Genentech (NYSE: DNA) Industry: Biotechnology
Analysts: Ankur Mathur, Neal Sangani, Katy Zhao Date: 11/5/06
BUSINESS DESCRIPTION STOCK PRICE PERFORMANCE
Genentech, Inc. is considered to have founded the biotechnology industry, and was the first to express a
human gene in bacteria in 1976. In business for life - Genentech has successfully discovered over 14 new $120.00 16,000,000
drugs, and currently has over 40 drugs in the pipeline. Existing drugs provide treatment for patients with
colon, rectum, lung, and breast cancer, along with severe asthma and growth deficiency, just to name a 14,000,000
few.
$100.00
12,000,000
INVESTMENT THESIS $80.00
10,000,000
Genentech is a biotechnology company that has set itself apart from the industry with a leading
management and science team that has proven their ability to develop blockbuster drugs. We believe $60.00 8,000,000
recent concerns over Genentech's relatively high growth prospects and valuation are overblown given the
6,000,000
strength of company's current products. Further, we anticipate that Avastin, Genentech's breakthrough $40.00
cancer treatment, will continue to allow the company to extend its drug pipeline, as evidenced by the 4,000,000
development of Lucentis, a derived treatment for age-related macular degeneration. Given these factors,
we believe its is unreasonable to value Genentech relative to industry peers and have instead
$20.00
2,000,000
comparatively valued the company relative to others in the mega-cap growth universe. We have found that
share weakness following a delayed FDA approval decision on Avastin for metastatic breast cancer has $0.00 0
resulted in an attractive valuation and entry point for this "best of breed" biotech.
11/3/2005 2/3/2006 5/3/2006 8/3/2006 11/3/2006
FINANCIAL SUMMARY
Results of Operations
FY Ended Dec 31,
2003 2004 2005 LTM (1) Balance Sheet Data Public Market Overview
Revenue $3,300,327.0 $4,621,157.0 $6,633,372.0 $7,829,915.0 Total Debt $2,269,651.1 Share Price (11/5/06) $81.07
Growth 27.7% 40.0% 43.5% 18.0% Cash & Equivalents $2,193,000.0 52 Week High $100.20
EBIT 1,303,389.0 1,136,819.0 1,921,851.0 3,969,954.0 Net Debt $76,651.1 52 Week Low $75.58
EBIT Margin 39.5% 24.6% 29.0% 50.7% Diluted Shares Outstanding 1,052,956.000
After-tax Earnings 610,182.0 784,816.0 1,278,991.0 1,650,651.0 Credit Statistics LTM Market Value of Equity $85,363,142.92
Net Margin 18.5% 17.0% 19.3% 21.1% Total Debt/EBITDA 0.5x Plus: Net Debt 76,651.1
EBITDA/Interest 54.3x Enterprise Value $85,439,794.03
D&A 295,449.0 353,221.0 370,166.0 387,712.0
CapEx (321,955.0) (649,858.0) (1,399,824.0) (1,208,014.0) Valuation Multiples Industry 2003 2004 2005 LTM (1)
Interest Expense 2,900.0 7,400.0 49,929.0 80,229.0 EV/Revenue 9.5x 25.9x 18.5x 12.9x 10.9x
EV/EBITDA 24.1x 53.4x 57.3x 37.3x 19.6x
EPS Current Sh. $0.58 $0.75 $1.21 $1.57 EV/EBIT 30.0x 65.6x 75.2x 44.5x 21.5x
P/E N/A 85.1x 85.1x 86.5x 47.1x
(1) Figures as of 11/05/2006