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Executives

Henri Termeer - Chairman & Chief Executive Officer

Mike Wyzga - Chief Financial Officer

Alison Lawton - Senior Vice President, Global Product Access, Quality Systems & Regulatory Affairs

Geoff McDonough - General Manager of LSD Therapeutics

Mark Enyedy - Senior Vice President & President, Oncology & Multiple Sclerosis

John Butler - Senior Vice President & President, Renal, Endocrinology & Cardiovascular

Patrick Flanagan - Senior Director of Investor Relations

Analysts

Geoffrey Porges - Bernstein

Salveen Kochnover - Collins Stewart

Brian Abrahams - Oppenheimer Company

Geoff Meacham - J.P. Morgan

Yaron Werber - Citi

Chris Raymond - Robert Baird & Company

Phil Nadeau - Cowen & Co.

Jon Stephenson - Summer Street Research

Matt Osborne - Lazard

Shiv Kapoor - Morgan Joseph

Maykin Ho - Goldman Sachs

Josh Schimmer - FTN

Aaron Reames - Wachovia Capital Markets

Genzyme Corporation (GENZ) Q1 2009 Earnings Call April 22, 2009 11:00 AM ET

Operator

Welcome to the Genzyme Corporation’s, first quarter financial results conference call. All parties are in a listen-only mode until the question-and-answer session (Operator Instructions)

I would now like to turn the call over to Mr. Patrick Flanagan, Senior Director of Investor Relations.

Patrick Flanagan

Thanks Maryann and welcome everyone to Genzyme Corporations first quarter earnings conference call. On this call we will be making forward-looking statements, including providing EPS guidance, discussing expected drivers of revenue growth and discussing our product development and regulatory approval plans and estimated timetables for several products and development programs, including for alglucosidase alfa and Renvela.

These forward-looking statements are subject to a number of risks and uncertainties and our actual results may differ materially. Please refer to the Risk Factor section of our 2008 10-K for more information on those risks. If during this call we use any non-GAAP financial measures, you will find on our website reconciliation to the most directly comparable GAAP financial measure.

Finally, just a reminder that our annual Analyst and Investor Day is scheduled on May 6. Space is limited, so please RCP with the member of IR team as soon as possible if you’d like to attend the meeting.

I would now like to turn the call over to Genzyme, Chairman and CEO, Henri Termeer.

Henri Termeer

Patrick thank you very much and thank you everybody participating this morning. With me is Mike Wyzga, our Chief Financial Officer, he will talk about the financial details. Also Alison Lawton is with us from Washington. She will give us some updates on the Myozyme and Lumizyme status.

Geoff McDonough of the Genetic Disease area will talk about the LSDs briefly before we go to Q-and-A and the same with Mark Enyedy; he will talk about oncology and the MS program which is progressing actually quite beautifully at this stage and John Butler will talk about Renagel/Renvela with immersion briefly before we go to Q-and-A.

It is very clear that the first quarter for everyone, including for us was a challenging first quarter and it was quite a challenge to start the year that way. We have to project as much when we gave our guidance in the first quarter and we talked about the similar financial non-GAAP earnings result per share as we had in the fourth quarter and that’s pretty much where we came out.

It was a very weak economy with maybe a shorter set of days because of the year-to-year comparison that in regard may not have been helpful and a weak currency exchange rate comparison that did give us clearly some impact.

In addition, we had the impact relate to the manufacturing limitations, the supply limitations of Myozyme to treat Pompe disease in Europe, where we asked patients, adult patients, late-onset patients to miss some doses. Of course we had the U.S. situation that all of you are very familiar and that was not very helpful. Despite all of that, revenues were up 4% year-over-year, without the currency impact it would have been 10% and earnings were up 10% to 104 from last year.

When we look at the year, we actually can see some good things happening in our picture. Also the global economy may continue to be somewhat tough and unpredictable. We see in our businesses some very good developments and some of which actually are visible in this quarter.

So, we are reaffirming our top line from $5.15 billion to $5.35 billion, which we’ve given in February and non-GAAP earnings of 458, making up of course a little bit of the currency shortfall that we have. The euro was budgeted for us, projected for us at 135; it’s currently trading at 130. So we’re making that up by the kinds of expense control that you saw displayed in the first quarter.

I’m very proud to the organization being able to quarter-to-quarter achieve that kind of effect, so that we continue to produce the earnings that we have committed to produce. The positive outlook for the remainder of the year comes from a number of factors and some of which we’ll talk about here.

It’s clear that the limitations that we had in the U.S. related to Myozyme and the of course they will not be the same for the remainder of the year. We have sufficient supply now in Europe to treat late-onset patients and to expand and to promote the product again. It’s clear that we will make some progress and I won’t say too much about it, but Alison will.

In the U.S. we’ve never been able to promote Myozyme or Lumizyme in the U.S. for Pompe disease and we’ve had all the headaches that all of you are very familiar with and sharing with us, but good progress was made during the quarter, both attempts of the complete response letter and a warning letter and so we look at that as an opportunity for the remainder of the year.

Synvisc-One was introduced late in the first quarter. Primarily, the sales we had were stocking orders, but we saw in that first month, five weeks, we saw a significant demand developing on Synvisc-One. So currently, about 20% of our sales in this class is Synvisc-One, 80% is still Synvisc classic. We’re hopeful indeed that this will continue and in fact Synvisc-One becomes a product that not only competes very well, but also develops the market, which is the bigger opportunity.

Mozobil was introduced during the quarter. We’ll come back to that and that was an encouraging experience as it was very consistent with what we had expected. So we are hopeful indeed that we are on to a very, very strong, well differentiated product.

