Executives
Sally Curley - VP of IR
Henri Termeer - Chairman & CEO
Mike Wyzga - CFO
John Butler - President of the Renal Division
Jim Geraghty - President of Cardiac Division
Ann Merrifield - President, Biosurgery Division
Joe Labaki - Head, Transplantation Business
Joe. David Meeker- President of the Rare Disease Area
Mara Aspinall - President of the Genetics Diagnostics Division
Duke Collier - EVP of Cardiovascular & Oncology
Analysts
Geoffrey Porges – Bernstein
Ian Somaiya -Thomas Weisel Partners
Jim Birchenough - Lehman Brothers
Yaron Werber - Citi
Geoff Meachum -J.P. Morgan
Mark Schoenebaum- Bear Stearns
Phil Nadeau - Cowen and Company
Chris Raymond - Robert W. Baird
Meg Malloy - Goldman Sachs
Matt Duffy - BDR Research
Geraldine O'Keeffe - Fortis Bank
Aaron Reames - Wachovia
Bill Tanner - Leerink Swann
Genzyme Corporation (GENZ) Q3 2007 Earnings Call October 24, 2007 11:00 AM ET
Operator
Welcome to the Genzyme Corporation's Third Quarter FinancialResults Conference Call. All participants will be in a listen-only mode untilthe question-and-answer session. (Operator Instruction)
I would now like to turn the call over to Ms. Sally Curley,Vice President of Investor Relations.
Sally Curley
Thank you, Dory. Thank you, and welcome to GenzymeCorporation's third quarter 2007 Earnings Call. I would like to remind everyonethat the earnings release in this call are available on the investors page ofour website at genzyme.com.
On this call we will discuss Genzyme's future financialoutlook and business plans and strategies. We will be making forward-lookingstatements, including our non-GAAP earnings estimates and growth rates for thenext five years. Our product development plans and regulatory action estimates,including for Renvela, Clolar, Campath, Mozobil, Genz-112638, Myozyme ourmanufacturing.
These forward-looking statements are subject to a number ofrisks and uncertainties and our actual results may differ materially. Pleaserefer to our June 30th, Form 10-Q on file with the SEC for more information. Ifduring this call we use any non-GAAP financial measure, you will find on ourwebsite a reconciliation to the most directly comparable GAAP financialmeasure.
We have several analysts and investor events coming up duringthe next few months. So, I would encourage you to please check our website aswell under Investor Relation events for more information on these.
Finally, I would remind everyone that our fourth quarterearnings conference call will take place on February 14, 2008 at 11:00 amEastern Time.
I would now like to turn the call over to Genzyme's Chairmanand CEO, Mr. Henri Termeer.
Henri Termeer
Thank you very much, Sally and thank you for everybodyparticipating this morning. I have with me as usual Mike Wyzga, our ChiefFinancial Officer, he will go through the financial details of the quarter, andalso business unit leaders that will make some comments before the Q&Aabout the individuals businesses that they are running.
Third quarter again was a very, very robust quarter. It'svery consistent with what we saw in the second quarter, what we saw in thefirst quarter, and despite the summer softness that generally we do experienceparticularly in lysosomal storage disease area, revenues were up $906 millionto $960 million, up $27 million from the second quarter, up 19%, $158 millionfrom the same quarter last year, beat the consensus, which was $952 million.
Non-GAAP earnings were $0.90 a share, 23% up from last yearand beat the consensus by $0.03. Genzyme business and financial performance isin very robust phase, and we now project solid performance through 2011. As weindicated in the press release, we expect 20% non-GAAP compound earnings growthfrom our base of 2006 through 2011, and we are tracking very well against thatprojection.
On this basis we should expect non-GAAP earnings per sharenext year 2008 of approximately $4, and it raises the current consensus ofabout $3.89. By 2011 we are projecting non-GAAP earnings of $7 per share. Wewent through these projections very carefully. We understand these businesses,what we included in these projections are the businesses that we today havethat have products that are introduced and products that are shortly beforeintroduction that will impact this period of time for 2011. We do not includeany kind of transaction that is not yet in the picture.
We were in lot of events in the last few months,particularly just this week we finalized the Bioenvision transaction. Asindicated in May, when we first announced this transaction, this will bedilutive marginally about $0.03 to $0.04 in the fourth quarter. And for thenext year we will be absorbing the dilutive effect of this transaction throughthe normal prioritization of different programs within Genzyme.
We are now investing in the market launch preparations ofrecently approved products. Elaprase in Japan,which is very exciting, Cholestagel in Europe, which we haven't talked aboutmuch, which we will talk about for the first time today; Renvela in the US, which was approved earlier this week andSynvisc-One both in Europe and United States. And we should start to see theeffect of these new programs on the top-line basis during the next year.
We are gearing up the Campath MS Phase III clinical trials.This is a very large program. As we said before on these calls, we are going todo this [trials]. We have designed and discussed with the EMEA and FDAextensively what these trials should look like, and if there are any questionsin terms of these trials we have Dr. Mark Goldberg available on this call so wecan respond to any of your request.
This is a very exciting program. You all have because seenthe three-results of the Phase II trial, they were again extremely robust astwo-year results were. And we are projecting that by 2011, 2012 this programwill become part of the picture. It's not part of the pictures that areindicated earlier as from an expense point of view.
We worked very hard on the Mozobil NDA, which we expect bymid-2008 and that should start to impact the top-line during 2009.
By this month, we will file with the FDA the clinical datathat they have requested for few of the approval of the large scale Myozyme manufacturingplant. And we expect that approval to occur in the first quarter of next year.
As you may recall from our last discussion, this time wedon't have sufficient commercial products for the US available from the small scaleplant, as a result commercial sales declined actually in the third quarter fromthe second quarter. In the second quarter, they were about 12.5 million, in thethird quarter they were about 9 million. At the same time international salesthat come out of the large scale plant, we have approval of large scale plantsin over 30 countries right now, increased very significantly by $10 million.The international sales were $44 million for the third quarter.
This is the most successful launch that we have had in the lysosomalstorage disease area. And we would expect that when we get the lease of the largescale plant in the United Statesthat we will get in a significant step function of revenues in the US andin the overall Myozyme picture. This is a very, very positive picture. It iscurrently somewhat costly. We are supporting patients that are in medicalneeds. And we will be doing the same in the fourth quarter and the same in thefirst quarter, and so we are incurring the cost of doing so, but we wouldexpect a very quick ramp once we have approval of the large scale plant.
We are also working very hard on resolving the Myozymemanufacturing issues and challenges that we have, which are costly at thiscurrent time. But, should provide us with significant margin upside in 2008once we are beyond these manufacturing challenges. The product from a revenuepoint of view, for a sales point view is still very, very robust indeed.
All-in-all, a very, very strong picture is unfolding. It'snot just on the current time but we are pretty bullish indeed as we look atthis picture through 2011.
So at this time Mike, let me ask you to go through thefinancial detail of the quarter.
Mike Wyzga
Great. Thank you very much, Henri. Good morning everyone.Henri summarized Q2 is a very good quarter yet again. Our revenue increased byover 19% over last year, while our profits increased by 23%. We had acombination of revenue growth and continued SG&A leverage that really droveour bottom line.
So let me focus a little bit on the earnings per sharecrosswalk and then I can talk about the businesses a little bit.
During the third quarter, on a pre-tax basis, the expensesthat were associated with our stock options came in about $44 million. Theseexpenses were less than last year due to a decision that we made earlier in theyear to shift from all option base to a combination of options and restrictedshares. Amortization expenses were about $50 million for the quarter.
