Genzyme Corporation (GENZ) reported fourth quarter earnings of 71 cents per share (excluding one-time items but including the impact of stock-based compensation expense), a couple of cents below the Zacks Consensus Estimate, but significantly above the year-earlier earnings of 17 cents.

Excluding the impact of stock-based compensation expense, fourth quarter earnings came in at 82 cents, well above the year-ago period earnings of 29 cents. Results were in line with the preliminary outlook provided by the company in Jan 2011.

Fourth quarter results were driven by the increase in shipments of lead product, Cerezyme, as well as Fabrazyme, contributions from other product lines and cost savings. Fourth quarter revenues increased 23% to $1.15 billion. Although revenues were slightly short of the Zacks Consensus Estimate of $1.16 billion, we were pleased to see that Genzyme is showing signs of emerging from its manufacturing problems, which hampered results over the past few quarters.

Full year earnings (excluding one-time items but including the impact of stock-based compensation expense) came in at $1.34 per share, above the Zacks Consensus Estimate of $1.27, but well below the year-ago earnings of $1.73. Full year revenues increased 1.8% to $4 billion.

Results in Detail

All the revenue segments at Genzyme reported an increase in revenues in the fourth quarter. Fourth quarter revenues from Genzyme’s Personalized Genetic Health segment increased 45% to $505.6 million. However, full year revenues declined 10.6% 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 $222 million in the fourth quarter, significantly above $105.4 million sales reported in the year-ago quarter. For the full year, Cerezyme sales were $720 million, down 9.2%. The company won a six-month tender for Cerezyme in Brazil – this should help drive revenues in the first half of 2011.

Fabrazyme sales increased 6% to $61.6 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 12% to $289 million, Biosurgery grew 8% to $170.7 million. The Hematology and Oncology segment increased 6% to $178.7 million.

Mozobil, Thymoglobulin and Clolar should continue driving performance of the Hematology and Oncology segment thanks to increased penetration in key markets, and expansion in emerging markets such as China. Genzyme is looking to expand Clolar’s label for use in adult patients with acute myelogenous leukemia. Data for this indication will be presented in the second half of 2011.

Update on Supply Schedule

Genzyme has made significant progress with its supply schedule. The company said that it has ceased fill/finish operations of products sold in the US at its Allston facility  and expects to transfer all fill/finish operations in the first half of 2011.

Genzyme has a supply agreement with Hospira (HSP), under which Hospira will perform fill/finish activities for several products in Genzyme’s portfolio including Cerezyme, Fabrazyme, Myozyme, Lumizyme, Thyrogen, Thymoglobulin, Campath and select pipeline candidates.

Pipeline Update

Genzyme also provided an update on its pipeline. Some of the pipeline candidates that show promise include mipomersen, partnered with Isis Pharmaceuticals (ISIS) for familial hypercholesterolemia (EU filing in the first half of 2011), alemtuzumab for multiple sclerosis (phase III ongoing; US approval expected in the second half of 2012) and eliglustat tartrate for type 1 Gaucher disease (phase III ongoing).

In Agreement with Sanofi-Aventis

Genzyme’s fourth quarter and fiscal year 2010 results were overshadowed by the company’s announcement regarding its definitive merger agreement with French pharma company, Sanofi-Aventis (SNY). After months of negotiations, the two companies finally announced that Sanofi will acquire Genzyme for $74 per share in cash (or $20.1 billion) in addition to a contingent value right (CVR) for each share. The CVR will allow each shareholder to receive additional payments related to Lemtrada (alemtuzumab for multiple sclerosis) and the achievement of specified production volumes in 2011 for Cerezymeand Fabrazyme.

The final offer price of $74 is above Sanofi’s initial offer price of $69. Sanofi had initially approached Genzyme with its $69 per share offer on Jul 29, 2010.

The acquisition, which will allow boost Sanofi’s revenues as well as its pipeline and provide it with the chance to expand its presence in biotechnology, is scheduled to close early in the second quarter of 2011. We currently have a Neutral recommendation on Genzyme.

 
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