Renvela was approved in Europe. Recommended for approval, I should say and will be approved next month by the commission. Not just for hemodialysis patients, but also for CKD patients, not yet on dialysis and of course we’re still waiting in the U.S. for something similar to happen, but that’s helpful because it allows us in Europe to start to promote in a different way around Renvela and Renagel.

We did interaction that’s not yet closed with Bayer that expands our hematology and oncology profile and significantly changed the critical mass around that business and Mark Enyedy will come back to that.

So, these are all elements that are encouraging that we saw in the first quarter. In addition, we saw double digit growth of Thyrogen, of Seprafilm, of Thymoglobulin and we would have no reason to believe that will change going through the remainder of the year.

So, we are bullish for this year, but bullish in the context of a very tough economic environment and we are managing the company in a very conservative way as a result, not taking for granted that everything will happen the way that we wish it to happen, but we’re very secure indeed, sufficiently secure in our conviction with regards to the business and the results conveyed for us to reiterate, to forecasts the guidance that we gave in February.

So with that, let me ask Mike Wyzga to go through the financial details. Mike.

Mike Wyzga

Thank you very much Henri. Good morning everyone. While many companies have reported their earnings results recently, with the impact of the global economy becoming more and more influential, we faced similar issues; our global infrastructure and our product diversification in the severity of the diseases that we treat have helped dampen some of the impact for us.

Now with that all said even more imperative that we focus as Henri mentioned on our expense control and protect both our bottom line, as well as our balance sheet. So, with that as a backdrop drop, let me walk through the earnings for the quarter.

Year-over-year our revenue increased 4% to $1.15 billion; that was fairly significantly impacted by the foreign exchange. In particular the Euro decreased from an average of $1.5 versus the US dollar in Q1 of ‘08 to an average of $1.31 this quarter.

Year-to-year our GAAP EPS increased from $0.52 in ‘08 to $0.70 this year and now as you can see from our earnings per share crosswalk; during first quarter on a pretax basis, the expenses associated with our stock options were $45 million. Amortization expense in the first quarter increased a little bit to $58 million.

During the quarter we also recorded an $18 million charge for IPR&D expense and that was associated with the acquisition of intellectual property from exact sciences. This intellectual property is focused in the field of reproductive and pre-natal health.

We also recorded our manufacturing charge of $9 million for material and overhead expenses associated with incomplete process validation in Belgium. We’ve now successfully completed the product validation in Belgium. Our non-GAAP earnings per diluted share was $1.04 on the basis of $278 million shares outstanding and that should be compared against $0.95 in Q1 of last year.

So with that as an overview, let me now focus on some of the details for the quarter. Again, our top line revenue increase by 4% and as I mentioned in my opening statements, the foreign exchange fluctuation on a year-to-year basis was fairly material. The top line impact of FX year-to-year was $66 million, with the more mature and more global products bearing the brunt of impact.

If you exclude the negative impact of the foreign exchange, our revenue would have increased by 10%. Within the Genetic Disease area which includes Cerezyme, Fabrazyme, Myozyme and Aldurazyme the FX impact was $42 million. Year-to-year this impact indicated most of the volume increase that we saw with the association of net new patients.

Myozyme was also impacted by the supply management program in which adults were asked to miss dosages to preserve the supply for the children. The total revenue in the Cardiometabolic and Renal area increased by 5% to $243 million; this increase was due to continued demand for Renagel/Renvela as well as strong revenue increases in Thyrogen. Thyrogen increase 15% year-to-year.

The Biosurgery area revenue increased to $220 million or about 7%. Synvisc increased by 13% and Sepra also had a very nice quarter, increasing by 12%. In the hematologic and oncology area, we saw increases of revenue to $36 million from $24 million in the prior year; that was driven mostly by the Mozobil launched.

Running out the top line, we saw our revenue increases in the genetics and diagnostics area; it’s about 13% to $129 million. So a special emphasis on the genetic business increasing by 23%, with a growth in both oncology and reproductive testing and lastly the transplant revenue increased by 15% on a year-to-year basis, to $53 million with the supply constraints behind us.

Our non-GAAP gross margin for the first quarter came in at $869 million or 76% of revenue. The gross margin reflects the impact of the lower margin product mix as we continue to diversify our business, as well as the ramp up of the new facilities. The impact of the mix in the ramp up was somewhat offset by the continued individual product margin improvements that we saw.

Our operating expenses reflect the global and diversified business. As I mentioned before, this dampens the impact of the foreign exchange fluctuations, but equally importantly, this base provides us multiple options for us to manage our expenses. While we controlled our expenses fairly aggressively during the quarter, we’re still investing in advancing our pipeline.

Our non-GAAP research and development expenses came in at $175 million or about 15% of revenue. This should be compared against our non-GAAP R&D expenses in Q1 of last year of $180 million. Much of the year-to-year R&D decrease was due to the reduced spending in Mozobil, which as you know was approved last year. This quarters R&D reflects the investment in the high priority programs of MS, Clolar and LSD small molecule.

Our non-GAAP SG&A expenses were $294 million for the quarter or 26% of revenue; and this 26% is four percentage point lower than last year. We got this leverage even as we launched Mozobil and Synvisc-one here in the United States. Our ex-US operations was favorably impacted by foreign exchange by about $22 million.

Our total non-GAAP operating expense as a percentage of revenue decreased from 43.3% of revenue in Q1 of last year to 42.9% this year. Our non-GAAP tax rate came in at 29%, and that reflects the greater utilization that we’re seeing in our foreign manufacturing and our ex-U.S. manufacturing operations.

