1/17/22, 7:59 PM
`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`10-K 1 dna-10k_2003.htm GENENTECH, INC. - FORM 10-K FOR PERIOD ENDING DECEMBER 31, 2003
`
`
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`FORM 10-K
`
`(Mark One)
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`[x]
`SECURITIES EXCHANGE ACT OF 1934
`For the fiscal year ended December 31, 2003
`OR
`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.
`
`(Exact name of registrant as specified in its charter)
`
`A Delaware Corporation
`(State or other jurisdiction
`of incorporation or organization)
`
`
`
`1 DNA Way, South San Francisco, California 94080-4990
`(Address of principal executive offices and zip code)
`
`94-2347624
`(I R S Employer
`Identification Number)
`
`(650) 225-1000
`(Telephone Number)
`
`Securities registered pursuant to Section 12(b) of the Act:
`Name of Each Exchange on Which Registered
`Title of Each Class
`Common Stock, $0.02 par value
`New York Stock Exchange
`
`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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of Act). 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 non-affiliates of the registrant is $15,232,305,454 as of June 30, 2003.(A)
`
`Number of shares of Common Stock outstanding as of February 17, 2004: 527,028,756
`
`Documents incorporated by reference:
`
`Definitive Proxy Statement with respect to the 2004 Annual Meeting of Stockholders to be filed by
`Genentech, Inc. with the Securities and Exchange Commission (hereinafter referred to as "Proxy
`Statement")
`
`Part III
`
`___________
`
`(A)
`
`Excludes 306,641,166 shares of Common Stock held by directors and executive officers of Genentech and Roche Holdings, Inc
`
`
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
`
`1/78
`
`Novartis Exhibit 2265.001
`Regeneron v. Novartis, IPR2021-00816
`
`

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`1/17/22, 7:59 PM
`
`
`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`
`
`
`
`
`GENENTECH, INC.
`
`2003 Form 10-K Annual Report
`
`Table of Contents
`
`PART I
`
`Business
`Item 1
`Properties
`Item 2
`Legal Proceedings
`Item 3
`Submission of Matters to a Vote of Security Holders
`Item 4
`Executive Officers of the Company
`
`
`PART II
`Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters
`Item 6
`Selected Financial Data
`Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
`Item 7A Quantitative and Qualitative Disclosures About Market Risk
`Item 8
`Financial Statements and Supplementary Data
`Item 9
`Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
`Item 9A Controls and Procedures
`
`
`PART III
`Item 10 Directors and Executive Officers of the Company
`Item 11 Executive Compensation
`Item 12 Security Ownership of Certain Beneficial Owners and Management
`Item 13 Certain Relationships and Related Transactions
`Item 14 Principal Accounting Fees and Services
`
`
`PART IV
`Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
`SIGNATURES
`
`Page
`
`1
`12
`12
`14
`15
`
`17
`18
`20
`57
`88
`88
`
`89
`89
`89
`89
`89
`
`90
`92
`
`
`
`In this report, "Genentech," "we," "us" and "our" refer to Genentech, Inc. "Common Stock" refers to Genentech's common stock, par value $0.02 per share,
`"Special Common Stock" refers to Genentech's callable putable common stock, par value $0.02 per share, all of which was redeemed by Roche Holdings, Inc. on
`June 30, 1999.
`
`We own or have rights to various copyrights, trademarks and trade names used in our business including the following: Activase® (alteplase, recombinant) tissue-
`plasminogen activator; Avastin™ (bevacizumab) anti-VEGF antibody; Cathflo® Activase® (alteplase for catheter clearance); Herceptin® (trastuzumab) anti-
`HER2 antibody; Lucentis™ (ranibizumab, rhuFab V2) anti-VEGF antibody fragment; Nutropin® (somatropin (rDNA origin) for injection) growth hormone;
`Nutropin AQ® and Nutropin AQ Pen® (somatropin (rDNA origin) for injection) liquid formulation growth hormone; Nutropin Depot® (somatropin (rDNA origin)
`for injectable suspension) encapsulated sustained-release growth hormone; Omnitarg™ (pertuzumab) HER dimerization inhibitor; Protropin® (somatrem for
`injection) growth hormone; Pulmozyme® (dornase alfa, recombinant) inhalation solution; Raptiva™ (efalizumab, formerly Xanelim™) anti-CD11a antibody; and
`TNKase™ (tenecteplase) single-bolus thrombolytic agent. Rituxan® (rituximab) anti-CD20 antibody is a registered trademark of Biogen Idec Inc.; Tarceva™
`(erlotinib) is a trademark of OSI Pharmaceuticals, Inc.; and Xolair® (omalizumab) anti-IgE antibody is a trademark of Novartis AG. This report also includes other
`trademarks, service marks and trade names of other companies.
