Genzyme Corp. reported third-quarter earnings growth driven by increased shipments of Cerezyme® (imiglucerase for injection). Patients in the United States began returning to normal dosing levels last month, and patients globally are expected to be able to do so this quarter. Earnings growth in the third quarter was also driven by strong revenue from Lumizyme™ (alglucosidase alfa) and cost reduction measures.
Third-quarter revenue was $1.0 billion, compared with $923.8 million in the same period last year. Operating results for the third quarter of 2009 have been revised to exclude the Genetics and Diagnostics businesses, which the company is planning to divest by the end of this year.
GAAP net income was $69.0 million, or $0.26 per diluted share, compared with $16.0 million, or $0.06 per diluted share, in the third quarter of 2009. Non-GAAP net income was $111.5 million, or $0.42 per diluted share, in line with the company’s guidance, compared with $77.9 million, or $0.28 per diluted share, in the same period last year. Non-GAAP net income excludes stock compensation expenses, costs associated with the acquisition of oncology products from Bayer, and the operations of the Genetics and Diagnostics businesses, as they meet the criteria of discontinued operations. At the end of the third quarter, Genzyme’s cash balance was approximately $1.2 billion.
In the third quarter we saw our financial recovery start to take effect, and we expect that this will accelerate during the fourth quarter as Cerezyme patients are able to return to normal dosing levels and we begin to increase shipments of Fabrazyme,” said Henri A. Termeer, Genzyme’s chairman and chief executive officer. “We are also implementing measures to reduce our operating costs, while remaining focused on the priorities of transforming our manufacturing operations, strengthening our core genetic disease business, and advancing key pipeline programs to ensure sustainable long-term growth.
During the third quarter, Genzyme made progress in executing its plan to increase shareholder value. The company last month announced that it entered into an asset purchase agreement under which Laboratory Corporation of America Holdings will acquire Genzyme Genetics for $925 million in cash. Plans to divest the Diagnostics and Pharmaceuticals businesses remain on track.
Genzyme completed the first half of a planned $2 billion share repurchase, financed by a $1 billion debt offering. The company has repurchased approximately 15.7 million shares at an approximate average price of $63.90. At the end of the second quarter, the company had 265.3 million basic weighted average shares outstanding. As a result of the buyback, this was reduced to 255.4 million at the end of the third quarter. Approximately 4 million shares of the repurchase were offset by the exercise of stock options. Proceeds from the divestitures of the Genetics, Diagnostics and Pharmaceuticals businesses may be used to finance the second half of the repurchase.
Cerezyme revenue in the fourth quarter is expected to be $235 – $245 million and Fabrazyme® (agalsidase beta) revenue is expected to be $70 – $75 million, based on currently anticipated product release dates. Non-GAAP EPS is expected to be $0.90 – $0.95 per diluted share in the fourth quarter.
Product Supply and Consent Decree Updates
Cerezyme’s recovery passed a major milestone with the return to full supply. Patients in the United States were able to begin returning to normal dosing levels in September, and patients globally are expected to be able to do so during the fourth quarter. Genzyme has begun the process of doubling allocations of Fabrazyme, starting in the United States, and will do so globally throughout the fourth quarter. The company expects to be able to fully supply the global market during the first half of 2011.
Since levels of demand, ordering patterns and dose regimens vary by region, Genzyme staff in countries around the world will provide patients and physicians with more information on the local impact of this guidance for each product. Because inventories remain limited, any manufacturing disruptions or delays in product release can impact availability of Cerezyme and Fabrazyme.
Genzyme is on schedule to meet the November consent-decree deadlines for ceasing fill/finish at its Allston plant for products sold in the United States. The company has transferred a significant portion of this work to its state-of-the-art facility in Waterford, Ireland, and is in the process of transferring the remainder to a third-party manufacturer, where initial lot release has begun.
The company’s new Framingham manufacturing facility is operational with Fabrazyme engineering runs underway, and approval is anticipated in late 2011. Engineering runs are ongoing at the newly expanded fill/finish operations in Waterford, and regulatory approval is expected in the second half of 2011.
Third Quarter Results and Business Updates
Within the Personalized Genetic Health segment, third-quarter sales of Myozyme/Lumizyme increased 24 percent to $106.2 million from $86.0 million in the same period in 2009, reflecting the recent U.S. launch of Lumizyme. Third-quarter revenue increased 15 percent from second-quarter sales of $92.1 million. U.S. Myozyme/Lumizyme sales increased from $4.4 million in the second quarter to $19.1 million in the third quarter, and are expected to reach $30 million in the fourth quarter.
Third-quarter sales of Cerezyme nearly doubled to $179.8 million from $93.6 million in the same period in 2009, and grew 30 percent from $138.7 in the second quarter of this year, reflecting increasing shipments. Sales of Fabrazyme were $33.9 million, compared with $115.2 million in the third quarter of last year, reflecting supply constraints and the timing of lot releases during the quarter.
Within the Biosurgery segment, sales of Synvisc® (hylan G-F 20) increased 14 percent to $100.0 million from $87.5 million in last year’s third quarter. Synvisc, which is impacted by seasonal variability, continues to gain market share, and now represents 46 percent of the U.S. viscosupplement market. The single injection product, Synvisc-One® (hylan G-F 20), was launched in March 2009 and currently comprises more than two-thirds of all U.S. Synvisc revenue. During the third quarter, Genzyme also received regulatory approval of Synvisc in Japan, the largest market in the world for viscosupplement products.
Total revenue for the Renal and Endocrinology segment grew to $270.4 million from $260.4 million in the same period last year. Within this segment, sales of Genzyme’s sevelamer therapies, Renvela® (sevelamer carbonate) and Renagel® (sevelamer hydrochloride), were $178.8 million, compared with $181.7 million during the third quarter of 2009, reflecting the product mix shift from Renagel to Renvela.
U.S. sevelamer volume increased by nearly 8 percent compared to the third quarter of 2009. Genzyme remains the market leader in the United States, with approximately 52 percent of the phosphate binder market. In July, U.S. Medicare and Medicaid Services issued its final rule regarding bundling; oral medications without IV equivalents, including Renvela, will not be included in the bundle until January 1, 2014.
Genzyme recently won a highly competitive, $28 million tender over generic manufacturers in Brazil, the second-largest market for Renagel outside of the United States. This is the second consecutive year that Genzyme has won this federal tender, which will begin impacting revenue starting this quarter. The European launch of Renvela continues to progress well; the product was introduced in Spain last month and in the key markets of France, Italy and the U.K. this month.
Sales of Thyrogen were $42.3 million compared with $41.7 million in the third quarter of 2009, despite the limitations on the promotion of Thyrogen in the U.S. that are contained in the consent decree. Once fill/finish operations are successfully transferred to a third-party manufacturer and fill/finish for Thyrogen for the U.S market is no longer occurring at the Allston facility, the promotional limitations will no longer be in effect and Genzyme will resume normal U.S. promotional work. This is expected to occur by the end of next month.
Total revenue for the Hematology and Oncology segment increased 17 percent to $167.3 million from $143.6 million in last year’s third quarter. Growth was driven by sales of Mozobil® (plerixafor injection), which increased 83 percent to $23.6 million from $12.9 million in the third quarter last year, reflecting a strong increase in U.S. sales and the ongoing launch in Europe.
Third-quarter growth in this segment was also driven by sales of Clolar® (clofarabine injection), which increased 23 percent to $26.1 million from $21.2 million in the third quarter of 2009, led by a 31 percent increase in U.S. volume.
