By Debbie Strickland
Genzyme General's earnings per share hit $0.30 in the second quarter, beating the second quarter 1996 results by 11 percent and analysts' projections by a penny a share.
"They had a very solid quarter and hit most of the line items dead on," said analyst Anthony Butler, of Lehman Brothers, in New York. "They're building long-term value. [President and CEO] Henri Termeer's done a very nice job of attempting to build value through product additions."
The earnings report, which included good news about the company's new surgical product, Seprafilm, boosted Genzyme's shares (NASDAQ:GENZ) to $26.75, a gain of $1.187.
Net income at the Cambridge-based company, the main division of Genzyme Corp., totaled $23.28 million, up 15 percent from $20.28 million in the comparable 1996 period. For the first and second quarters of 1997 combined, earnings rose 13 percent.
"The year-to-year quarterly increase in earnings per share was strong," said Termeer, noting that the company overcame several earnings negatives: the loss of $5.2 million worth of contract research from Neozyme II Corp., acquired by Genzyme last fall; a $1.6 million rise in amortization expense (a non-cash item), primarily due to an acquisition; and a 6 percent increase in shares, primarily due to the exercise of warrants late last year.
The company ended the quarter with $153.05 million in cash and marketable securities, down from $162.44 million at the end of the first quarter.
Second quarter revenues hit $147.61 million, a 29 percent gain over the comparable period last year. At $18.98 million, research and development expenses represented 13 percent of revenues at Genzyme Corp.'s main division. The results mirrored those of the first quarter, when revenues also grew 29 percent.
Product and service sales shot up 35 percent to $145.93 million in the quarter, with gross profit on those sales jumping 36 percent to $91.45 million from $67.26 million in 1996. Gross margins inched up to 63 percent, up from 62 percent a year ago and 61 percent in the first quarter.
The company attributed much of the sales increase to a 25 percent gain in sales of Ceredase and Cerezyme enzymes for the treatment of Gaucher's disease. The enzymes hauled in a record $80 million.
"With the addition of new patients and the accelerated conversion of patients to Cerezyme, we have, for the first time, seen sales of Cerezyme exceed those of Ceredase," said Termeer. "Our product gross margin has been favorably affected by this conversion to the recombinant form of the enzyme."
"It's clear that the transition from Ceredase to Cerezyme continues to go very well, and that helps the margins," agreed analyst Rob Rouse, also of Lehman Brothers.
Genzyme also cited the addition of surgical product sales through the July 1996 acquisition of Deknatel Snowden Pencer Inc. (DSP).
Sales of former DSP products and of Genzyme's Seprafilm bioresorbable membrane increased compared to first quarter 1997 results, although the company did not release specific sales figures.
Termeer said Seprafilm's performance has encouraged the company to devote more resources to the marketing and sales of the product.
As of June 30, the anti-adhesion product had been sold to 714 hospitals in the U.S., up from 539 at the end of the first quarter. The reorder rate climbed to 53 percent, vs. 42 percent in the previous quarter. In 300 major hospitals representing 30 percent of the total potential procedures in which Seprafilm could be used in the U.S., the second-quarter reorder rate was 66 percent.
Seprafilm now looks like it will become "a driver" that could add revenue momentum to the company's surgical products division, said Rouse. *