`
`i
`
`PART I
`
`
`
`
`
`Item 1.
`
`BUSINESS
`
`Overview
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
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`2/78
`
`Novartis Exhibit 2265.002
`Regeneron v. Novartis, IPR2021-00816
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`

`

`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`1/17/22, 7:59 PM
`Genentech is a leading biotechnology company that discovers, develops, manufactures, and commercializes biotherapeutics for significant unmet medical needs.
`Seventeen of the currently approved biotechnology products originated from or are based on Genentech science. We manufacture and commercialize in the United
`States 13 biotechnology products and license several additional products to other companies. See "Marketed Products" and "Licensed Products" below. Genentech
`was organized in 1976 as a California corporation and was reincorporated in Delaware in 1987.
`
`Redemption of Our Special Common Stock and Public Offerings
`
`On June 30, 1999, we redeemed all of our outstanding Special Common Stock held by stockholders other than Roche Holdings, Inc. (or Roche) at a price of $20.63
`per share in cash with funds deposited by Roche for that purpose. We refer to this event as the "Redemption." As a result, on that date, Roche's percentage
`ownership of our outstanding Common Stock increased from 65% to 100%. Consequently, under accounting principles generally accepted in the United States (or
`GAAP), we were required to use push-down accounting to reflect in our financial statements the amounts paid for our stock in excess of our net book value. Push-
`down accounting required us to record $1,685.7 million of goodwill and $1,499.0 million of other intangible assets onto our balance sheet on June 30, 1999. For
`more information about push-down accounting, you should read "Redemption of Our Special Common Stock" note in the Notes to Consolidated Financial
`Statements of Part II, Item 8 of this Form 10-K.
`
`Roche subsequently completed public offerings of our Common Stock in 1999 and 2000. At December 31, 2003, Roche's percentage ownership of our outstanding
`common stock was 58.4%. As a result of the Redemption and subsequent public offerings, we amended our certificate of incorporation and bylaws, amended our
`licensing and marketing agreements with F. Hoffmann-La Roche Ltd (or Hoffmann-La Roche), an affiliate of Roche, and entered into or amended certain
`agreements with Roche, which are discussed in "Relationship With Roche" of Part II, Item 7 of this Form 10-K.
`
`Marketed Products
`
`We manufacture and commercialize in the United States 13 biotechnology products listed below.
`
`Rituxan (rituximab) anti-CD20 antibody is for the treatment of patients with relapsed or refractory, low-grade or follicular, CD20-positive, B-cell non-Hodgkin's
`lymphoma, a cancer of the immune system, including retreatment, times 8 dosing and bulky disease. We co-developed Rituxan with Biogen Idec Inc. (or Biogen
`Idec), formerly known as IDEC Pharmaceuticals Corporation, from whom we license Rituxan.
`
`Herceptin (trastuzumab) anti-HER2 antibody is the first humanized antibody for the treatment of certain patients with metastatic breast cancer whose tumors
`overexpress the Human Epidermal growth factor Receptor type 2 (or HER2) protein. Herceptin is approved for use as a first-line therapy in combination with
`Taxol® (paclitaxel), a product made by Bristol-Myers Squibb Company (or Bristol-Myers), and other drugs, and as a single agent in second- and third-line therapy
`in patients with metastatic breast cancer who have tumors that overexpress the HER2 protein.
`
`Nutropin Depot [somatropin (rDNA origin) for injectable suspension] is a long-acting growth hormone for the treatment of growth failure associated with pediatric
`growth hormone deficiency. It uses ProLease®, an injectable extended-release drug delivery system, which was developed by our collaborator Alkermes, Inc.
`
`Nutropin [somatropin (rDNA origin) for injection] is a growth hormone for the treatment of growth hormone deficiency in children and adults, growth failure
`associated with chronic renal insufficiency prior to kidney
`
`
`
`Page 1
`
`
`
`transplantation and short stature associated with Turner syndrome. Nutropin is similar to Protropin (see below); however, it does not have the additional N-terminal
`amino acid, methionine, found in the Protropin chemical structure.
