By Frances Bishopp

True to projections made by president and CEO Henri Termeer in early January, Genzyme Corp. posted record fourth quarter revenues of $144.6 million, a 38 percent increase compared to the same period in 1995, and a 35 percent increase for the year, with revenues increasing to $511.4 million, from $378.6 million in 1995. (See BioWorld Today, Jan,. 9, 1997, p. 1.)

The increases, the company said, were due primarily to sales from Genzyme's newly acquired company, Deknatel Snowden Pencer Inc. (DSP), a surgical aids product company, and to increased sales of Genzyme's lead products, Ceredase and Cerezyme, after their introduction to the Japanese market in the fourth quarter of 1996 and continued global sales growth. Ceredase and Cerezyme are enzymes for the treatment of Gaucher's disease.

Analyst Peter Drake, of Vector Securities International Inc., of Deerfield, Ill., credits Genzyme's record revenues to its strength in four of its five divisions: the therapeutic division, the diagnostic division, the genetic testing service business division and the pharmaceutical and fine chemical division, plus a reasonably strong showing in a fifth division, the surgical products division.

"Ceredase/Cerezyme is their earnings horse," Drake said. "I expect this year, Genzyme will continue to report a continued double-digit growth across all of their divisions. We are looking for earnings to go from $1.12, as reported last year, to $1.30. The company is comfortable with $1.20."

Ceredase and Cerezyme sales reached a record $72 million in the fourth quarter, a 26-percent increase over sales in the fourth quarter of 1995. Surgical product revenues were $25.4 million in the fourth quarter.

Fourth-quarter net income before acquisition-related charges was $20.8 million or $0.29 per primary share. After these charges, Genzyme reported a net loss of $63.9 million or $0.91 per share for the fourth quarter.

The 1996 acquisition charges related to the July $250 million acquisition of DSP, of Fall River, Mass., and the December $109 million acquisition of Neozyme II Corp., a company formed in 1992 to fund work for Genzyme related to cystic fibrosis treatment.

For 1996, the Cambridge, Mass., company posted net income before acquisition-related charges of $81.7 million, or $1.12 per share. The acquisition-related charges of $1.57 per in 1996 consisted of $0.38 per share from the purchase of DSP in the third quarter and $1.19 per share from the purchase of Neozyme II's in-process research and development in the fourth quarter.

After these acquisition-related charges, Genzyme reported a net loss of $30.5 million, or $.45 per share in 1996.

Genzyme's product and service sales jumped 43 percent to $138.2 million in the fourth quarter, compared to $96.8 million in the fourth quarter of 1995. For the year, product and service sales increased 38 percent to $486.1 million, compared to $351.6 million in 1995.

Despite Genzyme's "core of businesses that continue to do very well," and excellent company management that "has had a clear and positive impact on the bottom line," Paul Boni, an analyst with Genesis Merchant Group Securities, of San Francisco, said he questions where will future explosive growth come from.

Genzyme's core businesses are growing nicely, Boni said, but, in the biotech world, they are growing rather moderately. "We look for explosive growth from the research and development pipeline," Boni said.

Research and development expenses for 1996 were $69.9 million, a 21 percent increase over 1995.

Acquisitions Take Precedent

"And it's becoming apparent that their acquisition strategy is, in a way, an alternative to research and development," Boni said. "And that is potentially a very good strategy where they are picking up interesting technologies that are coming from the outside as opposed to developing from the inside."

One such acquisition illustrating his point, Boni said, is PharmaGenics Inc., of Allendale, N.J., purchased by Genzyme in February 1997. PharmaGenics develops therapeutic products for cancer through the use of genomics technology. If the merger is approved, and the transaction is expected to close in May, PharmaGenics' programs and technologies will be combined with several oncology projects within Genzyme to form Genzyme Molecular Oncology, a new division of the corporation.

"The buying of PharmaGenics is part of their strategy of building their pipeline through acquisition as opposed to internal development," Boni said.

"The research and development pipeline is growth through acquisition, but the long-term issue is where will that growth come from, where will their next Ceredase come from for instance?" Boni said. "They are looking for the heir apparent."

Genzyme's stock (NASDAQ:GENZ) closed Thursday at $24.375, down $1. *