Genzyme Corporation (GENZ) reported fourth quarter earnings of 31 cents per share, which was well below the year-ago earnings of 42 cents. The Zacks Consensus Estimate was 20 cents. Full-year earnings came in at $2.27, well above the year-ago earnings of $1.95.

Performance by Segment

With the company facing manufacturing problems from mid-2009, we were not surprised to see fourth quarter revenues decline. They fell 7.9% to $1.08 billion. Full-year revenues declined 1.9% to $4.5 billion.

Genzyme’s Genetic Diseases business was the most adversely affected by the temporary shutdown of the company’s Allston Landing facility in June 2009. Production and supply of two products, Cerezyme and Fabrazyme, were mainly affected by the temporary shutdown.

Excluding the Genetic Diseases business, fourth-quarter and full-year revenues increased 24% and 15% year over year. Revenues from the Genetic Diseases segment declined 44% to $315 million. For the full year, revenues from this segment declined 20% to $1.8 billion.

Sales of lead product Cerezyme declined 66% to $105 million in the fourth quarter. For the year, Cerezyme sales were $793 million, down 36%. Fabrazyme revenues declined 54% to $58 million in the fourth quarter. For the year, sales declined 13% to $430 million.

The company reported that about 85% of U.S. patients have resumed therapy with Cerezyme. However, Fabrazyme manufacturing productivity still remains affected. As a result, we expect Fabrazyme revenues to decline in 2010 compared to 2009.

Apart from the Genetic Diseases segment, all other segments at Genzyme reported an increase in revenues. While revenues in the Cardiometabolic & Renal segment increased 7% in the fourth quarter, Biosurgery segment revenues increased 26%. For the full year, Cardiometabolic & Renal segment revenues increased 5.8% with Biosurgery segment revenues increasing 14.4%.

The Hematologic Oncology segment recorded a 154% increase in revenues in the fourth quarter. For the full year, revenues increased 116% with Mozobil generating sales of $55 million.

2010 Guidance

Genzyme also provided guidance for 2010. The company expects earnings to accelerate as the year progresses. While first-quarter earnings are expected to remain flat on a sequential basis, the company expects fourth quarter 2010 earnings in the range of $1.00.

For the full year, Genzyme expects to earn $2.80 – $3.20 on revenues of $5.23 – $5.53 billion. The current Zacks Consensus Estimate is $2.96. Both SG&A and R&D expenses are expected to increase as the company works on promoting its products and expanding its pipeline.

The approval of Lumizyme, potentially in June, increased manufacturing productivity for Fabrazyme and Cerezyme’s success in maintaining market share should help boost both revenue and earnings in the second half of the year.

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 under US Food and Drug Administration (FDA) review.

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.

Our Expectations

Genzyme is slowly emerging from the manufacturing issues that hampered its performance in 2009. The company recently hired a new head of quality control. Genzyme also entered into a manufacturing contract with Hospira, Inc. (HSP) under which Hospira will be responsible for filling and packaging vials of key products.

We are also pleased to see that Genzyme is working on developing products that will help drive growth beyond 2011. Some of the pipeline candidates that show promise include mipomersen for high blood cholesterol, alemtuzumab for multiple sclerosis and GENZ-112638 for Gaucher disease. Genzyme is also is boosting its sales force and adding manufacturing capacity.

While Genzyme may have to face additional challenges before it is able to go back to a normal production and supply schedule, we believe the worst is over. We currently have a Neutral recommendation on the stock.

Read the full analyst report on “GENZ”
Read the full analyst report on “SHPGY”
Read the full analyst report on “PLX”
Read the full analyst report on “HSP”
Zacks Investment Research