Genzyme Reports Significant Earnings Growth in Second Quarter
Genzyme Corporation (Nasdaq: GENZ) reported today that strong revenue growth and solid operating leverage drove a significant increase in second-quarter non-GAAP profits, continuing the momentum of the past several quarters. Revenue rose 18 percent to $933.4 million from $793.4 million in the same period a year ago, driven once again by growth in most product areas.
GAAP net income rose to $139.9 million, or $0.51 per diluted share, compared with $134.5 million, or $0.49 per diluted share, in the quarter a year ago.
Non-GAAP net income grew 32 percent to $238.7 million from $181.2 million in the same period last year. Non-GAAP earnings rose 30 percent to $0.88 per diluted share from $0.68. Non-GAAP figures for this year’s second quarter exclude pre-tax stock-compensation expenses of $71.8 million, amortization of $49.5 million, a $25 million milestone payment to Ceregene Inc., and the effect of contingent convertible debt.
Genzyme expects to exceed its 2007 non-GAAP earnings guidance of $3.20-$3.30 per diluted share, given its strong results in the first half of the year. The company now expects non-GAAP earnings of $3.35-$3.40 per diluted share.
Based on its strong and consistent performance, the potential of its deep product portfolio, and the leverage from its global infrastructure, Genzyme anticipates that non-GAAP earnings will grow at a compound average of 20 percent annually from 2006 through 2011.
“We are confident about the current strength of the company and have a bullish view of our future,” said Genzyme’s Chairman and Chief Executive Officer, Henri A. Termeer. “We remain focused on our goal of sustaining a 20 percent earnings growth rate. We evaluate every decision we make about internal programs and acquisitions in the context of this goal.”
During the second quarter, Genzyme generated approximately $290 million in cash from operations and increased its cash position to approximately $1.5 billion. The company has begun using a portion of its operating cash flow to repurchase up to 20 million of its outstanding common shares over the next three years to reduce the dilutive effect of its equity compensation programs. In the second quarter, the company repurchased approximately 1 million shares.
Genzyme has reported pivotal trial results this year for many late-stage development programs. These results provide greater clarity and certainty about the promise of a number of potential new products that the company expects will contribute to its growth over the longer term. Based on the results of these studies, Genzyme anticipates that during the next six to twelve months it will do the following:
--Apply for approval to market Mozobil™ (plerixafor), an innovative product intended to facilitate and improve the outcome of stem-cell transplantation procedures. In the pivotal trial of Mozobil involving patients with non-Hodgkin’s lymphoma, the product showed a treatment effect that was three times greater than the current standard of care. In the first half of next year, Genzyme intends to apply for U.S. and European approval to market Mozobil for a lymphoma indication. The company will also seek a multiple myeloma indication for Mozobil if the soon-to-be-released results from a second phase 3 trial are also favorable. The Genzyme’s global presence in the transplant field will provide an excellent platform for the anticipated introduction of Mozobil.
--Launch Renvela® (sevelamer carbonate) in the United States. Renvela is a second-generation, buffered form of Renagel® (sevelamer hydrochloride) that will enable Genzyme to expand the market for its phosphate binder by reaching patients with chronic kidney disease who have not progressed to dialysis. The FDA is currently reviewing Genzyme’s application for Renvela’s use by dialysis patients. The company expects to subsequently pursue a chronic kidney disease indication and to file for approval of a powder form of Renvela that may make it easier for patients to comply with their prescribed treatment program.
--Gain approval for Campath® (alemtuzumab) as a first-line treatment for B-cell chronic lymphocytic leukemia (B-CLL). The product 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 has filed to expand Campath’s U.S. and European labeling to include first-line treatment, which would significantly increase the number of patients eligible to receive the product. FDA action is expected in the third quarter.
--Seek U.S. approval for the use of Clolar® (clofarabine for injection) as a first-line treatment for adult patients with acute myeloid leukemia (AML). Clolar is currently indicated for the treatment of acute lympblastic leukemia in relapsed and refractory pediatric patients. Genzyme is conducting two trials of Clolar involving adult patients with AML and expects to pursue an expanded U.S. indication next year.
