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Genzyme Corporation (GENZ)

Q1 2007 Earnings Call

April 25, 2007 11:00 am ET

Executives

Henri Termeer - Chairman, CEO

Michael Wyzga - CFO

John Butler - President, Renal Division

David Meeker - President, Lysosomal Storage Disorder Therapeutics

Ann Merrifield - President, Biosurgery

Mark Enyedy - President, Oncology

Georges Gemayel - EVP, Therapeutics

Sally Curley - VP IR

Mara Aspinall - President, Genetics

Analysts

Yaron Werber - Citigroup

Ian Somaiya - Thomas Weisel Partners

John Sonnier - William Blair

Meg Malloy - Goldman Sachs

Phil Nadeau - Cowen & Company

John Craighead - Lehman Brothers

Shiv Kapoor - Montgomery & Company

Bill Tanner - Leerink Swann

Geoff Meacham - JP Morgan

Aaron Reames - A.G. Edwards

Adam Walsh - Jefferies

Matt Duffy - BDR Research

Mark Schoenebaum - Bear Stearns

Chris Raymond - Robert Baird & Company

Presentation

Operator

Welcome and thank you for standing by. I would like to welcome you to the Genzyme Corporation's First Quarter Financial Results Conference Call. (Operator Instructions). Today's conference is being recorded, if you have any objections, you may disconnect at this time. I would like to turn the meeting over to Ms. Sally Curley, ma'am you may begin.

Sally Curley

Thank you and welcome to Genzyme's first quarter 2007 Earnings Call this morning. I would like to remind everyone that the earnings release in this call are available on the Investor’s page of our website at genzyme.com. Today we will discuss our business outlook on the call.

Forward-looking statements about our projected future financial results and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties. Our actual results may differ materially and I would refer you to our 2006 10-K on file with the SEC for more information on those risks.

The forward-looking statements include expectations regarding our future financial performance including '07 earnings, EPS, revenues guidance, product sale, expected drivers of future growth, financial trends and developments in our clinical pipeline.

If during this call we use any non-GAAP financial measure, you will find on our website a reconciliation to the most directly comparable GAAP financial measure.

Lastly, I'd like to remind everyone that we do have our Annual Analyst and Investor Day in Boston on May 16th. It will be webcast live on our website and also then our second quarter earnings conference call will take place on July 25th at 11 A.M. Easter Time.

I'd now like to turn the call over to Mr. Henri Termeer.

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Henri Termeer

Thank you very much and thank you very much for everybody participating. This is a great pleasure to talk about the first quarter results. They were excellent and they bode very well for what we expect in the [Persian New Year] and the longer term future.

With me are many of the business leaders of the different businesses of Genzyme and in a change from our normal practice at these calls, I will ask each of them to make one or two comments before we start the Q&A session.

Prior to that Michael Wyzga our CFO will go through the details of the financial performance.

The quarter was a very strong quarter and in a very fundamental way also pretty consistent with what we were seeing in the later part of last year. And we talked about the momentum that you were seeing in the fourth quarter when we talked about the results for the year in February.

In the first quarter, top line growth was very strong it was 21% up. We really saw the kind of leverage that we were designing into the infrastructure, when we started to build the different manufacturing operations around the world. We saw very significant leverage of the operating expenses. And as a result our earnings were better than we had expected and in hindsight we probably have to say that we were too careful, and the way that we were projecting first quarters earnings and in the way that we were projecting for the year.

You may recall in February we gave guidance for the year including the AnorMED's acquisition cost of $3.05 to $3.15 non-GAAP. With this quarter behind us and seeing how the Company is operating and how projecting that forward through the remainder of the year and actually projecting it forward through the near term in the coming years. Our confidence has significantly grown.

For this year we are changing our earnings in a significant way, non-GAAP earnings to $3.20 to $3.30. We now have fully absorbed the acquisition of AnorMED and (inaudible). And we did the basis for this kind of optimism is very fundamental its based on how the current products that we have in the marketplace, how they are performing sustaining their top line growth and also the leverage they are providing on the cost side of the equation, both in manufacturing and in operating expenses.

Now the only thing that is important really in these matters is it sustainable, and as you may recall at early presentations we talked about the current business, the current products being able to grow at about 15% a year through 2011. The company would then on the basis of those products suites, in excess of $6 billion in revenue and we feel quite confirmed of that. We don’t see and we you look at this very carefully. We have every reason to look at this very carefully; we don't where the competitive picture changed in a way that would diverge from that. We don't see that markets fundamentally changed that would make us concerned about that in any unusual way and we see actually tremendous expansion possibility for most of our businesses in these markets.

So we have some significant confidence. Now beyond that kind of growth rate of course, new products provide tremendous opportunity. We are starting to see, we said in February that we will have a number of pivotal events during this year and we started to see some good results. Late in the year last year we showed results for Synvisc ONE, this is the single-injection Synvisc, which we believe can fundamentally change this marketplace really in the market expansion sense.

Just quite recently, we showed top lining results for Renvela, the follow on product for Renagel. That makes us confident that we can enter the CKD market, CKD market for non-dialysis patients, predialysis patients where we of course are already selling Hectorol and this program has been design to reach into (Audio Gap) that market. RENAGEL was not quite optimally formulated for that marketplace.

We are significantly advanced in the small molecule for Gaucher disease and we will be showing some results of that program at the analyst meeting coming up next month.

We made a very conscious decision behind this program over many years and we are following across this field intensely, plus we have very in-depth knowledge about the field of Gaucher disease through Cerezyme, but [Cerez] is now over 16 years. We are aware, indeed, if we can go to an oral treatment that we would change this field in a significant way. So, we have been working on the small molecule area for quite a while on oral treatment. We are now almost fully enrolled in patients' clinical trial and we will see the first results of that shortly. We'll be talking to you about these results at the analyst meeting in May. This is an important development as we look at the importance of the Gaucher program for us in the overall picture.

Mozobil is another program that is making significant progress; it is of course a program that came together as part of the AnorMED transaction. We will see in this summer or late this quarter, these results of the first two Phase III clinical trials there. Tolevamer, for C. Difficile colitis is also in two Phase III clinical trials. We see results there during this year. Hylastan and [Albonphom] for the orthopedic pain market is in the very late phase of Phase III clinical trial. We'll see that also very shortly.

These are all very important new developments that are partially, Renvela, Synvisc ONE and Hylastan in small molecule in markets that we understand extremely well. And we know what we need to achieve in order to have these products make a significant difference for us. Tolevamer is a disruptive technology in a field that's becoming increasingly important, and of course we do not know what these results show. We did the trial, we designed these trials on the basis on Phase II data. So we have some level of confidence, we have to see what these trials will tell us. If they are successful they will make a fantastic difference for a very tough and very expensive disease area around the world.