Our cash generation for the first quarter came in at $349 million on a non-GAAP basis. Our non-GAAP cash from operations were $314 million; option in ESP activity came in at $35 million. Our capital expenditures were $162 million for the quarter and focused mostly on the manufacturing facilities in Geel, as well as our cell culture expansion. We also repurchased about 2 million shares of stock for a total of $107 million.

Now with the impact of the economic downturn, it’s important for us to focus on the health of our balance sheet, so let me talk a little bit about our balance sheet. We exited Q1 with about $1 billion in cash on our balance sheet and virtually zero debt. Recently we received an independent valuation of the quality of our corporate credit rating from Standard & Poor. They did a measurement against the top 40 companies in the biotech, pharmaceutical and life science area and with that Genzyme was ranked number 12.

Genzyme was also upgraded most recently to an A-minus credit rating. Now we continue to expect as Henri mentioned our 2009 non-GAAP earnings of $4.58. Before turning it back to Henri, I’d like to remind everyone that we do have our line item revenue and expense detail either attached to the press release or on our website.

With that let me turn it back over to Henri.

Henri Termeer

Thank you very much Mike. Let me ask Alison Lawton to give us some insight into the Myozyme and Lumizyme stories.

Alison Lawton

Thanks Henri. So let first start with an update on the status of our warning letter and just to let everybody know that we are on schedule with all of the corrective actions in response to this warning letter, and specifically all of the corrective actions for Alston have been completed, with the exception of one additional fill study, which is unrelated to Lumizyme. It’s actually for a liquid fill related to Aldurazyme, that we don’t need until later in the year.

Other activities associated with the ongoing preventative action plan that we provided to the FDA continues, such as column maintenance and they all continue to schedule. We have actually been providing FDA weekly updates with information and data as we collect it and are currently awaiting right now for their re-inspection in order to resolve our compliance status.

So, we are very confident at this point that we fully addressed all of the items in the warning letter and we actually look forward and welcome the FDA re-inspection. Obviously we don’t know when that’s going to happen, but we’re awaiting that any day.

In addition to this, we’ve also decided to go ahead and actually add one additional further step, by bringing in an independent consulting company that’s well-known to the FDA and we’ve asked them to come in and work with us to actually take a critical look at all of our quality systems, both at Alston and our other manufacturing sites and help us really identify potential further improvement opportunities above and beyond those that we’ve already addressed. So I think that’s an additional step that we’ve taken which we wanted to let everybody know that that is in progress.

So now I’d like to move on to Lumizyme and give you an update on Lumizyme. With regards to this, as you all know, currently the FDA do not have a PDUFA date that they’re working to and the FDA did commit to us that they would continue to work with us, even though they did not have a PDUFA date in front of them; and I have to say that they have kept their word very well on that, and we have been very pleased with the ongoing communication with the FDA.

We’ve had a number of conversations with them and at this point, we’ve received from the FDA their final comments on the label, as well as on the REMS for Lumizyme. In addition, we’ve actually agreed on the verification study and we’re very happy with that agreed action plan that we actually finalized with the FDA last week.

So at this point, we’ve actually resolved all of any outstanding items with FDA and we are ready to submit our full package which will address all of the items in the FDA complete response letter and we’re really just waiting now for the re-inspection of the Alston facility and the resolution of our compliance status, before we can officially commit that document to the FDA. We believe we’re still on schedule for that submission in this quarter and with approval in late Q2 or sometime in Q3.

Then moving on to the Myozyme 4,000 liter status; as we’ve said before, we’re very confident with the comparability data of the 4,000 liter, compared to the 160 liter scale product and we’ve submitted a significant amount of the information and data to the FDA as part of a meeting package.

We actually have a meeting planned with the FDA within the next couple of weeks when we will be discussing both the data that they’ve looked, as well as our plan submission strategy. So, obviously at this point in time we’re very much looking forward to the meeting with the FDA to get their input on our regulatory strategy, and after that meeting we’ll certainly no a lot more about our plan, but currently we still plan to file the supplement to the 160 liter BLA this quarter.

So, I think that’s it for my regulatory update.

Henri Termeer

Thank you very much, Alison. Geoff?

Geoff McDonough

Thank you, Henri. We continue to see strong demand across the Genetic Disease portfolio with increasing volumes year-on-year all products, with the obvious limitations for Myozyme as mentioned. Revenues at 0.4% growth represent the impact of foreign exchange and this effect was seen across all of LSD products.

Although pricing pressure continues to be a factor around the world, it’s not more so in the current environment and we are not experiencing specific pressure on the Genetic Disease segment of the business. I will make a few comments on each of our products.

As expected Myozyme was constrained this quarter due to tight inventories as we transitioned to 4000 liter supply in Europe, which was approved there in February. Revenue was down slightly quarter-on-quarter and flat year-on-year as a result of voluntary miss doses by adults worldwide, to protect access for infants and children. The effect of foreign exchange was evident here for Myozyme as well.

Tenors in Europe have resumed treatment for Pompe patients and we expect to see growth get back on track in that region and we are working through the approvals for 4000 liter end markets outside of Europe as Alison mentioned.

Cerezyme continues to see study growth year-on-year posting 5.5% on a volume basis this year. Revenues are down year-on-year on the basis of foreign exchange and quarter-on-quarter on the basis of order pattern. We have seen down quarters in the past for Cerezyme, which added size can fluctuate with channel inventory, centralized government order and shift and distribution and home care patterns.

