National Editor

Genzyme Corp. reported first-quarter 2004 results that topped Wall Street's consensus, as company officials during a conference call took questions on legal challenges, patent-estate security and dosing of its enzyme-replacement therapy for Pompe disease.

"Almost across the board, they outperformed," said Christopher Raymond, analyst with Robert W. Baird & Co. in Chicago. "It was an upside surprise that Cerezyme continues to do better than people think. We've all been predicting for a couple of quarters that we'd see a down quarter."

It didn't happen. Once again, Genzyme's three product leaders - Cerezyme, Renagel and Fabrazyme - chalked up hearty sales, helping the company to revenues that totaled $491.3 million, up from $314 million during the same period a year ago.

The Cambridge, Mass.-based company's stock (NASDAQ:GENZ) closed at $46.64, down 28 cents.

Because Genzyme consolidated its tracking stocks in June, comparing first-quarter data from 2003 to 2004 is somewhat tricky, but net income for the current year's period must have seemed satisfying to investors any way they sliced it. For the first quarter of 2004, that number was $67.9 million, or 29 cents per diluted share, compared with $61.9 million, or 28 cents per diluted share, for the first quarter a year earlier.

Taking out special items and amortization, net income was $85.6 million, or 37 cents per share, compared with $68 million, or 31 cents per share, for the first quarter of 2003. The analyst consensus had predicted earnings of $77.9 million on revenue of $472.5 million.

Among the special items was a $1.8 million charge from the sale of inventory acquired from SangStat Medical Corp., of Fremont, Calif., for which Genzyme paid about $600 million last year. Amortization of $26.2 million included the acquisitions of SangStat and Pasadena, Calif.-based Alfigen Inc.

Cerezyme (imiglucerase for injection), for Type I Gaucher's disease, sold $203 million for the first quarter, up 21 percent from $167.2 million in the same period last year. Renagel, a phosphate binder for patients with end-stage renal disease on hemodialysis, sold $83.5 million, about 42 percent more than the $58.8 million in the same quarter of 2003. Fabrazyme (agalsidase beta) for Fabry's disease, sold $38.1 million, compared with $11.8 million recorded in the first quarter of last year and $31.9 million in the previous quarter. About $15.8 million came from the U.S., where Genzyme said sales have grown strongly since the product was launched in May 2003.

During the conference call, analysts queried company officials about research efforts by rival enzyme-replacement firm Transkaryotic Therapies Inc., also of Cambridge, and how well the Cerezyme patents might hold up to challenges.

"They have a competitive product they've said they would like to begin human trials on," Raymond said. "My assumption is that it uses their gene-activation platform, but it's a long arduous clinical path."

Henri Termeer, chairman and CEO of Genzyme, said one patent protects Cerezyme through 2010 and the other through 2013.

"I have no idea whether what TKT is doing has any impact in terms of those patents," he said. "We do not know the compound or protein they have or how they are producing it."

The lawsuit by shareholders of Genzyme Biosurgery - one of the tracking stocks eliminated last year - is going ahead after a federal judge in March refused to dismiss it. Termeer would not comment on that, but Thomas DesRosier, Genzyme's legal counsel, said the case is "taking its normal course. It will enter the substantive part of discovery and continue in that mode for the next six to 12 months."

Another issue was Myozyme (alglucosidase alfa), the enzyme-replacement therapy for Pompe disease. Termeer said he was "enormously pleased" with progress, with enrollment nearly finished in two pivotal trials and moving ahead rapidly in an observational study of about 60 patients with mild to moderate late-onset disease, which the company said would "help to define the parameters of a subsequent treatment study."

Thomas Shrader, director of health care equity research with Harris Nesbitt Gerard in New York, expressed concern about whether investigators understood the dosing.

David Meeker, Genzyme's vice president of corporate development, noted that the pivotal trials are in children under 6 months and in children between 6 months and 3 years old. The third study in late-onset patients (who are less severe cases but still typically die from respiratory failure) will help understand endpoints of other trials, Meeker said.

"For each of these [enzyme-replacement] products, we've continued to learn much more about dosing post-launch," he said. "I think we are increasingly confident we are understanding the dose in infants, and that will inform us how we intend to approach the adult population."

Guidance for profit in the second quarter, excluding special items, was predicted in the range of 39 cents to 41 cents per share, just under the consensus of 42 cents. Asked whether the company might be shooting low so as not to disappoint, Termeer was adamant.

"We don't try to be cute about it," he said, repeating the full-year guidance of $1.65 to $1.75 earnings per year.

"We also said we may well have top-line upside, but at the same time we said we want to make further investments in our programs, particularly [research and development]," he said. "We try to be as accurate as possible, particularly on the earnings side."

Raymond allowed that "there's some degree of sandbagging probably going on," but said the company most likely was just trying to give itself "wiggle room" in its estimates.

"They didn't lower guidance," he pointed out. "They'd never given second-quarter guidance."

Genzyme still plans to finish its $1 billion buyout of San Antonio-based ILEX Oncology Inc. by mid-year, around the same time that it completes taking over the Physician Services unit of New York-based Impath Inc.

Although "history will be the judge" of the ILEX deal, Raymond likened it to the 1997 takeover of Waltham, Mass.-based Geltex Pharmaceuticals Inc. for $27.5 million - the buyout through which Genzyme gained Renagel.

"I don't think anybody argues at this point that it was a bad acquisition," he said.