Behind it comes also Campath-MS; Campath for the MS indication. We saw last year the results of the Phase II trials, they were very, very tantalizing, very, very exciting, 75% treatment effect versus Rebif. We said at that time that we will design a clinical program that gets us there and that if it takes little longer; but we will do it right because we think this could fundamentally change a very, very important treatment for a very disease area that today is worth in the financial sense over $5 billion.

So I'm happy to say that we are going to have a program start through Campath-MS this summer. We are quite advanced in the design of the clinical program at this time and are in discussions with the regulatory authorities to make sure that we do it right.

Cash flow of the company is very strong too, as is indicated. $230 million plus in the first quarter and that with the cash that we have on hand puts us in a good position at times of looking at outside opportunities we’ve done that traditionally. You know what kind of transactions we do. We are likely to do that again. These transactions help us build our product portfolio supplementing what we do internally and we will probably continue to do that in the future again.

So the combination of fundamental strengths in terms of top line growth and the business itself from an operating expense point of view. Combined with very significant flow of news in terms of business results, pivotal trial results, products that are become additive into this picture could just in my view, in the stronger position that we have been.

And therefore ever since I have been here for 25 years, I think since 25 years. So you'll find me and you'll find all of us in a pretty bullish mood this morning. Hindsight we could have been a little more aggressive when we did the guidance early this year, but that's part of my characteristic as well. We are a little careful that we saw many confirmatory points come through in this quarter that we are talking about it now in a way that displays the kind of confidence that we have.

So let me ask Mike Wyzga, to goes us through the details of the financial results and then as I said the business leaders of the different business will make a brief comment and then we go into Q&A. Mike?

Michael Wyzga

Thank you, Henri. 2007 is off to a great start. Our non-GAAP earnings per share was $0.78 and that should be compared against the $0.59 that we did last year. This strong start is driven by actually two factors, the first was the revenue. Revenue increased by $152 million to $883 that's a 21% growth rate. This revenue generated a non-GAAP gross margin increase of over $120 million.

Second, for a number of years, we have invested in a global infrastructure with expenditures in manufacturing, research and development, and sales and marketing. These investments are now paying dividends in virtually all of our operational areas. So while our revenue increased substantially, the operating expenses that drove this revenue growth increased by about $45 million. That's about 13% growth rate of a last year. It's a combination of revenue growth and continued operating expense leverage that's over the bottom line and actually created a very strong and positive cash-flow for this year as Henri, mentioned.

As you can see from our attached earnings per share crosswalk, during the first quarter on the pre-tax basis, the expenses are associated with the stock options were about $41 million. Amortization expense in the first quarter was about $50 million. And our Crosswalk, also reflect a gain in equity of about $11 million associated with the Roche acquisition of THP during in the course of the quarter. Our non-GAAP net income was $211 million or $0.78 per diluted share on the basis of 270 million shares outstanding.

So, again very strong start. Let me go through some of the key business drivers without going through the entire press release. Our top line revenue increased with contributions from most of the major product areas. Myozyme continued to exceed all of our expectations with revenue of about $38 million. That was driven by continued market penetration. As we mentioned in our press release, we received approval in Japan. Now pending pricing approval we expect to launch there later this quarter.

Fabrazyme also increased and increased to about $101 million or 25% over last year and that reflects new patient approvals particularly outside of the United States, as well as the recognition of approximately $2.5 million in revenue from a candidate that was previously deferred.

Within the Renal division, revenue increased by about 20% over last year to $166 million, with Renagel contributing 16% growth due to strong end-user demand and stronger ASP. Synvisc revenue was relatively flat with Q1 of last year reflecting the impact of increased volume which was offset by some of the competitive pricing pressures that we saw.

Our other major businesses including Oncology, Transplants, Sepra and Thyrogen, all increased by double-digit revenue growth year-to-year.

Our non-GAAP gross margin in the first quarter was very strong 78% of revenue. Our gross margin strength reflects the increasing capacity utilization of some of our manufacturing facilities. As you may recall, last year at this time, the Waterford and Finish facility was not yet validated and the underlying underutilized expenses were part of our P&L. This year Waterford, is outselling both [Chymo] and Cerezyme, and we will begin on Myozyme in Q3.

In a very similar fashion, our facility at Belgium will begin to complete similar product validation runs for Campath and begin engineering with Myozyme later this year. And while these facilities provide an economic benefit through our sales provide a very redundant with our facility here in Houston.

Within our operating expense, our non-GAAP R&D expenses were $146 million for the quarter, about 17% of total revenue. A couple of major shifts from last year as well, first is the impact of decreased manufacturing expenses that flow through our R&D. As plants ramp up from development to commercialized inventory bills, we see these costs reflected go from R&D to cost of goods sold. We reflect these costs in R&D until it can be associated with commercialized products, in which time these costs again become part of our cost of goods sold.

And with commercial utilization particularly the Waterford and Finish facility, manufacturing expenses and R&D have decreased significantly. This decrease was offset by the impact of increased spending associated with some of our late-stage development portfolio including with Renvela, Synvisc One, Myozyme and Mozobil.

Within our non-GAAP SG&A expenses, we came in at $246 million for the quarter.

The SG&A expenses include the incremental cost associated with the Myozyme launch as well as increases in a global expansion of sales and marketing infrastructure. Now even with these investments, we continue to see a great deal of leverage with in our SG&A expenses. This quarter our non-GAAP SG&A expenses were about 28% of revenue, which again is about 1 full percentage point reduction from last year.

Our non-GAAP tax rate was about 32% and is relatively flat with last year despite a fairly significant increase in the profit before tax. Like our manufacturing capabilities, we are very active in managing the impact to our bottom line of tax.

As the business has changed for us, we've seen a decline in the impact of the overall Orphan Drug credit, another fixed benefit associated with tax. We've offset these credits with our favorable foreign rates. These rates are specifically tied to foreign, we have put together for increasing our foreign manufacturing and moving some of our technology investments overseas.

Going forward, we expect the continuation of favorable foreign rates as a result of this great utilization of particularly our foreign rate [tax rates].

With regards to foreign exchange, last Q1, as you recall the Euro was on average of 1.2 per dollar. This year the Euro is a little bit higher to 1.3 per U.S. dollar. Now remember our non-GAAP profit before tax increased from $156 million to about $211 million this year, that's a change of about $55 million. The change in the FX rate was relatively a small increase of that, of approximately $8 million.

Our capital expenditures for the first quarter were $82 million. Our cash generation as Henri mentioned continues to be very robust. We exited 2006 with approximately $1.3 billion in cash and marketable securities. And we exited this quarter with $1.5 billion of cash and equivalents.

