 Annual Report to Stockholders are
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The section labeled "11-Year Financial Summary" appearing on pages 64 and 65
of the Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The section labeled "Financial Review" appearing on pages 33 through 39 of the
Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements appearing on pages 41 through 62, the Report of Ernst & Young LLP,
Independent Auditors, appearing on page 63 and the section entitled "Quarterly
Financial Data (unaudited)" appearing on page 63 of the Company's 1995 Annual
Report to Stockholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The sections labeled "Nominees" and "Section 16 Reporting" appearing on
pages 3 through 6 and 16 of the Company's Proxy Statement in connection with
the 1996 Annual Meeting of Stockholders are incorporated herein by reference.
(b) Information concerning the Company's Executive Officers is set forth in
Part I of the Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The sections labeled "Executive Compensation", "Compensation of Directors",
"Compensation of Executive Officers", "Summary of Compensation", "Stock Option
Grants and Exercises", "Employment Agreements", "Loans and Other Compensation"
and "Compensation Committee Interlocks and Insider Participation" appearing on
pages 16 through 24 and 26 of the Company's Proxy Statement in connection with
the 1996 Annual Meeting of Stockholders are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections labeled "Merger with Roche Holdings, Inc.", "Principal
Stockholders of Genentech" and "Security Ownership of Management" appearing on
pages 1 through 3 and 14 through 15 of the Company's Proxy Statement in
connection with the 1996 Annual Meeting of Stockholders are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Relationships and Related Transactions" appearing
on pages 27 through 29 of the Company's Proxy Statement in connection with the
1996 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
The following Financial Statements and supplementary data are included in
the Company's 1995 Annual Report to Stockholders and are incorporated herein
by reference pursuant to Item 8 of this Form 10-K.
Page(s) in
1995 Annual
Report to Stockholders
----------------------
Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1995 41
Consolidated Statements of Cash Flows for each
of the three years in the period ended
December 31, 1995 42
Consolidated Balance Sheets at December 31,
1995 and 1994 43
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended
December 31, 1995 44
Notes to Consolidated Financial Statements 45-62
Report of Ernst & Young LLP, Independent Auditors 63
Quarterly Financial Data (unaudited) 63
2. Financial Statement Schedule
The following schedule is filed as part of this Form 10-K:
Schedule II- Valuation and Qualifying Accounts for each of the three years in
the period ended December 31, 1995.
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation.(2)
3.2 By-laws.(2)
3.3 Amended Certificate of Incorporation.(13)
3.4 Restated By-Laws.(7)
4.1 Indenture, dated March 27, 1987 ("Indenture") for U.S. $150,000,000
5% Convertible Subordinated Debentures due 2002.(3)
4.2 First Supplemental to Indenture, dated August 17, 1990.(7)
4.3 Second Supplemental to Indenture, dated October 18, 1995. (14)
10.1* Agreements dated February 12, 1985 and May 14, 1985 between the
Company and G. Kirk Raab.(1)
10.2 Patent License Agreement with Columbia University dated October 12,
1988.(3)
10.3 Amended and Restated Contract for the Sale and Distribution of
Protropin dated as of March 1, 1991.(8)
10.4* Agreement dated April 15, 1988 between the Company and G. Kirk
Raab.(5)
10.5* Employment Agreement, dated October 25, 1989, between the Company
and G. Kirk Raab.(6)
10.6 Agreement and Plan of Merger, dated as of May 23, 1995, as amended
and restated, among the Company, Roche Holdings, Inc. and HLR
(U.S.) II, Inc. with exhibits.(13)
10.7* Agreements dated June 27, 1989 between the Company and G. Kirk
Raab.(6)
10.8* Amended Employment Agreement, dated July 31, 1990, between the
Company and G. Kirk Raab.(7)
10.9 Amended Governance Agreement, dated September 7, 1990, between the
Company and Roche Holdings, Inc.(13)
10.10 Heads of Agreement, dated as of February 11, 1992, between the
Company and F. Hoffmann-LaRoche Ltd.(8)
10.11 Agreement dated June 6, 1991 between the Company and Grandview
Drive Joint Venture.(8)
10.12* Agreements dated October 17, 1990 between the Company and G. Kirk
Raab.(8)
10.13* Agreement dated March 17, 1992 between the Company and Robert A.
Swanson.(8)
10.14* Letter Agreement, dated July 7, 1995, between the Company
and G. Kirk Raab.(14)
10.15 Agreement between Genentech and F. Hoffman-La Roche Ltd.
regarding commercialization of Genentech's products outside the
United States dated as of October 25, 1995.(13)
10.16 Guaranty Agreement between Genentech and Roche Holding, Ltd. dated
as of October 25, 1995.(13)
10.17* Agreement between the Company and G. Kirk Raab dated April 14,
1995.(14)
10.18 Amended and Restated Lease Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation.(14)
10.19 Amended and Restated Purchase Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation.(14)
13.1 1995 Annual Report to Stockholders.(14)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(14)
27.1 Financial Data Schedule.(14)
28.1 Description of the Company's capital stock.(2)
99.1* 1984 Incentive Stock Option Plan, as amended and restated as of
October 25, 1995.(12)
99.2* Restated 1984 Non-Qualified Stock Option Plan, as amended and
restated as of October 25, 1995.(12)
99.3* Restated Relocation Loan Program.(8)
99.4* Restated 401(k) Plan.(14)
99.5* 1991 Employee Stock Plan, as amended and restated as of October
25, 1995.(9)
99.6* 1990 Stock Option/Stock Incentive Plan, as amended and restated
as of October 25, 1995.(11)
99.7* Supplemental Plan.(8)
99.8* 1994 Stock Option Plan, as amended and restated as of October 25,
1995.(10)
99.9* 1996 Stock Option/Stock Incentive Plan.(14)
* As required by Item 14(a)(3) of Form 10-K, the Company identifies this
Exhibit as a management contract or compensatory plan or arrangement of the
Company.
