Genzyme Reports Financial Results for the First Quarter of 2006
April 19, 2006, Genzyme Corp. (Nasdaq: GENZ) today announced financial results for the first quarter of 2006. Revenue increased 16 percent to $730.8 million, up from $629.9 million in the same quarter a year earlier.
GAAP net income rose to $101.0 million, or $0.37 per diluted share, compared with $95.6 million, or $0.36 per diluted share in the first quarter last year. GAAP earnings in the first quarter of 2006 reflect the implementation of FAS 123R related to expensing of stock options, which impacted results by $22.3 million net of tax, or $0.08 per diluted share.
Non-GAAP net income - which excludes amortization, contingent convert, and the impact of FAS 123R - increased to $156.5 million, or $0.59 per diluted share, up from $131.1 million, or $0.51 per diluted share, in the first quarter a year ago.
Genzyme received broad approval in the European Union earlier this month to market Myozyme® (alglucosidase alfa) for all patients diagnosed with Pompe disease, and a decision is expected in the United States by April 28, the Food and Drug Administration’s deadline for action on the application. In anticipation of these actions, during the first quarter Genzyme continued to build on investments begun in 2005 to prepare for the launch of Myozyme in Europe and the United States and to scale up manufacturing operations in Ireland and Belgium. In addition, Genzyme has fully enrolled a 90-patient trial evaluating Myozyme in patients with late-onset Pompe disease.
“We are very proud to have received approval during the quarter to bring the first therapy to patients with Pompe disease, and we are preparing for a successful worldwide launch,” said Henri A. Termeer, Genzyme’s chairman and chief executive officer. “We made important progress on many fronts this quarter. Most of our key products performed well, particularly Renagel, which showed very strong growth. A few of our products experienced revenue growth slightly below our plan, and that, coupled with our significant rate of investment, held EPS growth to approximately 16 percent over the same quarter last year. We are confident that revenue growth will re-accelerate and the spending growth rate will decline in the quarters ahead, so that we can deliver earnings consistent with our financial goals.”
Genzyme is reiterating its full-year revenue guidance of $3.1 to $3.3 billion, and its earnings guidance per diluted share of $1.78-$1.88 (GAAP) and $2.65-$2.75 (non-GAAP).
First quarter results were shaped by investments in late-stage clinical programs, Myozyme launch preparations, and manufacturing scale-up. Sales of Fabrazyme® (agalsidase beta), Synvisc® (hylan G-F 20) and Hectorol® (doxercalciferol) experienced sequential growth below Genzyme’s expectations, but all are expected to strengthen in the quarters ahead. Fabrazyme growth will be driven by the continued accrual of new patients on therapy, including the impact of many who began treatment near the end of the first quarter. While affected by seasonality, Synvisc sales are expected to grow solidly in the second and third quarters, reflecting the typical trends associated with the product. And strong underlying demand will drive sales of Hectorol, which were affected during the first quarter by a $3 million non-recurring contractual allowance charge.
The company’s gross margin for the quarter was 77 percent, comparable to the same quarter a year ago.
Ongoing investments in manufacturing have resulted in significant progress in bringing new production facilities on-line. Thymoglobulin® (anti-thymocyte globulin, rabbit) is now being filled at Genzyme’s new biological fill/finish facility in Waterford, Ireland, and regulatory authorities have conducted on-site inspections as part of the facility licensing process for US and EU supply. Genzyme has completed its first in-house engineering runs for Campath® (alemtuzumab for intravenous infusion) at its newly constructed biomanufacturing facility in Geel, Belgium in preparation for producing clinical trial supply later this year.
Within the Renal division, revenue for Renagel® (sevelamer hydrochloride), a phosphate binder for patients with end-stage renal disease on hemodialysis, was $118.7 million, an increase of 19 percent from $99.4 million in the same quarter last year. Key drivers for Renagel sales during the year will be the implementation of the Medicare prescription drug benefit, and continued dissemination of positive clinical data. Genzyme expects publication in a peer reviewed medical journal this year of the Dialysis Clinical Outcomes Revisited (DCOR) trial, which compared the morbidity and mortality outcomes of patients on Renagel with those on calcium-based phosphate binders.
First-quarter sales of Hectorol, a line of vitamin D2 products approved to treat secondary hyperparathyroidism in patients on dialysis and with earlier stages of chronic kidney disease, were $18.9 million.
The first quarter of 2006 showed strong and growing demand for both Renagel and Hectorol, with total prescriptions for both products reaching their highest levels ever. Late in 2005 the Hectorol and Renagel sales organizations were combined, which enabled Genzyme to increase its U.S. renal sales force substantially and extend its reach within both the end-stage renal disease and chronic kidney disease markets.
Within the Therapeutics area, sales of Fabrazyme enzyme replacement therapy for Fabry disease were $80.5 million, 15 percent higher than last year’s first quarter sales of $70.0 million.