Cash from operations and net of any one-time events was approximately $231 million for the quarter. As Henri mentioned before, given our strong Q1 performance we are adjusting on non-GAAP earnings per share guidance up to $3.20 - $3.30 for the full year. For the second quarter our non-GAAP EPS is expected to be in the lower $0.80 range.

I would like to remind you that you can find line item revenue in expense detailed attached to our press release or on our website. With that, let me stop and turn it back over to Henri.

Henri Termeer

All right, thank you very much. Let me just quickly go round the table, so each of the businesses can make a very brief comment that indicates where they are specifically paying a great deal of attention and I would mention that the messages are to you all to pay some attention to these specific points. John, we will start with you.

John Butler

Thanks Henri. The Renal business is very strong, particularly in the US as Q1 saw over $28 million in Hectorol sales. This was driven to a larger extent by growth of the 0.5 microgram capsule in the CKD market. Renagel prescription in the US achieved an all time high, over 89,000 for March, with market share at 49%. Renagel has grown share faster than any other product in the market as physicians move patients away from calcium base binders.

Of course we are most excited about the future, particularly the launch of Renvela, Sevelamer carbonate for patients with chronic kidney disease.

Henri Termeer

Mark Enyedy, for Oncology

Mark Enyedy

Good morning. The oncology business has started the year with significant momentum, both financially and operationally. Our revenue is up over 80%, that’s driven by product volume growth in particular, Clolar revenue has more than doubled on a quarter-on-quarter basis. Operationally the business is performing quite well. In particular we've made significant progress with the Campath multiple sclerosis program and as Henri mentioned, we expect to initiate two phase III studies for that program. This summer the first study will be in treating, naive patients, and the second study will be in patients who have progressed on other therapy. So, we are of to a very strong start and look forward to updating you on our progress as the year progresses.

Henri Termeer

Ann Merrifield for Biosurgery.

Ann Merrifield

Good morning. Well, we have taken some pricing action with Synvisc. I am pleased to say that action has brought results, and our share is stabilizing as we move into the year. So we are pleased to hold that share as we put all over commercial energy behind, preparing for the launch of Synvisc ONE, which is a single-injection protocol. We will redefine the market in ways that expand the market size as well as our shares substantially. So we are tremendously excited about the opportunity of that product which we will launch. It is targeted for fourth quarter in Europe, and first quarter in the US.

Sepra, so pleased, continues to breakout into accelerated growth. We are just touching the surface of our penetration opportunity in OB/GYN, particularly C sections of which there are 1.3 million a year in the US, the common surgical procedure. Our newly expanded sales forces is only beginning to get attraction as it is just in place, so continued sustained growth there we see as well. Thanks.

Henri Termeer

Georges Gemayel; talking about the transplantation business unit.

Georges Gemayel

Transplant had a solid 20% growth over Q1 of '06. So, it is mainly due to the increase of the use of Thymo in Solid Organ Transplant worldwide. So this is a very good performance which will help us having a very strong platform to allow us to start all the preparations for marketing of Mozobil. So about Mozobil; for [BMT] we are in the process of closing the data basis for most of multiple myeloma and the non-Hodgkin’s lymphoma study. The data is expected by mid-year. We as well are starting a clinical program to study the use of Mozobil in chemosensitization, and other uses for Mozobil are being explored and these are uses which are beyond transplant and beyond oncology.

Henri Termeer

David Meeker for the LSD business.

David Meeker

Thank you. Right from the start of this business unit, we also had a very strong quarter driven as noted by two significant grade by the Myozyme growth. We're currently reimbursed in 28 countries worldwide. The total numbers of patients receiving treatment at this point is approximately 700 patients, and the mix of patients overall is continuing to shift as we anticipated to a greater number of late-onset patients, they now represent approximately two-thirds.

Both, Henri and Mike also highlighted the Japan approval, which is noteworthy for the fact that that was achieved within less than 12 months of approval in U.S. and Europe, which is a true credit to a strong Japanese organization. And that one is like the highlight I think, with all these products as we get to learn more about them.

We often launch with more limited clinical information than other products. It's becoming increasingly clear that this a product where even in patients who are most severely advanced we're continuing to see, after a number of years on the product continued slow improvement in their muscle strength, and so that's an extremely encouraging component in that. There is always a concern that there may be aspects of anyone of these diseases where you have irreversible damage.

Secondly, the Fabrazyme business, again very strong quarter, we broke $100 million for the first time in the quarter. That's driven again as Mike highlighted by a worldwide growth, but we're particularly pleased with the European situation where we continued to take market share. European revenues in Europe were at $41 million for the quarter.

And finally as Henri highlighted, we're extremely excited about the Small Molecule Program. This is a program which is very important to us, very important to the Gaucher community. To remind people, this mechanism is a small molecule which functions as a substrate inhibitor. This is a similar mechanism to a current therapy that's currently commercialized.

The molecule that we are taking into the clinic is more than 3,000 times more potent than an in vitro situation and also is much more specific. And it was based on the specificity that we anticipated that it would be much safer. And that was the high hurdle that we said going into this program as that we would only introduce something if it was able to make a significant difference both on an efficacy standpoint and also to be very safe.

So we did the Phase I trial, we are well through that and we are now well into the recruitment for the Phase II and negotiate with these patients and we look forward to hopefully update you with some preliminary information at Analyst Day.

Henri Termeer

Alright, Mara Aspinall, lastly for the genetic diagnostic business.

Mara Aspinall

Yes, we are also seeing positive momentum on the top line organic growth in all areas and operations continuing strengthening. And lastly, an increasing acknowledgment in recognition of the importance of diagnostics in helping physicians choose and monitor care with an increasing focus on personalized medicine.

Henri Termeer

Thank you very much. Operator this time we can move to Q&A. Operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Yaron Werber with Citigroup.

Yaron Werber - Citigroup

Yeah, hi thanks for taking my question. Congrats on the top line. David, Myozyme in Japan, can you share with us how many patients do you see potentially coming on therapy or how big is the market is based on the correct number of diagnosed patients and then if I could just follow up, what contributed to the strong Clolar outcome this quarter?

Henri Termeer

David first and Mark Enyedy enter in next.

David Meeker

Yeah, so as you know again the number of number of patients in any market often continues to surprise us. There are 126 million people in Japan. Pompe disease is clearly prevalent in that population. We currently have over 20 patients who are in compassionate use and a smaller number to-date were identified and not on therapy. So the true potential in the market is unclear, but it will be I think a meaningful addition to this portfolio.

Henri Termeer

Mark.

Mark Enyedy

So Clolar growth is driven as most oncology products are by good data. So we presented data at ASH with respect to the efficacy of the product both in the pediatric and the adult setting. And that is translated into significant growth, we had initially targeted about a 125 centers for the pediatric indication and we've had orders from more than 85% of those centers to-date and we see repeat orders and we are also seeing a significant up tick in the relapse of [fractary] adult setting with the product, so good growth.