- --------------------
(1) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1985 and incorporated herein by reference.
(2) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1986 and incorporated herein by reference.
(3) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference.
(4) Filed as an exhibit to Form 8-K dated May 3, 1988 and incorporated
herein by reference.
(5) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1988 and incorporated herein by reference.
(6) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference.
(7) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference.
(8) Filed as an exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.
(9) Filed as an exhibit to Form S-8 dated October 25, 1995 (registration
statement no. 33-59949-01) and incorporated herein by reference.
(10) Filed as an exhibit to Form S-3 dated October 25, 1995 (registration
statement no. 33-59949-02) and incorporated herein by reference.
(11) Filed as an exhibit to Form S-3 dated October 25, 1995 (registration
statement no. 33-59949-03) and incorporated herein by reference.
(12) Filed as an exhibit to Form S-3 dated October 25, 1995 (registration
statement no. 33-59949-04) and incorporated herein by reference.
(13) Filed as an exhibit to Form S-4 dated October 25, 1995 (registration
statement no. 33-59949) and incorporated herein by reference.
(14) Filed with this document.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended December 31,
1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENENTECH, INC.
Registrant
Date: March 29, 1996
By: /S/BRADFORD S. GOODWIN
----------------------------------
Bradford S. Goodwin
Vice President and Controller
(Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Lavigne, Jr., Senior Vice President
and Chief Financial Officer, and Bradford S. Goodwin, Vice President and
Controller, his attorney-in-fact, with the full power of substitution, for him
in any and all capacities, to sign any amendments to this report, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
Chief Executive Officer:
/S/ARTHUR D. LEVINSON President, Chief Executive March 29, 1996
- --------------------------- Officer and Director
Arthur D. Levinson
Principal Financial Officer:
/S/LOUIS J. LAVIGNE, JR. Senior Vice President and March 29, 1996
- --------------------------- Chief Financial Officer
Louis J. Lavigne, Jr.
Director:
/S/HERBERT W. BOYER Director March 29, 1996
- ---------------------------
Herbert W. Boyer
/S/JURGEN DREWS Director March 29, 1996
- ---------------------------
Jurgen Drews
/S/FRANZ B. HUMER Director March 29, 1996
- ---------------------------
Franz B. Humer
/S/LINDA F. LEVINSON Director March 29, 1996
- ---------------------------
Linda F. Levinson
/S/J. RICHARD MUNRO Director March 29, 1996
- ---------------------------
J. Richard Munro
/S/DONALD L. MURFIN Director March 29, 1996
- ---------------------------
Donald L. Murfin
/S/JOHN T. POTTS, JR. Director March 29, 1996
- ---------------------------
John T. Potts, Jr.
/S/C. THOMAS SMITH, JR. Director March 29, 1996
- ---------------------------
C. Thomas Smith, Jr.
/S/ROBERT A. SWANSON Director March 29, 1996
- ---------------------------
Robert A. Swanson
/S/DAVID S. TAPPAN, JR. Director March 29, 1996
- ---------------------------
David S. Tappan, Jr.
SCHEDULE II
GENENTECH, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Deductions(1) Period
---------- ---------- ---------- ----------
Allowance for doubtful accounts
and returns:
Year Ended December 31, 1995: $ 4,422 $ 10,972 $ (8,722) $ 6,672
========== ========== ========== ==========
Year Ended December 31, 1994: $ 3,572 $ 5,583 $ (4,733) $ 4,422
========== ========== ========== ==========
Year Ended December 31, 1993: $ 2,220 $ 4,003 $ (2,651) $ 3,572
========== ========== ========== ==========
Inventory reserves:
Year Ended December 31, 1995: $ 13,008 $ 3,690 $ (9,789) $ 6,909
========== ========== ========== ==========
Year Ended December 31, 1994: $ 2,606 $ 11,940 $ (1,538) $ 13,008
========== ========== ========== ==========
Year Ended December 31, 1993: $ 3,094 $ 1,194 $ (1,682) $ 2,606
========== ========== ========== ==========
Reserve for non-marketable
equity securities:
Year Ended December 31, 1995: $ 4,623 $ 468 $ - $ 5,091
========== ========== ========== ==========
Year Ended December 31, 1994: $ 3,875 $ 748 $ - $ 4,623
========== ========== ========== ==========
Year Ended December 31, 1993: $ 3,275 $ 600 $ - $ 3,875
========== ========== ========== ==========
(1) Represents amounts written off or returned against the allowance or reserves.
INDEX OF EXHIBITS FILED WITH FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
Exhibit No. Description
- ----------- -----------
4.3 Second Supplemental to Indenture, dated October 18, 1995
10.14 Letter Agreement, dated July 7, 1995, between the Company
and G. Kirk Raab
10.17 Agreement between the Company and G. Kirk Raab dated
April 14, 1995
10.18 Amended and Restated Lease Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation
10.19 Amended and Restated Purchase Agreement, dated December 8, 1995,
between the Company and BNP Leasing Corporation
13.1 1995 Annual Report to Stockholders
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
99.4 Restated 401(k) Plan
99.9 1996 Stock Option/Stock Incentive Plan
2
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