By Mary Welch

Genzyme Corp. reported a 17 percent increase in net income to $24.9 million in the first quarter of 1998, from $21.2 million during the same period in 1997.

Revenues for the quarter totaled $154.1 million, a 7 percent increase over the $144.6 million of the first quarter of 1997. Continuing the good news, Genzyme reported gross profits increased 13 percent to $98.6 million for the quarter, compared to $87.1 million a year ago.

Earnings per share jumped 15 percent in the first quarter of 1998 to $0.31, from $0.27 during the same period last year.

In March, Genzyme, of Cambridge, Mass., advised Wall Street analysts (who were predicting the numbers would hit the $0.34 mark) that it expected earnings to be in the $0.29 to$0.30 range.

"So we are quite pleased coming in at $0.31. We think it's a strong performance," said David McLachan, executive vice president and chief financial officer. "We lowered our estimates because of three factors."

The first factor was the company had to send a very large and expensive shipment of Cerezyme, for the treatment of Gaucher's disease, to Europe in the first quarter. "It did bring our margins down but it was offset by the rest of the company's performance," McLachan said.

The second was an anticipated higher level of spending in the company's joint venture with GelTex Pharmaceuticals Inc., of Waltham, Mass., in order to market RenaGel worldwide. "That didn't happen," McLachan added. RenaGel is a non-absorbed phosphate binder for the control of elevated phosphate levels in dialysis patients.

The third factor was that the company expected higher losses from its Genzyme Transgenics Corp. (GTC) subsidiary, based in Framingham, Mass. Genzyme owns 43 percent of GTC. "Their losses were what we anticipated but again, the company's overall performance offset those numbers," he said.

Company Has $220M In Cash

Genzyme has a sizable amount of cash on hand and other marketable securities.

At the close of the first quarter of 1998, it reported cash of $220 million, up from $193.2 million at end of the first quarter last year. Operating cash totaled $26 million. "This cash flow, along with our strong cash balance, gives us the flexibility to pursue other activities, such as collaborations or acquisitions," McLachan said.

David Stone, managing director of Cowen & Co., in Boston, acknowledged Genzyme had lowered expectations but noted that the final figures were higher than estimated.

"That's a good sign," he said. "We see positive things happening with the company, especially since new drugs should be approved by the end of the year."

Genzyme, however, should be trading at a higher level based on price-earnings multiples, Stone said. "That means that Wall Street doesn't believe the company will meet its growth expectations, or Wall Street needs a wake-up call."

McLachan conceded the company seems somewhat undervalued and under-appreciated on Wall Street.

"We had extraordinary success with Cerezyme and then a year and a half ago we launched Seprafilm. That was successful but not as wildly successful as Cerezyme, and I think our stock has suffered from that," McLachan observed. "The market doesn't seem to want to give value to our new products coming out or the performance of our products currently on the market. We, of course, don't feel that way at all."

Genzyme's stock (NASDAQ:GENZ) closed Thursday at $29.781, down $0.968.

The company's therapeutic division's revenues for the quarter increased 22 percent to $95.6 million, compared with $78.6 million in the comparable 1997 period. Cerezyme and Ceredase sales continue strong with combined revenues of $93.5 million, up 22 percent from last year.

During the first quarter of 1998, Cerezyme was launched in Japan, received approval in Korea and obtained orphan drug status in Columbia. Cerezyme is responsible for about $375 million of the company's annual $675 million in sales.

Surgical products revenues dropped 11 percent to $25.6 million from $28.6 million during the same quarter last year. "They're not as strong as last year but they're beginning to get stronger," McLachan said. He attributed the reduction this year to a $2 million milestone payment received in the first quarter of 1997 from Kaken Pharmaceuticals Co. Ltd., of Tokyo, Genzyme's Seprafilm marketing partner.

Seprafilm is designed to prevent adhesions from forming following surgery. Sales of Seprafilm were three times greater this quarter than in the first quarter of 1997.

"If you take out that $2 million milestone, revenues still would be down slightly and we attribute that weakness to a company we bought a couple of years ago, Deknatel Snowden Pencer Inc., of Falls River, Mass., a surgical products company," McLachen said. "And the strong dollar in Europe hurt us."

Revenues in the diagnostics division were down slightly from $31.6 million for the first quarter of 1997 to $30.5 million in 1998. "The product business was flat but the direct cholesterol test kits showed a year-to-year growth rate of more than 60 percent," McLachan said.

Thyrogen Decision On The Horizon

Analysts and the company look forward to the second half of this year as an FDA panel review on Thyrogen, a recombinant thyroid stimulating hormone, is scheduled for May 15. Because the drug was given FDA priority review status, the governmental agency is required to take action within the six months following the December 1997 filing.

Genzyme also has "heard rumors" its new drug application for RenaGel in the U.S will not require a panel review and instead, the FDA will rule on it directly. There is no timetable for the ruling, but the company expects it by the end of 1998. When a drug skips the panel review, it is generally because the evidence of the product's effectiveness is so overwhelming that it doesn't require a hearing.

In other news, Genzyme Tissue Repair, also of Cambridge, reported first quarter sales of Carticel (autologous cultured chondrocytes) increased 33 percent from the fourth quarter of 1997. The first-quarter 1998 sales also represented an increase of 172 percent over the same period last year.

Carticel helps a patient's own cells repair damaged cartilage on the thigh bone part of the knee. Genzyme's Tissue Repair stock (NASDAQ:GENZL) closed at 7.875 down $0.281. *

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