Thursday, February 10, 2011

Genzyme Corp. (NASDAQ: GENZ): Q4 Earnings Preview 2010

Genzyme Corp. (NASDAQ: GENZ) is scheduled to release fourth-quarter earnings before the opening bell on Wednesday, February 16, 2011. Analysts, on average, expect the company to report earnings of 86 cents per share on revenue of $1.17 billion. In the year ago quarter, the company reported earnings of 31 cents per share on revenue of $1.08 billion.

Genzyme Corporation operates as a biotechnology company worldwide. The Company’s product and service portfolio is focused on rare genetic disease disorders, renal diseases, orthopaedics, cancer, transplant and immune disease.

In the preceding third-quarter, the Cambridge, Massachusetts-based company's net income was $68.95 million or $0.26 per share compared to $16 million or $0.06 per share in the prior year. Excluding items such as stock compensation expenses and acquisition-related costs, non-GAAP net income rose to $111.5 million or $0.42 per share from $77.9 million or $0.28 per share in the same period last year. Revenue rose to $1 billion from $923.77 million. Analysts, on average, expected the company to report earnings of $0.53 per share on revenue of $1.10 billion.

Last month, Genzyme cut its non-GAAP forecast for fourth quarter and full-year 2011. The company said that fourth-quarter non-GAAP earnings per share is now expected to be $0.80 to $0.85, compared to its previous guidance in the range of $0.90 to $0.95. Preliminary fourth-quarter revenue grew 23% to $1.15 billion from $0.93 billion in the fourth quarter last year. Preliminary earnings were below the company’s guidance mainly due to lower than expected Cerezyme revenue and gross margins which were impacted by manufacturing costs.Cerezyme revenue for the quarter was lower than anticipated and gross margins were reduced due to costs associated with manufacturing operation improvements. Cerezyme revenue was impacted by the delay of orders in Brazil; a late lot release that was exacerbated by shipping delays due to December weather issues in Europe; and the loss of a specific lot for Japan. Fourth quarter revenues from Genzyme’s Personalized Genetic Health segment increased 46% to $508 million. However, full year revenues declined 10% to $1.7 billion. The Personalized Genetic Health segment was most adversely affected by the temporary shutdown of the company’s Allston Landing facility in June 2009. The production and supply of two products – Cerezyme and Fabrazyme - were mainly affected by the temporary shutdown. Cerezyme sales came in at $224 million in the fourth quarter, significantly above $105 million sales reported in the year-ago quarter. For the full year, Cerezyme sales were $722 million, down 8.9%. Fabrazyme sales increased 6.9% to $62 million in the fourth quarter. For the year, sales declined from $430 million to $188 million. Genzyme reported that full supply is available to patients on Cerezyme therapy. Meanwhile, Fabrazyme allocation has increased 82% in the fourth quarter on a sequential basis. Genzyme should be able to provide full supply of Fabrazyme in the second half of 2011 following the regulatory approval of Fabrazyme production at the company’s Framingham manufacturing facility. Other segments like Renal & Endocrinology, Biosurgery and Hematology and Oncology continued to grow during the fourth quarter. While Renal & Endocrinology grew 13% to $291 million, Biosurgery grew 10% to $157 million. The Hematology and Oncology segment increased 6% to $179 million.

As far as Genzyme’s cost reduction program (Value Improvement Program) is concerned, the company said that it achieved savings of $26 million during the fourth quarter of 2010. This program should help Genzyme reduce operating costs and improve margins over the next 15 months. The full impact of this program is expected to materialize by 2012. The company expects to achieve savings of $275 million in 2011 and $385 million in 2012.

In January, Genzyme also provided an update on its pipeline that will help drive growth beyond 2011. Some of the pipeline candidates that show promise include mipomersen for familial hypercholesterolemia (filing in 2011), alemtuzumab for multiple sclerosis (phase III ongoing; US approval expected in 2012) and eliglustat tartrate for type 1 Gaucher disease (phase III ongoing; US approval expected in 2013). In December,the company said that analyses of its alemtuzumab for multiple sclerosis against competing products showed that therapy switching would be a strong growth driver. Genzyme expects rapid adoption and peak sales of $3 billion -3.5 billion within 5 years of launch.

For the fiscal year 2011, Genzyme now expects non-GAAP earnings per share in the range of $4.10 to $4.35; and approximately $5.0 billion in revenue. Previously, the company estimated earnings per share in the range of $4.30 to $4.60 and revenue of $5.1 billion. The company expects to divest or partner its non-core businesses in the first half of 2011. 

For the first quarter of 2011, earnings per share is expected to be similar to the fourth quarter of 2010.

For the three-year period from 2008 to 2011, the company expects the compound annual growth rate of its non-GAAP earnings per share to be approximately 30%.

The company recently confirmed that it is in expanded talks with French pharma giant, Sanofi-Aventis (NYSE: SNY), which is looking to acquire Genzyme. The Wall Street Journal recently reported that Sanofi-Aventis and Genzyme are inching towards a deal, with the French pharma company proposing to pay around $74 per share for the Boston biotech plus additional payments linked largely to the performance of a potential MS treatment. A so-called contingent value right could be worth upwards of $6 a share depending on the regulatory and sales success of Campath, an anti-leukemia drug also being tested for use against the neurological disease, the WSJ says. Genzyme is seeking a higher cash payment up front and a smaller CVR.

During the quarter in review, the biotechnology company agreed to sell its diagnostic products business to Japan-based Sekisui Chemical Co. for $265 million in cash. The company agreed to its pharmaceutical intermediates unit to International Chemical Investors Group of Luxembourg for an undisclosed amount.

Full Disclosure: None.
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