Now at the completion of our tender offer on July 10, weacquired a little over 15% of the common stock of our Bioenvision. Our commonstock ownership and other factors provided Genzyme with significant influence.
Under equity method accounting, we were required to allocateour purchase price proportionately to the net assets of Bioenvision at a fairmarket value. And in the third quarter, we recorded the charge of IP R&Dapproximately $19 million.
With the Bioenvision shareholder approval, we areeffectively acquiring the remaining 85% of that company and we will allocatethe remaining purchase price accordingly over the fourth quarter, so you shouldkeep an eye for that.
Finally, we wrote off about $12 million ofout-of-specification Thymoglobulin finished goods. Our non-GAAP net income was$241 million or $0.90 per diluted share. That's on a basis of 270 millionshares outstanding.
So that is the summary, let me now turn to some of the keybusiness factors that really drove those results. And we had a year-to-yearrevenue increase of over $150 million. The increase was really driven acrossmost of our product areas, but the real standouts were the Therapeutics areaand Genetic diagnostics area standing out even more than the others.
Within the Therapeutics area, Myozyme continues to exceedour expectations with revenue coming in about $54 million. From Q3 of lastyear, the number of commercial patients treated with Myozyme increased by over300 patients. We are now treating over 800 patients worldwide but about 29 asof the end of the quarter being treated on MTAP program here in the United States.
Cerezyme continues to make a solid contribution to our topline growth. On a year-to-year basis, Cerezyme increased by 13% driven by over300 net new patients predominantly outside of the United States. As we point out thatalmost 70% of our Cerezyme revenues outside do the United States and that's really atestament to our global infrastructure that we established years ago. We arecurrently treating about 5200 patients worldwide in Cerezyme.
Fabrazyme increased to a $105 million or 12% againreflecting new patients and new patient accruals, predominately again outsideof the United States.And in Fabrazyme area, we are currently treating over 2100 patients worldwide.
And our Genetics area increased nicely 19% to about $73million, that's largely due to the volume increases in reproductive testing.
The Renal division increased by 15% due to increasedend-user demand as well as increased pricing for both Renagel as well asHectorol. The other major businesses increased nicely as well. We did show animpact of our foreign exchange worldwide to our top line, that's about $21million.
The largest change year-to-year was in the Euro, whichincreased on average from a $1.27 in Q3 of last year to $1.37 this year. It'simportant to note that the impact doesn't show up on our top line. Thesefluctuations also impacted our product margins as well as our operatingexpenses.
With about half of our infrastructure overseas includingsome major manufacturing facilities, our expenses increased proportionally orabout $13 million due to foreign exchange fluctuations. Bottom line impact ofFX this quarter was favorable by approximately $5.7 million.
Our non-GAAP gross margin for the third quarter wasapproximately 76% of revenue. That was impacted by three major factors. Thefirst is the impact of the product mix with increases in Genetic Diagnostics inMyozyme.
The second major factor is the impact of our newmanufacturing facilities. During the third quarter, we began to sell productthat was produced in our new facility in Waterford.
Now as you recall as new facilities come online, the costassociated with that new capacity becomes part of cost of goods sold. Withcontinued volume increases, we expect greater absorption of that new capacity,and therefore over the course of time the unit costs are expected to decline.
The last factor was the manufacturing cost, and I mentionedthis before, was impacted by the FX rate during the third quarter. Within ouroperating expense, our non-GAAP research and development expenses increased to$162 million, staying relatively flat at 17% of revenue.
And while it stayed relatively flat at the percentage ofrevenue, product mix has shifted a little bit since last year. Increasing ourR&D expenses in the quarter were the trials associated with Mozobil as wellas the Phase III trials with Campath MS.
(inaudible) we recorded expenses associated with the MyozymeMTAP program through the R&D expenses. As these late-stage trials proceed,we do expect our R&D expenses to increase. And again these are all withinthe limits of our overall spending and profitability part that we gave guidanceto.
We continued our leverage in the SG&A line. Our non-GAAPSG&A expenses were $245 million really came in about 36% of revenue. I'dlike to point out that the 26% is somewhat of a soft round. The actual percentagerate was actually 25.6%. By way of comparison, SG&A decreased as apercentage of revenue from 29% in Q3 of '05 to 27% in Q3 of '06, in thisquarter, as I mentioned, is 25.6% this quarter. So we are getting a nice bit ofpick-up on our profitability lines due to the leverage that we are seeingthere. We expect to see continuation of our SG&A leverage on a go-forwardbasis.
Our net income came in a little bit higher than we expectedat $17 million. Two factors impacted that, increased cash balances as well asthe portfolio of the yield that came in on average at 5.1%.
Our non-GAAP tax rate was about 31%. We are pretty confidentthis rate going forward as a sustainable for the foreseeable future. As aresult of our shift that took place probably about three years ago, we shiftedfrom the activity-based tax benefits, such as research tax credits. We startedshifting to a low tax manufacturing benefits. The real key here is that the lowtax manufacturing in foreign benefits are more sustainable, more predictablesince we had tied almost directly to profitability. So that's actually a realkey factor of our sustainability of the 31% tax rate going forward.
Cash from operations net of one-time event was approximately$280 million. We did require some cash from operations, from employee stockactivity which was about $32 million. Our capital expenditures in the quarterwere $145 million that was focused on a two major facilities in (inaudible) andin Waterford.
During third quarter, we continued the company's stockrepurchase program. This quarter, we repurchased approximately 1.8 millionshares for $121 million. To-date, we repurchased about 2.8 million shares.Funding our cash expenditures, we settled the tracking stock litigation for $64million. As I mentioned, we purchased the common stock of Bioenvision, thefirst tranche of it at $72 million.
Our ending cash balance was $1.4 million and that gives usquite a bit of flexibility for future investments.
Before turning it back over to Henri, I'd like to remind youthat you can find the line item detail, including reconciliations underRegulation G attached to our press release on our website. So, with that let mestop and turn it back to Henri and open it up for question-and-answers.
Henri Termeer
All right. Thank you very much. Before we do open up forQ&A, let me just go around the business leaders and let them make a briefcomment and then we'll have Q&A. John Butler, President of the RenalDivision. John?
John Butler
Thanks Henri. The Renal business continued to show stronggrowth, particularly in the US.US Renagel growth, as Mike pointed out, was driven by a combination ofcontinued pricing power and share gains. In Q3, US Renagel share topped 50% forthe first time since the launch of lanthanum.
International sales continued to grow versus last yearalbeit at a slower pace than in the past. This is generally consistent withwhat we saw when lanthanum launched in US. The USrepresented about 58% of Renagel sales, including bulk sevelamer sales androyalties for Japan, whichare booked into the US.
I would also like to address two recent events that affectedthe Renal franchise. First is the Cardiovascular and Renal Drug AdvisoryCommittee held last week. We are pleased that the majority of the committeeagreed that the indication for phosphate binder should be expanded to includepatients with CKD not yet on dialysis. While they voted that phosphorus is nota validated surrogate their subsequent vote demonstrated that it is a validsurrogate that an elevated phosphorus level in these patients has a negativeclinical consequence.
The second event was our announcement on Monday that the FDAhad approved Renvela, sevelamer carbonate, to control phosphorus in CKDpatients not on dialysis. We plan to launch Renvela in the US in the first quarter of nextyear, and as previously communicated; we plan to file an NDA for a powderformulation and a supplemental NDA for the use of Renvela in CKD patients noton dialysis in the first half of 2008.