`
`Protropin (somatrem for injection) is a growth hormone approved for the treatment of growth hormone inadequacy in children. Manufacture of Protropin was
`discontinued at the end of 2002 because physicians are typically initiating therapy with one of the Nutropin family products and the demand for Protropin has
`declined, but sales are expected to continue through the first half of 2004 or until inventory is depleted.
`
`Nutropin AQ [somatropin (rDNA origin) for injection] is a liquid formulation growth hormone for the same indications as Nutropin and is aimed at providing
`improved convenience in administration.
`
`TNKase (tenecteplase) is a single-bolus thrombolytic agent for the treatment of acute myocardial infarction (heart attack).
`
`Activase (alteplase, recombinant) is a tissue plasminogen activator (or t-PA) approved for the treatment of acute myocardial infarction (heart attack), acute ischemic
`stroke (blood clots in the brain) within three hours of the onset of symptoms and acute massive pulmonary embolism (blood clots in the lungs).
`
`Cathflo Activase (alteplase, recombinant) is a thrombolytic agent for the restoration of function to central venous access devices that have become occluded due to
`a blood clot.
`
`Pulmozyme (dornase alfa, recombinant) is an inhalation solution for the treatment of cystic fibrosis.
`
`Xolair (omalizumab) is an anti-IgE antibody, which we commercialize with Novartis, for the treatment of moderate-to-severe persistent asthma in adults and
`adolescents. In June 2003, we received U.S. Food and Drug Administration (or FDA) approval to market Xolair. We began shipping Xolair in July 2003.
`
`Raptiva (efalizumab) is an anti-CD11a antibody co-developed with XOMA Ltd. It was approved by the FDA in October 2003 for the treatment of chronic
`moderate-to-severe plaque psoriasis in adults age 18 or older who are candidates for systemic therapy or phototherapy. We began shipping Raptiva in November
`2003.
`
`Avastin (bevacizumab) is an antibody approved by the FDA on February 26, 2004 for use in combination with intravenous 5-fluorouracil-based chemotherapy as a
`treatment for patients with first-line (or previously untreated) metastatic cancer of the colon or rectum. We began shipping Avastin on February 26, 2004.
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
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`3/78
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`Novartis Exhibit 2265.003
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`1/17/22, 7:59 PM
`Sales of Rituxan and Herceptin accounted for more than 10 percent of our total consolidated revenues in the last three fiscal years. Sales of our growth hormone
`products accounted for more than 10 percent of our total consolidated revenues in 2002 and 2001. See "Product Sales" under Results of Operations in Part II, Item
`7 of this Form 10-K for a discussion of the revenues contributed by each of our products in the last three years.
`
`Licensed Products
`
`We receive royalty revenue under license agreements with companies that sell and/or manufacture products based on technology developed by us or on intellectual
`property to which we have rights. These licensed products are sometimes sold under different trademarks or trade names. Significant licensed products,
`representing approximately 94% of our royalty revenues in 2003, are as follows:
`
`Product
`
` Trade Name
`
` Licensee
`
` Licensed Territory
`
`D2E7/adalimumab
`Factor VIII
`Recombinant tissue
` plasminogen activator
`
` Humira
` Kogenate/Helixate
` Actilyse
`
` Abbott
` Bayer Corporation
` Boehringer Ingelheim
`
` Worldwide
` Worldwide
` Marketing rights in a
` number of countries
` outside of U.S., Canada
` and Japan; manufacturing
` rights
`
`
`
`Page 2
`
`
`
`Tenecteplase
`
`Infliximab
`
` Metalyse
`
` Remicade
`
`Interferon gamma-1b
`
` Actimmune
`
`Human growth hormone(1) Humatrope
` Engerix-B
`Hepatitis B vaccine
` Rituxan/MabThera
`Rituximab
`
` Herceptin
`Trastuzumab
`Dornase alfa, recombinant Pulmozyme
` Activase and TNKase
`Alteplase and
` Tenacteplase
`Somatropin and Somatrem Nutropin and Protropin
` ENBREL
`Etanercept
` Synagis
`Palivizumab
` Posilac
`Bovine growth hormone
` Genotropin and
`Somatropin(1)
` Genotropin MiniQuick
`
`
` Boehringer Ingelheim
`
` Celltech Pharmaceuticals
` plc (which transferred
` rights to Centocor /
` Johnson & Johnson
` Connetics Corporation
` (which transferred rights
` to InterMune
` Pharmaceuticals, Inc.)
