Lowered 2002 Guidance Hurts Genzyme; Stock Drops 23 Percent

Genzyme General's stock fell more than 20 percent Thursday following the company's announcement after the market's close Wednesday that the company is lowering its 2002 second-quarter projections, as well as guidance for the year.

Cambridge, Mass.-based Genzyme, a division of Genzyme Corp., expects total revenues for 2002 to be between $1.1 billion and $1.15 billion, a decrease of about 4 percent from previous guidance of $1.15 billion to $1.2 billion. The company now expects to earn between $1.18 and $1.23 per share for the year, down from previous guidance of between $1.40 and $1.46 per share.

News of Genzyme's warning, combined with New York-based ImClone Systems Inc.'s notice from the SEC threatening action against the company, hurt an already-suffering biotechnology sector. The Nasdaq Biotech composite dropped 23 points Thursday, or 4.5 percent. Salomon Smith Barney and Goldman Sachs downgraded Genzyme Thursday, and the company's stock (NASDAQ:GENZ) shed $6.17 Thursday, or 23.9 percent, to close at $19.70.

Genzyme attributed its new guidance to lower-than-expected sales of Renagel (sevelamer hydrochloride) for patients with end-stage renal disease - now estimated to be between $200 million and $210 million for 2002, down from its previous guidance of between $260 million and $280 million.

For the second quarter - a quarter in which Genzyme now expects to post earnings estimated at 25 cents to 26 cents per share - Renagel revenues are expected to be about $40 million.

In an SG Cowen research note, Eric Schmidt said: "While we believe [Renagel] should continue to generate significant revenues in the outgoing years, the rapid [growth] seen in 2001 in the U.S. is unlikely to be duplicated in 2002. Instead, penetration of the European market fueled by the launch of the 800-mg tablets is key to the stock success in 2002, in our opinion."

Renagel is a nonabsorbed, polymer-based phosphate binder. Genzyme said, among other things, it completed a tableting line at its manufacturing facility and expects to qualify a third tableting line at a backup contract manufacturer next quarter. Also, the company said, it expanded its Renagel sales force. Genzyme now has an 80-person Renagel squad in the U.S. and 76 people in Europe.

Genzyme raised its 2002 guidance for Cerezyme (imiglucerase) for Gaucher's disease from between $580 million and $600 million to between $600 million and $610 million. Also, its other therapeutic products and pharmaceutical intermediates are now expected to bring in combined revenue between $90 million and $105 million, which is increased from previous guidance of between $85 million and $100 million.

Revenue from Genzyme's diagnostics businesses is expected to be lower than previously thought - between $175 million and $185 million, down from $180 million to $185 million.

Genzyme Corp.'s CEO and chairman, Henri Termeer, said in a prepared statement, "The catalysts for Renagel's growth are in place. The longer-term potential for Renagel continues to be tremendous. We remain highly confident in our outlook for the product and in the fundamental strength of all of our businesses."