This morning, Genzyme Corp (GENZ) reported third quarter earnings of 19 cents per share, which was well below the Zacks Consensus Estimate of 31 cents and the year ago earnings of 93 cents. Moreover, revenues declined 9% to $1.06 billion.
As expected, the temporary shutdown of the company’s Allston manufacturing facility earlier this year impacted overall financial results. Although the company has resumed production at this facility, the temporary shutdown led to a disruption in the supply of key products Cerezyme and Fabrazyme.
Cerezyme’s performance was highly affected with sales dropping 69.7% to $93.6 million in the reported quarter. Fabrazyme sales came in at $115.2 million, down 8% from the prior-year quarter. Genzyme expects to resume supply of new lots of Cerezyme and Fabrazyme from late November and late December, respectively. The company believes it will be in a position to meet anticipated demand for both products in the first quarter of 2010.
However, we believe Cerezyme, which is approved for the treatment of Gaucher disease, could lose some share to Shire plc’s (SHPGY) velaglucerase alfa and Protalix BioTherapeutics Inc.’s (PLX) Uplyso, both of which are currently available under the US Food and Drug Administration’s (FDA) expanded access program.
We believe the availability of these two products, which have yet to receive FDA approval, could eat into a part of Cerezyme’s patient base. Once launched, both products will compete directly with Cerezyme. Although Genzyme holds a leading position in the treatment of Gaucher disease, the patient population for the disease is not large. As such, the entry of additional players in the market could restrict its growth opportunities in the future.
Based on the disappointing third quarter results, Genzyme slashed its earnings guidance again for 2009. The company now expects earnings around $2.26 per share, down from the previous range of $2.35 – $2.90. The reduced expectations reflect the company’s decision to write off Cerezyme work-in-process material, the cost of fixing the Allston plant, and management of customer-level inventories related to the Bayer transaction.
Going forward, we believe investor focus will remain on issues like lower revenues, additional competition, contracting gross margins, supply constraints, manufacturing hiccups, and delays in new product launches. We believe the shares will remain under pressure until the resolution of these issues. We have an Underperform rating on the stock.
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