` Eli Lilly and Company
` GlaxoSmithKline plc
` Hoffmann-La Roche
`
` Hoffmann-La Roche
` Hoffmann-La Roche
` Hoffmann-La Roche
`
` Hoffmann-La Roche
` Immunex Corporation
` MedImmune, Inc.
` Monsanto Company
` Pharmacia Corporation
`
` Europe, Switzerland and
` Australia
` Worldwide
`
` U.S., Canada and Japan
`
` Worldwide
` Worldwide
` Worldwide excluding U. S.
` and Japan
` Worldwide excluding U. S.
` Worldwide excluding U. S.
` Canada
`
` Canada
` Worldwide
` Worldwide
` Worldwide
` Worldwide
`
`___________
`
`(1)
`
`Licensing arrangement expired in 2003
`
`Products in Development
`
`Our product development efforts, including those of our collaborative partners, cover a wide range of medical conditions, including cancer, respiratory disorders,
`cardiovascular diseases, endocrine disorders, and inflammatory and immune problems. Below is a summary of products, the related stages of development, and the
`estimate of completion of the phase.
`
`Product
`
`Awaiting Regulatory Approval
`Nutropin and Nutropin AQ
`
`
`
`
`
`
`Description
`
`
`
`
`
`Estimate of
`Completion of
`Phase*
`
`
`
`
`2004
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
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`4/78
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`Novartis Exhibit 2265.004
`Regeneron v. Novartis, IPR2021-00816
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`

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`1/17/22, 7:59 PM
`
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`
`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`Nutropin is an approved product indicated for the long-term
`treatment of growth failure in pediatric patients due to
`inadequate endogenous growth hormone (GH) secretion, for
`growth failure in pediatric patients associated with chronic renal
`insufficiency (CRI) up to the time of renal transplantation, for
`the long-term treatment of short stature associated with Turner's
`syndrome in pediatric patients, and for the replacement of
`endogenous GH in eligible patients diagnosed with adult
`growth hormone deficiency (AGHD). We filed a New Drug
`Application (or NDA) for the additional indication of long-term
`treatment of idiopathic short stature in December 2003.
`
`Page 3
`
`
`
`
`
`
`
` Nutropin Depot is a long-acting formulation of growth hormone
`that is approved for the treatment of growth failure associated
`with pediatric growth hormone deficiency. We are preparing to
`submit a Supplemental NDA (or sNDA) for the treatment of
`adults with growth hormone deficiency. This product is being
`developed in collaboration with Alkermes.
`
`
`
`
`2004
`
`An antibody approved for the treatment of relapsed or
`refractory low-grade or follicular, CD20-positive B-cell non-
`Hodgkin's
`lymphoma, a cancer of
`the
`immune system,
`including retreatment, times 8 dosing and bulky disease. We are
`preparing to submit a Supplemental BLA (or sBLA) for the
`treatment of indolent front-line non-Hodgkin's lymphoma. This
`product is being developed in collaboration with Hoffmann-La
`Roche and Biogen Idec.
`
`2004
`
`
`
` We are in Phase III clinical trials for the treatment of indolent
`and aggressive non-Hodgkin's lymphoma, indolent maintenance
`in non-Hodgkin's lymphoma and relapsed chronic lymphocytic
`leukemia. We are also in Phase III clinical trials for anti-TNF
`refractory rheumatoid arthritis. This product is being developed
`in collaboration with Hoffmann-La Roche and Biogen Idec.
`
`
` 2005-2008
`
` An antibody approved for the treatment of HER2-positive
`overexpressing metastatic breast cancer. We are conducting
`Phase III trials for adjuvant treatment of early-stage breast
`cancer in patients who overexpress the HER2 protein. This
`product is being developed in collaboration with Hoffmann-La
`Roche.