Cerezyme label in Europe was just updated with extensive safety data, as well as with the first ever indication for use in pregnancy and Cerezyme was also just approved last month in China; both of these are drivers for continued growth. I’ll be addressing the progress we have made on 112638, our bill for Gaucher disease at the analysts day next month and we’ll make comments on the bone data, as well as on our clinical trial sets to begin in Q3 of this year.

Fabrazyme posted at 16% year-on-year volume growth on the strength of new accruals, again blunted on the revenue line by foreign exchange. Like Cerezyme quarter-on-quarter, Fabrazyme was down in Q1 slightly reflecting order pattern. For Fabrazyme we’re expecting approval in Russia this quarter and we hope to make progress there on the basis on our decade of experience in that market with Cerezyme.

Aldurazyme had a 9% growth in volume year-on-year and was also impacted by foreign exchange, as well as order pattern in the quarter one, from quarter-on-quarter perspective. We continue to see good demand for this product around the world. I’ll just add additional color to Alison’s comment related to the sale in Alston for Aldurazyme; this we did not we have any impact on product supply or quality, so part of the overall investigation and resolution of the warning letter.

We continue to make good progress with PTC and Ataluren, with the first patient in expected in quarter two of 2009 for the pivotal study in CF and we’ve decided to initiate a proof of concept Phase II A study in hemophilia in quarter three. I will also make some comments on Ataluren at the analyst day in May. Back to you Henri.

Henri Termeer

Thank you, Geoff. Mark MS and oncology.

Mark Enyedy

Thanks Henri. Q1 was a productive an active quarter for our hemotology, oncology and MS portfolios. It was an encouraging product launch, M&A activity and solid execution in our key development programs. Regarding MS, we made substantial progress in our Phase III studies, with enrollment now complete in the treatment naive study, we’re in a position to file in 2011 and anticipate our first approval in 2012.

Accrual in the treatment experience study also increased significantly during the quarter and we now expect to complete enrollment in that study before year end. The program also continues to generate compelling data with five presentations at MS meetings this quarter, including two posters next week at AAN.

The first poster will present data comparing alemtuzumab to Rebif in producing sustained reductions in disabilities measured using EDSS; and the second will present durability response data at 24 months after the last cycle of alemtuzumab measured across multiple efficacy measures, including relapse rate, sustained accumulation of disability, improvement in mean EDSS scores and the percentage of patients clinically diseases free at 24 months. We look forward to discussing this data with you in more detail at the Analyst Day.

On the oncology side of the house, the Mozobil launch is preceding quite well, with Q1 revenue tracking nicely to our guidance of $40 million to $50 million. We’ve targeted 93 centers with this launch, which accounts for roughly 90% of the market and received orders from 81 of these accounts. In total we’ve received orders from over 130 centers during Q1 and reorders account for more than 50% of our volume.

We’re particularly encouraged to see centers using the product in the frontline setting and also orders coming from centers with no prior experience with the product. It’s early days in the launch, but we’re very pleased with the adoption in the U.S. market to-date.

In Europe, we continue to expect action on our MMA by mid year and on a global basis demand for compaction at use remained high, with over 600 patients participating in the program from over 20 countries, with much of the demand coming from our key EU markets, including over 150 patients in the U.K.

We’re also very much on track with Clolar, which is our second key catalyst for growth with this business. Q1 revenue was up over 20% in comparison to Q1 of ’08, with a majority of those revenues coming from the adult and now sitting particularly in relapsed or refractory patients. On the regulatory front, you may recall that we filed for expansion of our label and frontline AML late last year and anticipate a decision from FDA in the second half of this year.

Finally, we’re pleased to announce at the end of Q1, the strategic transaction with Bayer that will significantly enhance our businesses in both MS and oncology giving us for the first time, commercial access to significant and growing markets in multiple sclerosis, and substantially increasing our commercial presence around the globe with significant additional revenues on the oncology side that compliment our existing portfolio and the infrastructure.

Preparations for the closing of the transaction are well underway and we expect to complete the transaction this quarter. So we made significant progress in these portfolios during Q1 and look forward to updating you as these efforts progress through the remainder of the year.

Henri Termeer

Thank you, Mark. John.

John Butler

Thanks Henri. Sevelamer revenues were up 1% versus Q1 of last year, driven by a slight increase in our blended average selling price. We had the negative FX effect, offset by positive price in Renagel and Renvela in the U.S. Now volumes were flat versus Q1 of last year, but Q1 ‘08 was impacted by a $4.5 million pipeline fill for the U.S. Renvela launch. Renvela continues to grow as a percent of the total sevelamer business accounting for nearly 25% of total prescriptions now.

While we continue to see good growth from our Latin America and APAC markets, Europe continues to slow. That’s why we’re excited about reignited that growth in Europe, with the launch of Renvela this quarter.

As Henri mentioned, we had a positive CHMP meeting in the first quarter and expect Renvela approval for dialysis and CKD patients, not on dialysis in both tablet and powder formulations. Importantly, this is going to be our first CKD non-dialysis approval. We expect to launch first in Germany in June and then follow up with other country launches as we receive reimbursement.

In the U.S. we continue our active dialogue with the FDA to expand our Revenla label, to patients with CKD’s who are not on dialysis. We still believe we can have this expanded label by mid year, though this is an unconventional regulatory path with no set timelines.

Turing to our product development, we began a Phase II, III trial for our advanced phosphate binder product in Q1. A reminder; our goal for this product is to show a 1.5 versus 2X potency versus Renvela. Patient recruitment for this trial is moving along very well and we expect to have results available in the first half of next year.

