Why I Like Genzyme's Stock

Recently, Genzyme (GENZ) has been in the news more than Lindsay Lohan because of the viral contamination problems at its Boston suburb facility. The analysts covering Genzyme have been mixed about its prospects - UBS and Goldman both downgraded Genzyme citing the manufacturing issues and a competing drug being developed by Shire plc (SHPGY). On the other hand, Morningstar has it rated as a 5 star (highest) stock. Mark Mitchell expresses both viewpoints when he says that Genzyme is a short term sell but a long term buy. Here's why I think Genzyme is good company with significant competitive advantages.

• No significant competition for Cerezyme (Gaucher's disease), Fabrazyme (Frabry disease), Myozyme (Pompe disease) - it's core orphan drug franchise.
• Strong earnings growth prospects - 22% for the next 5 years.
• Very good late stage pipeline with alemtuzumab (MS), mipomersen (lower LDL), Lumizyme (Myozyme follow-up - it's a long story).
• Manufacturing for sterile products is inherently a very difficult process. If Genzyme, which is very experienced and capable, is having problems, then its competitors will have even more problems.
• Potential target for acquisition especially since pharma companies are looking to expand in to biologics and Genzyme's (relatively and historically) low valuation right now (about $48-50/share).
• Finally, the decision to discard the in-process batches is in the best interests of the company and patients even though there may be short pain. Another example of management's integrity I believe.

By no means am I saying that Genzyme's stock won't go lower - it very well may in the near term. But in the long term, Genzyme is a very capable, competitive and profitable company. In the long term, its extrinsic valuation will catch back up with its intrinsic value. And I'm sure that in no time, Lindsay will overtake Genzyme in the news. I know that Genzyme is hoping for that at least.

Disclosure: Long Genzyme

Comments

[ghmm:]

Would not agree on your first point
"No significant competition for Cerezyme (Gaucher's disease), Fabrazyme (Frabry disease), Myozyme (Pompe disease) - it's core orphan drug franchise."
Cerezyme Competition:
Near term: PLX, Shire
Longer Term: Their own small molecule, Amicus/Shire Chaperone
Fabrazyme:
Presently Shire x-US and in early 2010 likely in US
Near term: Shire/Amicus starting Phase 3 for Chaperone
Myozome: Has no near term threats but they have really dropped the ball on establishing a big base like they have with Cerezyme. BMRN will likely have their ERT enter the clinic next year (alone or with a partner) and probably a good chance Amicus gets the hold lifted on their Chaperone though granted the program is a big questionmark.,

Aug 11 03:18 PM

[Idiotbuster:]

Does Lindsay own GENZ shares?

Aug 11 05:39 PM

[Shailesh Ma...:]

Yes there are potential competitors in the pipeline which is not the same as approved, marketed and competing drugs. Also, Shire's products may have some difficult since Genzyme has a considerable advantage in how long the products have been on the markets and thus their safety/efficacy profiles are well known especially to the (small) body of MDs prescribing these drugs. As Mark Mitchell notes: "... I expect that the extensive clinical experience with Cerezyme compared to velaglucerase alfa in the Gaucher disease population will likely result in many patients converting back to Cerezyme once product becomes readily available in late 2009. This could result in 2010 Cerezyme revenues potentially jumping back 2008 levels."

Aug 13 04:42 PM