Genzyme Reports Second-Quarter Financial Results
Delivers Solid Earnings Growth Based on Strong Top-Line Performance
July 12, 2006, Genzyme Corp. (Nasdaq: GENZ) today reported a 19 percent increase in second quarter revenue, driven by growth across all major product areas. Revenue rose to $793.4 million from $668.1 million in the second quarter a year ago.
GAAP net income increased to $134.5 million, or $0.49 per diluted share, compared with $123.6 million, or $0.46 per diluted share, in the second quarter last year. GAAP net income includes a $42.0 million net gain in equity securities, principally reflecting the tender of Genzyme’s investment in Cambridge Antibody Technology Group plc, which is being acquired by AstraZeneca plc. GAAP earnings also include stock compensation expenses, which amounted to $55.3 million after taxes, or $0.20 per diluted share, and were higher than in the first quarter because they reflect the impact of Genzyme’s annual broad-based stock option grant in May. GAAP earnings for the second quarter of last year do not include stock compensation expenses.
Non-GAAP net income increased 22 percent to $181.2 million, up from $149.0 million in the same quarter a year ago, and non-GAAP earnings increased 19 percent to $0.68 per diluted share from $0.57 per diluted share. Non-GAAP figures exclude one-time items, amortization, stock compensation expenses, dilution from contingent convertible debt, and the impact of FIN 46.
“We had a strong quarter with excellent progress throughout the business, including solid results in the three product areas that were below expectations in the first quarter,” said Henri A. Termeer, Genzyme’s chairman and chief executive officer. “We are on track to meet our financial goals for the year, while also meeting our commitment to the future by continuing to invest in late-stage clinical trials, manufacturing expansion, and product launches.”
Genzyme reiterated its full-year revenue guidance of $3.1 to $3.3 billion, its GAAP earnings guidance of $1.78-$1.88 per diluted share, and its non-GAAP earnings guidance of $2.65-$2.75 per diluted share.
Within the Renal division, revenue for Renagel® (sevelamer hydrochloride), a phosphate binder for patients with end-stage renal disease on hemodialysis, grew 26 percent to $126.6 million, up from $100.8 million in the same period last year. Renagel’s growth is being driven by the communication of strong clinical data, improved access to the product through the Medicare Part D program, development of international markets, and the expanded U.S. commercial organization. Genzyme looks forward to the publication later this year of clinical results from the DCOR study and the presentation of health economic data from this study at the American Society of Nephrology meeting in November.
The expanded U.S. commercial organization is also helping to drive the growth of Hectorol® (doxercalciferol), which treats secondary hyperparathyroidism in patients on dialysis and those with earlier stages of chronic kidney disease. Hectorol sales in the second quarter were $22.4 million, compared with sales of $18.9 million in the first quarter. Genzyme has begun to implement the global commercialization strategy for Hectorol it envisioned when it acquired the product last July. During the quarter, it submitted a marketing application for the product in Argentina, and filings in Mexico and Israel are expected to follow later this year. The company is planning clinical studies to facilitate Hectorol’s registration in Europe and to reinforce its position in the United States.
Within the Therapeutics area, sales of Fabrazyme® (agalsidase beta) enzyme replacement therapy for Fabry disease grew 20 percent in the second quarter to $89.0 million, compared with sales of $74.4 million in the same quarter last year. Fabrazyme’s growth was driven by the number of new patients beginning therapy. Sales increased 11 percent from the first quarter.
Sales of Cerezyme® (imiglucerase for injection) enzyme replacement therapy for Type 1 Gaucher disease were $254.0 million, 8 percent greater than sales of $236.0 million in the second quarter a year ago.
Sales of Aldurazyme® (laronidase) enzyme replacement therapy for patients with MPS I were $23.5 million in the second quarter, a 23 percent increase from sales of $19.2 million in the same quarter last year. Aldurazyme is marketed through an increasingly profitable joint venture with BioMarin Pharmaceutical Inc.
Sales of Myozyme® (alglucosidase alfa) were $6.5 million in the second quarter. In April, the product was approved in the United States for the treatment of all patients with Pompe disease. Myozyme was launched in the United States in mid-May, and the product is also being introduced in a growing number of European Union countries following European Commission approval at the end of the first quarter. Genzyme is making excellent progress in securing reimbursement approvals both for patients with the infantile and the late-onset forms of Pompe disease. Myozyme sales are expected to increase throughout this year as patients transition from clinical trials or expanded access programs and as new patients are identified. Genzyme anticipates that sales will begin to have a material impact on the company next year. Marketing applications for Myozyme have been submitted in Japan and Canada, and Genzyme expects to file for approval in several additional countries in the coming months.
