Genzyme Reports 2008 Results

GAAP net income rose to $86.7 million, or $0.31 per diluted share, compared with $78.9 million, or $0.29 per diluted share, in the prior fourth quarter. Non-GAAP net income increased 16 % to $288.5 million compared with $249.2 million in the fourth quarter of 2007. Non-GAAP earnings rose 14 % to $1.04 per diluted share from $0.91 per diluted share in the same period in 2007.

GAAP figures for the quarter include a non refundable upfront fee to Osiris Therapeutics Inc. for a late-stage product candidate, amortization and stock compensation expenses, and a charge to write off overhead and material associated with incomplete process validation runs at the company’s Belgium manufacturing facility.

“We had an excellent year last year and exceeded our earnings expectations despite the economic environment and the challenges we faced with Myozyme,” said Henri A. Termeer, Genzyme chairman and chief executive officer. “We delivered on our financial objectives but did not ignore our future. We continued to expand and invest in our pipeline and now have seven exciting late-stage programs with the potential to sustain our growth over the long term. Genzyme is stronger today than it was a year ago, and we feel confident about our future.”

As previously announced, fourth-quarter revenue rose 13 %, to $1.17 billion, reflecting an about $39 million negative impact of foreign exchange, compared with $1.04 billion in the same period in 2007.

Individual product sales for the fourth quarter and the year, along with expectations for the longer-term growth of Genzyme’s business segments, were detailed in a January 13, 2009, press release coinciding with the company’s presentation at the JPMorgan Healthcare Conference.

2008 Results

Non-GAAP net income increased 18 % to $1.1 billion, compared with $939.9 million in 2007. Non-GAAP earnings increased 15 % to $4.00 per diluted share from $3.47 in 2007.

Genzyme generated about $1.5 billion in cash predominantly from operations in 2008 and utilized this cash flow to substantially eliminate all debt, invest in its global infrastructure, repurchase shares, and complete strategic transactions that significantly strengthened its late-stage pipeline.

Financial Guidance for 2009

Earnings

Genzyme is on-track to achieve its goal of 20 % compound average non-GAAP earnings growth from 2006 – 2011. Non-GAAP earnings are projected to rise to about $7.00 per diluted share by 2011.

Non-GAAP earnings in 2009 are expected to increase to $4.70 per diluted share. GAAP earnings, which include amortization and stock compensation expenses, are expected to reach $3.50 per diluted share.

Genzyme anticipates that its non-GAAP earnings will accelerate starting in the second quarter, as two key regulatory approvals for Myozyme® (alglucosidase alfa) are secured: E.U. approval of Myozyme produced at the 4000 L scale, which will help provide the capacity to meet the strong global demand for the product; and U.S. approval of Myozyme produced at the 2000 L scale, which will be called Lumizyme™ (alglucosidase alfa), giving the company the ability to promote the Pompe disease therapy produced at this scale in the U.S. market. Mozobil™ (plerixafor injection), which was launched last month, will also help drive earnings growth.

Revenue

Revenue is expected to reach $5.2 – $5.4 billion in 2009. This reflects an approximate $150 million unfavorable impact of foreign exchange. Genzyme anticipates strong volume growth in all five of its business segments:

Total revenue for the Genetic Disease segment is expected to reach $2.47 – $2.53 billion this year, compared with $2.23 billion in 2008.

Within this segment, Myozyme revenue is expected to increase to $430 – $440 million, compared with $296 million in 2008. The company anticipates FDA action by February 28 on its filing for U.S. approval of Lumizyme. European Commission approval of Myozyme produced at the 4000 L scale would be expected in April under the standard review procedure. Genzyme has requested expedited review of its application.

Revenue for Fabrazyme (agalsidase beta), an important growth driver that is performing well in a competitive marketplace, is expected to rise to $560 – $570 million in 2009 from $494 million last year.

Cerezyme (imiglucerase for injection) revenue is expected to reach $1.25 – $1.28 billion, compared with $1.24 billion in 2008, reflecting its mature status and the impact of foreign exchange.

The Cardiometabolic and Renal segment’s total revenue is expected to increase to $1.04 – $1.07 billion this year, compared with $956 million in 2008.

Within this segment, Genzyme’s sevelamer therapies, Renvela® (sevelamer carbonate) and Renagel (sevelamer hydrochloride), are expected to produce revenues of $725 – $735 million in 2009, compared with $678 million last year. Anticipated key drivers include E.U. approval of Renvela and the expansion of the product’s US indication to include the treatment of patients with chronic kidney disease who are not on dialysis, both of which are expected in mid-2009. Genzyme is working to transition all remaining U.S. Renagel patients to Renvela, with the goal of completing the transition by September 30, 2009.

Total revenue for the Biosurgery segment is expected to reach $540 – $570 million this year, compared with $491 million in 2008.

FDA approval for Synvisc-One is expected soon, and the product is expected to be a significant growth driver for the franchise over the longer term.

The Hematologic Oncology segment’s total revenue is expected to rise to $185 – $210 million this year, compared with $117 million in 2008.

Within this segment, Mozobil revenue in 2009 is expected to reach $40 – $50 million. The launch of this treatment is going well, with broad adoption by transplant centers. Mozobil was approved in the United States in December, and E.U. approval is expected in the second half of 2009. Genzyme expects that the product will become an integral part of the treatment regimen for stem-cell transplantation because of the clinical and economic benefits it offers to patients, physicians and transplant centers.

Other revenue is expected to reach $1.02 – $1.08 billion in 2009, compared with $814 million in 2008.

This segment includes revenue from the company’s Genetics, Diagnostics, Transplant and Pharmaceuticals businesses, and other product revenue.

Gross Margin

The non-GAAP gross margin for 2009 is expected to be about 75 % of revenues, compared with 76 % in 2008. The gross margin reflects underutilized capacity at the two plants where larger scale production of Myozyme is starting to come online. It also reflects changes in product mix.

Expenses

Non-GAAP selling, general and administrative expenses are expected to represent about 26 % of revenue in 2009, lower than SG&A expenses of 27 % of revenue in 2008. SG&A spending this year will reflect several major product launches, including Mozobil in the United States and Europe and Synvisc-One™, Lumizyme, and Clolar® (clofarabine) for adult AML in the United States.

Non-GAAP research and development spending is expected to represent about 16 % of revenue in 2009, consistent as a %age of revenue with R&D spending in 2008. Genzyme continues to make a significant investment in its pipeline to sustain its future growth. The company is currently conducting about 100 clinical trials.

Tax Rate

Genzyme’s non-GAAP tax rate this year is expected to be about 29 %. The GAAP tax rate is expected to be 30 %.

Capital Expenditures

Capital expenditures are expected to total $600 – $650 million this year. Genzyme continues to make a significant investment in manufacturing capacity to support the growth of existing products and pre