Genzyme Reports Significant Revenue and Earnings Growth in First Quarter
Genzyme Corporation (Nasdaq: GENZ) reported today that first-quarter revenue increased 21 percent to a record $883.2 million, up from revenue of $730.8 million in the same period a year ago. The increase was driven by strong growth across most product areas.
GAAP net income rose 57 percent in the quarter to $158.2 million, up from $101.0 million in last year’s first quarter, reflecting higher revenue, an improved gross margin, and continued expense control. GAAP earnings rose 54 percent to $0.57 per diluted share, up from $0.37.
Non-GAAP net income in the first quarter grew 35 percent to $210.7 million, compared with $156.5 million in the same period last year. Non-GAAP earnings grew 33 percent to $0.78 per diluted share, compared with $0.59 in the first quarter a year ago. Non-GAAP figures exclude a gain on the sale of an investment, along with amortization and stock-compensation expenses and the effect of contingent convertible debt.
Genzyme is confident that it will sustain this strong performance through the year and is therefore increasing its non-GAAP earnings guidance for 2007 to $3.20-$3.30 per diluted share, up from previous guidance of $3.05-$3.15 per diluted share. With this increase, the company will fully absorb the dilution created by last year’s acquisition of AnorMED Inc. For the second quarter of this year, Genzyme anticipates non-GAAP earnings per diluted share in the low $0.80s.
Genzyme’s cash flow remains particularly strong. In the first quarter, the company generated approximately $231 million in cash from operations, and it increased its cash position to approximately $1.5 billion.
“We had a magnificent quarter, and our results reflect the fundamental strength of the company,” said Genzyme’s Chairman and Chief Executive Officer, Henri A. Termeer. “We’ve begun the year with substantial momentum. The business is performing well across the board, trial results have confirmed the promise of several late-stage programs, and we remain on track to report results from additional pivotal studies throughout the year.”
Genzyme’s bullish outlook for both this year and beyond is based on three factors:
The expectation that revenue will continue to increase at a strong and sustainable rate, driven by the ongoing growth of the company’s more than a dozen standard-setting products.
The confidence that operating leverage from the company’s global manufacturing and commercial infrastructure will continue to drive profitability.
The company’s enthusiasm about the strength of its late-stage product pipeline, which is richer now than at any other point.
Sales of Genzyme’s newest product Myozyme® (alglucosidase alfa) continue to exceed Genzyme’s expectations one year after approval. Myozyme sales in the first quarter were $37.9 million, leading Genzyme to increase its guidance for the year to $170-$180 million, up from a previous estimate of $155-$180 million. Myozyme is the first treatment ever developed for Pompe disease, a progressively debilitating and often fatal neuromuscular disorder. Genzyme is making steady progress toward introducing the product throughout the world, as it has done with its three other treatments for lysosomal storage disorders. Last week, Myozyme was approved in Japan, and Genzyme expects to launch the product there this quarter following pricing approval. Results from the ongoing post-marketing study of Myozyme involving patients with late-onset Pompe disease will be submitted to regulatory authorities in 2008. The trial is intended to provide further support for Myozyme’s use.
Genzyme will file this quarter for approval of a larger scale manufacturing process to supply Myozyme for the U.S. market. An FDA decision is expected in the fourth quarter. Production at the larger scale at the company’s Allston Landing facility—which is already approved for use in 28 countries—is intended to enable Genzyme to meet the expected demand for Myozyme in the United States going forward. The company is taking several steps to optimize supply for the U.S. market during the review period. Highest priority will be placed on ensuring that the treatment is available for all patients currently on therapy, and for those in most urgent medical need, including all those who are 18 years or younger. Some will access Myozyme produced at the larger scale during the review period through a clinical program designed to allow access prior to approval of the manufacturing process.
Genzyme’s three other treatments for lysosomal storage disorders showed continued strength in the first quarter: Sales of Fabrazyme® (agalsidase beta) for Fabry disease increased 25 percent to $100.7 million, compared with $80.5 million in the same quarter last year. Sales of Cerezyme® (imiglucerase for injection), the standard of care for patients with Type 1 Gaucher disease, grew 10 percent to $263.8 million, compared with $239.0 million in the first quarter a year ago. Sales of Aldurazyme® (laronidase) for MPS I grew 26 percent to $26.8 million, compared with $21.3 million in last year’s first quarter. Aldurazyme is marketed through a joint venture with BioMarin Pharmaceutical Inc., and product sales are not included in Genzyme’s revenue figures.