Additionally, we'll begin our international filings,including filing Renvela for CKD patients both on and not on dialysis, as wellas the powder formulation for European audience in the first half of 2008.
Henri Termeer
John, thank you very much. [Jim Geraghty], President ofCardiac Division.
Jim Geraghty
Thank you, Henri. We were indeed, as you mentioned, verypleased to receive last week the final EMEA authorization for the launch ofCholestagel in Europe. As you may recall, thisproduct was initially approved subject to a number of post-approval commitmentsa few years ago. It has a broad label in primary hypercholesterolemia and we'venow worked with the EMEA to develop a strategy focused on FH, familialhypercholesterolemia, another very high risk patients.
We are particularly focusing on FH patients who are not ableto get to goal despite being on both maximum statin dosages and Ezetimibe. So,we are now looking forward to bring Cholestagel to these patients who haveextremely high LDL levels and are high risk of cardiovascular disease andindeed often suffer a first heart attack as young adults. 55% to 80% of all menwith this disease will experience first cardiovascular event before age 60.
Now 75% to 80% of these patients cannot reach target LDLlevels even with existing therapies, both optimal statin and Ezetimibe, andCholestagel has the highly attractive [add-on] therapy option as a non-absorb,non-systemic and very safe agents.
So, we will be approaching this market in a very costeffective and Genzyme like way. The majority of these patients are following ahighly specialized lipid clinics numbering about 20 to 30 in major markets in Europe. We'll be starting our launch in Northern Europe in Q4 and expanding throughout year of during 2008,covering these markets initially with a small and highly focused sales force,heavily leveraging Genzyme's significant infrastructure in this countries.
Overtime, we see significant growth potential from increaseddiagnose of FH and from usage of this product in broader non-FH high-riskpopulation and longer-term interesting opportunities in other indications,which we hope to discuss further at some point in the future.
Henri Termeer
Thank you, Jim. Ann Merrifield, President of the BiosurgeryDivision.
Ann Merrifield
Thank you, Henri. We were very pleased with our thirdquarter results Synvisc revenue growth at 9% represents our strongestyear-over-year comparisons since we took pricing action at the end of last yearand belies even stronger unit growth. In US, for example, we were up 14% in kitvolume third quarter over a year ago.
So, we are maintaining our lead market position. Our keyobjective as we put all our energies toward the launch of Synvisc-One earlynext year in US and Europe. As we dive intoour strategies for that launch, we become even more excited about the prospectsfor that product both in expanding the patient population that we opt toviscosupplementation as a treatment modality for convenience sake, but alsowhen patients have comorbidities, which counter indicate multiple injections.So, we become more excited about the expanded reach and actually more excitedabout the positioning, if you will, to payers and the costs, and economics ofreducing the number of injections, the number of hospital visits.
So, again, as we dive into that we've become more excitedabout the prospects of Synvisc-One in the market for next year. And are alsoheartened, of course, by the continued progress of our Sepra product line, 25%year-over-year growth shows the quick payback, frankly, on the increased salesand marketing investment in US, which we made in the first quarter of thisyear. So, great quarter and we look forward to reporting more as we moveforward into these launches. Thank you.
Henri Termeer
[Joe Labaki], the gentleman runs the transplantationbusiness.
Joe Labaki
Thank you, Henri. As Henri mentioned, the transplantbusiness continues to grow very nicely globally with our main product Thymoglobulinbeing the driver. Thymo continues to grow not only in its current market insolid transplant, but in the markets of bone marrow transplant and treatment ofhematology. So, we've also seen growth internationally in new markets as weleveraged the existing structure of Genzyme to Thymoglobulin to other parts ofthe world.
In the clinical market, we continue to grow Thymo into newareas. Our Trim study looking at the solid organ transplant for minimization ofsteroids will be submitted to the American Journal of Transplantation. So, wewould look to get some good data out of that as well as looking at a three-yearfollow around those patients.
Our [CURTAIL] study, there was a pilot study looking at useof Thymoglobulin in induction for liver transplant, will be submitted to theAmerican Transplant Congress in May of next year. So, again, that's anotherarea we will expand Thymo use, and exciting areas for Thymo and condition ofbone marrow transplant, treatment of hematologic malignancies and autoimmunedisease. I am pleased to say that the ITM, immune tolerance that we arestudying in Type I diabetes opened in October with it's first patient lookingto enroll 66 patients, again, that's use of Thymo for treating that Type Idiabetics.
We also are looking on a study in MDS Myelodysplasticsyndrome. An investigator study is open and running in the US with 11 patients with initialresults very promising. And then we plan in opening a Genzyme sponsoredMyelodysplastic syndrome study in Europe and the US in the coming months.
For Thymo, at the upcoming American Society of HematologyMeeting we have four abstract that will be submitted in a good presence at thatmeeting around Thymo for hematology.
Turning to Mozobil, as Henri mentioned, we are planning onthe filing for Mozobil in mid-2008. We are working very hard on that right now.As you all know, we had great results, very robust results in our Phase IIIstudies in multiple myeloma and non-Hodgkins lymphoma beating our endpoints of20% difference very handily and with a 40% difference in both of those studies.So, we are again working on the NDA to get that filed and continue to expandthe use of most Mozobil. We started chemosensitization studies in AML, this isan ongoing study currently in the U.S. and other studies planned tostart-up in the coming months. We are also looking to start a European basestudy of G-CSF and Mozobil starting up in Q2 of next year, as well as anotherstudy within the U.S.to expand the access of Mozobil to patients.
Henri Termeer
Thank you, Joe. David Meeker, President of the Rare DiseaseArea.
David Meeker
Thank you, Henri. As both Henri and Mike indicated, we had avery solid quarter across the LSD business unit. Besides seasonal softness inthe Fabry world does not reflect any change in that business. We just had our annualroundtable meeting in Europe with 320physicians attending and increasingly I think the data and the physicians arecoming to understand the devastating nature of this disease, importance oftreating early and increasingly I think we will see younger and youngerpatients placed on therapy. We have now announced the availability of a fieldstudy which will be a study looking at using a lower dose of Fabrazyme in theyounger pediatric population.
Myozyme continued to have a very strong growth again as highlighted.We will file at the end of this quarter for 2008 approval in the U.S.with that approval expected to come in the first quarter of next year. The MTAPprogram as Mike highlighted is going well, with 29 patients on it been in thequarter and 45 patients on as of today. The last study has last patient is out.We expect results from that study in the first half of next year.
Two post-presentations that are currently being presented atthe ASIC meeting in San Diego highlight the long-term follow-up of patients inour severe 1702 study which were the patients between six and three years ofage, again confirming a significant reduction in the risk of both mortality andprogression to invasive ventilation in that population and long-term follow-up.And there is also posters showing long-term follow-up of 18 adult patients whowere severe as defined by the need for ventilatory support and wheelchairsupport, with a significant percentage of those group showing both motorimprovement in 13 out of 18 and respiratory improvement in 10 out of the 18patients who are treated, and again that was the most severe population, theother patient showed stability.
With regard to our Gaucher program, the small moleculeprogram continues on track. We have nine patients who have six months dataavailable which confirms the date that we presented at the investor meeting inMay, again showing us continued significant benefit. There have been no newcardiac events and there is total of 23 patients now who have been treated inthe trial, a nine of whom we have data of six months. No new cardiac events.The two that we reported previously, one of those events has been resolved andits judge is not related to the drug and the other evaluation is still pending,that data. The 12 months data from that post Q3 subset or data set will beavailable next year.