Sales of Cerezyme® (imiglucerase for injection) enzyme replacement therapy for Type 1 Gaucher disease were $239.0 million compared with $226.0 million in the same period a year ago, an increase of six percent. As indicated in previous quarters, Genzyme expects modest growth from Cerezyme going forward. There are approximately 4,600 patients receiving Cerezyme worldwide. Cerezyme sales represent an increasingly smaller proportion of Genzyme’s overall revenue.
Sales of Aldurazyme® (laronidase) enzyme replacement therapy for patients with MPS I increased 34 percent to $21.3 million in the first quarter, compared with $15.9 million in the same quarter last year. Aldurazyme is marketed through a joint venture with BioMarin Pharmaceutical Inc., so product sales are not reflected in Genzyme’s revenue.
Sales of Thyrogen® (thyrotropin alfa for injection) increased 30 percent to $23 million in the first quarter, up from $17.7 million a year earlier.
Within the Biosurgery area, Synvisc revenue was $53.3 million, up 21 percent from revenue of $44.0 million in the first quarter last year, the first quarter in which Genzyme began to sell the product directly after acquiring sales and marketing rights in the United States and five additional European countries. Synvisc is a leading viscosupplementation product for the treatment of knee pain due to osteoarthritis. The worldwide market for Synvisc is broad and growing, and Genzyme expects that new indications for the product and new formulations under development will contribute to the growth of the product and the company over the long term.
Sales of SepraTM products were $19.4 million, 17 percent greater than $16.7 million in the first quarter a year ago.
Within the Transplant area, combined sales of Thymoglobulin and LymphoglobulineTM (anti-thymocyte globulin, equine) increased 21 percent in the first quarter to $32.9 million, compared with $27.2 million during the same period last year. These products are used in conjunction with immunosuppressant drugs to treat acute rejection in renal transplant procedures.
Total revenue for the Diagnostics/Genetics business increased to $86.7 million in the first quarter, up nine percent compared with $79.4 million in last year’s first quarter.
Other revenue-including oncology revenue, sales of pharmaceutical intermediates, and royalties from sales of WelChol® (colesevelam hydrochloride)-was up 21 percent to $36.2 million, compared with $29.9 million in the first quarter last year.
Oncology revenue was $12.2 million and includes profits and royalties from Campath which is marketed by Schering AG and its U.S. affiliate Berlex; sales of Clolar® (clofarabine for intravenous infusion); and R&D revenue. This total compares with $11.5 million for the same quarter last year.
Selling, general and administrative expenses excluding FIN 46 and FAS 123R in the first quarter were $210.9 million, compared with $181.8 million in the first quarter of 2005. For both quarters SG&A spending was approximately 29 percent of revenue. The reconciliation from GAAP to non-GAAP expenses is included on the accompanying chart.
Research and development spending excluding FIN 46 and FAS 123R was $136.9 million (or 19 percent of revenue) in the first quarter, up from $110.4 million (or 18 percent of revenue) in the same period last year. R&D investment is driven primarily by three major development programs: tolevamer for the treatment of Clostridium difficile-associated diarrhea, sevelamer carbonate for the treatment of chronic kidney disease, and the late onset treatment study of Myozyme. During the quarter, Genzyme made excellent progress advancing these and other programs. Highlights include the following:
- Genzyme has completed enrollment in a 90-patient clinical study involving patients with late-onset Pompe disease, which is intended to provide further support for Myozyme’s use. The trial will continue throughout this year, and results will be available early next year. The trial enrolled patients at seven sites in the US and Europe.
- More than half of the 1,000 planned patients have been enrolled in the phase 3 trial of tolevamer, a novel non-absorbed polymer therapy that could be the first non-antibiotic treatment for Clostridium difficile-associated diarrhea, a widespread and growing global problem among hospital and nursing home patients. The trial has enrolled more than 500 patients at 270 medical centers in Europe, North America and Australia. Interim data are expected early next year.
- Enrollment has been completed in a trial evaluating the equivalence of sevelamer carbonate to Renagel for patients with chronic kidney disease on hemodialysis. Genzyme has also begun a study evaluating the potential of sevelamer carbonate to benefit patients with chronic kidney disease who are not on dialysis, and a study comparing a powder form of sevelamer carbonate to Renagel. Successful development of a powder formulation could provide an additional option to increase patient compliance. Marketing approval of sevelamer carbonate to treat earlier stages of chronic kidney disease would enable Genzyme to access a much larger patient population than currently use Renagel.
- Genzyme is conducting pivotal trials of Synvisc 2 and hylastan, potential next-generation viscosupplementation products under development for the treatment of osteoarthritis pain. Enrollment has been completed in the trial of Synvisc 2, and Genzyme is planning for product launch next year in Europe and the United States. Genzyme also expects to launch Synvisc in the US for use in the hip during the first half of 2007.
- Enrollment will begin in the coming weeks in the first of three Phase 3 combination studies evaluating the use of Clolar in adult patients with acute myelogenous leukemia. Clolar is currently indicated for the treatment of pediatric patients with relapsed or refractory acute lymphoblastic leukemia after at least two prior regimens.
