Growing product sales boosted earnings at Genzyme Corp., which lived up to analyst expectations with its fourth-quarter financial statement.

The Cambridge, Mass.-based company reported earnings totaling 38 cents per share, in line with consensus earnings per share (EPS) forecasts. Its 17 percent net income increase in the fourth quarter correlated to $86.8 million, excluding special items and amortization, compared with net income of $74.1 million, or 34 cents per share, for the year-ago fourth quarter. For the year, excluding special items and amortization, net income climbed 36 percent to $314.7 million, or $1.39 per share, up from $231.6 million, or $1.06 per share, for 2002.

Including revisions such as special items and amortization, fourth-quarter net income totaled $66.7 million, or 29 cents per diluted share, compared with last year's fourth-quarter net income of $44.7 million, or 20 cents per diluted share. Special items included pre-tax expenses of $2.9 million associated with the acquisition of SangStat Medical Corp. and $3.1 million in up-front fees and other considerations paid as part of a commercialization agreement with its Cambridge neighbor Transkaryotic Therapies Inc. Amortization totaled $25.8 million for the quarter. Full-year net income reached $103.7 million, or 46 cents per diluted share, compared with 2002 net income of $178.5 million, or 81 cents per diluted share.

Underlying its growth, Genzyme posted significant revenue gains as the fourth-quarter figure added up to $481.2 million and the full-year figure equaled about $1.6 billion. The two revenue figures represented 61 percent and 46 percent increases, respectively, over their corresponding year-earlier periods.

The company forecast this year's revenues to range between $1.9 billion and $2 billion, with diluted earnings per share expected to reach $1.37 to $1.47. First-quarter earnings are expected to range from 35 cents to 37 cents per share prior to amortization. For 2004, amortization is expected to total about $103 million, or 28 cents per share. Excluding amortization, full-year earnings are expected to reach $1.65 to $1.75 per share, and Genzyme expects to have a weighted average of 230 million diluted shares outstanding this year.

"I think they're being very conservative with their guidance for the year," Yaron Werber, an analyst with SG Cowen Securities Corp., told BioWorld Today. "The top-line is looking fairly strong, and will likely come in on the top end of guidance, if not beat it."

He said his firm likely would model Genzyme to exceed its forecasts. Calling the company's 2003 guidance conservative as well, Werber noted that Genzyme's fourth-quarter EPS topped SG Cowen's estimate by a penny. He said he does not own any securities in the company, and said New York-based SG Cowen has no investment banking relationship with it.

To support projections, Genzyme also forecast growing sales figures for the major products in its various divisions.

Within its renal business, revenues for Renagel (sevelamer hydrochloride) are expected to rise to $325 million to $345 million this year, compared to $281.7 million last year. From its therapeutics business, sales of Fabrazyme (agalsidase beta) are expected to reach $170 million to $185 million, up from $80.6 million last year. Sales of Cerezyme (imiglucerase for injection) are expected to reach $770 million to $790 million, a steady increase over $738.9 million last year.

"I think that going forward, Fabrazyme is going to be the key driver in terms of continuing to penetrate the market and showing a nice increase year over year," Werber said of the enzyme replacement therapy for Fabry's disease. "Also, the company is going to have new manufacturing facilities for Renagel in Europe, driving gross margins up."

He noted that Renagel, a phosphate binder for end-stage renal disease patients on hemodialysis, could begin to face competition this year, though he said The Street is building such expectations into its forecasts.

Genzyme said revenues from its biosurgery unit are expected to reach $215 million to $225 million in 2004, compared with revenues of $119.1 million in the second half of 2003 (the company consolidated its capital structure June 30). That move eliminated its tracking stocks, including one for its biosurgery unit. As a result, all figures reported for 2003 represent results for Genzyme General in the first and second quarters of the year and for the entire corporation in the third and fourth quarters.

Revenues for Genzyme's transplant business are expected to reach $130 million to $145 million, compared with $44.3 million in 2003 following the acquisition of Fremont, Calif.-based SangStat. Revenues for its diagnostic products and services businesses are expected to range from $200 million to $215 million this year, up from $190.7 million in 2003.

"The company managed to show a very nice upside to its guidance," Werber said, "while at the same time acquiring SangStat and folding in the tracking stocks, which were all important events."

He added that both happenings would provide more leverage to the company's model than it laid out.

Genzyme closed the year with $1.2 billion in cash and equivalents. The company said this year it expects to record capital expenditures of about $180 million to $200 million, down from about $260 million in 2003, as several major projects draw to a close.

Selling, general and administrative expenses before special items totaled $443.7 million last year, reflecting spending on the U.S. launch of Fabrazyme, the global rollout of Renagel, the integration of SangStat and the impact of foreign exchange rates. Such expenses are expected to range from $565 million to $575 million this year, holding at about 28 percent of sales.

"I think there is leverage on the expense side of the model as well," Werber said, "and I think they're going to have a good showing on the bottom line."

Research and development spending before special items was $289.8 million, or 18 percent of revenue. This year's R&D spending is expected to grow to $385 million to $395 million, or 19 percent to 20 percent of revenue. Major clinical programs in its pipeline include a pivotal trial of Myozyme (alglucosidase alfa) for Pompe disease, as well as a planned Phase III trial of Tolevamer toxin binder for C. difficile colitis and earlier-stage studies of small-molecule drug candidates such as GENZ-29155 for multiple sclerosis.

"I think it's really going to be a year of execution," Werber said, "and with pipeline progress in the second half as well."

Genzyme's stock on Thursday (NASDAQ:GENZ) fell $2.04 to close at $53.43.