Genzyme continues to invest in developing potential next-generation approaches to treating lysosomal storage disorders. The most advanced of these is the small molecule GENZ-112638, which the company is currently studying in an international, multi-center, open-label phase 2 clinical trial involving patients with Gaucher disease. Enrollment in the trial will likely conclude next month, and Genzyme expects preliminary findings to be available by the time of its annual Analyst Day meeting in mid-May. The trial will help determine the potential of this compound to serve as an alternative or adjunct to enzyme replacement therapy for a number of rare diseases. A safe and effective oral therapy would significantly alter the way physicians approach Gaucher disease.
Also within the Therapeutics area, sales of Thyrogen® (thyrotropin alfa for injection) grew 15 percent to $26.3 million compared with $23.0 million in the first quarter a year ago. Thyrogen is currently indicated for use in diagnostic procedures involving patients being screened for thyroid cancer recurrence. In Europe, Genzyme has won approval for the product’s use in thyroid ablation procedures, and U.S. approval for this indication is expected by year end. To further broaden the potential use of thyrotropin alfa, Genzyme plans to initiate a phase 2 study of a novel formulation of recombinant TSH in the next several months evaluating the product’s ability to benefit patients suffering from multinodular goiter.
Within the Renal business, sales of Renagel® (sevelamer hydrochloride) grew 16 percent to $137.4 million, up from $118.7 million in the first quarter a year ago. Renagel continues to gain market share based on its demonstrated clinical and economic benefits, and it has substantial additional growth potential over the long term.
Renagel is indicated for the control of serum phosphorus in patients with chronic kidney disease on hemodialysis. Genzyme is making excellent progress toward introducing a second-generation version of Renagel that also may benefit patients with chronic kidney disease who have not progressed to dialysis. The company announced last week that a clinical study of Renvela® (sevelamer carbonate), a buffered form of Renagel, achieved its primary endpoint, demonstrating a statistically significant reduction in serum phosphorus for hyperphosphatemic patients with chronic kidney disease who are not on dialysis. Genzyme expects to gain approval for Renvela’s use in this indication next year. The FDA is now reviewing Genzyme’s application for Renvela’s use among dialysis patients.
Genzyme’s Hectorol® (doxercalciferol) is already indicated for patients with earlier stages of chronic kidney disease, as well as those on dialysis. This line of Vitamin D2 products for secondary hyperparathyroidism grew significantly in the first quarter compared to the same period last year. Hectorol sales rose to $28.3 million from $18.9 million a year ago. Hectorol is currently approved in the United States, and Genzyme is working to make the product available internationally.
The development of the novel polymer therapy tolevamer is being managed within Genzyme’s renal business unit. Tolevamer is a compelling product candidate that could become the first non-antibiotic treatment for Clostridium difficile-associated diarrhea, a widespread and growing global problem primarily affecting patients in hospitals and nursing homes. The prevalence, impact and cost of Clostridium difficile are becoming increasingly more visible as public health officials and others look for new ways to manage this disease. Results from the two phase 3 trials of tolevamer are expected to be available during the second half of this year. Pending a positive outcome, the first commercial approval is anticipated in 2009.
Sales of Thymoglobulin® (anti-thymocyte globulin, rabbit) and Lymphoglobuline® (anti-thymocyte globulin, equine) increased 20 percent in the first quarter, rising to $39.4 million from $32.9 million in last year’s first quarter. These products are used to treat acute rejection in organ transplant procedures.
Genzyme’s presence in the transplant field will provide an excellent platform for the anticipated introduction of Mozobil™ (plerixafor), which is designed to improve the outcome of stem-cell transplantation procedures. Genzyme is concluding two pivotal studies of this investigational product. Results of these studies, which involve patients with the blood cancers multiple myeloma and non-Hodgkin’s lymphoma, are anticipated around mid year. Genzyme obtained this promising new product candidate through its acquisition of AnorMED Inc. The company believes Mozobil may have much broader potential within the oncology field and plans to study its use as a chemosensitizing agent. A number of other opportunities outside of oncology are being evaluated.