We have put in request with both European and U.S.regulatory authorities for a meeting at which we will determine the regulatorypath for this molecule. And finally as Henri highlighted we did get approval inJapan for Elaprase isapproximately 150 patients in Japanand we view that as a very significant opportunity. The price point isapproximately the same as the price in the U.S. and we are excited about thenext quarter. Thanks.
Henri Termeer
Thank you, David. Mara Aspinall, President of the GeneticsDiagnostics Division.
Mara Aspinall
Thank you. As you heard, we had another strong and solidquarter with growth in both our physician testing and our clinical trial testingarea, growth of about 19% from last year. Our growth comes from both increasedmarket share as well as market growth from physicians who are increasinglyusing diagnostics to not only diagnose, but also to monitor patients and tochoose their therapies.
Henri Termeer
Thank you, Mara. And lastly Duke Collier in the absence ofMark Enyedy who is not present today will make some comments on the oncologyarea.
Duke Collier
Just a couple of points on oncology. As Henri mentioned, weare very happy finally to have closed the transaction with Bioenvision and tobe able to move our development of and commercial efforts of clofarabine intoglobal arena. This though is one very quick impact considerably accelerated ourdevelopment process in adult AML.
Two points I think I'd make about Clolar. First, we are verygratified to see what benefits it's bringing to the labeled indications -- thepatient with the labeled indications who are very sick, third-line refractoryrelapsed pediatric AML patients. It's certainly the standard of care for thosepatients now and I think it's very satisfying to have brought some benefit tothat group.
It is increasingly through development programs plusapproval programs that we are sponsoring that the Children's Oncology Group is sponsoringand various investigators are sponsoring, moving up line in pediatric AML,finding its way into management second line. And I think in increasingly someconversation about high risk first-line patients, although the care there hasbeen quite strong for those patients for many years.
With respect to adult indications, we are well along in our ownsponsor trials in the U.S.,two of them, one in Phase II in adults with AML and one on more pivotal PhaseIII and this case in refractory patients. We expect to have enrollment in ourPhase II completed this year. We will be showing response rates, but inaddition we are going to want to see the durability of effect and we expect theFDA will be of course quite focused on the durability of effects.
So our current thought process is that we will be back tothe FDA with the data late in the year perhaps '08 and '09 to some extent. Thedegree to which the response rates are durable will affect that timing, but wethink this is a very, very strong drug in adult AML and we are quite pleasedwith all beginning data that we seen to-date. The other thing I'd just mentionwith respect to clofarabine is that we are now moving it into the MDS,Myelodysplastic syndrome and we are particularly excited about work that wewill commence this year using another drug in an oral formulation which wethink has some dosing schedule benefits that suggest that early data we've seenin MDS could be quite a promising growth there.
In Campath, I think it's been said but I'll just repeat weare happy this quarter to have gotten approval both in the U.S. and in Europefor use of Campath in the front-line, first and second lines in the managementof CLL. We've been in the market of course with the third line, with the datafrom our first approval trials, whether these new approvals not opens, I thinka much wider opportunity in terms of number of patients we can help. I don'tthink I will add anything really Henri to the Campath and MS other than to saythat the data could not be more gratifying to all us to see in terms of thepotential for this drug in helping patients, many of them we all know with MS.
Henri Termeer
Thank you very much, Duke. Operator, at this time, let'smove to Q&A.
Question-and-AnswerSession
Operator
Thank you. At this time, we will now begin thequestion-and-answer session. (Operator Instructions). Our first question comesfrom [Geoffrey Porges] with Bernstein. Your line is open.
Geoffrey Porges -Bernstein
Thanks very much for taking the question. Questions relatedto your long-term guidance, Henri particularly the 400 million from Mozobil.Could you just give us a little bit more brief comment, because I think yournumber suggests that there is around 50,000 to 55,000 transplant candidates inthat 400 million number. And so that presumes so close to 10,000 per patientpricing and I was just wondering how you could -- if you can give us a littlebit of a sense of how you are thinking about that to get to that number becauseits only seems bigger than we'd expected?
Henri Termeer
Yes. Let me ask Joe Labaki to make the comments on that.Joe.
Joe Labaki
Sir, you are correct. There are approximately 55,000 BMTpatients around the world. There are probably actually more than, that we areunder counting because of the registry data outside of the U.S. and Europe.Also one of the things that we are looking at with Mozobil is that, as you lookat it about 20% patients will fail, those patients never get counted in that55,000 number, because if you don't go to a transplant you should not getcounted in the number.
So I think there is the opportunity to expand thatpopulation as well. So, as we look at it and growing to that number, I feelvery confident about that number and that's again, the number of patients I canbenefit from Mozobil that's something we can reach.
Geoffrey Porges -Bernstein
And brief comment on the Pharmacoeconomics?
Joe Labaki
The Pharmacoeconomics, as we look at in and a lot of datawill be presented at the upcoming ASH meeting there. We have two oralpresentations. So you'll learn more about the data in depth. But we are lookingat a lot. The biggest piece to look at that we announced in our data is, if youtook a 100 bone marrow transplant patients in the NHL study, 90 of those patientswould have mobilized and gone on to a transplant. Only about 50 or little lessthan 50 of those patients could have mobilized with G-CSF to go on to atransplant.
And there are two things that happen there. So one, thereare 40 patients that we need to be remobilized so they go back through thewhole process again, and that's a cost for the system. And the other piece isthat, there is a lost opportunity there for patients and the institutions forpatients not going through transplantation.
Geoffrey Porges -Bernstein
Alright thanks, that's very helpful.
Henri Termeer
Next question?
Operator
Thank you. Our next question comes from Ian Somaiya withThomas Weisel Partners.
Ian Somaiya - ThomasWeisel Partners
Sure, just a question on your longer term guidance. As youprovide greater visibility on the 2010, 2011 outlook – clearly there isheightened speculation on sort of the driving motivation behind that. AndHenri, I would just love to get your comments on that, and just maybe to add toit. What gives you the foresight to be able to provide 2011 guidance and 2008guidance ahead of your typical January schedule?
Henri Termeer
Yeah, since the second quarter we’ve become pretty directabout what our expectations are, and that indeed, is different from the waythat we use to do this in the past. And the confidence really is based onlooking very, very carefully indeed at each of the businesses. We have ofcourse tremendous experience now in each of these businesses.
And the other thing that we were starting to see about ayear ago is the tremendous leverage that occurs by expanding these businesses'present and existing infrastructure. And that allowed us to really makeprojections forward within what we understand to be the markets, and we have beenin thee markets for quite a while. What we understand to be the impact of thenew products that we mentioned like Renvela, like Mozobil, like Synvisc-One,and others, and to become pretty focal and pretty direct in terms of how we arerunning this business, and what we are expecting from this business in terms offinancial performance.
We also look very carefully at our ability to continue toinvest in R&D, because we are reading 2011 as our [main point]. So we arekeeping R&D pretty much at the same percentage of sales throughout hisperiod, growing it very nicely each year, and allowing us to make the kinds ofinvestments required to bring things like Campath MS to a point where itbecomes real product. And that's the actual excitement.
We're not only seeing this kind of compound average growthrate from an earnings point of view through 2011, but we are also seeing veryexciting programs indeed, that will become commercializable by on 2011 andCampath MS is may be the most direct example of that.