Sales of Thyrogen® (thyrotropin alfa for injection) rose to $23.7 million in the second quarter, a 15 percent increase from sales of $20.7 million during the same period a year earlier.
Within the Biosurgery area, sales of Synvisc® (hylan G-F 20) increased 8 percent compared with the second quarter of last year, rising to $63.6 million from $58.8 million, driven by the expanding market for viscosupplementation products. Product sales increased 19 percent from the first quarter of this year, reflecting seasonal trends and the impact of an expanded sales and marketing investment. Synvisc is indicated for the treatment of knee pain caused by osteoarthritis. Data from an independent study were presented last month at the annual congress of the European League Against Rheumatism that provide further evidence to differentiate Synvisc clinically from competing products. The study results showed that patients receiving Synvisc experienced a greater magnitude and duration of pain relief than those receiving Hyalgan® (sodium hyaluronate). Similarly, Synvisc patients experienced significantly better functional outcomes and higher levels of satisfaction than those receiving Hyalgan.
Sales of SepraTM products grew 28 percent to $22.0 million, up from $17.1 million in the second quarter a year ago. This growth was driven partially by the increasing use of Seprafilm® adhesion barrier in major gynecologic procedures, including oncologic surgery and Cesarean sections.
Within the Transplant area, combined sales of Thymoglobulin® (anti-thymocyte globulin, rabbit) and LymphoglobulineTM (anti-thymocyte globulin, equine) were $39.8 million, up 19 percent compared with $33.6 million in the second quarter 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 $87.3 million in the second quarter, 14 percent greater than revenue of $76.5 million in the same period last year. During the quarter, Genzyme Genetics introduced two new molecular tests that may enable physicians to better manage patients with acute myelogenous leukemia.
Other revenue-including oncology revenue, sales of pharmaceutical intermediates, and royalties from sales of WelChol® (colesevelam hydrochloride)-increased 30 percent to $40.1 million from $30.9 million in the second quarter last year.
Oncology revenue was $13.7 million, an increase of 41 percent compared with $9.7 million in the same quarter last year. Oncology revenue includes profits and royalties from Campath® (alemtuzumab), which is marketed by Schering AG and its U.S. affiliate Berlex; sales of Clolar® (clofarabine for intravenous infusion); and R&D revenue.
Selling, general and administrative expenses were $220.4 million, excluding the impact of stock compensation expenses and FIN 46. Non-GAAP SG&A spending was approximately 28 percent of revenue, down from 29 percent in the same period a year ago.
Non-GAAP research and development spending in the second quarter was $138.6 million, or 17 percent of revenue, excluding the impact of stock compensation expenses and FIN 46. Non-GAAP R&D spending in the same quarter last year was $115.3 million, or 17 percent of revenue. The reconciliation from GAAP to non-GAAP R&D and SG&A expenses is included on the accompanying chart.
Genzyme is conducting more late-stage trials now than at any point in its history. New products and new product indications are expected to expand and further diversify the company’s portfolio and contribute to its long-term growth. Clinical development program highlights for the second quarter include the following:
Enrollment is more than two-thirds complete 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 affecting patients in hospitals and nursing homes. The trial is scheduled for completion next year. Regulatory submissions are scheduled to begin late next year, and the first commercial approval is anticipated in 2008.
Preparations are underway for the initiation of a phase 3 study of alemtuzumab (Campath) for the treatment of relapsing/remitting multiple sclerosis, which is expected during the second half of this year. In addition, nearly all participating patients have now completed at least 24 months in the ongoing Phase 2 clinical trial comparing alemtuzumab with Rebif® (interferon beta-1a) for the treatment of multiple sclerosis. Genzyme expects to release data in the second half of this year from a two-year interim analysis of this three-year study.
Progress continues to be made within the sevelamer carbonate development program. A study evaluating the product’s equivalence to Renagel has been completed and results are being analyzed. 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 dosed once a day to Renagel tablets dosed three times a day. Such a formulation could provide an additional option to increase patient compliance.