Our other product in pivotal development, mipomersen, is also progressing very well. We have a broad development program underway and we expect to report top line data from our first Phase III study in homozygous FH patients, before the end of the quarter.

As a reminder, homozygous FH patients are the most difficult to treat with the highest unmet medical need. Our Phase III study is powered to show a 20% difference to placebo in LDL. This would be a meaningful clinical effect for this very high risk patient population and I look forward to updating you further on both of these programs that are Investors Day on May 6. Henri.

Henri Termeer

Thank you very much. Operator, now we can go to Q-and-A.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from Geoffrey Porges of Bernstein.

Geoffrey Porges - Bernstein

Thanks very much. For Alison on the 4000 liter; you talked a little bit about the FDA meeting, I’m wondering, is that typical to have such a meeting before filing an sBLA and what you might be discussing at the meeting and what is your fallback plan if the FDA says that they’re not happy with it being filed as a supplement to the BLA? What would you be required to do and would be the timeline?

Alison Lawton

Okay, so to answer your first question, it’s not necessarily typical to have a meeting before you file a supplement to the BLA, but obviously given our experience on Lumizyme, we wanted to be able to make sure that we had an open discussion with the FDA before filing the 4,000 liter and it was also a way for us to get the data on the 4,000 liter into them and for them to have a chance to review that ahead of formally submitting the supplement. So I think it’s a very important discussion for us to have.

We are still very confident on the comparability of that product, compared to the 160 liter. So at this point I don’t think that it would be appropriate for me to speculate of what we might do if that’s not appropriate, because we’re very confident that is still the way that we will go.

Geoffrey Porges – Bernstein

Okay, thank you.

Operator

Our next question is from Salveen Kochnover of Collins Stewart.

Salveen Kochnover - Collins Stewart

Hi, good morning. Thanks for taking my question. Could you just give us a little bit of color on what makes you confident that the Alston plant will be inspected in the second quarter and then will you only submit a response as a complete response letter after the manufacturing plant has been cleared?

Alison Lawton

Yes. So, with regards to the reason that we believe we’ll be inspected in the first quarter is because we have completed all of the corrective actions necessary for the Alston facility. The one outstanding, fill study that I referred to, which is for Aldurazyme, we do not need that Aldurazyme until later in the year and of course that does not in any way relate to Lumizyme.

So we believe that everything has been completed and that literally FDA could turn up at our door any day. Obviously we don’t when, but we still think that’s most likely going to happen in Q2.

Then with regards to, I apologize, the second part of your question. We will submit the data to respond to the complete response letter at the moment we have been told that we have to have our compliance status resolved before we can submit that. So we’re waiting for that re-inspection and update on the compliance resolution before we can actually submit that. So everything is ready to go as soon as we have that resolved.

Salveen Kochnover - Collins Stewart

Thank you.

Operator

Our next question is from Brian Abrahams of Oppenheimer Company.

Brian Abrahams - Oppenheimer Company

Hi, thanks for taking my question. A question for Geoff; Geoff can you help us understand why ordering patterns among the enzyme replacement would impact all of products at the same time? What gives you the confidence that what we were seeing in the first quarter isn’t necessarily reflective of any concerning trends?

Geoff McDonough

That’s a good question. So I think the effective order pattern can affect any of the products and whether they affect all of the products just depends on the specific of any given country. I will say the general matter, that the larger the product, the larger in general, the impact of central purchasing is on behalf of government.

So for Cerezyme for example, if you look back over the last 13 quarters, we’ve had four quarters where revenues were down quarter-on-quarter and an additional quarter that was flat and yet revenues over that same 13 quarter period have grown in an absolute way at about 24% and on CAGR basis of about 7.5%.

So, I think the sense of how lumpy this portfolio is can be seen when you look at the business that way. I can only tell you that the underlying accrual numbers on a per patient basis for each of the products remains strong and does not reveal for me a concern of the overall health of the business.

Brian Abrahams - Oppenheimer Company

Thanks very much.

Operator

Our next question is from Geoff Meacham of J.P. Morgan.

Geoff Meacham - J.P. Morgan

Hey guys, thanks for taking the question. A question for John on Renvela and CKD; can you give us any updates on where you are in the process with respect to the white paper. Are there any required steps going forward or what the agency has asked for, etc?

John Butler

Yes, there is really not much update to give. As I said, we’re working on this unconventional path here from a regulatory perspective, so we have no dates that anyone’s working towards. What I can say is that we’re in an active dialogue; in other words we’re talking regularly with the agency, but there’s no date that they’re shooting for and so it’s hard to say.

As we get closer and closer to the middle of the year, it’s hard to say that we’re going to hit that timeline but again, since it’s a positive dialogue we’re still confident that it’s going to happen. I don’t know Alison, if there is anything else that you want to add on that.

Alison Lawton

No unfortunately I think that what you’ve said John is probably what we can say at this point.

Geoff Meacham - J.P. Morgan

Okay. Just as a backup would there be any thought about running a perspective study with you or with some of your collaborators that have written their white paper?

John Butler

Well, we continue to do studies in chronic kidney disease, patients not on dialysis. We have a study ongoing now in Europe that is in very early stage where we’re treating patients to 4.6.

I think one of the important things to point out about the positive opinion from the CHMP; remember I said about the FDA discussions, a lot of it’s around what’s the right level to begin treatment and our original CKD trial, we had set 5.5 as phosphorous level that we treated at and that’s exactly where our indication is going to come in. That’s what was recommended by the CMHP in Europe. I think that’s an important piece of information for the FDA as well. The PEDUKE guidelines suggest treatment of 4.6 and that’s why we started a trial at that level in Europe.