`
`
`
`2007
`
` 2004-2005
`
` A small molecule tyrosine kinase inhibitor directed against
`epidermal growth factor receptor (or EGFR) for the potential
`treatment of solid tumors. We have initiated four Phase III
`clinical trials and numerous additional trials as part of the
`clinical development program. Two first-line Phase III studies
`of Tarceva plus standard chemotherapy in metastatic non-small
`cell lung cancer did not meet their primary endpoints of
`improving overall survival. Phase III trials are evaluating
`Tarceva for refractory non-small cell lung cancer and pancreatic
`cancer. This product is being developed in collaboration with
`OSI Pharmaceuticals and Hoffmann-La Roche.
`
` An antibody approved for use in combination with intravenous
`5-fluorouracil-based chemotherapy as a treatment for patients
`with first-line (or previously untreated) metastatic cancer of the
`colon or rectum. Phase III programs in renal cell carcinoma,
`
` 2005-2007
`
`Preparing for Filing
`Nutropin Depot
`
`Rituxan
`
`Phase III
`Rituxan
`
`Herceptin
`
`Tarceva
`
`Avastin
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
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`5/78
`
`Novartis Exhibit 2265.005
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`1/17/22, 7:59 PM
`
`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`non-small cell lung cancer, and breast cancer are being
`conducted. This product is being developed in collaboration
`with Hoffmann-La Roche.
`
`
`
`Page 4
`
`
`
`Lucentis AMD (formerly rhuFab
` V2 AMD)
`
`Preparing for Phase III
`Rituxan
`
`Xolair
`
`Avastin
`
`Phase II
`Omnitarg (formerly 2C4 antibody)
`
`Raptiva
`
`Tarceva
`
`Rituxan
`
`Preparing for Phase II
`Xolair
`
`Rituxan
`
`
` A customized fragment of an anti-VEGF antibody for the
`potential treatment of age-related macular degeneration (or
`AMD). We are in Phase III clinical trials for AMD. This
`product is being developed in collaboration with Novartis.
`
`
`
`
`
` We are currently planning for Phase III clinical trials in
`systemic lupus eruthematosus, lupus nephritis and ANCA-
`associated vasculitis. This product is being developed in
`collaboration with Biogen Idec.
`
`
`
`
`2005
`
`2004
`
` An antibody approved by the FDA for the treatment of
`moderate-to-severe persistent asthma in adults and adolescents.
`We are currently planning for Phase III clinical trials in
`pediatric asthma. This product
`is being developed
`in
`collaboration with Novartis and Tanox.
`
` 2004-2005
`
` We are currently planning for Phase III clinical trials in
`adjuvant colorectal cancer and pancreatic cancer. This product
`is being developed in collaboration with Hoffmann La Roche.
`
`
`
`2004
`
`
`
` An antibody directed against the human epidermal growth
`factor receptor, type 2 (or HER2) as a potential treatment for
`cancer. We are in Phase II clinical trials for ovarian cancer,
`prostate cancer, HER2 negative breast cancer, and non-small
`cell
`lung cancer. This product
`is being developed
`in
`collaboration with Hoffmann-La Roche.
`
`
` 2004-2006
`
` An anti-CD11a antibody approved for the treatment of chronic
`moderate-to-severe plaque psoriasis in adults age 18 or older
`who are candidates for systemic therapy or phototherapy.
`XOMA is conducting a Phase II study in psoriatic arthritis. This
`product is being developed in collaboration with XOMA.
`
`
`
`2004
`
` We are in Phase II clinical trials for glioblastoma multiforme
`(brain cancer). This product is being developed in collaboration
`with OSI Pharmaceuticals and Hoffmann-La Roche.
`
` 2004-2005
`
` We are in a Phase IIb clinical trial for the treatment of
`moderate-to-severe rheumatoid arthritis. This product is being
`developed in collaboration with Biogen Idec and Hoffmann La
`Roche.
`
` 2004-2005
`
`
`
` We are currently planning for Phase II clinical trials in peanut
`allergy. This product is being developed in collaboration with
`Novartis and Tanox.
`
`
`
`
` We are currently planning for a Phase II clinical trial in multiple
`sclerosis. This product is being developed in collaboration with
`Biogen Idec.
`
`
`
`2004
`
`2004
`
`
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
`
`6/78
`
`Novartis Exhibit 2265.006
`Regeneron v. Novartis, IPR2021-00816
`
`

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`1/17/22, 7:59 PM
`
`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`
`
`Page 5
`
`
`
`
`
`Preparing for Phase I
`PRO70769
`
`PRO1762 (formerly
` Apo2L/TRAIL)
`
`
`
` A humanized anti-CD20 antibody that binds CD20 antigen that
`is predominantly expressed on B-lymphocytes. We filed an
`Investigational New Drug Application (or IND) in 2003 and
`expect to begin enrolling patients to a clinical trial for
`rheumatoid arthritis. This product is being developed in
`collaboration with Hoffmann-La Roche and Biogen Idec.