The clinical study of Myozyme involving patients with late-onset Pompe disease is fully enrolled and will continue throughout this year. The 90-patient trial is intended to provide further support for Myozyme’s use. Results will be available early next year and will be submitted to regulatory authorities.
Advances continue within the clinical program designed to extend the use of Synvisc to the hip, shoulder and ankle, and to introduce new formulations of the product. Genzyme expects to launch Synvisc for use in the hip in the United States during the first half of 2007. The company is also conducting pivotal trials of Synvisc 2 and hylastan, potential next-generation viscosupplementation products that are designed to increase patient convenience by reducing the number of injections required for treatment. 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, depending on the outcome of the trial.
Genzyme is working to broaden the indications for its oncology products, Campath and Clolar, to benefit larger patient populations. A phase 3 trial comparing Campath with chlorambucil in previously untreated patients with progressive B-cell chronic lymphocytic leukemia (B-CLL) may demonstrate the product’s efficacy as a first-line agent. Encouraging interim results from this study, focusing on the study’s secondary endpoint, were presented at the Annual Meeting of the American Society of Clinical Oncology in June. They showed that patients who received Campath exhibited significantly higher overall and complete response rates, with a manageable safety profile, compared with chlorambucil patients. The interim results also showed statistically significant higher response rates to Campath in patients with certain cytogenic abnormalites that are typically associated with poor prognosis. Data from the study’s primary endpoint of progression-free survival are expected by the end of the year, when Genzyme and development partner Schering AG expect to submit U.S. and European applications to expand the product’s current label to include first-line treatment of B-CLL patients.
Genzyme is seeking to expand Clolar’s indication to include adult patients. Enrollment is expected to begin shortly in a phase 3 study evaluating Clolar’s use in combination with existing therapies for adult patients with acute myelogenous leukemia. Additional late-stage studies are also planned to support Clolar’s use in older patients. The product is currently indicated for the treatment of pediatric patients with relapsed or refractory acute lymphoblastic leukemia after at least two prior regimens.
In the lysosomal storage disease area, enrollment is expected to begin in the coming weeks 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. The trial will help determine the potential of this compound as an alternative or adjunct to enzyme replacement therapy. GENZ-112638 also may be applicable to several other lysosomal storage disorders in addition to Gaucher disease. Initiation of the phase 2 program follows completion of an extensive pre-clinical research effort and a phase 1 program that involved more than 120 subjects in three separate studies.
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 2006 earnings, revenues, EPS, and product sales estimates; expected drivers of Genzyme’s future growth, as well as the growth drivers for certain products, including Renagel, Hectorol, and Myozyme; the ability of our molecular tests to help physicians better manage treatment for patients with AML; the development of new markets and seeking additional approved indications and uses for Genzyme’s products, including Hectorol, Myozyme, Synvisc, Campath and Clolar; anticipated progress of clinical trials, including those for tolevamer, alemtuzumab MS, sevelamer carbonate, Myozyme, hylastan, Synvisc 2, Clolar and GENZ-112638; publication of results from the DCOR trial; the anticipating timing of Synvisc 2 launch; 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; 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; the ability to manage patient safety and the continued administration of alemtuzumab to MS patients following clinical hold release; Genzyme’s ability to develop and obtain approval of a patient safety plan for alemtuzumab MS; failure of Genzyme’s molecular tests to produce diagnostic results as anticipated; 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. Genzyme cautions investors not to place substantial reliance on the forward-looking statements contained in this press release. These statements speak only as of July 12, 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®, 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. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. Hyalgan® is a registered trademark of Sanofi Aventis. Rebif® is a registered trademark of Serono, 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 second quarter of 2006. If you would like to participate in the call, please dial (706) 679-8722. This call will also be Webcast on the investor events section of www.genzyme.com. A replay of the Webcast call will be available from 2:15 p.m. Eastern today through midnight on July 19. For the call, please dial (706) 645-9291 and refer to reservation number 7981370.
Genzyme will announce its financial results for the third quarter of 2006 on October 12, 2006. 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. The call will also be Webcast live on the investor events section of www.genzyme.com. A replay of the Webcast call will be available from 2:15 p.m. Eastern through midnight on October 19, 2006. For the call replay, please dial (706) 645-9291 and refer to reservation number 1650276.
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