Genzyme Corp. (NASDAQ: GENZ), a diversified, global biotechnology company, today announced fourth-quarter and full year 2009 financial results and provided 2010 guidance that reflects growth across its businesses and a focus on strengthening core areas of the company.
“As we work to smooth the resupply of Cerezyme and Fabrazyme, our diverse product portfolio is contributing meaningfully. At the same time, we are strengthening the company by making changes, bringing in new talent, and investing in existing businesses.”
Fourth-quarter GAAP net income was $23.2 million, or $0.09 per diluted share, compared with $86.7 million, or $0.31 per diluted share, in the same period in 2008. Non-GAAP net income was $83.5 million, compared with $118.2 million in the fourth quarter of 2008. Non-GAAP earnings were $0.31 per diluted share, compared with $0.42 per diluted share in the prior fourth quarter. GAAP and non-GAAP figures include manufacturing write-offs and amortization, among other items. Non-GAAP net income excludes stock compensation expenses and costs associated with the acquisition of Bayer oncology products.
As previously announced, fourth-quarter revenue was $1.08 billion, compared with $1.17 billion in the same period in 2008. For the year, revenue was $4.52 billion compared with $4.61 billion in 2008. Excluding the Genetic Disease business, which was affected by the product supply interruption, fourth-quarter revenue grew 24 percent, compared with the same period in 2008, and full-year revenue grew 15 percent. This growth reflects progress across the corporation, including the successful launches of Synvisc-One® (hylan G-F 20) and Mozobil® (plerixafor injection), and the integration of the Bayer oncology products.
Individual product sales for the fourth quarter and the year were detailed in a January 12, 2010, press release coinciding with the company’s presentation at the JPMorgan Healthcare Conference.
“We are moving into a recovery period, regaining momentum and getting back to delivering sustainable growth this year,” said Henri A. Termeer, Genzyme’s chairman and chief executive officer. “As we work to smooth the resupply of Cerezyme and Fabrazyme, our diverse product portfolio is contributing meaningfully. At the same time, we are strengthening the company by making changes, bringing in new talent, and investing in existing businesses.”
2009 Results
GAAP net income in 2009 was $422.3 million, or $1.54 per diluted share, compared with $421.1 million, or $1.50 per diluted share, in 2008. Non-GAAP net income was $621.5 million, or $2.27 per diluted share, compared with $551.3 million, or $1.95 per diluted share, in 2008.
Genzyme generated approximately $1.2 billion in cash from operations in 2009, and utilized this cash to invest in its global infrastructure and repurchase shares. The company was able to continue to generate cash and maintain a solid balance sheet in 2009 despite the manufacturing challenges and resulting product supply interruption.
Genzyme recently adopted a new executive compensation program designed to better align the incentives of senior executives with shareholders’ interests. It includes cash flow return on invested capital among a set of corporate performance metrics to encourage the productive use of the cash the company is expected to generate over the coming years.
Financial Guidance for 2010
Genzyme expects that its non-GAAP earnings will accelerate as the year progresses. First-quarter earnings are expected to be flat with the fourth quarter of 2009 and fourth quarter 2010 earnings are expected to reach approximately $1.00 per diluted share.
Revenue and earnings are expected to accelerate in the second half of the year, depending on three factors: FDA approval of Lumizyme™ (alglucosidase alfa) by the June PDUFA date; the company’s ability to increase manufacturing productivity for Fabrazyme® (agalsidase beta); and its ability to maintain a substantial portion of the market for Cerezyme® (imiglucerase for injection).
In establishing its budget for 2010, Genzyme assumed a foreign exchange rate of $1.50 per Euro, the rate at the time the budget was finalized. At a theoretical rate of $1.40 per Euro, this represents an approximately $90 million risk on the revenue line, which is significantly mitigated on the profit after tax bottom line by the company’s geographic diversification. This impact, estimated at approximately $20 million, is reflected in the lower-end of the earnings guidance range.
This year Genzyme is focusing its investments in strengthening core areas and reducing risk. This includes investments to expand manufacturing capacity and create redundant capacity; improve information technology infrastructure; increase sales and marketing for key products to strengthen their market-leading positions; and advance promising, late-stage programs likely to result in the introduction of new products in the next few years.
