Genzyme Reports Financial Results for Fourth Quarter of 2005 and Full Year
Provides Outlook for Growth in 2006
February 15, 2006, Genzyme Corporation (Nasdaq: GENZ) today reported fourth-quarter and full-year financial results for 2005. The company also provided guidance for 2006 that underscored its positive outlook for the year, which will be one of continued growth, investment, and progress for the company.
In the fourth quarter, GAAP net income increased to $106.6 million, or $0.39 per diluted share, compared with a net loss of $157.3 million, or $0.68 per diluted share, in the same period a year ago. On a non-GAAP basis, fourth-quarter net income grew 31 percent to $162.7 million from $124.3 million, and earnings increased to $0.60 per diluted share from $0.52 per diluted share. Non-GAAP figures exclude special items and amortization.
Special items included $22.2 million in acquisition-related expenses, consisting of charges to write off in-process research and development assets acquired from Avigen Inc., expiring Clolar® inventory acquired from ILEX Oncology Inc., and the turnover of the stepped-up value of Hectorol® inventory acquired from Bone Care International Inc. Genzyme also recorded $16.9 million in charges for unsuccessful production runs of Cerezyme® that occurred as the company’s Allston Landing manufacturing plant shifted to full capacity following a 50 percent expansion of the facility. Improved systems for managing the higher volume at this multi-product facility have been implemented.
For the full year, GAAP net income was $441.5 million, or $1.65 per diluted share, compared with $86.5 million, or $0.37 per diluted share, in the previous year. Non-GAAP net income increased 41 percent to $603.2 million, or $2.28 per diluted share, from $428.1 million, or $1.82 per diluted share, a year earlier. Non-GAAP figures exclude special items, amortization, and the impact of contingent convertible debt in the first three quarters.
Fourth-quarter revenue increased 23 percent to $728.7 million from $591.1 million, while revenue for the full year increased 24 percent to $2.7 billion from $2.2 billion in the previous year.
“Last year, we solidified the diversified business model we have been building over the past five years, and this year we will start to exploit this diversified picture more directly,” said Henri A. Termeer, chairman and chief executive officer of Genzyme Corp. “Our newer products will have an increasingly greater impact on the top line as they continue to grow, while Cerezyme sales in 2006 will represent just 30 percent of our overall revenue. We also expect to make significant progress in many areas within our broad late-stage clinical pipeline, where we are advancing a number of major programs that will fuel our continued growth and diversification. The first of these is Myozyme® for patients with Pompe disease, which we expect to launch in the second quarter and which will begin to have an impact on our business later in the year.”
Over the past five years, Genzyme’s financial performance has been reliably strong, with a compound annual revenue growth rate of 29 percent. Within that time, the company has transformed itself, making major investments to build a platform for consistent and sustainable future growth. This growth will be based on three drivers: (1) a diversified set of standard-of-care products now in the early stages of market penetration, augmented by new products from a deep research pipeline; (2) the facilities and expertise to manufacture these products; and (3) the global reach to make these products available to patients worldwide. Genzyme estimates that, five years from now, it will generate more than $5 billion in annual revenue from the group of products that it currently markets, along with Myozyme® (alglucosidase alfa), a product nearing approval.
Revenue & Earnings
Genzyme today confirmed the revenue and earnings guidance for 2006 that it provided in January. The company expects revenue of $3.1-$3.3 billion; GAAP earnings of $1.78-$1.88 per share; and non-GAAP earnings of $2.65-$2.75 per share. Non-GAAP earnings estimates exclude approximately $0.46 per share in amortization costs, $0.35 per share in costs associated with stock-option expensing, and $0.06 per share for the impact of contingent convertible debt.
Given the significant investments Genzyme will make during the first half of this year in late-stage clinical trials and product-launch activities, the company expects that earnings per share will increase at a greater rate in the second half of the year than in the first.
Revenue for Renagel® (sevelamer hydrochloride) for patients with end-stage renal disease is expected to reach $495-$505 million this year, compared with $417 million in 2005. The product’s growth this year and in the near term will be supported by the expected publication of clinical and economic findings from the Dialysis Clinical Outcomes Revisited study, which compared the difference in mortality and morbidity outcomes for patients receiving Renagel with those using calcium-based phosphate binders. Renagel’s growth will also be supported by expanded insurance coverage in the United States among patients enrolled in Medicare Part D plans, and by increasing adoption of the product in Europe and other parts of the world.
