By Debbie Strickland
Led by accelerating sales of its therapeutic enzymes for Gaucher's disease, Genzyme Corp. posted revenue and earnings gains in the third quarter.
Net income hit $24.4 million, up 13 percent from $21.6 million in the third quarter of 1996, exclusive of acquisition-related charges in the year-ago quarter. For the year to date, net income totaled $68.9 million, more than double the $33.4 million reported in the first nine months of 1996.
Third-quarter revenues of $148.8 million were 5.5 percent ahead of last year's $141 million. For the year to date, revenues are up 20 percent to $441.1 million vs. 1996's $366.8 million for the comparable period.
Product sales — which account for nearly 90 percent of total revenues — are up 12.2 percent for the quarter to $132.1 million, and a hearty 30 percent to $391.9 million for the year-to-date.
Sales of Ceredase and Cerezyme, both enzyme treatments for Gaucher's disease, climbed 23 percent to $85.6 million in the quarter, with the highest growth rates occurring in South America and the Far East. Patient conversion from Ceredase to the second-generation Cerezyme product continued in the third quarter, with Cerezyme accounting for 61 percent of sales of the two.
The company expects conversion to Cerezyme in the U.S. to be "nearly complete" by year end, with conversion in the rest of the world likely by the end of 1998.
Sales of these two lead products will "clearly exceed" an earlier estimate of $350 million for 1998, said Henri Termeer, Genzyme's chairman, president and CEO.
"We haven't seen anywhere close to the end of the potential for this field," he said.
On the downside, sales of surgical products declined 8 percent in the quarter to $23.2 million, compared to the third quarter of 1996. The results reflect a strong dollar in Europe and a "price war" in the fluid-management business, the company said.
In response to competition, Genzyme — which still holds the leading market share in fluid management, or chest drainage — introduced the new, premium Sahara line of fluid-management products. Termeer expects that "in the fourth quarter the situation will start to reverse."
During the quarter Genzyme boosted its surgical products sales force in the U.S. from 50 to 85 people, including 20 Seprafilm representatives.
Results for the Seprafilm bioresorbable membrane brightened the surgical picture, the company said, though its sales gains failed to lift the product group out of the doldrums. The FDA approved Seprafilm in August 1996 to prevent adhesions in any open abdominal or pelvic surgery.
Genzyme officials did not disclose Seprafilm's sales figures or volume, saying they would do so only when sales hit 10 percent of company revenues. They did report that the third-quarter increase was the largest quarter-to-quarter gain to date. As of Sept. 30, 220 of 350 target hospitals had bought the product and the reorder rate was 88 percent, up from 66 percent in the second quarter. Ninety-five of the hospitals ordered more than three boxes, or 30 sheets, per month. The average price is $125 per sheet.
The product received approval in Japan during the quarter, and a first-quarter 1998 launch is planned with marketing partner Kaken Pharmaceutical Co. Ltd., of Tokyo.
"The fundamentals are in place to move Seprafilm to the standard of care," said Marc Beer, Genzyme's vice president of marketing for surgical products. "We continue to exponentially increase the growth of Seprafilm quarter to quarter."
Moreover, he said, "Seprafilm sales are not price-sensitive, which is really exciting news for us."
Seprafilm Profits Expected In '98
Still, Genzyme does not expect Seprafilm to hit the break-even point in 1998. When the product begins to mature, gross margins are expected to run at least 60 percent, in line with the company's overall 65 percent margin reported in the third quarter.
Analyst Mary Ann Gray, of SBC Warburg Dillon Read Inc., in New York, predicted Seprafilm's "sales growth will continue to experience difficulty, as education and published clinical and pharmacoeconomic data remain a key factors to market acceptance."
Genzyme is attempting to address those fronts with new research. In a study submitted for publication, researchers found that Seprafilm allows patients with post-surgical small-bowel obstruction to be medically treated — at a cost far less than the $30,000 typical for surgical treatment.
And in the first quarter of 1998, the company plans to initiate a 2,500 patient, 15-center study in colorectal surgery to measure long-term outcomes related to small-bowel obstruction in patients who receive Seprafilm during surgery compared to those who do not.
Genzyme's shares (NASDAQ:GENZ) closed Friday at $26.75, down $0.813. *