So we’re continuing that process. We’re also going to be starting later this year, a trial looking at FGF 23 levels in CKD patients. So we’re continuing the development, but not looking at those as regulatory studies per say.

Geoff Meacham - J.P. Morgan

Okay. Thank you.

Operator

Our next question is from Yaron Werber of Citi.

Yaron Werber – Citi

Yes, hi good morning guys. Mike I have a question for you and one of the questions that we get a lot and I’m sure you get a lot and maybe if you don’t mind, just help us understand a little bit is the one-timers. As I’m looking at the model and I’m just looking at the last six quarters, there’s been three one-timers on inventory or manufacturing related write-offs and in the R&D line there’s been three business development activities that were written off.

Can you just help us understand, why don’t you just want to include them as a part of your overall numbers. I’m talking about non-GAAP numbers and actually let it hit the bottom line, because aren’t these a part of normal business activities?

What I’m really struggling with and I think we all are is what’s in the guidance, what’s not in the guidance; what’s going to be one-timers, because we need to have some clarity to figure out what’s the normalize earning growth and figure out what kind of a multiple it put on that. So any clarity there would really help us out; I would appreciate it.

Mike Wyzga

Sure. Of the two there we took this quarter, you are right, one was licensing and one was product validation. So, let me talk about the overview and then let me talk about the specifics. As an overview, what we do is when we look at expenses; we look at expenses on a very consistent basis. They are considered not part of our ongoing operations and we’re not expecting them to recur and so we do place them on an one-time schedule.

Now as a company we provide this information, so that shareholders can better understand sort of the ongoing economics as it were of the business and reflect how we manage our business going forward. With regard to the two that we took this quarter, you have to look at the facts and circumstances of each individual case.

In the case of exact science, we acquired an asset as part of reproductive and prenatal testing area. To the extent that that asset was incomplete technology with no future use or alternate use, we expense this as part of IP R&D in accordance with FAS 141 and we carve it out as I mentioned because it’s not considered part of our ongoing business and it’s certainly not considered to reoccur.

The PV run was the exact same thing. In this case we took a $9 million charge for an incomplete product validation in Belgium. As there was no commercial product to amortize that against, these were expensed again according to GAAP. In the case of PV run, product validation runs are now complete, so we don’t obviously expect these to reoccur.

So anything that’s non-reoccurring and anything that’s not part of our normal business is what we usually cover out and that’s been consistent for a number of years and I think it’s fairly consistent with most of the industry as well.

Yaron Werber – Citi

Let me just maybe clarify a little bit; product valuation, isn’t that part of normal business operations to get your product validated, so why is that a one-timer. I guess I am confused about that.

Mike Wyzga

When we have a completed run; if we had a completed product validation run what would happen is we would use those product validation runs as part of our ongoing inventory for commercialized use. To the extent that these were incomplete runs, we expense them immediately and to the extent that you expense them immediately and you haven’t produced commercial product, there’s nothing to amortize them against. So according to our policy you’re right, they’re often taken as a one-timer.

Yaron Werber – Citi

Thank you.

Mike Wyzga

You’re welcome.

Operator

Our next question is from Chris Raymond of Robert Baird & Company.

Chris Raymond - Robert Baird & Company

Thanks. I just wanted to like understand a little bit better, some of the descriptions you guys have given on the economic impact. You did a great job of quantifying the FX impact, sort of across each franchise, but can you maybe give a little bit more color.

I mean used patterns seem to be sort of okay year-on-year across the board and especially in the LSD franchise, but what exactly do you see happening on a sort of patient level basis? Are you seeing in more reliance on co-pay assistance? Are you seeing any dosing interval changes for example? If you are, maybe a second part of the question is, do you see any of this as in terms of spillover into subsequent quarters this year? Thanks.

Henri Termeer

Geoff, do you want to take it.

Geoff McDonough

Sure. Maybe I’ll take it at two levels. Let me start with the patient level. We are seeing a more commercial reimbursed or commercial insurance environment such as the U.S., the impact of rising unemployment rates among our patient population. The impacts in those populations are different depending on the demography.

So for example, in our more employed populations we’ve seen a slightly greater reliance on assistance with premiums or with gap insurance mechanisms, but as a contributor to the robustness of the business, there’s been enough of the safety net in place, provided through a number of different mechanisms that it has not impacted the business here.

I think the impact, as Henri said in the introductory comments of the larger economy going forward, is to be measured and we are obviously very attentive to this as it’s the major contributor to outcomes for patients; their ability to consistently access therapy.

The secretary bucket is related to large centralized purchasers, governments, who as all of us are doing in this environment, are measuring their spend and carefully monitoring their inventories, but their underlying commitment to supporting the volume growth and the needs of their patient populations has not changed. So, I think the quarter-to-quarter variation that we see in this quarter is not unusually large and not different from what we’ve seen in the past 12 or 13 quarters.

Chris Raymond - Robert Baird & Company

So, not to put words in your mouth, but I mean would one assume then that your assumption is that these large centralized purchases will rebound?

Geoff McDonough

Well, I think they are making prioritization decisions within the portfolio of medicines as we all do with our purchases and I think one of the things that they look at is the relative necessity for these medicines. I think as a general rule most governments are looking at the reimbursement for these therapies as highly effective, highly specific for populations that are extraordinarily vulnerable. So, if history is any guide and I include recent history, we have not seen a weakening in that commitment.

Chris Raymond - Robert Baird & Company

Thanks.

Geoff McDonough

Sure.

Operator

Our next question is from Phil Nadeau of Cowen and Company.

Phil Nadeau - Cowen & Co.

