Executives
Patrick Flanigan - Director of IR
Henri Termeer - Chairman and CEO
Mike Wyzga - CFO
David Meeker - President,Lysosomal Storage Disorder Therapeutics
John Butler - President, GenzymeRenal
Mark Enyedy - President, GenzymeOncology
Joe Lebockey - General Manager ofthe Transplantation Business
Ann Merrifield - President,Genzyme Biosurgery
Analysts
Brian Abrahams - Oppenheimer
Jim Birchenough - Lehman Brothers
Chris Raymond - Robert Baird& Co
Geoff Meacham - JP Morgan
Meg Malloy - Goldman Sachs
Mark Schoenebaum - Bear Stearns
Matt Osborne - Lazard
Aaron Reames - Wachovia
Phil Nadeau - Cowen & Company
Bill Tanner - Leerink Swann
Adam Walsh - Jeffries & Co.
Geoffrey Porges - Bernstein
Khyati Thakrar - Mehta Partners
Richard - Citigroup
Genzyme Corp. (GENZ) Q1 2008 Earnings Call April 23, 2008 11:00 AM ET
Operator
Welcome to Genzyme Corporationfirst quarter financial results conference call. (Operator Instructions).
I would now like to turn the callover to Mr. Patrick Flanigan, Director of Investor Relations.
Patrick Flanigan
Thanks, Tory, and welcomeeveryone to Genzyme Corporation's first quarter Earnings Call. On this call, wewill be making forward-looking statements, including providing EPS guidance,discussing our product development plans and timetables and discussing ourplans and timetables, proceeds of larger scale Myozyme manufacturing approval.These forward-looking statements are subject to a number of risks anduncertainties and our actual results may differ materially. Please refer to thesection title risk factors in our 2007 10-K for more information on theserisks. If during this call we use any non-GAAP financial measures, you will findon our website reconciliation to the most directly comparable GAAP financialmeasures.
Lastly, I would like to remindeveryone of our analyst day in Bostonon May, 7. Space is limited so please turn up in advance to reserve your seat.
Now, I would like to turn thecall over to Genzyme's Chairman and CEO, Henri Termeer.
Henri Termeer
Thank you very much, Patrick, andthank you all for joining us this morning. The first quarter 2008 was again avery robust quarter. We were very, very satisfied with the performance. We see that the consensus somewhatand we saw really pretty phase of performance throughout the corporationand most of the businesses.
Revenues were up 25%. Non-GAAPEPS was up 22%. And for 2008, we expect the year to be characterized by thiskind of performance on a quarterly basis. We are also and more importantlyexpecting the number of both near-term events and longer-term programs to fallinto place that really will allow us to continue to grow beyond 2011.
In this call, we again reconfirmour objective and our goal to grow non-GAAP EPS by 20% CAGR through 2011 to about $7in 2011, $7 a share.
Near-term, during this year we expect to file Mozobil in the US and in Europe.This is a product for its first indications that has week’s estimate peak salesof about $400 million. This year we expect also to file for adult AML, about inthe US and in Europe.
Clolar, the product involvedhere, we expect peak sales for these additional indications or the currentindications to be about $600 million going forward. This year or early nextyear in the first half of next year we expect the FDA to take action on thelabel change for Renagel and Renvela in terms of CKD which will expand thatmarket in a significant way.
We expect action on Synvisc One in the United States by the end of the year and at this time and veryimportantly we also expect action by the FDA on the BLA for Myozyme torelease the large scale plant, the Allston plant to produce products for the United Statesmarket.
We talked about that two daysago. We are currently very constrained in the United States as a result of not having that as a lease; wecannot market, or expand the markets in the United States commercially duringthis year. That isn’t a disappointment; we realize that there is a point thatwe spoke about on Monday but the product Myozyme is doing extremely well on theglobal basis as you have noticed. It grows purely based on international salesduring the quarter; it was 78% versus last year.