We expect the MS market at that time to be about $8 billionto $9 billion, that's generally what I hear analyst talk about, and we willhave what we think an extremely strong product in that space, and that will, asa single example continue to allow us to grow beyond the period that w spokeabout.
So it’s a careful analysis. It is different from the way wedid it in the past, but it is the judgment we made because of the experiencethat we now have with many of these programs in the market.
Ian Somaiya - ThomasWeisel Partners
All right. Thank you, Henri
Operator
Our next question comes from Jim Birchenough with LehmanBrothers
Jim Birchenough -Lehman Brothers
Hi, guys, and congratulation on the quarter. Just want tobetter understand the upside opportunity for Myozyme going forward, and thedown side risk around the [added] onset data. So if you could just describe thebuild that you expect to continue outside of the U.S., what countries are in rightnow, and if there's some incremental new ads we’ll see in the fourth quartergoing into’08?
And then just trying to understand what the impact could beof the adult onset data both in a positive and negative scenario, particularlyinterested what the downside risk is if that trial doesn’t work your existingbusiness?
Henri Termeer
David, you want makes some comments?
David Meeker
Sure. I guess the general response is that the overallopportunity for Myozyme and Pompe disease is large, and we are very early on inthis overall process in terms of launches. Henri said, we've had a verysuccessful launch, but we remained very early on in the process. The growththat we would expect to continue, we would expect strong growth to continue inEurope, again, very large market, very well organized, so relatively early onin that process.
Japan,again we expect a continued growth in Japan. And efforts which won’tnecessarily be large in 2008 in terms of numbers, but increasingly over a timeit will make a large difference are, newborn screening efforts and Taiwan is one example where we've initiatednewborn screening in Taiwan.The numbers that they screen are approximately 130,000 infants, four infantswere identified in that population and that matches what is felt to be theincidence for Pompe disease. All four of those infants started treatment withinone month or very shortly after birth, so the outcomes are likely to be better.
So the bottom line is that things like newborn screeningwill continue to support this growth. The impact of a large study, again weremain very optimistic that the large study is going be positive like any trialagain till we see the data we don’t know. What will drive growth in the adultworld goes well beyond the large study. However, and increasingly as well over50% of the patients now on treatment who are in the adult category if you willand as I highlighted in my introductory remarks, the anecdotal experience inthat population is growing and confidence of physicians that the drug works inthat population is growing. So we are not strictly dependent on a large studybut we are looking forward to that study being positive.
Jim Birchenough -Lehman Brothers
And just so I could follow up. I guess I am trying tounderstand if there is anecdotal experience supporting the benefit of the drug.What's the worst case scenario? I am trying to understand the shades of greywith the data where you might not meet the regulatory requirements but theremay be some secondary end points that meet. Just trying to understand that?
David Meeker
Yeah, exactly. The P value again is just a P value so, atworse I guess it could trend but it would be hard to imagine that there will beno evidence of efficacy so all of that would be supportive and there aresecondary end points including quality of life and respiratory end points thatwill be part of that.
And finally, as you think about the modeling that will drivenext year is, once we do get approval for the 2000 leader, as Henri said, therewill be a step function as those patients who are on the MTAP program as wellas the last patients coming off and going on to a commercial drug.
Jim Birchenough -Lehman Brothers
Thank you.
Operator
Our next question comes from Yaron Werber with Citi.
Yaron Werber - Citi
Yeah. Hi, good morning and congrats on the good quarter. Ijust had a quick question Henri could you share with us in your 2011 guidance,what are you projecting in terms of competition for Cerezyme and maybe some ofthe other enzyme replacement products?
Henri Termeer
For Cerezyme wewould expect that for that time there is some additional peering in terms ofenzyme replacement therapy. We would suspect that, that competition willprimarily manifest itself around new patients, because we don't expect to begiven the very long-term, extremely solid experience that we have aroundCerezyme to be any particular reasonable patients to shift or to change. Sothat is what we put in our mind that at that time there will be somecompetition. It's possible that it there would be somewhat delayed but that'sin our projections.
In terms ofthe Chaperone Technology, it's still very, very early days. In the best ofcases, we don't expect that to manifests itself for the next five to six years.So that goes beyond this period of time, but it's very early days. This programstill has to go through very rigorous clinical development, and those just takesometime. We experienced that ourselves too, we have our own Phase II programthat David mentioned, showing very good results in terms of efficacy. Of course,the criteria here, is that we have and say [effication] -- a product that'scomparable with the standard of care, no patient don't want to go backwards.
But even beingin an advanced stage of Phase II clinical testing in this patient population, westill expect it to take about three, maybe four years for us to reach themarketplace with this program.
So that’s what’s in our assumptionYaron.
Yaron Werber - Citi.
Can I just follow up Henri, and within your guidance are youconsidering taking any pricing action, potential price increases on the enzymereplacement products? I know you’ve never done that before?
Henri Termeer
Yeah, it’s very difficult to make suggestions or to talkabout things that we haven’t decided on. So I don’t necessarily want to makeany comments in that regard. Currently, our products actually are kind ofinexpensive in this very ultra rare space, so we have not done it before as youcommented, so we would do anything. We want to make sure that we do the rightthing – that, I want to make absolutely sure that we maintain an approach thatallows the broadest based access to product regardless of the economics ofpricing or reimbursement. That has been our approach for many years since 1990that has been appreciated by the community and by the reimbursement agenciesaround the world, and we will stay very [pure] against that kind of anapproach.
Yaron Werber - Citi
Great, thank you.
Operator
Your next question is from Geoff Meachum with J.P. Morgan
Geoff Meachum - J.P.Morgan
Hi, guys quick question for you on the Thymoglobulin. Canyou go in a little bit more detail as to what manufacturing issue was, andwhat’s been put in place so that this doesn’t recur? And then the second partof that is, what inventory do you have thus far on hand to meet demand?
Henri Termeer
Yeah, it’s a good question. I was just there last week andthe manufacturing. The two issues, one is the issue related to where the FDAletter that we received recently, and that obviously is something that we takevery serious. That's not impacting necessarily current supply, but we take thatvery serious and we will do that what is required to make sure that, A, thatnever recourse again, and that we reassure FDA and as well the regulatoryagencies that we are fully compliant was any kind of regulations in terms ofmanufacturing this product.
The write-offs of these two lots that David mentioned, Ialso mentioned, indeed also Michael mentioned that's also part of the pressrelease. They don't have to do with [less], but they have to do with thequality of the product that did not meet the specs and we wrote those lots off.We are working very, very had to get our arms around that, because that doesimpact inventory that's available.
So we are very, very tight in terms of inventory in thisspace, and we are working very, very hard indeed to get beyond to this point,but it will take some time for us to build the kind of inventory that will putus in a safer position. We are putting the best resources we have on thischallenge, and we've done a number of things among others. We changed the placewhere we do [full] finish from an outside party to inside, and I am confident,I have tremendous confidence in the track record of our manufacturing experts,process experts to get beyond this point. So, we would expect -- that's why Imentioned this both as a current challenge, but as a future opportunity. Iwould expect us to get beyond this point shortly into the first half next year.This is costing us money right now, it's costing us margin and when we getbeyond it, it will actually give us an opportunity expand the margin on theprogram, which has such a rich future ahead of it.
Longer-term, we have decided to build a new plant that is upto the late standards in terms of manufacturing and that I think will securethis program not only in the medium-term, but in the longer-term. We expectthis product to have a very long-term future ahead of it. We're still startingnew clinical trials for new indications and that's why we are investing in itsignificantly not just to resolve current problems, but to be able to producelarger quantities in the future.