Good morning, thanks for taking my question. It’s actually for Alison and it’s on turnaround time. Alison you suggested on the review of the Lumizyme response. My understanding of the FDA guidelines that if complete response letter can only be satisfied through a re-inspection of a facility; that there’s a mandated six month review of the response and it seems like you’re guiding to a turnaround time that’s maybe at most two months, maybe somewhat less.

So, what gives you confidence that you could see such a quick turnaround time? Did the FDA kind of specifically suggest to you that you wouldn’t need a Class 1 or Class 2 review of your response?

Alison Lawton

Sure. It’s a good question. So first of all let me start by saying that FDA have specifically not told us what our resubmission will be classified as, whether it will be a Class 1 or a Class 2; however, let’s assume a worst case and that it’s classified as a Class 2, which is a six months PDUFA date.

The FDA has made it very clear with us, that part of the reason that they wanted to continue to work with us now around finalizing the label and the REMS and the verification study, so that when we actually submit our package in response to the CR letter, the FDA will know what we’re submitting; we’ve already agreed on all of the different parts and the FDA have basically told us that they would be working to expedite that review, knowing that they are fully informed and aware of what we’re submitting back to them. So, that’s why we don’t expect to take that full six months.

Phil Nadeau - Cowen and Company

Okay. Thank you.

Operator

Next question is from Jon Stephenson of Summer Street Research.

Jon Stephenson - Summer Street Research

Thanks for taking my question. Just wanted to pin you down a little bit more on the sequential trends in end market demand for the lysosomal storage products in terms of patients and what kind of clarity you get there and then any additional clarity on the size of the sequential trends in channel reductions?

Geoff McDonough

Sure. It’s a very general question John, so I’ll try to answer it and let me know if I get there. The trends for growth in each of the products are driven in a different proportion between the rate at which we’re able to identify the remaining undiagnosed patients and bring them to therapy, and the rate at which we reach markets that today don’t have filings in place or don’t have infrastructure in place to drive that awareness and diagnosis.

Then there’s an additional factor, which differs between the disease, relative to the obviousness or severity of the symptoms at presentation which are obviously key motivators for patients to seek therapy and to stay with therapy.

I guess, I can tell you that with respect to those three elements, they all three have been independent of the economic features that we’ve been talking about; the rate at which awareness drives patient identification, the rate at which we build infrastructure in new markets and the motivation for patients as a result of their disease severity, has all been very much in line with historical trends.

In fact, if you look at the issue related to the supply constraints in Myozyme; as we’ve seen that come off in Europe, we’re seeing a more robust, not a less robust rate at which patients are being identified and I commented in our last call on the surprising degree to which these patients are setting in the neuromuscular call point with neurodystrophy and the rate at which they’re being tested is revealing that roughly one in ten of those patients has Pompe disease.

As another example on the Febri side, we are seeing a re-ignition I would say of the awareness of the disease, as well as the willingness of patients to move to therapy and as was pointed out in one of our recent analyst meetings, the rate of growth expected this year for Fabrazyme is relatively more robust than it was in 2008. So I hope that gets at your question, John.

Jon Stephenson - Summer Street Research

To some degree; I mean just specifically I was wondering if the number of patients on some of these key products has actually gone up and whether or not the entire sequential downturn in revenues, it can be accounted for by FX and the inventory reductions, so all that being equal, whether or not the revenues would have been up sequentially.

Mike Wyzga

Yes, thank you. So the answer is, yes; we’re seeing on a global basis year-on-year the number of patients on each of the products increasing and just to give you a flavor, given the size of our business and the size of some centralized purchasers, we can see swings quarter-to-quarter in excess of $10 million unrelated to inventory or patient numbers, just related to purchasing patterns.

Jon Stephenson - Summer Street Research

Okay. Thanks.

Mike Wyzga

Yes.

Operator

Our next question is from Matt Osborne - Lazard.

Matt Osborne - Lazard

Hi, thanks for taking the question. Alison, I believe it’s a question for you; just depending on the timing of the 2000 liter material being approved, could you also reference that in addition to the 160 liter before you submit the sBLA for the 4000 liter material? Thank you?

Alison Lawton

I’m not too clear on the question there. I mean with regards to the 4000 liter, we’re actually going to planning to show that that’s comparable to the 160 liter product and file it as a supplement to the BLA for the 160 liter product. So, we wouldn’t actually be necessarily referencing the Lumizyme products at all. Does that answer your question?

Matt Osborne - Lazard

It does. I’m just wondering; I thought previously the 2000 liter materially actually was more closely resembling the 4,000 liter material than the 160. So I’m wondering if there’s an opportunity before you submit the sBLA and depending on the 2000 liter material approval, if you could still reference both or is it still your guidance and expectation that you would just reference the 160 independently and exclusively.

Alison Lawton

Yes, at the moment the plan is the 4000 liter, using all of the experience and everything we’ve learned from the scale up, we’ve really targeted that to look very, very close to the 160 liter and that’s really our regulatory strategy at this point; is to show that the 4,000 is comparable to the 160.

Matt Osborne - Lazard

Okay, great. Thanks.

Geoff McDonough

David, do you want it make an extra comment on that front?

David Meeker

I was just going to add to what Alison said. I think if you think about the 4000 liter as being between the 2000 and 160 with regard to some of characters that the FDA is most focused on, and as Alison said, it’s quite close to the 160 and that is what we’re filing using as a filing as an sBLA to the 160, but one view of that would be that the FDA would take some comfort, that having approved at 2000 and improved to 160 that this was an impact in between at the worst.

