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In a recent BusinessWeek
article profiling the significant rise in valuation of Genentech
(NYSE: DNA), the authors point out that it is true product innovation through focused R&D efforts that's currently paying off in terms of investor confidence and resulting market valuation.
While Genentech had revenues of $4.6 billion in 2004, its market value last week hit $74.2 billion.
This surpasses Amgen's top position of $72.2 billion, is pretty close to Merck's $75 billion and is just shy of Abbott Lab's $76.6 billion. This isn't bad considering all these companies have at least five times the amount of sales (Amgen's sales are more than double that of Genentech).
So what's all the excitement about? It's about new blockbuster products that keep growing with more in the pipeline!
Genentech, the company that originally brought you recombinant insulin, the growth hormone and the tissue plasminogen activator
(TPA), is quickly becoming the leading company in oncology. Its drug Herceptin, which targets certain types of breast cancer patients and is guided by a diagnostic test Genentech has also developed, is a market leader.
Avastin, a cancer drug that was originally approved for colorectal cancer, has just been shown to demonstrate significant efficacy in lung cancer and breast cancer. According to BusinessWeek
, Avastin could soon become the largest-selling cancer drug. This is a claim previously held by Bristol-Myers Squibb's Taxol before its patent expired.
Avastin could reach $2 billion in sales this year. Genentech's stock has split four times since 1987 (1987, 1999, 2000 and 2004). Hoffman La Roche owns about 30 percent of Genentech's total shares and has done well with its investment (Roche itself is worth $104 billion plus the $20 billion it owns in Genentech).
Genentech's pipeline is chock full of other new indications for its two lead cancer drugs as well as other cancer drugs called Tarceva and Rituxan. Additional cancer drugs (such as Omnitarq in Phase II as well as another drug in Phase I) provide the company with one of the best cancer product portfolios.
The message here is that focused and productive R&D churning out innovative new drugs is currently winning the day over M&A, marketing and even savvy intellectual property strategies to manage product life cycle management. See you next week!
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