Geoff Meachum - J.P.Morgan
Just a follow-up on that Henri, real quick, and thanks forthe color. So, is it fair to say that you have enough material on hand to meetdemand until the first half of '08, but then second half of next year is whenyou may start running into supply constraints?
Henri Termeer
No, we are tight. We will be tight through the first half ofnext year. And at the current demand, at the current production level, at thecurrent lots that are available, we are squeezing through this period. But, Iam not comfortable with it and we have to get to a better inventory position.In terms of the forecast that Joe talked about and the current level demandthat is expressed in the results of third quarter, yes indeed, we will be ableto keep ahead of the quarter, but there is not much room for error and we aremaking all the investment necessary to make sure that we get beyond this point.
Geoff Meachum - J.P.Morgan
Thank you.
Operator
Our next question comes from Mark Schoenebaum, with BearStearns.
Mark Schoenebaum -Bear Stearns
Hey, thanks. Thanks a lot for taking my question, Iappreciate it. Henri, can you comment to us that the $4, 2008 EPS targetincludes any non-GAAP dilution that you might experienced from potentialacquisitions. And also the 20% EPS non-GAAP CAGR from '06 to '11, can youconfirm that that also includes any such dilution? Thanks.
Henri Termeer
No, as I said before, these projections do not include anyhypothetical transactions, it's impossible to do that. And in this world,transactions still occur also for Genzyme and I don't think any shareholderwould like us to be limited to the extent of that we can't make transactions,transactions will occur. And we just finished one this week with Bioenvision.We will have them in the future as well. So, what these numbers, non-GAAPnumbers include are the non-GAAP business that we reported on the thirdquarter. The businesses that we are in currently and the new products that youare familiar with and they don't include any hypothetical transactions.
Mark Schoenebaum -Bear Stearns
If you could, just a follow-up, when we as observers ofGenzyme think about the tolerable level of dilution from those targets, can youat least frame it for us or give us some guidance on that?
Mike Wyzga
No. In the past we have done transactions, so we'vegenerally earned our way through the dilutive impact. That was the case withBone Care and that was the case for Anamet. That was indication of Bioenvisionwe were just reporting one quarter, this current quarter, we'll have a verysmall diluted impact of a three or four pennies. But, we are also saying thatfor next year we will prioritize at the cost of the programs associated withBioenvision in a way that it does not dilute overall earnings. The same happensaround ILEX, the same happens around most of transactions that you are familiarwith, that we've done over the last five years.
So, transforming transactions that I'm not seeing at themoment may have a very different picture. And, but I can assure you that wehave nothing currently contemplated in that regard. But, you never know, andbut if such a situation were to occur in the case of GelTex that was atransforming transaction. That was dilutive for one or two years. Of course, itwas extremely explainable to all of you that this was the good thing to havedone, because it expanded significantly both the diversification and thetop-line for the corporation in the long run.
So we are very, very careful. We are very conservativeindeed in this kind of transactions we do, the size of those transactions and Iwould expect very marginal, very short-term dilutive impact for the most part absorbableof those within the current P&L.
Mark Schoenebaum -Bear Stearns
That was great. Thank you very much. I appreciate it.
Operator
Our next question comes from Phil Nadeau with Cowen &Company.
Phil Nadeau - Cowen andCompany
Good morning. Thanks for taking my questions. First is a follow-upto Yaron's question. Price RX is actually reporting that the prices of Cerezyme,Fabrazyme and Aldurazyme, I believe will be increased as of November 1st. Canyou confirm if that is in fact going to happen?
And then second on Renvela in CKB, you noted that the voteat the recent panel was for expanding the labels, but the discussion followingthe vote the suggested that maybe half the people who voted for label expansionand certainly the FDA representatives want to see more studies before the labelis expanded. So, have you had conversations with the FDA that give youconfidence post that meeting that the study that you've completed will supportthe filing next year?
Henri Termeer
Yeah, let me just comment on the price increase. There is a verysmall. I think 3% price adjustments around all LSD products that you'reprobably referring to. Does that answer you question?
Phil Nadeau - Cowen andCompany
Yeah, it does. Have you taken such a, almost cost loadingtype increase to these products in the past or is this the first event of cost loadingtype increase?
John Butler
So, may be I'll just comment on that briefly. So, we havetaken an adjustment which took early on both with Aldurazyme and Fabrazyme.There are two things here - one is, over time being able to make that cost loadingadjustment as a reasonable and necessary thing to do. And as Henri said, we didit across all three products. And the other thing is that we work hard tomaintain a global pricing band to make sure that prices don't get out ofequilibrium across the world and that's also allows us to manage that moreeasily, so that's it.
Henri Termeer
John, can you comment on the advisory committee and the CKDquestion?
John Butler
Certainly, Henri, it certainly was a complicatedconversation particularly after the vote came. A couple of things I think gotimportant. Throughout our conversations with the FDA about this, they have beenclear that they want to see clinical outcomes data and that drove the advisorycommittee meeting. We have demonstrated in the past we discussed that thatmeeting that in dialysis patients, we've continued to show clinical outcomesdata. We are very committed to the outcomes data and we will continue to dothat.
Part of the question is, are those outcomes data generatedin a pre-approval or post-approval environment? I think the committee was veryclear that patients with elevated phosphorus levels need to be treated. Althoughit's not a validated circuit, these patients need to be treated. We will bepresenting our CKD data at the ASN meeting next week in San Francisco and we've shown top line datafrom that and we did treat a patient population, who had elevated phosphorus.As such, we do still have confidence and we still plan to move forward with ourfiling in CKD and we will continue our discussions with the FDA around whatother data needs to be generated and we have always been committed to doingthat and we will continue to so. We certainly have a desire to do that. As wetalked about at the meeting, the patient population that has an elevatedphosphorus level, marked type of phosphotemia is not the four million patientsthat are seen in the U.S.by nephrologist, but that's certainly the first target for these approvals. Wewant to continue to generate clinical data to show the benefits of usingsevelamer in patients who don't have that marked and elevated phosphorus levelbecause of the phosphate binding benefits of Renagel but also of sevelamer, butalso the pleiotropic effects, the LDL lowering, the CRP lowering, theincreasing [infectant], the binding of uremic toxins. We think all of theseclinical benefits will help in earlier stage population. So the first approvalthat we're looking for will be in these patients with an elevated phosphorouslevel, but we will continue to generate clinical data to show benefits in theother patient populations allowing us to expand it that larger, million pluspatient population.
Phil Nadeau - Cowen andCompany
So do you have data in pre-dialysis patients with elevatedphosphate levels that you could include in your filing, whether it's from aperspectively defined trial or from [Décor] or from any other source or themain data in the CKD filing from the 49-patient study that you've completed?
John Butler
That's right. That is the patient population that hadphosphorous levels elevated above 5.5 milligrams per deciliter, and that's thepatient population that was -- what was clear I think from the advisors,certainly the ones who voted to expand the labels, that was what they wereconsidering where patients with significantly increased phosphorous levels andwe think we updated to support that filing. And again, we'll talk with the FDAabout subsequent studies that need to be done.
Phil Nadeau - Cowen andCompany
And you chose a 5.5 at the advice of the FDA at the time?
John Butler
That's correct. I mean that was in the consultation with theFDA.
Phil Nadeau - Cowen andCompany
Great. Thanks for taking my question.