First-quarter sales of Synvisc® (hylan G-F 20), a viscosupplement used to treat pain associated with osteoarthritis of the knee, were $53.6 million, consistent with sales of $53.3 million in last year’s first quarter. The market for viscosupplementation products such as Synvisc is affected by price competition. Genzyme is focused on changing the clinical and economic picture in this market with the planned introduction of a single-injection regimen, Synvisc ONE™, which has the potential to reduce the burden and cost of treatment, drive sales, and expand the market. The company will soon request an amendment to the Synvisc product labeling in the United States and Europe to include a single-injection regimen. In December, Genzyme reported preliminary results from a study showing that patients who received Synvisc through a single-injection regimen achieved a statistically significant improvement in pain from osteoarthritis of the knee over 26 weeks compared with those using placebo. Currently Synvisc is delivered through three injections given at one-week intervals.
Results from the pivotal trial of hylastan™, a next-generation viscosupplement, are expected this year, and Genzyme anticipates filing for U.S. and European approval of the product later this year. Hylastan is also designed to be administered using a single-injection regimen.
Sales of Sepra™ products increased significantly once again, rising 19 percent to $23.1 million in the first quarter, up from $19.4 million in last year’s first quarter. Seprafilm® adhesion barrier continues to be a dynamic product, and its growing use in larger markets such as gynecologic surgery is helping to drive overall sales. Genzyme is investing in increasing the size of its U.S. Sepra sales force to support the further growth of this product.
Total revenue for the Genetics business increased to $66.2 million in the first quarter, 15 percent greater than revenue of $57.5 million in the first quarter a year ago. Genzyme’s diagnostic services business continues to gain momentum, spurred by increasing market share, improved operating efficiencies, growth in its clinical trial business, and broader recognition throughout the health care industry of the value of diagnostics in improving outcomes.
Revenue for Genzyme’s Diagnostic Products business is now grouped with “Other” revenue, which also includes oncology revenue, sales of pharmaceutical intermediates, and WelChol® (colesevelem hydrochloride) royalties. Other revenue grew 26 percent in the first quarter to $82.2 million, compared with $65.4 million in the same quarter last year.
Oncology revenue was $22.4 million, 84 percent greater than $12.2 million in the first quarter a year earlier, driven in part by sales of Clolar® (clofarabine injection), which more than doubled. Sales of Campath® (alemtuzumab) were also stronger than anticipated, and Genzyme and marketing partner Bayer Schering Pharma AG, Germany, have now applied to expand Campath’s U.S. and European labeling to include first-line treatment of B-cell chronic lymphocytic leukemia. A label expansion to include first-line therapy would significantly increase the number of patients eligible to receive Campath, which is currently indicated for the treatment of B-CLL in patients who have been treated with alkylating agents and who have failed fludarabine therapy.
Genzyme and Bayer Schering Pharma AG, Germany, are moving ahead to complete the development of alemtuzumab for patients with multiple sclerosis. Interim two-year data from the phase 2 clinical trial of alemtuzumab for relapsing-remitting multiple sclerosis will be presented at the American Academy of Neurology annual meeting in Boston on May 1. Three-year data from this study are expected to be available later this year. In addition, significant progress has been made toward the initiation of two planned phase 3 clinical trials, one involving previously untreated patients and one involving patients receiving an approved therapy whose disease has progressed. These phase 3 studies are expected to begin this year, following FDA clearance.
Genzyme is seeking to expand Clolar’s indication to include adult patients with acute myelogenous leukemia (AML). The product is currently indicated for the treatment of pediatric patients with relapsed or refractory acute lymphoblastic leukemia after at least two prior regimens. Two trials of Clolar involving adult patients with AML are currently underway and are expected to provide substantial support for expanding the current product label, which Genzyme intends to pursue next year.
Non-GAAP selling, general and administrative expenses were $246.3 million in the first quarter, compared with $210.9 million in the quarter a year ago. Non-GAAP SG&A spending represented 28 percent of revenue in the quarter, down from 29 percent in the first quarter last year, reflecting the operating leverage Genzyme is gaining from its global commercial infrastructure. GAAP SG&A expenses were $269.0 million in the quarter compared with $230.7 million in the quarter a year earlier.
Non-GAAP research and development spending rose to $146.3 million in the first quarter, up from $136.9 million in last year’s first quarter. Genzyme’s R&D spending reflects the addition of the Mozobil program, along with spending on other late-stage development programs, offset by the termination of certain development programs and lower manufacturing process-development costs as the Waterford fill-and-finish facility has come on line. GAAP R&D spending was $166.1 million for the quarter compared with $152.3 million in the quarter a year earlier.
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