Sales of Fabrazyme® (agalsidase beta) are expected to reach $370-$390 million this year, compared with $305 million in 2005. Fabrazyme’s growth will continue to be based primarily on the number of newly identified patients beginning treatment. The publication of results from the Phase 4 study of Fabrazyme’s clinical benefit-anticipated this year-will further reinforce the product’s profile among physicians and health authorities.
Sales of Cerezyme® (imiglucerase for injection) are expected to reach $970-$980 million this year, compared with $932 million in 2005. As Genzyme has long noted, Cerezyme is in a mature phase after 14 years on the market, though the product remains an important contributor within the company’s diversified product portfolio and is the standard of care throughout the world for patients with Type 1 Gaucher disease.
Sales of Synvisc® (hylan G-F 20) are expected to reach $255-$265 million this year, compared with $219 million in 2005. The product’s near term growth will be driven by expanded marketing support, particularly the launch this quarter of a new promotional campaign in the United States designed to differentiate Synvisc clinically from competing products. Longer term, Synvisc’s growth will be driven by the expanding market for viscosupplementation products used to treat the pain of osteoarthritis. Genzyme is working to capture this opportunity by investing in market-development activities and in clinical programs designed to extend the use of the current formulation to the hip, shoulder and ankle, and to introduce new formulations that would increase patient convenience by reducing the number of injections required for treatment.
Revenue for the Diagnostics/Genetics business is expected to reach $365-$375 million this year, compared with $327 million in 2005. Growth in this area is expected from continued penetration of the cancer and reproductive testing markets and the launch of new personalized medicine tests that allow physicians to determine how patients are likely to respond to targeted therapies.
Genzyme’s gross margin prior to FIN 46 and special items is expected to be approximately 78 percent of revenue this year, consistent with the gross margin for 2005.
Selling, general and administrative expenses prior to FIN 46 and special items are expected to be relatively consistent as a percentage of revenue with SG&A expenses in 2005, which represented 29 percent of revenue. Estimates for this year reflect the anticipated launch of Myozyme in Europe and the United States, along with increased marketing support for Synvisc.
Research and development spending prior to FIN 46 and special items is expected to increase to approximately $560 million this year. Throughout the course of this year, Genzyme expects to initiate, conduct or complete 16 pivotal trials for new products or new indications and more than 20 Phase 1 or Phase 2 studies.
Genzyme’s effective net tax rate this year is expected to be approximately 30 percent on a GAAP basis and 31 percent on a non-GAAP basis, which excludes amortization and one-time items.
Capital expenditures are expected to total approximately $250-$300 million this year. Genzyme is making a significant investment in adding manufacturing capacity for products in late-stage clinical development and is constructing two new laboratory buildings to expand its research and development capacity.
Genzyme’s research and development program is focused on the areas of medicine where it markets commercial products, namely rare inherited disorders, kidney disease, orthopaedics, cancer, transplant and immune diseases, and diagnostic testing. It also conducts research in cardiovascular disease and other areas of unmet medical need. The company expects to make significant progress this year within its late-stage clinical pipeline:
- Commercial approval for Myozyme is expected within the next two months in both Europe and the United States. Myozyme has been developed for the treatment of Pompe disease, a debilitating, progressive and often fatal muscular disorder. The European Committee for Human Medicinal Products unanimously recommended full approval for the product last month, and marketing authorization from the European Commission is expected in March or April. The Food and Drug Administration is expected to act on the U.S. marketing application by April 28. Genzyme expects to complete enrollment soon in a 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.
- Enrollment is expected to begin in the first half of this year 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 and Dyax Corp. are expected to continue enrollment this year in the Phase 3 study of DX-88. The partners are developing DX-88 for the treatment of hereditary angioedema, a debilitating and life-threatening inflammatory condition characterized by recurrent attacks of severe pain and swelling in the limbs, abdomen and larynx.
- Genzyme is conducting several clinical studies to support marketing approval of sevelamer carbonate, a potential next-generation phosphate binder. Enrollment has been completed in a trial evaluating the product’s equivalence to sevelamer hydrochloride for patients with chronic kidney disease on hemodialysis. Enrollment has begun in a study evaluating the product’s potential to benefit patients with chronic kidney disease who are not on dialysis, a significantly larger population.
- 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 anticipates product launch next year in Europe and the United States.