Henri Termeer
Next question?
Operator
Thank you. Our next question comes from Chris Raymond withRobert W. Baird.
Chris Raymond -Robert W. Baird
Thanks for taking the question, maybe another guidance questionif you don't mind. Just this quarter was a pretty sizeable deed compared towhat people were expecting, but just kind of doing the math through theremainder of the year, if we were to just come in at the top end of your '07guidance, that would infer a pretty sizeable step down for Q4. Can you maybecomment, is that really what you intend for folks to model, or is there achance that there could be some upside to that range? Thanks.
Henri Termeer
Yeah, we have not focused on once again trying to give youguidance just for this quarter. I think you are quite right. We are trackingextremely well against the current guidance and we really moving on to the nextyear and that's why we mentioned to '08. So, we have the activities going onthat we spoke about. We have the Bioenvision impact in this quarter that Ispoke about. But there is no doubt that the outstanding times we can feel quitecomfortable about in terms of our ability to get there.
Chris Raymond -Robert W. Baird
Thank you.
Operator
Our next question comes from Meg Malloy with Goldman Sachs.
Meg Malloy - GoldmanSachs
Great, thanks very much. Question again on next year'sguidance, that is, are you still contemplating gross margins in 77%, 78% rangeas we had seen. I know this quarter we had a little bit of a downtick on thatand there are a couple of moving parts. So, I guess the question one is, aregross margins the same next year and what could be the biggest swing factors,for example, when Myozyme manufacturing comes in and the rate of Renvelatransition. Maybe if you could just walk us through your thinking there?
Henri Termeer
Yeah, Meg, that's many questions. The guidance call -- theformal guidance call will take place as usual in the early part of next yearand we then goes through all the details. We have not done the completebudgeting of the corporation at this time. What we haven given you is what weare working towards and what we feel is a reasonable way to think about for allof you, the times where we will be at next year. All the details and the insand outs we will discuss on a much more specific and granule basis when we get[dessert] during the guidance call in the early part of next year. Mike, do youwant to make any other comment?
Mike Wyzga
Yeah. That's fair enough. I think the only thing to keep inmind as far as trends Meg, is we were fairy heavily impacted by the by FX ratethis quarter in two separate areas, one is on the inventory side as well as thecost of production. Again, you cannot point on whether that occur again nextyear on a go-forward basis.
The second thing is as you bring on a new facilities such aswe did in [San Francisco] and Waterford, most of the expense of cost of thefirst unit is true which in this case was Cerezyme. And in the case ofCerezyme, you are utilizing or you are dragging around all that excess capacityas you gear up with the increase capacity as well. As the volume increases, youwill have a more matching of the capacity utilization. So those are two factsgot to keep in mind, but I think Henri will get a right answer. We are notgoing to give further guidance on the detail until February [to revise it on].
Meg Malloy - GoldmanSachs
Okay. Thanks a lot.
Operator
Our next question comes from Matt Duffy with BDR Research.
Matt Duffy - BDRResearch
Hi, thanks for taking my question and good quarter. Iwondered if you could just lay out for us little more specifically as weapproach the Renvela launch, the related benefits of Renvela versus Renagel toboth patients and the Genzyme?
Henri Termeer
John.
John Butler
Sure thanks.
Matt Duffy - BDRResearch
Thanks Henri.
John Butler
So again, Renvela in the dialysis population is a bufferedform of Renagel. It does keep bicarbonate levels higher, which is a benefit forpatients on dialysis as well as giving us access to that CKD population. So,there are clearly benefits to Renvela. But, the way we look at this launch inthe USand before we have the CKD not on dialysis indication, we are really looking atgrowing the brand of sevelamer, that's the way to measure. We are not measuringon a conversion rate here. If patients are well managed on Renagel, physicianswant to keep those keep patients on Renagel, we are very comfortable with that.We are looking to see new patients towards Renvela and we want to see theoverall brand grow and the overall market grow as it has when other productshave been launched into the marketplace. So, that's the continued focus. Wewill be on the clinical benefits, what we've seen in RIND outcomes in D-CORetcetera, and then continuing to expand the product globally as well.
Matt Duffy - BDRResearch
Okay. Very good. Thanks.
Operator
Our next question comes from Geraldine O'Keeffe with FortisBank.
Geraldine O'Keeffe -Fortis Bank
Hi. Good morning. Thanks for taking my question.Cholestagel, you are targeting on the FH market. I am just wondering, doesthere have orphan drug status, and if you can comment on the pricing? And ifyou can remind us, has product already been launched in the US?
Henri Termeer
Jim, can you handle those questions?
Jim Geraghty
Yeah. Let me start with them, maybe backwards. In the U.S.the product has been launched for a several year prior to Genzyme's acquisitionof GelTex the product has been licensed to company which is now Daiichi Sankyoand they have been marketing that product successfully in the US for the lastfour to five years. The indication of this product is actually primary hypercholesterolemia.So, we have not applied for or received the orphan designation. The incidenceof familial hypercholesterolemia is probably slightly above that would qualifyfor orphan designation and invest. And what was your third question, I missedthere?
Henri Termeer
The pricing.
Jim Geraghty
The pricing, the pricing I would say is, we've done a lot ofwork giving a pharmacoeconomic value to the product given the incidence ofheart attacks and other cardiovascular events in this population. And we areconfident those pharmacoeconomic benefit support a price which is comparable tothat which the product is sold in the US, which is in the range of about$2,000 per patients per year.
Geraldine O'Keeffe -Fortis Bank
And if you could just follow-up another question on theRenal panel, which we've already discussed a little bit. But I am justwondering on the other side, based on the outcome of the discussions as youthink you might expect some off label use in the pre-dialysis market.
Henri Termeer
Go ahead John.
John Butler
Sure. Yeah, well actually when we have off level use ofRenagel today in patients with CKD not on dialysis is real hard to measureexactly what that is mixing the scripts. But, we do market research ofphysicians if they believe the Renagel story they are using in CKD. I thinkthere is certainly a possibility that off label use can increase with Renvelaavailable. But, again, its always best is when you can promote in the marketand really talk to physicians about the benefits of the product, so I thinkthat it will be limited.
Henri Termeer
But, as the fact say, John, if in CKD patients not ondialysis do have a high phosphate level that the standard of care is to managethe phosphate level.
John Butler
The standard of care to mange the phosphate in the standardof care right now is generally to use calcium. The vast majority of thosepatients are on calcium today. Often calcium carbonate, not PhosLo, but PhosLo aswell. So, there is a significant market opportunity there.
Geraldine O'Keeffe -Fortis Bank
Okay. Thank you very much.
Operator
Our next question comes from Aaron Reames with Wachovia.
Aaron Reames -Wachovia
Thanks for taking my question and congratulations on thequarter. I just had a follow-up question on WelChol and I was wondering if youcould confirm whether Daiichi Sankyo has a filing in front of the agency forthe treatment of diabetes? And if that is approved, does that going to be anindication that you will pursue with Cholestagel?
Henri Termeer
Jim.
Jim Geraghty
It is correct that Daiichi Sankyo does have a filing forType 2 diabetes indication for the FDA, which I believe they -- and that justexpect it probably soon. They have published several studies on the HbA1clowering effect of colesevelam, let's say, the active agent. And I would say,we are also exploring the potential efficacy of the product in a diabeticpopulation. Again, in the Genzyme, like we are approaching this. We are lookingparticularly at a more severe population, perhaps for example, the comorbiddiabetic and hypercholesterolemic population.