Henri Termeer

Next question.

Operator

Our next question comes from Ian Somaiya with Thomas Weisel Partners.

Ian Somaiya - Thomas Weisel Partners

Let me add my congratulations. I just had a question related to your guidance specifically the quarterly guidance. What's given the confidence of the foresight to be able to provide quarterly guidance over the past two quarters? And just a related question, what drove the upside in 1Q '07 earnings relative to the guidance you provided a couple of months ago?

Henri Termeer

Yeah, it is a long answer. It was probably, you may want to try in relation to what Michael Wyzga went through, our CFO earlier. All the different elements contributed. In a summary sense, top line was strong, operating expenses were under control. So we got real leverage on the operating expense side and an assembly for manufacturing, but it was varied across the board and that was an extremely reassuring sense. That allowed us to gain the confidence to change our guidance for the remainder of year as well. And we've been expanding the infrastructure vertical operation over quite sometime now, building to complete a new manufacturing operations, one in Ireland and one in Belgium and these operations started to come on line during last year. Last year they were mostly costing us on a period cost basis and they are now starting to become contributors and these points of leverage are extremely important in the business of our kind.

So the fundamentals really changed. As I said, probably dealt too careful when we made our first projections and that's why we said for the remainder of the year we are changing the earnings guidance to what I indicated earlier. There was a second question that I may have forgotten.

Ian Somaiya - Thomas Weisel Partners

Just on the Q1 '07, what drove the outside relatively to the guidance you provided? Was it on the expense side, as expenses came in lower or is it just because --

Henri Termeer

It was the combination of top line growth 21% that provides expense leverage. When you have a business that grows on existing products and use an existing infrastructure, that provides disproportionate of leverage at the bottom line and that's essentially what you are seeing. And that really is the sole explanation. So just the fundamental underlying profitability of the business that you saw reflected in this first quarter.

Ian Somaiya - Thomas Weisel Partners

Okay, thank you.

Operator

The next question comes from Chris Raymond with Robert Baird and Company.

Chris Raymond - Robert Baird & Company

Thanks for taking the question. I just want to dig a little bit into Renagel. I think in your prepared remarks you mentioned that US was very strong and I guess coming off a fairly sizeable price increase that would be expected. But was a little surprised to see the overall global numbers, more moderate than maybe I think we had expected. Can you maybe talk about what's happening x-US? Are there some other moving parts that might have contributed to that moderation, at least in terms of what we had expected?

Henri Termeer

John?

John Butler

Sure. First let me make sure, we point out that, well, we did a 9.5% price increase towards the end of last year. If you look at the script growth, the underlying demand for the product from Q4 to Q1 in the US, it was very, very strong. There really is underlying demand that Q1 strengthen the US is not just a pricing phenomena. And the international markets, we continue to expand. Fosrenol is launching in more of the European markets. The smaller markets where they've launched earlier, we've seen what I would call, similar trend to the US where they come out of the gates reasonably quickly and then flatten out a few months later. They've just launched in France and Germany and the UK in the last couple of months. So, we are seeing that. But again, we've managed that launch very well in the US and expect we can do that globally also. And we really do look at the future for Renagel outside of the US, and it is very bright. We just had in the past week, our launch meeting in Mexico for instance, which is a market of over 40,000 dialysis patients and we're just beginning there. So; clearly still quite a bit of growth left internationally as well.

Henri Termeer

John, do you want to make comment, just (inaudible) this is the market of positional products in this space, calcium internationally. They are still larger in terms of market share in the United States.

John Butler

Absolutely, it does depend. There are countries within Europe where Renagal does have over 50% share. But for instance in the UK and Germany our share is closer to 30%, 35% versus calcium, and [dodlantenum] has just been introduced in those markets. So I haven't seen any data to suggest that their share is meaningful at this point in time. But most of the rest of the world, calcium, as well as in the US, calcium is still very, very significant if not the dominant player in the market.

Chris Raymond - Robert Baird & Company

If I can just follow on those comments, you mentioned that Fosrenol has just recently launched in a couple of major countries in Europe and you expect that to moderate? What drivers would you expect to be behind that?

John Butler

Well, if you look at what happened in the US and we'll use that as an example, it's the largest market in the world. Over the first three to four months, particularly for most of the doctors Phase IV kinds of studies, they saw a very quick rate of their prescriptions.

When you look at the product as it is; the chewable tablet etcetera, the number of tablets that are necessary to achieve phosphate control, the pricing etcetera, ultimately it's placed in the market in a much more moderate way than was expected.

Their share a year ago was about 8.2%, in March it was 8.6%. So, I'm very, very pleased with the level of sheer growth that we have been able to achieve. And at the end of the day just like in any other market its really the data that you present and Dr. Block's Renagel in new dialysis patient outcome study was published this past quarter and now reps worldwide have this data, which shows Renagel is the product that changes the mortality curve for these patients. And I think at the end of the day that is what carries physicians prescribing decisions more than anything else.

Chris Raymond - Robert Baird & Company

Great thanks a lot.

Operator

Our next question comes from John Sonnier with William Blair.

John Sonnier - William Blair

Thanks for taking the question and congrats on a nice quarter. Lot of pipeline visibility this year I want to talk about something later in the year that's Tolevamer. Seems like there is increasing pushback by the FDA on non-inferiority endpoints and given that Tolevamer is powered, I seem to recall as a non-inferior design to Vanco. Can you give us any color on your discussions regulatory clinical discussions with the FDA and how we should be thinking about that?

Henri Termeer

I can't really recall a very recent discussion on that point these trials have started a while ago. The two end points the primary end point is non-inferiority and is the secondary end point, which is relapse rate or remission. And as you may recall in the Phase II we did see non-inferiority and we saw an advantage on relapse. And its relapse what's really the great problem here great and tremendous amount of cost.

And to be on the (inaudible) are problematic in this space and that is what this product is designed to replace and to change from so we feel that we have a very, very strong program here that in the content of the clinical trail was here in the Europe and in Australia, and in Canada where problem is actually quite pronounced. We see tremendous enthusiasm to put this program to the test. So, I can't say as, I can't recall or may be George, you can recall any particular FDA comments with regards to non-inferiority endpoint.

Georges Gemayel

It does not take, the non-inferiority discussion with regard to infections disease, is really not applying to any serious conditions. So the context where they brought them in was mild respiratory infections and this is where it came. And if you remember the serious infections were not effected by this kind of guidelines. However I want to point out that the way we have powered the studies for Tolevamer as a secondary endpoint.

