November 15, 2007 (Vol. 27, No. 20)

Amidst Rumors of Being a Wise Acquisition, Firm Posts Good 3Q Results and R&D Progress

In an ironic twist, Genzyme ( first battled through its acquisition of Bioenvision and is now basking in the glory of speculations over big pharma’s interest in gobbling up biologic firms such as itself. Its October stock spike, however, is not solely based on takeover rumors. The company has steadily grown, posted positive third quarter results, and even provided 2008 guidance ahead of schedule.

Genzyme’s growth seems to stem from a steady raise in sales of existing products. Compared to 3Q 2006, the firm reported a 19% hike in revenues for the current quarter to reach $960.2 million. Non-GAAP net income increased 23% quarter over quarter to $241.3M, or $0.90 per diluted share.

Genzyme further raised its estimates for the next few years until 2011. The firm stated that it expects non-GAAP earnings to increase to approximately $4 per diluted share next year and to approximately $7 per diluted share by 2011.

The most recent quarter has been a busy one for Genzyme, with three products being sanctioned and one label expansion. The approvals include U.S. marketing of Renvela® for chronic kidney disease patients on dialysis, Elaprase™ in Japan for Hunter syndrome, and EU-cleared Cholestagel® for primary hypercholesterolemia. Finally, Campath has been sanctioned for the first-line treatment of B-cell chronic lymphocytic leukemia in the U.S.

The company also said that it was making progress on the R&D front. Alemtuzumab, which is the active ingredient in Campath, was found to reduce the risk for relapse and progression of disability in multiple sclerosis (MS) compared to Rebif® (interferon beta-1a) in a Phase II study.

Mozobil reportedly met its primary endpoint in pivotal trials investigating its ability to facilitate and improve stem cell transplantation procedures. Genzyme expects peak sales of $400M for Mozobil in this setting. The studies were conducted in multiple myeloma and lymphoma patients.

With the acquisition of Bioenvision, Genzyme also padded its oncology franchise, which had revenues of $22.7M this quarter, a 38% percent increase from last year’s third quarter. The company secured worldwide rights to its leukemia drug clofarabine. Genzyme is conducting studies to expand the drug to other indications such as adult acute myeloid leukemia in the first-line setting.

The tenacious battle over the purchase of Bioenvision for $345M, which began with a tender offer on May 29, ended almost five months later. The closing came after a nearly failed proxy vote because some votes in favor of the acquisition reportedly weren’t counted on time. During this period, Genzyme’s share price fluctuated and dipped as far down as $59.35.

To Be Acquired or Not to Be

Genzyme enjoyed the highest value since the end of 2005 in October. Positive alemtuzumab data in MS drove its price up to $74.77. This 3% increase from the previous trading day coincided with a report from Bear Stearns analyst Mark Schoenebaum stating that he believes Genzyme and Amgen ( to be the only major biologic firms that could be bought. His analysis came immediately after Biogen Idec(, the fifth largest biotech, announced that it was up for sale.

Genzyme is the fourth largest biotech firm. Its biggest cash cows are drugs to treat rare genetic disorders. Such niche markets typically have not roused the interest of big pharma. The major pharma players look for blockbuster drugs, which are typically indicated for common diseases.

Genzyme also makes diagnostic tests, injectable products to treat osteoarthritis of the knee, and products involved in organ transplant. Finding compatibility with all the different areas of Genzyme’s business could be another stumbling block for a potential acquisition.

While it is uncertain if Genzyme will get acquired, for now the company is trying to ensure its future success through organic growth and continuous development.

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