Myozyme is by a margin asignificant margin, the most successful license (inaudible) enzyme replacementtherapy that we have introduced in our history. In a longer time during thisyear we expect to continue to make and expand the investments in Campath MSwhere the program will become important in the 2011, 2012 timeframe. We expectongoing information about the Phase 2 trial to be able to communicate it toissue during the year; to try confirming this very important program for thisvery significant market. This year, also in this quarter, we expect to furtherclose the transaction with Isis on mipomersen.Mipomersen is currently in the Phase 3 trial for homozygous, lipid-loweringhomozygous FH patients and closer to the time potentially that we get togetherfor the analyst meeting; we will talk about our clinical plans etc so to putthat program into perspective.
Again, this is a program for ourlong-term growth 2000 up to 2012. Traditionally, merger will start and isalready starting (inaudible) indications, very exciting indications like chemosensitization. These small molecule programs for Gaucher disease we expect tomake significant progress this year. We will talk about it at the analystmeeting again. We will give you a update as to the current result of the Phase2 trial and we will go to Phase 3 trial as soon as we can and when we havefinalized our discussions with different authorities.
With over 25 programs in Phase 2trials, most of them we don’t really talk about with some of that in the nearfuture could start and show some results that will lead to late-stage trialsfor those as well.
Again, I am confirming in thiscall again our objective, our goal to deliver 20% non-GAAP CAGR EPS through2011 or $7 a share. Let me now hand over to Mike Wyzga to make some comments onthe details of the financial performance in the first quarter. Mike?
Mike Wyzga
Great. Thank you very much Henri.Revenue increased 25% over last year to $1.1 billion. Now at the beginning ofthis year we did change into a joint venture with BioMarin and Aldurazyme isnow reflected in our topline. Excluding Aldurazyme our year-to-year revenuegrowth was approximately 20%. Again most of all the business groups within ourspectrum increased on a year-to-year basis on the revenue side.
The combination of the revenueside that we saw in the continued operating expense leverage that we see aswell as the tax efficiency increased our non-GAAP profit after tax to $261million; that’s an increase of about 24% on a year-on-year basis.
As you could see from ourearnings per share across walk during the first quarter on a pre tax basis theexpenses that were associated with the stock option expense were $42 million.Amortization expenses increased a little over to about $56 million. The crossmark also reflects about $70 million of equity investment associated to thepremium that we paid to the Isis Pharmaceuticalsfor the rights of mipomersen.
Our non-GAAP earnings per share came in at $0.95 and that’s on the basisof 276 million shares outstanding. You should compare that to the $0.78 that wedid in Q1 of last year. We did see some fluctuation on the foreign exchangerate and that impacted both our revenue as well as our expense lines. The biggestcontributor to this was the euro, which increased from an average of 1.31in Q1 of last year to an average of 1.5 in Q1 of this year.
The revenue impact of foreign exchange was $46 million on the top lineand the bottom line increased by $13 million, again compared to last year. Wedid have a dampening of the FX fluctuation due to the investment that we madein the combination of both product sourcing, as well as the globalinfrastructure. Now, both of those were implemented years and years ago.
Foreign exchange denominated expenses on our manufacturing plants in Ireland, Franceand in the UKprovided balance in much of the foreign exchange exposure that we see.
So again, very good start to the year. Let me talk about some of the keynumbers. Our top line revenue increased with contributions from most of themajor product areas. Myozymerevenue as Henri mentioned increased nicely to about $67 million and that wasdriven by continued market penetration. Last year our first quarter revenue was$38 million. On Monday, we reviewed the impact of the delayed approval of the 2000-litrefacility and with this delay the full year revenue guidance for Myozymewas changed to a range of $275 million to $285 million.
Aldurazyme increased by 38% overlast year to $37 million and that’s an increase of the increase we saw associatedwith both the volume as well as the pricing. Cerezyme increased to $304 millionor 15% over last year and that was reflective of the patient accruals both herein the United States as wellas in Europe. Fabrazyme increased nicely to16% over over last year, again, reflecting a strong growth in both United States as well as Europe.Renagel increased 23% due to strong end use demand, as well as increasedpricing; included in that 23% is the launch of Renvela.
