Genentech's Healthy Showing

Genentech (NYSE: DNA) reported first-quarter results after the bell last night. Revenue climbed 30% to $975 million versus the same period last year, while earnings were up 14% to $207.6 million.

The impressive results were driven primarily by Genentech's portfolio of cancer treatments, which made up about 72% of product sales. The firm noted that Avastin, which was approved for treating colorectal cancer just five weeks ago, reached $38.1 million in sales in the quarter. The bulk of the company's product revenue, meanwhile, came from its two leading drugs: Rituxan, approved for certain forms of non-Hodgkin's lymphoma, and Herceptin, indicated as a therapy for certain types of metastatic breast cancer. Rituxan and Herceptin brought in revenue of $400.6 million and $113.5 million, respectively.

Genentech benefits from concentrating on cancer therapy, where many drugs carry rich price tags. Treatment with Avastin costs an estimated $4,400 per month, Rituxan runs about $10,000 for a four-week course, and Herceptin goes for about $3,000 a month.

The high price tags may seem like good news for Genentech, but they carry a hidden danger. As an NBC Nightly News report recently noted, insurance companies may balk at paying for the latest, priciest drugs, especially in cases where therapies offer an only marginal benefit. For now, Genentech appears safe. The company claims that it has had no trouble getting insurance company reimbursements.

All the same, as Genentech continues to pursue cancer drugs in its development work, the firm should probably keep this issue on its radar. One of the excuses biotech companies have had for charging high prices is that manufacturing biological compounds generally costs more. But recent reports suggest that some biomanufacturers have been able to improve efficiency and squeeze greater yields out of bioreactors.

If such progress continues, it might be prudent for Genentech to pass some of the savings on to the customer. Keeping prices lower will make insurers happy and help maintain the firm's business for the long run.

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Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.