Strong sales and earnings propelled Genzyme Corp.'s second-quarter results past estimates and led the company to forecast continued growth that would offset any dilution related to its merger with ILEX Oncology Inc.

Investors took to the news, as Genzyme's stock (NASDAQ:GENZ) gained $5.50 Wednesday, or 12.4 percent, to close at $50.

Before Wednesday's market opened, the Cambridge, Mass.-based firm reported non-adjusted net income of 44 cents per share, or $102.2 million, a 36 percent increase over the same period a year ago and 4 cents ahead of consensus projections. Those figures, for the three-month period ended June 30, exclude special items and amortization. Adjusted income totaled $78.2 million, or 34 cents per diluted share, compared with last year's income of $70.8 million, or 32 cents per diluted share.

"The performance in the second quarter was very, very strong," Henri Termeer, Genzyme's chairman and CEO, said during a conference call. "The top line was up 58 percent, and really the top line is what's currently providing the leverage."

For 2004, Genzyme revised its financial guidance to raise sales projections for several major products and businesses, increasing overall revenue guidance. The company maintained its non-adjusted earnings-per-share guidance, expecting that strong top- and bottom-line growth will offset dilution from its expected $1 billion merger with ILEX, of San Antonio.

"The stock was probably under some pressure before the guidance was given [because of] concern for the ILEX Oncology acquisition and the magnitude of the dilution," William Tanner, an analyst with Leerink Swann & Co. in Boston, told BioWorld Today. "I think most people felt the dilution wasn't likely to be that great, but if you were in an environment where numbers were probably going to have to be revised downward, it's probably not something that's going to make people excited to go out and buy the stock."

Genzyme's income was driven by revenue growth that climbed 58 percent to reach $549.6 million, up from $347.7 million in the same period a year ago. The increase was driven by sales of Fabrazyme (agalsidase beta) and Renagel (sevelamer hydrochloride), and reflects contributions from other businesses, including the recently integrated biosurgery and transplant businesses (results for last year's second quarter represent the operations of the Genzyme General division only, before the company consolidated its capital structure by eliminating its tracking stocks).

Genzyme's revenues are allocated within six segments: renal, therapeutics, biosurgery, transplant, diagnostics/genetics and other. Within the rnal business, Renagel revenue grew 33 percent to $87.6 million, up from $66 million in last year's second quarter. Within the therapeutics business, sales of Fabrazyme enzyme-replacement therapy for Fabry's disease more than tripled to $49.6 million.

"This diversification strategy that I've often talked about," Termeer said, "is now starting to really work well."

Other products of note included Cerezyme (imiglucerase for injection) for Type I Gaucher's disease, which produced sales of $209.4 million, a 13 percent increase; Aldurazyme (laronidase) for MPS-I, generated sales of $9.2 million, $8.1 million better than last year; and Thyrogen (thyrotropin alfa for injection), which produced $16.3 million in sales, a 67 percent jump.

Tanner noted that some of Genzyme's drugs, "especially Cerezyme and to a lesser extent Renagel, are becoming an increasingly smaller percentage of the business. And that's a good thing because they're actually not growing very much. If it's high growth, you don't mind it being a big percentage of the business. But if it's low growth, you don't want Cerezyme to grow at 13 percent year over year and have to carry the day."

Termeer noted that each of the chief products within the company's primary businesses represents the standard of care in their respective areas, and added that Genzyme remains in the relatively early stages of market development.

Costs for the quarter included selling, general and administrative expenses that totaled $152.9 million, up from $95.2 million last year, because of the integration of the SangStat Medical Corp. and Impath Inc. businesses, along with the addition of Genzyme's Biosurgery and Molecular Oncology units. Research and development spending totaled $97.5 million, compared with $58.8 million.

Genzyme ended the second quarter with $657 million in cash and marketable securities.

Looking ahead, Genzyme expects earnings of 42 cents to 44 cents per share this quarter. Longer term, the company expects to report non-adjusted earnings of $1.65 to $1.75 per share for the year, consistent with previous guidance, and adjusted earnings of $1.35 to $1.40 per share for the full year.

"What they've done is essentially reiterated the prior year's guidance of $1.65 to $1.75," Tanner said. "But now it takes into account the ILEX acquisition and dilution thereof, where previously it was without that."

Genzyme sees this year's total revenue reaching between about $2.07 billion and $2.19 billion, an increase from previous guidance of $1.93 billion to $2.03 billion. Its full-year guidance now includes $15 million to $20 million in oncology revenues, in anticipation of the completion of the ILEX merger. Tanner noted that the acquisition's upside would be driven by the potential for clofarabine, a still-investigational product for various leukemias. In contrast, he said ILEX's Campath, which already is on the market, would not generate as much upside, given its toxicity issues.

ILEX shareholders recently approved the merger, and it is expected to close this summer. Genzyme expects to issue a maximum of about 22 million shares, which would increase the weighted-average number of shares of stock outstanding for the full year to about 240 million.

Looking ahead, its primary investigational product moving forward is Myozyme (alglucosidase alfa), an enzyme-replacement therapy for Pompe disease, for which the company plans to file for approval in Europe by the end of this year and in the U.S. during the first half of next year.

"Genzyme is good at not over-promising and under-delivering," Tanner said. "I think over the balance of the year, I can't imagine there are going to be any disappointments. The key will be what kind of number does 2005 look like. Consensus is a little above $2, and I thought that was a reasonable number."

No Comments