One of biotechnology's high-flyers, Genzyme Corp., hit an airpocket Thursday following an analyst's forecast of slowing salesgrowth for the company's major product, Ceredase.
Genzyme officials took strong exception to several points raisedby Oppenheimer & Co. analyst Jeffrey Casdin. Looking toward1994, Casdin expressed concern about potential for slowerCeredase sales growth , a let-up in research and developmentfunding, rising overhead, and stock dilution if Genzymereacquires rights to certain products.
"We feel there is considerably more risk of disappointmentthan upside surprise over the next year," Casdin wrote. Hepulled back a previous "buy" recommendation, but said thestock is "still attractive" for long-term investment at pricesbelow $40 a share.
His analysis helped drive down Genzyme's stock(NASDAQ:GENZ) halfway to that target price on Thursday. It fell$5.50 a share to close $45.75 on a trading volume of 1.7 millionshares.
"He's focused too negatively on Ceredase. He's failed to focussufficiently on the (company's product) pipeline," said David J.McLachlan, Genzyme's chief financial officer. McLachlandownplayed Casdin's concerns for 1994 and said two otheranalysts on Thursday repeated "buy" recommendations onGenzyme stock.
Biotechnology stocks followed a downward trend in almost areplay of Wednesday, when Chiron Corp. stock dived $5.50 ashare in the face of downgrading by another investmentanalyst and took much of the sector with it. Chiron(NASDAQ:CHIR) rose 25 cents a share to close Thursday at$51.75.
"It just shows that the group is not back in favor," said Jay B.Silverman, an analyst with Wertheim Schroder & Co. "Themarket still shows some frailty."
Several other biotechnology issues took hits on Thursday,including Cellcor Inc., which lost a marketing partner and thenabout 42 percent of its stock's market value (see story on page2); ImmuLogic Pharmaceutical Corp. (IMUL), which declined $1a share to $10.25; and ChemTrak Inc. (CMTR), down $1.37 ashare to $8.38.
An overall falling stock market again figured in the sector'sretreats. The AMEX Biotechnology Stock Index hit a thirdconsecutive day of decline on Thursday, falling 3.03 to 157.07,or about 2 percent for the day. The CBOE Biotechnology Indexfell a shorter distance, shedding just 1.52 to close at 144.51.
By comparison, the NASDAQ composite index fell 2.85 to574.02, off less than half of 1 percent. The Dow Jones averageof 30 industrials lost 30.26 points, or about 1 percent.
Two bright spots amid the sector's gloom were Immunex Corp.(IMNX), which rose $1.75 a share to close at $35.70. EpitopeInc. (ASE:EPT) bounded up $2.50 a share to $23.38 on newsthat Mexico gave marketing approval to the company'scontroversial OraSure saliva-collection device for HIV testing.
Immunex's rise could be traced to encouraging clinical studyresults published in a scientific journal (see story, Pagev1) anda bullish report issued Thursday by Wertheim Schroder'sSilverman.
But Genzyme's deflation clearly took the spotlight.
Casdin, who issued a buy recommendation on Genzyme threeyears ago, said that the company had fulfilled his expectationsH with an attendant fourfold climb in the stock's value. It isnow time to reappraise the situation.
"As often happens with emerging growth companies, growthdoes not continue in a smooth linear way," he wrote. "Moreoften it occurs in surges separated by plateaus."
The plateau figures in Casdin's reading of the terrain in front ofGenzyme. He cited four factors for a profit plateau in 1994:
-- Ceredase sales growth should start to decelerate after goingfrom zero to a projected $100 million annual rate in just over ayear.
-- Research and development funding from Genzyme's limitedresearch partnership and two R&D stock companies, NeozymeCorp. and Neozyme II Corp., will decline by 1994 to half theircurrent level.
-- R&D expenses will continue to climb, as several productsmove into Phase III clinical trials.
-- Sales and related costs will climb as Genzyme squeezes moresales from Ceredase.
"Genzyme does have a full pipeline of future therapeuticproducts that should begin to come to market in the 1994-95time frame," Casdin wrote. However, he ranks only one product,a protein replacement therapy for cystic fibrosis as a potentialblockbuster.
"If we were more certain of our view of the Ceredase outcomeand had less confidence in the ability and resourcefulness ofthe company's management to navigate the difficulties thatmight lie ahead, we would recommend sale of the stock," hewrote.
Genzyme's McLachlan said that the company's own projectionof 1994 Ceredase sales was within 10 percent of Casdin's lowerforecast. The company's expectation of $95 million in Ceredasesales this year is "right smack on plan," he said.
McLachlan said the analysis gives too little credit to Genzymemanagement's ability to control costs or search out new sourcesof R&D funding, as needed.
If Genzyme chooses to exercise an option to reacquire productrights in 1994, it will because the products show strongprospects for contributing to the company's future growth, hesaid.
-- Ray Potter Senior Editor
(c) 1997 American Health Consultants. All rights reserved.