- Enrollment will begin later this quarter in an international, multi-center Phase 2 clinical trial evaluating the safety and efficacy of the small molecule GENZ-112638 for the treatment of Gaucher disease. GENZ-112638 has the potential to be applicable across a range of lysosomal storage disorders in addition to Gaucher disease.
- Genzyme anticipates that two-year data will be available in the second half of this year from its Phase 2 clinical trial of Campath in multiple sclerosis.
One of the world’s leading biotechnology companies, Genzyme is dedicated to making a major positive impact on the lives of people with serious diseases. This year marks the 25th anniversary of Genzyme’s founding. Since 1981, the company has grown from a small start-up to a diversified enterprise with more than 8,000 employees in locations spanning the globe and 2005 revenues of $2.7 billion. Genzyme has been selected by FORTUNE as one of the “100 Best Companies to Work for” in the United States.
With many established products and services helping patients in more than 80 countries, Genzyme is a leader in the effort to develop and apply the most advanced technologies in the life sciences. The company’s products and services are focused on rare inherited disorders, kidney disease, orthopaedics, cancer, transplant and immune diseases, and diagnostic testing. Genzyme’s commitment to innovation continues today with a substantial development program focused on these fields, as well as heart disease and other areas of unmet medical need.
This press release contains forward-looking statements, including statements regarding earnings, revenue and product sales estimates for fiscal year 2006, receipt of approval for Myozyme in the US, including the timing thereof and the anticipated timing of a Myozyme launch, expected drivers of Genzyme’s future growth, as well as the growth drivers for certain products, including Renagel, Fabrazyme, Hectorol and Synvisc, anticipated progress of clinical trials, including those for Myozyme, tolevamer, sevelamer carbonate, hylastan, Synvisc 2, Clolar, GENZ-112638 and Campath MS, the anticipating timing of Synvisc 2 and hylastan launches, the development of new markets for Genzyme’s existing products, including Synvisc, publication of results from the DCOR trial, and other statements regarding Genzyme’s future performance and strategy. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those forecast in these forward-looking statements. These risks and uncertainties include, among others, Genzyme’s ability to successfully complete preclinical and clinical development of its products and services, Genzyme’s ability to expand the use of current products in existing and new indications; Genzyme’s ability to maintain and obtain regulatory approvals for products and services, and the timing of receipt of such approvals, including for Myozyme; Genzyme’s ability to successfully identify and market to new patients; the scope of third-party reimbursement coverage for Genzyme’s products and services; Genzyme’s ability to successfully expand its sales and marketing teams in existing and new markets; Genzyme’s ability to manufacture products and product candidates in a timely and cost effective manner; and the risks and uncertainties described in Genzyme’s SEC reports filed under the Securities Exchange Act of 1934, including the factors discussed under the caption “Factors Affecting Future Operating Results” in Genzyme’s Annual Report on Form 10-K for the period ended December 31, 2005. Genzyme cautions investors not to place substantial reliance on the forward-looking statements contained in this press release. These statements speak only as of April 19, 2006 and Genzyme undertakes no obligation to update or revise the statements.
This press release includes certain non-GAAP financial measures that involve adjustments to GAAP figures. Genzyme believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Genzyme’s past financial performance and its prospects for the future. The non-GAAP financial measures are included with the intent of providing both management and investors with a more complete understanding of underlying operational results and trends. In addition, these non-GAAP financial measures are among the primary indicators Genzyme management uses for planning and forecasting purposes. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP figures. In addition, gross margin figures exclude amortization of product-related intangible assets.
Genzyme®, Renagel®, Hectorol®, Fabrazyme®, Cerezyme®, Thyrogen®, Synvisc®, Myozyme®, Aldurazyme®, Thymoglobulin®, Clolar® and Campath® are registered trademarks and SepraTM and LymphoglobulineTM are trademarks of Genzyme Corporation or its subsidiaries. WelChol® is a registered trademark of Sankyo Pharma Inc.
Conference Call Information
There will be a conference call today at 11:00 a.m. Eastern to discuss Genzyme Corporation’s financial results for the first quarter of 2006. If you would like to participate in the call, please dial (706) 679-8722. This call will also be Webcast live on the investor events section of www.genzyme.com. A replay of this call will be available from 2:30 p.m. Eastern today through midnight on April 26 by dialing (706) 645-9291. Please refer to reservation number 5531792.
Genzyme will announce its financial results for the second quarter of 2006 on July 12. There will be a conference call to discuss these results at 11:00 a.m. Eastern. If you would like to participate in the call, please dial (706) 679-8722. This call will also be Webcast live on the investor events section of www.genzyme.com. A replay of this call will be available by dialing (706) 645-9291. Please refer to reservation number 7981370. Replays of the call and the Webcast will be available until midnight on July 19, 2006.
Genzyme’s press releases and other company information are available at www.genzyme.com and by calling Genzyme’s investor information line at 1-800-905-4369 within the United States or 1-703-797-1866 outside the United States.
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