We are powered for superiority 50% superiority over Vancomycin with regards to relapse, so we have both things. So for us it's not an issue with serious infections and non-inferiority which this one is definitely is a serious infection. Second it is powered for superiority with regard to the most relevant endpoint which is how many people basically come back to the hospital after that.

John Sonnier - William Blair

Thank you.

Henri Termeer

Next question.

Operator

Your next question comes from Meg Malloy of Goldman Sachs.

Meg Malloy - Goldman Sachs

Great, thanks very much. Two questions, one is on the guidance for this year, you did increase the Myozyme guidance, but not the overall revenue guidance and as far as I can tell, there are no other changes on the expense guidance. So wondering if you can give us anything more specific in terms of what is driving the upside here prior forecast and then separately on the substrate inhibitor. I know its early days, but how might you think about that in terms of potential positioning with respect to Cerezyme. Would it be additives enabling better organ penetration or how would you think about it? Thanks.

Henri Termeer

Okay. Let me ask David to comment on the substrate first, and I'm Mike to comment on the guidance.

David Meeker

Okay. Thanks Mike. I think the way we would think about this is, first of all, enzyme replacement therapy was the, Cerezyme specifically with the exception of a central nervous system where enzyme may not penetrate as well. Has very good efficacy across all the different aspects of Gaucher disease. So there is no real opportunity to do better with the small molecule with regard to the systemic manifestations that we can do with Cerezyme today. What is the huge advantage here of course is the oral aspect of this and the convenience aspect, if we can couple that with a molecule that's very safe and effective.

The most obvious use for this would be in patients who have had their disease stabilized by virtue of being on Cerezyme, so well controlled disease and then they might switch over to a therapy such as our small molecule, which would allow them to remain stable. What's interesting is that we're of course doing this study in the naive population. And if we were able to show in a naive population that we got good efficacy as well in that naive population, then it opens up the door for use in those patients who would prefer to start therapy [and enroll agent] as opposed to an enzyme replacement therapy. So again I think if it works, there will be a lot of options in terms of how we might think about using this.

Henri Termeer

Michael.

Michael Wyzga

Yes, the best way to think about the overall guidance. I recall we didn't break out the individual line item guidance for both revenues as well as the operating expense. The best way to think about it is sort of extrapolate with the trends that we are seeing in the first quarter.

In a high degree of leverage within our manufacturing organization as the revenue has increased we've utilized some of that under utilized capacity, so you need to think in terms of that.

Second, two areas, both in R&D and SG&A; in both of those areas again a high degree of leverage, particularly as we offload some of the period manufacturing expenses in R&D, those costs will go down. And as we continue to utilize those manufacturing we expect greater leverage. Secondarily we are leveraging the SG&A. Again as I mentioned in my prepared comments, we've dropped our SG&A expense as a percentage of revenue from 29% to about 28%.

Going forward, I think you could sort of trend that line out.

Meg Malloy - Goldman Sachs

Okay, now that's pretty helpful. And if I may have one follow-up. I know the diagnostic products are now reported with other, can you give us what the products figure was for this past quarter?

Henri Termeer

Mike's looking it up and we will give it you shortly, Mac.

Meg Malloy - Goldman Sachs

Thank you.

Henri Termeer

We'll go to the next question

Operator

The next question is from Phil Nadeau from Cowen & Company

Phil Nadeau - Cowen & Company

Good morning, congratulations on the strong quarter and thanks for taking my question. Two questions, first is for David on the day that we are going to see at the Analyst Meeting on the small molecule for Gaucher disease. Could you remind us of the design of that trial and what points might come out at the Analyst Meeting? And the second question is on Synvisc, the press release mentions price pressures in that market. Could you say what has happened to price, what do you think will happen through the rest of this year and what the one injection regimen could do to price next year?

David Meeker

Thanks, so trial as I said it's an open label trial. It's designed in such way that we can recruit up to a certain number of patients and obviously we have the option of expanding that if desired, the end points are the traditional end points. So, organ volume, both spleen and liver and we would hope to have some information there. The blood parameters, Platlets and hemoglobin, again we would have information there and we have also collected bio market data which we may or may not have available by the time of Analyst Day. But the overall end points for this trial are the ones that you would expect to see in any Gaucher file.

Henri Termeer

And set the six months.

David Meeker

It will be six months for a more limited number of patients, obviously.

Phil Nadeau - Cowen & Company

Okay perfect thank you.

Henri Termeer

And the answer to Meg's, question.

Michael Wyzga

For this Meg, in the first quarter diagnostic product it was $30.8 million and that’s up from 29.2 over year per years.

Henri Termeer

Next question operator.

Operator

John Craighead with Lehman Brothers your line is open

John Craighead - Lehman Brothers

Hi, I have a question regarding the Myozyme manufacturing capacity. It looks like you have increased the bottom end of the Myozyme sales guidance, like 50 million, but did not adjust the high end of the range. So, can we assume form this that your current US manufacturing capacity would limit sales above the $180 million level and how confident are you about the timing of the FDA of your larger scale facility?

Henri Termeer

Mike else David.

David Meeker

Yeah, so we increased the bottom half of the guidance, because again as you know we are early in launch and for all of these products you gain increasing certainty or understanding of the market as we go forward. So, that reflects our high level confidence that we will perform to high end of the guidance. I think with regard to the US supply situation, this is again a normal process and that as we scale up, of course we have to get approval for each of the scale in each of the countries. That’s the 2000 leaders approved, 28 countries around the world. We expect to get a reading in the fourth quarter this year. We are very confident that we will get a positive reading, but again obviously that needs to go through the review process and as we highlighted in the press release, we have put in place a mechanism to insure that no patient, who is currently out of therapy would go without treatment during the interim and that any new patients meet a certain severity level, we would also be able to ensure that they get all access therapy. So, we are covering all the basis here and are hopeful and I would say fairly confident that we will be able to move through this by the fourth quarter.

John Craighead - Lehman Brothers

Sure.

Henri Termeer

I think there was question earlier that I ignored, and I apologies, on Synvisc. Ann, do you want to respond to that question.

Ann Merrifield

Surely, on the third quarter conference call you might recall, are taking a hit from [Euflexa], who wants the product at half of our price. We have taken modest pricing action, per syringe basis are still at a substantial premium in the market. That action has stabilized our share, as I said and we hope to be able to maintain that pricing as move through the year. As we launch Synvisc ONE, we would expect our pricing at a minimum per syringe to be 3x what it is now, per course pricing to be comparable. We are in the midst of market research to see whether there will be a modest premium or not or sorting out all those things. But think of it generally on a preparation basis it has been roughly comparable.

Henri Termeer

And of course the savings that would be provided that patients don't have to have repeat injections and comeback to a doctor for three weeks, which would significantly reduce as cost and burden of the treatment. Next question?

Operator

Shiv Kapoor with Montgomery & Company, your line is open.