Aaron Reames -Wachovia
Okay. And then, on another topic, can you provide us anyupdate on the European filing of clofarabine and when we might expect to see alabel expansion in Europe?
Duke Collier
Yeah, Duke. Bioenvision had been given permission to supplementits current filing up until the middle of next month. We, of course now takethat over and we'll see if any additional data can be filed next month. Andthen, our understanding or expectation is that we would hear from theauthorities early in the year, probably, in January, February.
Our current expectation is that they will not approve Clolarat that time based upon the package that they will have in front of them. So,that said, we are now having pulled everything together with the acquisition.We now expect that the material data to put the entire package together willprobably come more or at least as much from our Phase II study that I mentionedearlier. And so, our expectation would be a European approval is probablycracking along in the same timing that I mentioned with respect to the USapproval.
Aaron Reames -Wachovia
Can you remind us, is that Phase II that you have randomizedor is that open label as well?
Jim Geraghty
It is open label.
Aaron Reames -Wachovia
But do you think that will be sufficient though to answerall the questions that are outstanding?
Jim Geraghty
It will be sufficient if the response rate and thedurability of the responses is in process as we expect and as it had been seenin some of the earlier work.
Aaron Reames -Wachovia
Okay, thank you.
Henri Termeer
And operator, we will do three more questions.
Operator
Thank you. Our next question comes from Bill Tanner with LeerinkSwann.
Bill Tanner - LeerinkSwann
Thanks, maybe a couple of questions. First of all Henri onthe motivation, on the $7, do - I mean, there is nothing magical there you'reessentially just doing the math I guess that you provided back in July as along-term EPS growth rate?
Henri Termeer
The motivation is obvious to give you a sense for what weexpect and how we see these businesses.
Bill Tanner - LeerinkSwann
No, right, we are understanding that -- but you previouslysaid 20% EPS growth, that was just basically which should we calculate?
Henri Termeer
You can calculate it on the basis of 2006.
Bill Tanner - LeerinkSwann
Right, usually the math works. So, then the question I guessis, as you look going forward kind of coming out of the other side of 2011, itseems like obviously your Campath MS is not in that guidance, the 2011. Youmight have greater visibility on Mozobil and other opportunities. It seems likewherein balance CKD could continue to do well. So, what is that due at leastthinking about those things carrying you on, on the other side as to [blooding]an appetite sort of acquisition over the near and or medium term because itseems like people are going to stock. I guess there is some concern thatcompany which I think you said that's part of the plan is to make acquisitions,but at least something we should be think about things over the near tointermediate term being smaller more strategic, not much in a way of dilutionand is the way that the table is set through 2011 and then perhaps on the otherside really suggest that nothing that's big and transformational and highlydilutive would likely to happen?
Henri Termeer
As I said earlier, there is nothing on the table in terms ofthe transformational transaction. Its also completely unpredictable over such along period of time that nothing could go on the table, but we've not donethose things in the last 25 years. And the largest transaction we did aboutsome [gel packs], which was at that time transformational. But obviously it wasa very explainable transaction, it is a very identifiable set of criteria andwe were as a quick, it became an accretive transaction within two years. Thereis nothing like that that's currently being contemplated by the company, but Ican't obviously exclude things, I don’t about yet. But what is very reasonableto assure is that we do the kinds of things that we have been doing all alongin the past. And as I mentioned earlier, generally these are the kinds ofthings that are – that may like by on vision one quarter to be dilutive by fewpennies and then we went all the way through that pretty quickly or wereprioritized overall problems of the company. So we can afford it withoutcreating longer term dilution.
Bill Tanner - LeerinkSwann
Okay, great, thanks.
Operator
Our next question comes from the Geoffrey Porges with Bernstein.
Geoffrey Porges –Bernstein
Well, thanks a lot for the followup question. I just have long-term question about Campath, given its importancefor the portfolio, I am wondering if you could give us a sense of how decisionswill be made about things like promoting the product, pricing the product,positioning it against the other MS treatment. How will things exactly workbetween Genzyme and Bayer given the investment you're making in this? Thanks.
Henri Termeer
Yeah, that's a great question.And we have of course, an ongoing relationship with Bayer that's in theoncology field, whereby Genzyme gets two sets of deconomics and Bayer gets oneset of deconomics, they do the marketing and we do the development includingthe clinical development that we spoke about into Phase III. We will be workingvery closely together quite obviously; including how the pricing will go atthat time. And those are well organized mechanism between the two companies towork on these kinds of decisions including any kind of decision with regards todevelopment or regulatory actions and so on.
The -- from a pricing point ofview, as Genzyme has done, as many companies now do, we look very carefully atthe value that we create and that the cost will be shown in the Phase III clinicaltrials that now are ongoing. An example of the value creates can maybe lookedat the Phase III clinical, the Phase II clinical trials and the result,three-year results, we create tremendous value in this regard. And we feel veryconfident that we'll be able to create a valuable proposition to everybody inthis field, globally, that is, is very attractive indeed and obviously, forpatients the clinical outcome will be a very, very big driver indeed and theconvenience of treatments only once a year, of course this regular follow-upsfrom our risk management point of view. So the process is well establishedbetween the two companies how we work together.
Geoffrey Porges –Bernstein
Thanks very much for taking the follow up.
Operator
Our final question comes from Yaron Werber with Citi
Yaron Werber - Citi
Yeah, hi, thanks for taking the follow up. I just had aquestion. Can you quantify for us by any chance given the manufacturingconstraints in the U.S.what’s the sort of the backlog right now? How many patients are waiting to getthe products once you leave your manufacturing issues?
Henri Termeer
I would think at that time if you include the patients thatare in the [LOPS] trial which will obviously start to compare it over mostlythis, U.S.patients and the patients that will be in this supportive mode and patientsthat may wait during this period of time core products become available. Youtalk about a few hundreds patients, David lots of it 100 to 200
David Meeker
Yeah. (inaudible) so there is the remaining less patients,50 of those are in the U.S.and as I indicated we currently have about 45 patients in the MTAB program thatwill continue to grow. So, I would say between those two efforts we will getbetween a 100 to 150 patients. And then there is the untapped potential in newpatients who are our there inline. And one of the efforts which I didn’tmention earlier that we will continue to drive that piece of screening of thisone brittle Muscular Dystrophy population, so with patients who have muscleweakness, but have not been given a specific diagnosis and I think things like(inaudible) this will make it easy to or easier to screen that population andwe’ll get a significant yield there. So, between a 150 to 200 patients I wouldsay is a reasonable expectation for what might be the demand out that.
Yaron Werber - Citi
And how many patients do you have totaled in the LOPS study,is it 50 in the U.S.and
David Meeker
90 patients or so, 90.
Yaron Werber - Citi
Thank you.
Henri Termeer
And that was the third question. Operator, then, I think wewill close over this time. Anybody that was still in the queue to ask youquestion, please contact with us as Sally Curley or Mike Wyzga or whomever youwant to direct a question to. We will absolutely try to respond to anyoutstanding questions, that you may have. Again, thank you all very, very muchfor participating today. It obviously is a very rich moment for thecorporation. It’s very, very interesting way, and the way this we can projectforward on this robust solid base on the new things that an opportunity we cancreate, new opportunities around, over this timeframe. Thanks all very much forbeing here. We look forward to seeing you and talk to you very soon.
Operator
Thank you for joining today's conference. That does concludethe conference call at this time. You may disconnect.
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