Matt Osborne - Lazard

Okay, I wasn’t aware it’s classified and between 2000. Okay, thank you.

Henri Termeer

Just an interesting indicator here is, in Europe only the 2000 was approved, as it was approved.

Mark Enyedy

Okay, next question.

Operator

Our next question is from Shiv Kapoor of Morgan Joseph.

Shiv Kapoor - Morgan Joseph

Good morning, thanks for taking my question. I’m wondering what the wholesale inventory levels for Renagel and Renvela are in the U.S., given that you are switching the drugs and also in Europe, given that there is an anticipation of a Renvela launch?

John Butler

Yes. So inventories really have not materially changed from last year. When we look at our inventory level at the wholesale, we’re looking at sevelamer. So, not understanding that there will be a shift over from one to the other, but we’re looking in an aggregate. So, they continue to be well within our kind of previously stated expectations around three weeks or so of inventory; the wholesaler.

I have less detail kind of on a country-to-country basis, and different countries do maintain somewhat different inventory levels based on the channel distribution, but it’s generally anywhere; it’s around a month or six weeks and through the whole channel.

Since we’ll be bringing Renvela out gradually, each country we’ll kind of work through that inventory process as we bring the product into the market, but it’s nothing that’s a concern for us at this point. We understand managing the inventory in the wholesale channel as a point and do it very actively.

Shiv Kapoor - Morgan Joseph

Great, thanks.

Operator

Our next question is from Maykin Ho of Goldman Sachs.

Maykin Ho - Goldman Sachs

Hi, I have another question on Lumizyme. Let’s say if you get a re-inspection tomorrow, can you walk through the sequence of events? Does the FDA have to actually issue something before you can be filed?

Alison Lawton

Yes. My understanding there is, obviously after they have been not to re-inspect, they would file their own inspection report and then we would actually receive a letter basically informing us that everything had been resolved and that would then be the opportunity at the time that we could actually submit the Lumizyme information.

Maykin Ho - Goldman Sachs

And generally, how long does it take to get the letter?

Alison Lawton

Yes, that’s a very good question. I’m just thinking back for example, our experience with the Leon facility, I think it was within a couple of weeks of that inspection and actually I should also clarify that the letter itself actually just states that, everything looks satisfactory the way that they word it.

Maykin Ho - Goldman Sachs

Thank you.

Henri Termeer

Operator, we are approaching the top of the hour. So, two more questions please.

Operator

Our next question is from Josh Schimmer of FTN.

Josh Schimmer - FTN

Hey, thanks for taking the question. Alison, for either Lumizyme or the 4K liter facility product, do you expect that you need to perform studies to demonstrate the safety of switching patients from product derived from one facility to product derived from another facility and if so what might those studies look like and if not why not, thanks?

Alison Lawton

Okay. I think rather than focus on the facility, I think the key thing here is focusing on what the product looks like and showing that the product is comparable. It’s not necessary to do switching studies or safety studies based on different facilities; it’s really if you show the product is comparable, then you do not need to do that.

Now obviously we don’t believe we will need to do that, because we have a comparable product. Obviously with our Pompe registry, that’s the kind of information that we would just routinely continue to collect on patients and have that available, but that’s not something that we believe is necessary for FDA approval.

Josh Schimmer - FTN

So, will any patient be switched from the 160 liter to Lumizyme; and if so, does that need to be demonstrated in the trial or is that a different scenario as well?

Alison Lawton

For the Lumizyme, if you remember the Lumizyme approval will still be for the late onset patients and so for the infants on 160 at the moment, they will remain on 160.

Josh Schimmer - FTN

Okay. Great, thanks.

Operator

Your final question comes from Aaron Reames of Wachovia Capital Markets.

Aaron Reames - Wachovia Capital Markets

Hi, thanks for taking my question. I just had a follow-up question for John on the advanced phosphate binder program. I think during the introductory comments, it was mentioned that the ongoing LEAP trial for 470 was categorized as a phase II/III trial and so I had two questions.

First I wanted to know if that was the first demand experience for 470 or if there was a trial conducted maybe in Europe or something of that sort. Then second are the plans to basically roll all three doses into a Phase III portion of that study?

John Butler

Yes, so this is first demand trial, the leap study as you referenced and we’re still looking at what the next trial will be based on the results. Again at analyst day I will go into more detail around the design of the current trial and we can talk about the development plan a bit more there, but we do have an expectation that will move then directly into another Phase III trial; the design still is in process.

Aaron Reames - Wachovia Capital Markets

Okay, great and then one last question that I just had on 638 and the bone data that we should expect to see at analyst day; is that going to be for all patients out to 52 weeks or is that just going to be a portion of the patients.

John Butler

I’m glad you asked the question. We are going to be able to show you a relatively high level view of the bone data. It will be on all completers for 52 weeks and that data will be discussed in detail at the Gaucher leadership forum, which will occur late in May in Milan. So at analyst day I will give you a very strong feeling for the shape of the data and what we think it means and that will be discussed in more detail later that month.

Aaron Reames - Wachovia Capital Markets

All right, thank you for taking my questions.

Henri Termeer

Thank you very much everybody for participating this morning. Make sure that if you didn’t get to ask your question that you connect with us through Patrick. We want to make sure that everybody does get satisfaction in terms of answering the questions and clarifying any unclear things that need to be clarified. We all look very much forward to seeing you at the analyst day which is again on May 6th; relatively soon now. Thank you so much for being with us this morning.

Operator

This does conclude today’s conference call. Please disconnect your phone at this time.

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Source: Genzyme Corporation Q1 2009 Earnings Call Transcript

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