Shiv Kapoor - Montgomery & Company

Thanks for taking my call, first let me add my congratulations on the strong quarter. I have general question for Henri on the pipeline. At the beginning of the call, your rental were, as you have in the past quarters, a multitude of programs. I just want to know, which one or two pipeline products in your opinion Henri, are meaningful yet have low risk that investors can focus on? And can you just discuss the timeline to market

Henri Termeer

Yeah. It's a great question and I try to emphasize those that fall in that category. Renvela, that is clearly an important development, because we are the largest to promote we do get label promote in the CKD, not on dialysis patients. It's a big market. It really has a tremendous market expansion possibility. It's low risk because we know what a product does and we have done the clinical trials. We have filed it before the dialysis patients late last year and we have a significant market presence. We know the dynamics. We think it will be very successful if we get that label released by the FDA and the timing is next year, of course, when that will happen.

In the case of the small molecule and so that's for Gaucher disease, we know that market extremely well and there we set very high [coterie] in terms of safety and efficacy, because we have such a tremendously positive experience over 16 years. If the product performs to stay with the subscribing and we will see the first little bits of that on the Analyst Day, we think that provides both a tremendous defense mechanism but also a tremendous additive offering for that marketplace and it will be low-risk because we understand the market and we're doing the trial in a very careful way.

In the case of Synvisc ONE, where we showed the result late last year, we are in the process of getting labeled expansion. It is in a no-brainer that one injection is better than three injections and there we expect the label change in Europe before the end of the year in United States and Europe by the next year.

Similarly, Hylastan which is a different product in the same space [if it shows] successful. This product has much longer life retention in the body than Synvisc, 28 days versus 2 hours. We are hopeful that this makes a big difference, we'll see actually this summer and it is low risk and then we would expect it to become available and we understand that market. Again, and this is a big market, a market that has tremendous expansion possibilities beyond the current relatively competitive environment that we have.

In the case of Campath we have to wait longer. Again, it is a market that is well identified. We know where these patients are. We know what they are suffering from. We know what they want from an efficacy point of view. And we know Campath, because it has been on the market for a long time and it is being used on patients all the time. We know that it is also in the Phase II.

Here the risk is that we don't do it carefully enough and trip up on the way to getting this particular product approved for this marketplace. We take enormous care to get there. When we get there we just feel some years in the future it well have a very, very, very exciting disruptive effect. Very, very large market place indeed.

In the case of Mozobil which is a new product for us, came as part as you know from AnorMED. It has very strong Phase II data. All the data that we saw, you saw, and others saw has been talked about into the different meeting and we based our transaction, our (inaudible) 29, 1.58 for the transactions based on clinical data. And there shortly you will see the results of the trial, a very identifiable advantage to patient, a very straightforward, relatively straightforward in its first indications in terms of transplantation enabling transplantation in difficult oncology situations.

We will have to file after we see the results if they are successful. But, in the late '08, '09 timeframe we will start to deal at that marketplace, and I think relatively low risk, because it is an enabling product that doesn't have a great deal of competitive environment around it. And it will help that community to deal with some problematic and very expensive, again, very expensive problems for very sick patients.

Tolevamer of course is the (inaudible), this is high risk because it is new, to some extent it's very new, it's very disruptive for wound from antibiotics to non-absorbed approach polymer product. Based on Phase II data we are at the end phase of now Phase III programs. And we will see if the trials turn out to be successful.

I think it is inevitably low risk that you can deal with the marketplace that currently is dealing with some problem that is confounding hospitals and creating enormous costs in hospitals to try and manage the kind of organization we need to build for that globally. And we are going to build our own organization globally to bring this to market if it's successful. It's the kind of the organization that we've build in areas such as Renagel in the past, so we know we can handle that. And so, if theses trials are successful for Tolevamer. It will be relatively low risk in terms of bringing these products to this disease population to the hospitals where the products are needed. So these are the ones that I watch and I think you also watch. These are products that are in our, that you are familiar within markets that you are familiar with. That are very late stage and they will really become defined in terms of their possibilities for us, during this year to a large extent., Campath being the one that will take little longer.

Long answer to your very good question. I think this is clearly what you need to do, you need to focus on those things that make the difference and these are the programs that we think make a very material difference, next question.

Operator

Your next question is from Bill Tanner with Leerink Swann. Your line is open.

Bill Tanner - Leerink Swann

Thanks, a couple of questions. First one, it's an interesting comment that David made about the small molecule for Gaucher. That could be potentially used in patients who have been treated with Cerezyme, who are enrolled in that. So often or kind of a maintenance and I guess that we suppose really for that were commercially that you are going to be able price that, comparably. So I'm just trying to understand that dynamic. How many people actually go on the drug and then go off or whether they are going to be on it perpetually, because I guess in the past we've always sort of thought about the small molecule is being attractive for people that couldn't afford to tolerate Cerezyme, obviously everything is eluted there, as you know some competitive pressures coming. And then secondly, the second question is kind of unrelated if anybody wanted to comment as to what alternative uses there are for Mozobil outside of transplantation?

Henri Termeer

So, first question is David.

David Meeker

So, I think the pricing again it is too early and as well all these medication there are treatments you need to understand the full clinical picture and then you decide how best to price it. I think in terms of how we would expect this to be used going forward, again of course it will depend on the data. But if the expectation would be that if it works short-time and over a shorter period of time and of course it saves in that interval, then you can project that out. That this is a medication that they would be able to stay on discount of life threatening disease, that they could stay on for a prolonged period of time. There is no expectation that they would necessarily relapse and need to go back on Cerezyme, but if that happened of course, that option would be there.

And the second question was on Mozobil. George, you want to make few comments on that?

Georges Gemayel

Yeah. There are a lot of excitement about Mozobil, a lot of excitement about the CXCR4 pathway and where is it implicated. And it's implicated in a very large number of physiologic mechanisms. So, possibilities are numerous, from the BMT to chemosensitization, to help in the diagnosis of certain acute cancers, to possible use in cardiac and other tissue repairs, to use in some restenosis models. So it's like, everyday there is another possible use or there is an investigator who has another idea about where this product can be used.

So we're going about it in a very systematic and logical way. The first intention is to get our bone marrow transplant indications; this is what you are looking for in terms of data within few months. The second is really working on this chemosensitization clinical studies to see if Mozobil can really chemosensitize and what benefit it will do mainly in AML and in CLL patients and maybe in others groups as well. Third we are looking at other applications in Oncology and we will be expanding from that to other applications in other pathologies. So a lot of exciting we're really getting very involved in the CXCR4 pathway, which is extremely interesting and it will be worth for many years to come.

Bill Tanner - Leerink Swann

And can you just remind us what the portfolio is or is it, are we mainly looking at one molecule that may have sort of a broader applicability?