`
`
`
`
`2004
`
` A recombinant soluble human protein involved in the regulation
`of apoptosis. We are preparing to file an IND in 2004. This
`product is being developed in collaboration with Immunex, a
`wholly-owned subsidiary of Amgen Inc., with whom we have
`an agreement for both development and commercialization of
`this potential product.
`
`
`
`2004
`
`VEGF
`
` Vascular endothelial growth factor is being evaluated in diabetic
`wound healing.
`
` 2004-2005
`
`___________
`
`* Note: For those projects preparing for a Phase, the estimated date of completion refers to the date the project enters that Phase for which it was preparing
`Collaboration Arrangements
`
`In December 2003, we entered into a non-exclusive long-term manufacturing agreement with Lonza Biologics, a subsidiary of Lonza Group Ltd, under which
`Lonza will manufacture commercial quantities of Rituxan for us at Lonza's production facility in Portsmouth, New Hampshire. We may be obligated to make
`milestone payments to Lonza subject to Lonza's achievement of a series of factory preparation and process validation milestones, as well as receipt of FDA
`approval for the manufacturing of Rituxan bulk drug at the Lonza facility; the amounts of such payments cannot be estimated at this time. Following FDA approval
`at the Lonza facility, it is expected that commercial production would begin in 2005.
`
`In June 2003, Hoffmann-La Roche exercised its option to license from us the rights to market Avastin for all countries outside of the U.S. under Hoffmann-La
`Roche's licensing agreement with us, which is discussed further in Part II, Item 7, "Relationship With Roche." As part of its opt-in, Hoffmann-La Roche paid us
`approximately $188.0 million and will pay 75% of subsequent global development costs related to the metastatic colorectal cancer indication of Avastin and all
`others unless Hoffmann-La Roche specifically opts out of the development of certain other indications. In September 2003, Hoffmann-La Roche exercised its
`option to license from us the rights to market PRO70769, a humanized antibody that binds to CD20, for all countries outside of the U.S. (other than territory
`previously licensed to others) under the existing licensing agreement. As part of its opt-in, Hoffmann-La Roche paid us $8.4 million and will pay 50% of
`subsequent global development costs related to PRO70769 unless Roche opts out of the development of certain indications. We will receive royalties on net sales of
`Avastin and PRO70769 in countries outside of the U.S.
`
`In June 2003, we entered into an agreement with Novartis Opthalmics, an affiliate of Novartis AG, under which Novartis Opthalmics licensed the exclusive right to
`develop and market Lucentis outside of North America for indications related to diseases of the eye. As part of this agreement, Novartis Opthalmics agreed to an
`upfront milestone and R&D reimbursement fee of $46.6 million and will pay 50% of Genentech's ongoing Phase III and related development expenses. Genentech
`is not responsible for any portion of the development and commercialization costs incurred by Novartis outside of North America, but we may receive additional
`payments for Novartis' achievement of certain clinical development and product approval milestones outside of North America. In addition, we will receive
`royalties on net sales of Lucentis products, which we will manufacture and supply to Novartis, outside of North America.
`
`In August 2002, we entered into an agreement with Serono S.A. which, in addition to granting Serono marketing rights in specific areas of the world, included an
`arrangement to co-develop additional indications of Raptiva and share certain global development costs. We also have a supply agreement with Serono, under
`which we may have a loss exposure up to a maximum of $10.0 million.