--Launch Synvisc-One™, an investigational combined-dose regimen of Synvisc® (hylan G-F 20) provided in a single injection. Genzyme is confident that a viscosupplementation product that can be delivered through a single knee injection will simplify osteoarthritis pain management, reduce the overall cost of therapy and offer a treatment option that may expand the benefits of viscosupplementation to a broader number of patients. The company has submitted U.S. and European applications for Synvisc-One, and action on both is expected this year.
--Apply for CE Mark approval of hylastan™ in the European Union. Hylastan is an alternatively formulated viscosupplementation product that, like Synvisc-One, was designed to simplify osteoarthritis pain management by reducing the number of required knee injections. The pivotal trial of hylastan showed that the product reduced knee pain in a significant and clinically meaningful way, and Genzyme believes that this result will support a CE Mark approval in Europe. The pivotal study of hylastan did not meet its primary endpoint of showing that the product can provide superior pain relief to steroids.
Sales of Genzyme’s four treatments for lysosomal storage disorders showed continued strength in the second quarter, driven by the growing number of patients receiving therapy. Sales of Myozyme® (alglucosidase alfa) rose to $46.7 million, compared with $6.5 million in the same period a year ago following product launch. Last month, Genzyme launched Myozyme in Japan, and the company is preparing for approval in Brazil, another key market. Genzyme is pursuing FDA approval of a larger scale manufacturing process to supply Myozyme for the U.S. market, and an agency decision is now expected in the first half of next year. Production at this larger scale is already approved in 28 countries. The company is accelerating efforts to optimize product supply for the U.S. market until the FDA approves the larger-scale process. These efforts include temporarily transitioning some patients to a clinical access program through which they may receive Myozyme produced at the larger scale. The study of Myozyme involving patients with late-onset Pompe disease will conclude this year, and results will be available in the first part of next year for submission to regulatory authorities.
Sales of Fabrazyme® (agalsidase beta) increased 17 percent to $104.3 million, compared with $89.0 million in the same quarter last year. Sales of Cerezyme® (imiglucerase for injection) grew 11 percent to $283.0 million, compared with $254.0 million in the second quarter a year ago. Sales of Aldurazyme® (laronidase) grew 24 percent to $29.1 million, compared with $23.5 million in last year’s second quarter. Aldurazyme is marketed through a joint venture with BioMarin Pharmaceutical Inc.
Genzyme expects that it will receive approval to market Elaprase™ (idursulfase) in Japan by the end of this year. Elaprase is an enzyme replacement therapy for the treatment of the lysosomal storage disorder MPS II, also known as Hunter syndrome. Genzyme is commercializing Elaprase in Asia under an agreement with Shire plc.
Genzyme has completed enrollment in the open-label Phase 2 trial of the small molecule Genz-112638, a novel oral therapy being developed for the treatment of Gaucher disease. Based on positive results seen in the trial to date, the company intends to meet with regulatory agencies in the coming weeks to discuss an expedited development strategy. Initial observations for the first five patients were presented at Genzyme’s Analyst Day meeting in May and suggest that Genz-112638 may produce a rapid and meaningful impact on important clinical endpoints including reductions in spleen and liver volume, and an increase in platelet counts and hemoglobin concentration. Results for the sixth patient enrolled in the study have now been analyzed and are consistent with observations for the first five patients.
Sales of Thyrogen® (thyrotropin alfa for injection) grew 25 percent in the second quarter to $29.5 million, compared with $23.7 million in the period a year ago. Genzyme expects U.S. approval for Thyrogen’s use in thyroid cancer ablation procedures this year. This indication is included in the product’s labeling in the European Union and a number of other major markets. To potentially further broaden the use of thyrotropin alfa, Genzyme has initiated a phase 2 study of a novel formulation of recombinant TSH that will evaluate the product’s ability to benefit patients suffering from multinodular goiter.