Georges Gemayel

No that is we have the intellectual property and the portfolio, which was being developed by AnorMED. There are several compounds at different stages of development. And there is a very vast intellectual property stage, which we can use both in CXCR4 and CCR5. So we are definitely not looking at one product at one point in time.

Bill Tanner - Leerink Swann

Okay thanks.

Henri Termeer

Next question.

Operator

Geoff Meacham with JP Morgan, your line is open.

Geoff Meacham - JP Morgan

Yeah, thanks for taking the question. I have two, the first is Campath. It sounds like you are moving forward with MS trials. Can you share with us if you can what you've decided in terms of ITP monitoring requirements? And the second question a little bit more deep in to Synvisc. Looks like the first quarter pricing was clearly impacted, but can you review what your guidance implies in terms of market growth or pricing or Synvisc ONE up tick in Europe?

Henri Termeer

Let me first ask Mark to comment on the Campath at MS.

Mark Enyedy

Your question was directed specifically to ITP. So we have put in place for the Phase II study a comprehensive patient monitoring physician education program, whereby the patients are educated to look for the signs and symptoms of ITP. And in parallel with that each patient is required to undergo monthly CBCs, as is routine blood work. And then the sides call out every two weeks opposed to the blood test to check with the patients to see if there are any, again, signs and symptoms of ITP. We expect to implement that going forward with the Phase III studies. We've had very high compliance in the Phase II program. We would expect that to continue in the Phase III, so we are very pleased with the ability to get patients to comply, physicians to comply and the outcome in terms of monitoring the patients in the current study and in the next study.

Geoff Meacham - JP Morgan

Any comment Mark on the [approve] by the FDA of this risk management program?

Mark Enyedy

So we would expect to hear back shortly on the Phase III program. The comment that we've received to date on the risk management program have been and this has been adequate, sufficient for the current studies and the planned studies.

Geoff Meacham - JP Morgan

Thank you, and a comment on Synvisc and the influence Synvisc ONE still during this year.

Ann Merrifield

Sure. We've planned on launching Synvisc ONE in fourth quarter in Europe and until first quarter '08 in the US. So, we would expect a fourth quarter impact from an ex-US revenue perspective, which will both expand the costs on both our ex-US and US revenue and suggests substantial expansion in costs and expansion in share from those launches.

Our first quarter comparisons are tough because we lost some share in the back half of last year, so it's the toughest comparison we'll have all year from a share and pricing perspective. I suspect back half of the year or our year-over-year comparisons with strengthen from the base business as well.

Henri Termeer

Next question.

Geoff Meacham - JP Morgan

Okay. Thanks.

Operator

The next question is from Aaron Reames with A.G. Edwards. Your line is open.

Aaron Reames - A.G. Edwards

Thanks for taking my questions and congratulations on a quarter. I just had a another follow up question regards to Tolevamer. You keep highlighting the clinical impact of reducing a relapse rate. So, I was wondering if you have a statistically significant positive outcome on that measure. But, let's say, it does't happen to on the primary endpoints since that's still clinically meaningful. Would you still approach the FDA and file on that information? How should we think about all these endpoints?

Henri Termeer

Yeah. The number of combinations that you can think off is very difficult as to react to. We have to see the data to really know what the data tells us and what the clinical benefit is and that we can make a decision and what to do with it from a regulatory point of view. But, George, I don't know if you can add something to it.

Georges Gemayel

Yeah. No, I mean I think we can go into a lot of speculation about the different combinations mainly because we have two competitors in the study and then what is on the primary endpoint is better than Vanco, but not better than metronidazole and vice-versa. I think that we can go really crazy with this.

So, I think that we are few months away from looking at the full set of data and what is the best program ever designed to really study C. difficile looking at the only drug approved vancomycin and as well with the mostly used compound which is metronidazole. And we will have definite results, so I think that we should wait for this result.

Aaron Reames - A.G. Edwards

Thank you.

Henri Termeer

Okay, next question.

Operator

Adam Walsh, with Jefferies. Your line is open. One moment.

Adam Walsh - Jefferies

On Campath, can you characterize the discussions that you've been having with FDA in terms of what is the agency's primary focus and how that might impact trail design protocol and duration in the two upcoming Phase III trials?

And my second question is regarding Tolevamer, can you give us a little bit more granularity on exactly when we will see the data? Will it be third quarter or fourth quarter? Thank you.

Henri Termeer

Yeah, unfortunately the beginning of your question on the Campath didn't quite come through, but, Mark why don't you comment on the two trials and what these endpoints are. And you can assume that we did not design these trials in the absence of intense discussions with both the EMEA and the FDA.

So, these trials have come together after a lot of back and forward over many, many, many months ever since the Phase II trials became clear late last year. So, make a comment on what decisions were reached and how this will look going into the trials shortly.

Mark Enyedy

So, there will be two studies. The first we will look at the treatment-naive patient population of relapsing-remitting patients and the second study we will focus on treatment experienced patients, that is patients whose disease have progressed while on licensed therapies such as the beta-interferon.

The endpoints of this study is obviously looking at safety and efficacy and the principal efficacy measures here will be a reduction in the risk of relapsed rate, as well as a reduction in the risk of sustained accumulation of disability. Those are the goal standards for multiple sclerosis trials in the relapsing-remitting patients. We set a very high bar with the existing study in terms of the readouts that we've seen. Those data by the way will be presented by Alasdair Coles at the AAN on May 1st in a 4:30 session, so there is a fairly in depth at both the primary and the secondary efficacy endpoints from that study. We also have data in the treatment experienced patients from an investigator sponsored study. Some of those data have been previously shared at the ECTRIMS meeting last fall.

The efficacy results that we saw were comparable to what we saw in our company sponsored study, so we proceed with great confidence in terms of the potential results of the Phase III and look forward to getting the studies initiated as I said during the course of the summer.

Adam Walsh - Jefferies

It's perfect. I'd just quickly here since you missed the first part of my question. It was related to the ongoing discussions with the FDA. Where is the agency's primary focus at this point if you could better characterize that for us that would be helpful?

Mark Enyedy

The agency obviously is concerned with being able to identify and manage ITP in this patient population. And I think what we've done is convinced them with respect to the adequacy of our plan in terms of physician and patient education and the ability to manage any of those patients that do present with ITP. We think that this plan as I said it has had very high compliance in the Phase II study we expect the same in the Phase III and we think that this program will translate nicely into the commercial settings.

David Meeker

Okay the question on Tolevamer. There are two trials as you may recall. For one trial we will have the result this summer and the powering of these trials are for the relapsed rate the two trials combined are powered to give a result of a relapsed rate and that can be expected late this year or more likely the other part of next year. We have a goal this year but it may come in the early part of next year. But that’s kind of the timeframe. So you really need too look at the most trials combined to see the full results eventually we will go with times of the regulatory filings.

