One of biotechnology's high-flyers, Genzyme Corp., hit an air pocket Thursday following an analyst's forecast of slowing sales growth for the company's major product, Ceredase.
Genzyme officials took strong exception to several points raised by Oppenheimer & Co. analyst Jeffrey Casdin. Looking toward 1994, Casdin expressed concern about potential for slower Ceredase sales growth , a let-up in research and development funding, rising overhead, and stock dilution if Genzyme reacquires rights to certain products.
"We feel there is considerably more risk of disappointment than upside surprise over the next year," Casdin wrote. He pulled back a previous "buy" recommendation, but said the stock is "still attractive" for long-term investment at prices below $40 a share.
His analysis helped drive down Genzyme's stock (NASDAQ:GENZ) halfway to that target price on Thursday. It fell $5.50 a share to close $45.75 on a trading volume of 1.7 million shares.
"He's focused too negatively on Ceredase. He's failed to focus sufficiently on the (company's product) pipeline," said David J. McLachlan, Genzyme's chief financial officer. McLachlan downplayed Casdin's concerns for 1994 and said two other analysts on Thursday repeated "buy" recommendations on Genzyme stock.
Biotechnology stocks followed a downward trend in almost a replay of Wednesday, when Chiron Corp. stock dived $5.50 a share in the face of downgrading by another investment analyst and took much of the sector with it. Chiron (NASDAQ:CHIR) rose 25 cents a share to close Thursday at $51.75.
"It just shows that the group is not back in favor," said Jay B. Silverman, an analyst with Wertheim Schroder & Co. "The market still shows some frailty."
Several other biotechnology issues took hits on Thursday, including Cellcor Inc., which lost a marketing partner and then about 42 percent of its stock's market value (see story on page 2); ImmuLogic Pharmaceutical Corp. (IMUL), which declined $1 a share to $10.25; and ChemTrak Inc. (CMTR), down $1.37 a share to $8.38.
An overall falling stock market again figured in the sector's retreats. The AMEX Biotechnology Stock Index hit a third consecutive day of decline on Thursday, falling 3.03 to 157.07, or about 2 percent for the day. The CBOE Biotechnology Index fell a shorter distance, shedding just 1.52 to close at 144.51.
By comparison, the NASDAQ composite index fell 2.85 to 574.02, off less than half of 1 percent. The Dow Jones average of 30 industrials lost 30.26 points, or about 1 percent.
Two bright spots amid the sector's gloom were Immunex Corp. (IMNX), which rose $1.75 a share to close at $35.70. Epitope Inc. (ASE:EPT) bounded up $2.50 a share to $23.38 on news that Mexico gave marketing approval to the company's controversial OraSure saliva-collection device for HIV testing.
Immunex's rise could be traced to encouraging clinical study results published in a scientific journal (see story, Pagev1) and a bullish report issued Thursday by Wertheim Schroder's Silverman.
But Genzyme's deflation clearly took the spotlight.
Casdin, who issued a buy recommendation on Genzyme three years ago, said that the company had fulfilled his expectations H with an attendant fourfold climb in the stock's value. It is now time to reappraise the situation.
"As often happens with emerging growth companies, growth does not continue in a smooth linear way," he wrote. "More often it occurs in surges separated by plateaus."
The plateau figures in Casdin's reading of the terrain in front of Genzyme. He cited four factors for a profit plateau in 1994:
-- Ceredase sales growth should start to decelerate after going from zero to a projected $100 million annual rate in just over a year.
-- Research and development funding from Genzyme's limited research partnership and two R&D stock companies, Neozyme Corp. and Neozyme II Corp., will decline by 1994 to half their current level.
-- R&D expenses will continue to climb, as several products move into Phase III clinical trials.
-- Sales and related costs will climb as Genzyme squeezes more sales from Ceredase.
"Genzyme does have a full pipeline of future therapeutic products that should begin to come to market in the 1994-95 time frame," Casdin wrote. However, he ranks only one product, a protein replacement therapy for cystic fibrosis as a potential blockbuster.
"If we were more certain of our view of the Ceredase outcome and had less confidence in the ability and resourcefulness of the company's management to navigate the difficulties that might lie ahead, we would recommend sale of the stock," he wrote.
Genzyme's McLachlan said that the company's own projection of 1994 Ceredase sales was within 10 percent of Casdin's lower forecast. The company's expectation of $95 million in Ceredase sales this year is "right smack on plan," he said.
McLachlan said the analysis gives too little credit to Genzyme management's ability to control costs or search out new sources of R&D funding, as needed.
If Genzyme chooses to exercise an option to reacquire product rights in 1994, it will because the products show strong prospects for contributing to the company's future growth, he said.
-- Ray Potter Senior Editor
(c) 1997 American Health Consultants. All rights reserved.