Within the biosurgery areaSynvisc revenue increased 5% over Q1 of last year and that’s reflecting theimpact of increased volume here in the United States. Sepra had a strongQ1 increasing 32% over the last and that’s a direct result of the expansion ofthe sales force that we put in place. I believe in the mid portion of lastyear.
Our other major businessesinclude an oncology transplant and surgeon,all increased by double-digitrevenue growth. Within the oncology area it reflects the impact of the Bioenvision transaction which provides usaccess to Clolar on a global basis.
Our non-GAAP gross margin for thefirst quarter was $834 million and that’s 76% of revenue. Our gross marginreflects a number of things going on. So let me walk through them ratherslowly. The gross margin reflects the payments of to BioMarin for theAldurazyme sales. Now these payments have reduced our gross margin by almost 4percentage point over last year.
Within the Q1 margin, we alsoreflect the impact of the weaker dollar due to the foreign manufacturingfacilities that we have, compared to last year our ex-US goods in services aswell as our inventory increased by almost $10 million due to the strongerforeign currency. We are also starting to see some of the growing influence ofour product mix on a gross margin as we continue to diversify our business out.
Within the operating expense, ournon-GAAP research and development came in at $180 million or about 16% ofrevenue. You should compare this last year’s non-GAAP R&D expenses from Q1of $146 million, more than half of the $34 million increase on year-to-yearbasis was due to the increased spending associated with the MS trials, as wellas Clolar, AML trials. The R&D expense also included the impact of the costof the Myozyme MTAP program.
Our non-GAAP SG&A expenseswere $295 million for the quarter. Our SG&A increased with the addition ofthe Aldurazyme sales and marketing expenses as well as the Bioenvision expenses.Now even with investments we continue to see a good deal leverage in theSG&A area, particularly in the arena on the [IST] business groups.
This quarter our non-GAAPSG&A was 27% of revenue and if you compare that against last year, it’s a14 percentage point reduction from last year. And it did see the impact offoreign exchange in our ex USinfrastructure. Year-to-year our operatingexpense increased by about $17 due to the fluctuation of the FX rate.
Overall our operating expenses asa result of revenue decreased from 44.5% in Q1of last year to 43.3% this year. Our non-GAAP tax rate was 30% and thatreflects the greater utilization of theforeign manufacturing. As I mentioned in prior calls, we are very activelymanaging the tax rate and the impact it has onthe bottom line. Going forward we see arelatively flat tax percentage as we continue to utilize the foreign manufacturing aswell as the technological investments overseas.
Our Cash generation continues tobe robust, now rather than accumulating large cash balances on our balancesheet, we continue to invest our cash for the future, and Q1 actually was areal great example of this. Cash from net income and proceeds of stock net ofone time events were $373 million. Our capital expenditures came in at about$122 million and those were focused on future manufacturing infrastructure.
Our stock buyback problemscontinue with the repurchase of approximately a million shares. And finally weinvested for future products with a $150 million investment in IsisPharmaceuticals associated with the licensing of mipomersen. So we exited Q1 atthe exact same pace that we exited Q4 at $1.5 billion on our balance sheet.
As you can see in our press release our full yearnon-GAAP guidance was revised to $3.90 on a fully diluted basis. In the secondquarter our non-GAAP EPS is expected to remain in the mid $0.90 range. Nowbefore turning it back to Henri, I would like to remind you that you can findthe line item both revenue and expense detail in the attached press release oron our website.
With that let me stop and turn it back over toHenri.
Henri Termeer
Thank you, Mike. I would now like to ask some ofthe business leaders to make a very brief comment on some events in their areasof responsibility. First David Meeker, the President of Therapeutics division.David?
David Meeker
Thank you, Henri. [Therapeutics] group portfoliohad a very strong first quarter across each of the products. (inaudible) haspreviously highlighted group 15% driven probably by a broad global participationin terms of events for these products; we will update the 112638 coming up by midyear and secondly we have initiated the QT study we started in the secondquarter of this year and I keep this in moving our programs forward.