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`In the second quarter of 2002, we entered into a manufacturing agreement with Immunex Corporation, a wholly-owned subsidiary of Amgen, to provide Immunex
`with additional manufacturing capacity for ENBREL® (etanercept) at Genentech's manufacturing facility in South San Francisco, California. As part of the
`agreement, we are responsible for facility modifications needed to manufacture ENBREL, including the internal labor costs and costs of certain raw materials for
`development runs. The facility modification and services costs, which include engineering and equipment costs, are reimbursable by Immunex. However, if certain
`milestones are not met, we are required to reimburse Immunex for up to 45% of the facility modification and services costs. Costs associated with development
`runs are reflected in R&D expense as incurred. Shipment of the product, including pre-approval product, to Immunex would be recorded as product sales based on
`
`https://www.sec.gov/Archives/edgar/data/318771/000031877104000002/dna-10k_2003.htm
`
`7/78
`
`Novartis Exhibit 2265.007
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Genentech, Inc. - Form 10-K for the period ending 12/31/2003
`1/17/22, 7:59 PM
`an agreed upon price with the associated costs reflected in cost of sales. In the fourth quarter of 2003, we determined that certain milestones, including obtaining
`FDA approval for the manufacturing process, would likely not be met in the pre-agreed upon timeframe. As a result, certain equipment paid for by us related to
`ENBREL manufacturing will not qualify for reimbursement by Immunex. Certain ENBREL-related equipment in our consolidated balance sheet will be
`depreciated over the estimated useful life of the equipment and certain of it will be depreciated over the term of the supply arrangement.
`
`In April 1996, we entered into a research collaboration agreement with XOMA to develop and commercialize Raptiva. The agreement was subsequently modified
`in the first quarter of 2003 to provide a convertible equity loan to XOMA of up to $80.0 million (outstanding at any one time) for its share of development costs for
`Raptiva through FDA approval, and a cash loan of up to $15.0 million for its share of U.S. marketing and sales costs prior to the date of regulatory approval of
`Raptiva. On October 27, 2003, the FDA approved Raptiva for the treatment of chronic moderate-to-severe plaque psoriasis. Under the provisions of the agreement,
`XOMA elected to defer payment of $40.0 million of the development loan, of which we had previously recognized $11.9 million as an other-than-temporary
`impairment charge, as an offset against the proceeds from its share of U.S. operating profits on Raptiva. XOMA repaid the remaining development loan balance of
`approximately $29.6 million, of which we had previously recognized $8.8 million as an other-than-temporary impairment charge, with Series B preference shares.
`The Series B preference shares are convertible at our option into XOMA common shares at $7.75 per share. As of December 31, 2003, the commercial loan
`balance was $13.5 million, which will be repaid in cash through April 2004.
`
`Distribution
`
`We have a U.S.-based pharmaceutical marketing, sales and distribution organization. Our sales efforts are focused on specialist physicians in private practice or at
`hospitals and major medical centers in the United States. In general, our products are sold largely to wholesalers, specialty distributors or directly to hospital
`pharmacies. We utilize common pharmaceutical company marketing techniques, including sales representatives calling on individual physicians and distributors,
`advertisements, professional symposia, direct mail, public relations and other methods.
`
`Our products are also available at no charge to qualified patients under our uninsured patient programs in the United States. We have established the Genentech
`Endowment for Cystic Fibrosis to assist cystic fibrosis patients in the United States with obtaining Pulmozyme and the Genentech Access To Care Foundation for
`all other Genentech products.
`
`We provide certain customer service programs relating to our products. We maintain a comprehensive patient-related product wastage replacement program for
`Rituxan, Activase and TNKase that, subject to specific conditions, provides customers the right to return these products to us for replacement. We also maintain
`expired product programs for all our products that, subject to certain specific conditions, provides customers the right to return products to us for replacement or
`credit for the price paid related to product expiration. We maintain the right to renew, modify or discontinue the above programs.
`
`As discussed in the "Segment, Significant Customer And Geographic Information" note in the Notes to Consolidated Financial Statements of Part II, Item 8 of this
`Form 10-K, we had three major customers who individually provided over 10% of our total operating revenues in each of the last three years. Also discussed in the
`note are material net foreign revenues by country in 2003, 2002 and 2001.
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`Raw Materials
`
`Raw materials and supplies required for the production of our principal products are available, in some instances from one supplier and in other instances, from
`multiple suppliers. In those cases where raw materials are only available through one supplier, such supplier may be either a sole source (the only recognized
`supply source available to us) or a single source (the only approved supply source for us among other sources). We have adopted policies to minimize raw material
`supply risks to the Company, including maintenance of greater levels of raw materials inventory and coordination with our collaborators to implement raw
`materials sourcing strategies.
`
`Proprietary Technology - Patents and Trade Secrets
`
`We seek patents on inventions originating from our ongoing research and development (or R&D) 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. Our issued patents extend for varying periods
`according to the date of patent application filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual
`protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal
`remedies in the country