Adam Walsh - Jefferies

Thank you.

Operator

The next question is from Mathew Jacobson with BDR Research your line is open.

Matt Duffy - BDR Research

Hi it's Matt Duffy with BDR. Thanks for taking the question and congratulations on the quarter. Just a follow up on little bit more of the Campath and MS. I wonder if you might be able to give us a little better idea of the size of the trials and the time to enrollment and whether or not we are going to an interim look at the one year time frame and then also should we be looking for top line three year data and sort of a similar timing here as we saw last year fall type of time frame?

Henri Termeer

I am going to ask you to have a little patience and we will try to get to a higher level of definition on these specific trials during Analyst Day. We are in this critical moment the last moments of bidding down points with everyone one that goes with the regulatory agencies. So bear with us for a month and I think Mark it is fair to say that by mid May when the Analyst Day is we could have some more definition on these points.

Mark Enyedy

Yes, we could I mean it’s an ongoing discussion but we do expect to hear back by Analyst Day. Yeah, so the second question was regarding the three year data form the Phase II study and we do expect to have that available to discuss in the fall. In the fall like last year it was the two year data came under fall as well and potentially at ECTRIMS.

Matt Duffy - BDR Research

Okay, very good. Thank you.

Henri Termeer

And of course, Mark, we are present to take the Phase II data next week here in Boston, at and on AAN on May 1.

Matt Duffy - BDR Research

On May 1st, that's a week right.

Mark Enyedy

Yes.

Matt Duffy - BDR Research

On Tuesday, what hour?

Mark Enyedy

At 4:30.

Matt Duffy - BDR Research

At 4:30, at AAN.

Mark Enyedy

And that will be another Genzyme presentation will be by Alasdair Coles.

Matt Duffy - BDR Research

Okay, thank you very much.

Henri Termeer

Thank you. We have operator, we have time for two more questions.

Operator

Certainly, Mark Schoenebaum with Bear Stearns, your line is open.

Mark Schoenebaum - Bear Stearns

Thank you for calling me, I appreciate it. Kind of change topics here, may be question for Henri. You [brunt] use the cash, I know you are committed to M&A it's obvious, you made that very clear as part of your growth strategy. Why your peers buy stock back. As a use of cash, Genzyme is a big company now leader in this space. Can you update the community on what your thoughts are regarding share buybacks as a use of your cash, this year and over the next three, four years, you can go that far just philosophically. And then a related question around stock option expensing, you guys have got it. If look at your peers not a proportion component of just as a percent of net income your stock option expense is pretty high. Any plans that come into the industry average and what's your updated philosophy on that, I'd really appreciate color on those questions. Thanks.

Henri Termeer

Yes, our stock options expenses has been keep close (inaudible) that in terms of the yearly percentages of all that support to us and to get release from ISS on how we deal with that and we always look at that release. And so, I would assume that we would get those releases if unless we were kind of in accepted norms and that is important to us. And as you may recall that in the last meeting we did talk about the restricted stock units as marked in this picture which would obviously impact dilution to some extent.

In terms of using cash to buyback stock which is used by some companies, it is a pragmatic way to use cash if you have too much of it and it is not enabling anything in particular. Our (inaudible) have the kind of transactions that build a tremendous future as we did with AnorMED. It was a $600 million cash transaction. We have the flexibility to do so.

But it is a fair question and is a question that we do regularly, Mike Wyzga, our CFO and myself have regular discussions on this. We bring this up to our board for discussion at a very regular basis and we will continue to do so, because it has been a subject matter of interest to our shareholders.

For me the most important thing is that we continue to be able to grow the company and that we have the flexibility and the tools to do so. That we earn our own future, if we do need to build the factory then we can build the factory, and that if we do see in transactions then we can do the transaction. But that does not exclude to think wisely about your question, and we will continue to do so in the future. So, I'm not against it. I'm just continuously looking at this as a wrong action, a tactical action in a very strategic world. But, tactical actions from time-to-time make sense.

So I don't discount your questions and I promise you we will look at this continuously in a wise way in the context of how we see our environment, an environment that is extremely fragmented there is numerous programs available for numerous smaller companies that clearly do have yo find another way to build the future for themselves.

We have experience that to be in environment where we can be a very constructive player. And in environment where there is a heightened sense of the impact of the short-term dilution and therefore your comment on stock options is fair, fair comment and your comment on the buyback of shares is a fair comment too. So, we'll keep to up-to-date if we do make decisions if they're different from where we are today. But, I don't have a closed mind to any of these points.

Mark Schoenebaum - Bear Stearns

Appreciated, thanks.

Operator

Chris Raymond with Robert Baird & Company your line is open

Chris Raymond - Robert Baird & Company

Hi. Thanks for letting me ask the follow up. Yeah, I was struck by one of the comments in your press release. You talked about Hectorol in terms of doing something in Europe your ex-US international program. Can you may be outline what kinds of regulatory milestones and timings we should expect as you begin this?

Henri Termeer

John?

John Butler

Sure. I don't have some of those timelines in front of me, we have recognized that we need to do clinical work to access that market. And we don't have the first patient in to those trials that will be later this year. And so, we can give you more color on this as it becomes more clear what that's going to look like.

We have begun to file using the US regulatory package in some of the other markets. Particularly, we have filed in Argentina and we are planning to file for registration in other Latin American markets this year. And hopefully, if its goes to plan, we'll start seeing some revenue from that next year.

But Hectorol really is very much a US story and the strength of Hectorol, particularly, the 0.5 and CKD that was the strategic part of that transaction with Bone Care was to establish ourselves in CKD prior to the Renvela launch. And when you look at the growth rate of those prescriptions, we are really gaining a foothold there and it's been very, very successful.

Chris Raymond - Robert Baird & Company

So, are you expecting a full blown European Phase III trial then for Hectorol?

John Butler

We haven't outlined what programs does we have discussed, that we have talked to two consultants over there who have been part of the EMEA as well, who guided us on what kind of a program we need to put together. And again, once the final protocol is nailed down we can share more of that with you.

Chris Raymond - Robert Baird & Company

Thanks.

Henri Termeer

All right operator this I think was the last question.

Operator

Yes sir.

Henri Termeer

I wish at the last minute to thank everybody participating this morning. Very good questions I have to say, questions that really deal with the future and we are so much looking forward to continuing this conversation to next point where we can do this at the Analyst Day, which will webcast as Sally, I wonder. So, everybody that can be there can participate if you like. But we very much look forward to the remainder of this year, and continuing our communication on this very, very exciting moment in our history. Thank you so much.

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Source: Genzyme Q1 2007 Earnings Call Transcript
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