Aldurazyme again but growth on this product wasdriven by increased geographic expansion which led to a particularly good quarter for that product.Fabrazyme participation and the most meaningful event that I think in that areawas the publication online of an article follow up article on the head to headstudy out of the AMC. This article provides further detail on how 0.2milligrams of Fabrazyme and 0.2 milligram of Repligal compare and conclusionsof that study are clearer in that 0.2 milligrams and there was no clinical effecton either renal function or a reduction in left ventricular mass or cardiacsize. It also shed further light on the issue of antibodies. And I had 0.2milligrams for either one of the products in the presence of antibodies therewas an increase in the urinary GL-3 suggesting some lack of biological activityat that dose in the presence of inhibiting antibodies and what was particularlynoteworthy in this new publication is that the data that was provided on the 1milligram patients was that a 1 milligram urinary GL-3 levels did decrease evenin the presence of antibodies and at 1 milligram there was also a reduction inleft ventricular mass independent of whether antibodies were present or not.
Myozyme as we discussed in detailon Monday again has a very strong quarter inspite of the absence of significantUS participation greater than 900 patients on therapy is highlighted more than800 of those with the 2000 leader, the recent AAN meeting had several abstractpublished including the LOTS study itself which we will be speaking andreviewing that data again at analyst day which confirmed positive outcomes andthe two primary endpoints and also one abstract which reported on five severelyaffected patients were part of a French trial and specifically looking at theactivity in Myozyme in this very end stage group and despite this reallyadvanced stage of their disease there was some evidence of stabilization in allfour of the patients described and improved quality of life and two of themhave some evidence of [model] function improvement. So again, I think a verysupportive study on patients treated 2000 Leader.
Thank you David and John ButlerPresident of the Renal division.
John Butler
Thanks Henri. It was an activequarter for the Renal business, $168.7 million in sevelamer sales, 23% growthfrom the prior year and 54% of those sales from the US consistent with prior quartersdid a number of milestones occurring in the quarter. First we filed a MAA forRenvela in Europe including dialysis and CKDindications as well as tablet and powder formulations. This should allow us tobegin the European roll out of Renvela in the first half of next year.
Additionally we filed an NDA forthe powder formulation of Renvela in the USand as Henri mentioned the regulatory process continues for the CKD labelexpansion in the US.We are working in cooperation with the other companies in this space, we doexpect to submit a document to the FDA by mid year and consistent with ourprevious communication we continue to plan for a label expansion by mid 2009.If the expansion comes earlier, we are ready to take advantage of access tothat market.
We launched Renvela for dialysisin the beginning of March and in preparation we expanded our sales organizationby 25% from 120 to 150 sales reps. We continue to improve reimburse access forthe product while not trying to force physicians to switch well managed Renagelpatients. Its early days in their launch, but qualitative research tells usthat Renvela will allow us some expansion of share in dialysis, but as expectedthe most significant advantage will be seen when we receive the CKD label.
As reimbursement improves andphysicians gain experience, we expect to see prescriptions continue to increaseand accelerate. And as our sales reps settle into their new territories and getpast the first stage of introducing Renvela, they will get back to coresevelamer message of morbidity and survival benefit compared to calciumbinders.
Thank you, Joe Lebockey ontransplantation.
Joe Lebockey
Thank you, Henri. As Mikementioned in his comments, so the transplant business continues to grow as fueledby demand for Thymoglobulin even in the face of the supply constraints we had. Thymoglobulinis growing throughout the world as a standard of care in solid organ transplantand protruding hematological malignancies such as asplastic anemia andhematopoietic stem cell transplantation. Although our current supplier remainedconstrained to the middle of the year, our manufacturing issues are behind usand we will be building inventory to fuel additional growth as we move into thesecond half of the year and beyond.