Immune and Infectious Diseases
- Patient enrollment will continue in the Phase 3 study 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 prevalence and impact of Clostridium difficile are becoming increasingly more visible as public health officials and others look for new ways to address this disease.
- Genzyme and Schering AG Germany await comments from the FDA, following which they hope to resume dosing soon in the Phase 2 clinical trial evaluating Campath for the treatment of multiple sclerosis. The companies submitted a risk-management plan to the FDA and the EMEA earlier this month, which was approved by the study’s Data Safety Monitoring Board. Results from a pre-planned interim analysis of the Phase 2 trial were highly encouraging, and the companies are working with participating clinical investigators and regulatory authorities to ensure that a comprehensive program is in place to manage patient safety in both the ongoing Phase 2 and planned Phase 3 studies. Genzyme will request a meeting with the FDA during the first half of this year to review the proposed protocol for the Phase 3 study, which is now expected to begin during the second half of this year. Additional interim data from the Phase 2 study is expected to be available this year.
- Genzyme expects to begin enrollment this year in two Phase 3 clinical studies evaluating the use of Clolar® (clofarabine for intravenous infusion) in patients with acute myelogenous leukemia (AML), the most common type of leukemia in adults. Clolar is currently indicated for the treatment of pediatric patients with relapsed or refractory acute lymphoblastic leukemia after at least two prior regimens. One of the new studies is expected to enroll patients with relapsed or refractory AML, while the other will enroll untreated patients for whom standard induction chemotherapy is not an appropriate option.
- Results from the clinical trial CAM-307 are expected to be available this year. This Phase 3 study evaluated the use of Campath® (alemtuzumab for injection) as a first-line therapy for patients with B-cell chronic lymphocytic leukemia. Campath is currently indicated for the treatment of patients with this type of leukemia who have been treated with alkylating agents and who have failed fludarabine therapy.
Genzyme has a longstanding commitment to ensure that physicians and patients have access to all relevant information about the medicines it markets and the investigational products it develops. Genzyme previously registered all of its active, company-sponsored Phase 2, 3 and 4 hypothesis-testing clinical trials on the National Institutes of Health Web site www.clinicaltrials.gov. This information is now available on the company’s own Web site at www.GenzymeClinicalResearch.com. Also included here are results from pivotal and post-marketing trials of Genzyme’s approved drugs and biologics. Currently, the site includes results for five products, and results for several more products will be added over the coming months. This initiative is consistent with Genzyme’s support for transparency regarding drug-development information.
GENZ Analyst Schedule
EPS Analysis (Q1-4 and FY05)
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, product sales, gross margin, expense, tax rate and capital expenditure estimates for fiscal year 2006, receipt of approval for Myozyme in the EU and the US, including the timing thereof, the anticipated timing of a Myozyme launch, and plans regarding a clinical study for patients with late-onset Pompe disease, expected drivers of Genzyme’s future growth, as well as the growth drivers for certain products, including Renagel, Fabrazyme, Synvisc and diagnostic testing products and services, anticipated progress of clinical trials, including for GENZ-112638, DX-88, sevelamer carbonate, hylastan, Synvisc 2, tolevamer, Campath MS, Clolar and CAM-307, Genzyme’s annual revenue estimate for 2010, the number of clinical trials Genzyme plans to initiate, conduct or complete in 2006, 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 Quarterly Report on Form 10-Q for the period ended September 30, 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 February 15, 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®, Fabrazyme®, Cerezyme®, Synvisc®, Myozyme®, Campath®, Clolar® and Hectorol® are registered trademarks of Genzyme Corporation or its subsidiaries. All rights reserved.
Conference Call Information
Genzyme Corporation will host a conference call today at 11:00 a.m. Eastern Time to discuss fourth-quarter and full-year 2005 financial results and financial guidance for 2006. To participate in the call, please dial 706-679-8722. A replay of this call will be available by dialing 706-645-9291. Please refer to reservation number 1549029. This call will also be Webcast live on the investor events section of www.genzyme.com. Both replays will be available until February 22, 2006.
Genzyme Corporation will host a conference call April 19 at 11:00 a.m. Eastern Time to discuss first-quarter financial results. To participate in the call, please dial 706-679-8722. A replay of this call will be available by dialing 706-645-9291. Please refer to reservation number 5531792. This call will also be Webcast live on the investor events section of www.genzyme.com. Replays of the call and the Webcast will be available until midnight on April 26, 2006.
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