Within the Renal business, sales of Renagel® (sevelamer hydrochloride) rose 14 percent to $145.0 million, up from $126.6 million in the second quarter a year ago. Renagel continues to gain market share based on its demonstrated clinical and economic benefits. Results from the Dialysis Clinical Outcomes Revisited (D-COR) study of Renagel have been accepted for publication in a major nephrology journal this fall. The study compared mortality and morbidity outcomes for patients on Renagel and patients receiving calcium-based phosphate binders.
Sales of Hectorol® (doxercalciferol) rose 22 percent to $27.3 million from $22.4 million a year ago. Hectorol is currently approved in the United States, and Genzyme is working to make the product available internationally.
Genzyme recently announced that the first of two phase 3 studies of tolevamer for Clostridium difficile-associated diarrhea did not meet its primary endpoint. This outcome changes the company’s expectation about the potential for commercializing tolevamer in the near future. Results from a second phase 3 study will be available later this year and will help Genzyme determine what contribution tolevamer might be able to make in addressing this serious unmet medical need.
Sales of Thymoglobulin® (anti-thymocyte globulin, rabbit) and Lymphoglobuline® (anti-thymocyte globulin, equine) were $41.4 million in the second quarter, a 4 percent increase from $39.8 million in last year’s second quarter.
Within the Biosurgery unit, second-quarter sales of Synvisc were $64.9 million, 2 percent greater than sales of $63.6 million in last year’s second quarter. Genzyme is focused on changing the clinical and economic picture in the competitive market for viscosupplementation products with the launch of the single-injection regimen, Synvisc-One.
Sales of Sepra® products rose 14 percent to $25.1 million in the second quarter, up from $22.0 million in last year’s second quarter. This increase is relatively consistent with previous quarters and reflects the growing use of Seprafilm® adhesion barrier in larger markets such as gynecologic surgery. Genzyme has increased the size of its U.S. Sepra sales force to drive the future growth of this product.
Genetics revenue increased by 21 percent in the second quarter, as the business continues to gain momentum, spurred by increasing market share, growth in its clinical trial business, and broader recognition throughout the health care industry of the value of diagnostics in improving outcomes. Revenue was a record $73.7 million compared with $61.0 million in the same period a year ago.
Other revenue increased 8 percent in the second quarter to $71.4 million, compared with $66.4 million in the same quarter last year. Other revenue includes sales of diagnostic products and pharmaceutical intermediates, royalties from the sale of WelChol® (colesevelem hydrochloride), and oncology revenue.
Oncology revenue increased significantly again this quarter, growing 27 percent to $17.4 million from $13.7 million in the second quarter a year ago. Oncology revenue includes sales of Clolar and profits and royalties for Campath.
Genzyme announced in May an agreement to acquire Bioenvision Inc. for approximately $345 million. The transaction process is moving forward as specified in the merger agreement. Bioenvision is preparing a proxy statement for its shareholders detailing the rationale for the merger and other material disclosures. A merger vote by Bioenvision shareholders is expected before the end of the year.
Genzyme and partner Bayer Schering Pharma AG, Germany, are moving ahead with a major program to complete the development of alemtuzumab for patients with multiple sclerosis. The companies have had extensive conversations with regulatory authorities in the United States and Europe and are preparing to conduct two phase 3 clinical trials, one involving previously untreated patients and one involving patients receiving an approved therapy whose disease has progressed. The former trial is expected to begin this quarter. Three-year data from the phase 2 clinical trial of alemtuzumab for relapsing-remitting multiple sclerosis are expected to be available later this year.
Second-quarter operating expenses increased 10 percent compared with the same quarter last year, while revenue grew 18 percent, underscoring the leverage Genzyme is gaining from its global commercial infrastructure. Non-GAAP selling, general and administrative expenses were $240.2 million compared to $220.4 million in the second quarter last year. Non-GAAP SG&A spending represented 26 percent of revenue in the quarter, down from 28 percent in the second quarter last year.
Non-GAAP research and development spending rose to $154.3 million in the second quarter, up from $138.6 million in last year’s second quarter, reflecting increased spending on late-stage programs. Non-GAAP R&D spending represented 17 percent of revenue, consistent with last year’s second quarter.
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