Earnings
- Non-GAAP earnings in 2010 are expected to increase to $2.80 – $3.20 per diluted share. GAAP earnings are expected to reach $1.90 – $2.27 per diluted share. Projected GAAP and non-GAAP earnings include approximately $320 million in amortization, up from $266 million in 2009. Nearly all of the increase reflects payments due to Bayer for Fludara® (fludarabine phosphate), Leukine® (sargramostim), and Campath® (alemtuzumab) and to Wyeth for Synvisc® (hylan G-F 20) given the projected sales of these products.
Revenue
- Revenue is expected to reach $5.23 – $5.53 billion in 2010, compared with $4.52 billion in 2009. Revenue guidance for Genzyme’s business segments and key products is provided in the guidance table attached to this press release. Revenue growth will be driven by:
- The strong demand for Cerezyme;
- The continued global growth of Myozyme® (alglucosidase alfa) and the anticipated U.S. launch of Lumizyme;
- The ongoing U.S. launch of Synvisc-One, which is both gaining market share and expanding the market to include patients currently relying on traditional oral pain medications;
- And the growth of the Hematologic Oncology business, reflecting the inclusion of Thymoglobulin® (anti-thymocyte globulin, rabbit) in this segment, the integration of the Bayer oncology products, and the successful global launch of Mozobil.
- Fabrazyme revenue in 2010 is projected to be lower than 2009 given the low productivity of the manufacturing process since the re-start of production. Genzyme is implementing changes intended to increase productivity.
Gross Margin
- The non-GAAP gross margin for 2010 is expected to be approximately 71 – 73 percent of revenue, compared with 71 percent in 2009 due to manufacturing write-offs. The gross margin reflects continued investments in manufacturing and a shift in product mix.
Expenses
- Non-GAAP selling, general and administrative expenses are expected to be approximately $1.5 billion in 2010, compared with approximately $1.3 billion in 2009. SG&A spending this year includes: investments in the company’s genetic disease business intended to regain its competitive position and prepare for the U.S. introduction of Lumizyme; a broad-based marketing campaign designed to support the adoption of Synvisc-One; and the full-year expenses associated with the Bayer oncology products.
- Non-GAAP research and development spending is expected to be $945 – $960 million in 2010 compared with $804 million in 2009. Genzyme continues to make a significant investment in its pipeline to sustain its future growth, with a focus on key late-stage programs including alemtuzumab for multiple sclerosis and eliglustat tartrate for Gaucher disease.
Tax Rate
- Genzyme’s non-GAAP tax rate this year is expected to be 27 – 28 percent of profit before tax. The GAAP tax rate is expected to be 26 – 27 percent.
Capital Expenditures
- Capital expenditures are expected to total approximately $600 million this year, primarily for infrastructure improvements.
Genzyme is making a significant investment in manufacturing capacity to support the growth of existing products and prepare for the launch of products in late-stage development. These include a new facility in Framingham, Mass., for Fabrazyme and Cerezyme; the expansion of the Geel, Belgium, facility to support the growth of Myozyme and Campath; and the expansion of the Waterford, Ireland, facility’s fill-finish capabilities.
Genetic Disease Business Updates
Genzyme has made progress over the past several months toward ensuring a sustainable supply of both Cerezyme and Fabrazyme, managing the urgent need to provide treatment with the need to improve manufacturing quality systems and perform preventative maintenance and upgrades at the Allston plant.
Cerezyme manufacturing is continuing with productivity levels above historical averages. Approximately 85 percent of U.S. patients have resumed therapy, and a similar percentage is estimated worldwide.
To more consistently manage the resupply of Cerezyme to patients in approximately 100 countries and reduce the interruptions in shipping that occur in the absence of inventory, Genzyme will work to immediately build a small inventory buffer. This buffer will allow a more predictable schedule for Cerezyme delivery through the remainder of 2010 and help avoid the challenges many physicians and patients have experienced in scheduling infusions. To build this inventory buffer, the company will ship 50 percent of demand for an eight-week period beginning the week of February 22, 2010. Genzyme is working closely with physicians and patient organizations to manage this temporary initiative.