Genzyme Corp. released a cascade of financial results in its second-quarter earnings report, including strong product revenue that offset a loss associated with business consolidation plans.
As a whole, the Cambridge, Mass.-based company's total revenues reached $418.9 million for the period ended June 30, a 26 percent gain compared to revenues of $332.2 million in last year's second quarter. But Genzyme recorded a $74.5 million net loss, compared with net income of $28.3 million a year ago, a difference primarily attributed to special items related to its decision to eliminate tracking stocks for its three business units.
Excluding amortization and special items, its pre-tax profit totaled $98.1 million, compared to $54.7 million in the second quarter of 2002.
"We feel we are in very strong shape at this time," Chairman and CEO Henri Termeer said during a conference call. "We feel very, very good about the fundamentals of the business, the new products that have just been approved, and also about our expectations in terms of costs."
He added that for the year, Genzyme is predicting higher earnings-per-share growth than originally expected. After special items and amortization, the company now predicts EPS guidance of $1.15 to $1.20, compared to $1.10 to $1.20 previously. It reported about $1.3 billion in cash and marketable securities at the end of the quarter.
The news drove Genzyme's stock (NASDAQ:GENZ) up $2.08 Wednesday to close at $47.54 and piqued interest among the investment community.
"I can't think of one piece of the Genzyme puzzle that isn't positive right now," Tom Shrader, an analyst with Harris Nesbitt Gerard in New York, told BioWorld Today. "What has happened at that company in a year is unfathomable. I think it's dragging the sector with it - this is what a company can look like."
The upbeat forecasts stemmed from solid sales of several products under the Genzyme General unit, whose second-quarter revenues of $347.7 million signaled a 30 percent gain over a year ago. Sales of Renagel (sevelamer hydrochloride), a calcium-free phosphate binder for patients with end-stage renal disease on hemodialysis, jumped 67 percent to $66 million. Cerezyme (imiglucerase for injection) sales gained 19 percent to $184.7 million, and the company said the enzyme replacement therapy for patients with Type I Gaucher's disease could approach $700 million in 2003.
Fabrazyme (agalsidase beta) sales increased 157 percent to $15.4 million in the quarter, compared to $6 million a year ago. Genzyme said it expects Japanese approval during the second half of this year. Genzyme recorded $1.1 million in sales of Aldurazyme (laronidase) for MPS-I patients. The product is partnered with Novato, Calif.-based BioMarin Pharmaceutical Inc. (See BioWorld Today, April 25, 2003, and May 1, 2003.)
Shrader also had a positive outlook on Myozyme, which entered a pivotal trial for Pompe disease during the quarter.
"If that drug works the way it could, it will dwarf Cerezyme as a product," he said. "I think that can be a huge drug."
Net income allocated to Genzyme General stock was $70.8 million, or 32 cents per diluted share, up 43 percent, which included $9.9 million in amortization and $7.6 million in special items. But not all observers were surprised with the earnings.
"As we look at it, nothing was really a blow-away," William Tanner, an analyst with Leerink Swann & Co. in Boston, told BioWorld Today. "The Cerezyme number was stronger than we had forecast, with some effect of foreign currency, but even after that it does seem like the underlying growth was a bit stronger."
While he called other aspects of the report in line with expectations, Tanner cautioned that Renagel eventually could face competition from two more products - Fosrenol (lanthanum carbonate) from Shire Pharmaceuticals Group plc, of Andover, UK, and cinacalcet from Amgen Inc., of Thousand Oaks, Calif. He added that dilution concerns relative to Genzyme's decision to eliminate tracking stocks of its General, Biosurgery and Molecular Oncology divisions never played out.
Beginning this quarter, the company will report earnings as one entity going forward. Shareholders of the Biosurgery and Molecular Oncology divisions would receive portions of shares in General stock for each share owned at exchange ratios representing a 30 percent premium to the value of the divisions' shares, based on average closing prices for each of the three stocks for the 20-day trading period leading up to April 23. But a pair of major shareholders in the Biosurgery unit opposed the plan, filing a lawsuit to stop the consolidation. Joint owners or controllers of about 15.6 percent of the unit's total shares outstanding, Rory Riggs and John Lewis claimed the consolidation would let the parent company acquire the Biosurgery division - worth at least $1.5 to $2 billion, they said - for about $72 million in stock. (See BioWorld Today, May 12, 2003, and June 5, 2003.)
Two weeks later, they withdrew their request for a preliminary injunction to halt the elimination of the tracking stock structure.
During the second quarter, revenues for Biosurgery totaled $68.8 million, with sales of Synvisc (Hylan G-F 20) reaching $29.6 million.
The net loss allocated to Genzyme's Biosurgery unit stock was $141 million, compared to a $15.1 million loss a year ago. The loss includes a $102.8 million charge associated with its acquisition of Ridgefield, N.J.-based Biomatrix Inc., of which Riggs is the former president, as well as a loss on the sale of the cardiothoracic devices business and other charges related to the disposition of the business totaling $38.8 million.
The net loss of the Genzyme Molecular Oncology unit's stock was $4.4 million, compared to $6.2 million in the same period last year. Revenues at the division were $2.5 million, compared to $2.3 million last year.