Two keys events in manufacturingthat happened for us are the resolution at the beginning of the year of 2007FDA Warning letter. Responses were sent to the FDA have been accepted by theFDA. The second and seprate issue was regarding the visual appearance of theproduct. Visual appearance for Thymoglobulin is a release specification.
All products produced since the beginningof this year have met these release specifications and that is why we areconfident that we will be building inventory in the second half of the year.The resolution of the product visual appearance has been reviewed and acceptedby the FDA and in February we began labeling all products with the full36-month expiration date. This visual appearance was never an issue that led topatient’s safety or product efficacy concern. We do continue to monitor thevisual appearance of any loss distributed during 2007 that may have thepotential to not meet this visual inspection criterion. This is why we recentlyrecalled three lots of Thymoglobulin. Majority of these lots had already beenconsumed and returns from these lots will be limited. The FDA and globalregulatory authorities have been extremely helpful to us during this timeperiod and ensure that patients who need Thymoglobulin could receiveThymoglobulin.
And as Henri mentioned, thetransplant will continue to grow with the filings of Mozobil with the FDA andthe MAA in the middle of this year, with the US and EU regulatory authorities.
We are planning launches forMozobil in the first half of 2009 and we are currently working to fileadditional countries before the end of this year. Prior to approval of Mozobilpatient assistant programs, have expanded from the US into the EU and additionalinternational countries to meet the needs of physicians and patients who aredemanding access to the product. Also as Henri mentioned, we continue to expandour clinical programs with Mozobil to expand the potential of this product.
Henri Termeer
Thank you, Joe and then lastly MarkEnyedy of oncology.
Mark Enyedy
Thanks Henri. Oncology and MS areoff to a strong start both in the clinic and in the market place. We grewrevenue by just under 30%. This growth was driven by the successful integrationof the Bioenvision operations in Europe wherewe more than doubled Clolar revenue over Q1 of 2007.
In addition, building on thelabel expansion that we received late last year we were placed to see amaterial increase in Campath’s share of frontline CLL during the first quarter.On the development side last week final three year data from our Phase 2 studywith Campath and MS were presented on the platform at AEN by our principal investigatorDr. Alastair Coles. These data confirmed the profound efficacy results that wesaw in year one and two years demonstrating superiority over Rebif in relapsingremitting patients across all efficacy parameters.
Most importantly confirming atthree years significant improvement in baseline disability scores in theCampath’s treated patient. In simple terms, our patients got better during thecourse of this study. These data have been submitted to a major medial journaland we expect publication of these results in the second half of the year atwhich point we can go through the results in much greater detail.
Looking forward in oncology, wehave collected the response data for the full patient cohort in our pivotalstudy with Clolar in adult AML. These data will be presented at ASCO in lateMay and will be used as the basis for regulatory filings in the fourth quarterof this year. So, there was solid progress with the business during the firstpart of the year.
Henri Termeer
Mark, thank you very much.Operator, now we can move to Q&A.
Question-and-Answer Session
Operator
(Operator Instructions). Ourfirst question comes from Brian Abrahams with Oppenheimer.
Brian Abrahams - Oppenheimer
Hi. Thanks for taking myquestions. This may be a question for David.
Among the patients who arecurrently on the Myozyme MTAP type program, can you give us a sense of theproportion who already is being pre approved to receive commercials drugsversus those who are going to need to go through the reimbursement process once2000 Lead is approved? Thanks
Henri Termeer
David?
David Meeker
Yeah, the majority, vast majorityof those patients were pre-designed commercial drug and were pre-approved, nowwe will need to go back and get them reapproved, but to your point the factthat they have successfully moved through once and we don’t anticipate thatbeing a significant problem. And second that will happen at a time when we haveapproval and will have very clean label for the adult Pompe populations.
Henri Termeer
Yeah, although side point here,in the second part of last year where we did not expect to have this delay andwe were utilizing the inventories that have been produced through the smallscale in the US for both infantile patients and Late-Onset patients. Revenues inthe USwere $12 million in the second quarter. And I think in the quarter justfinished the first quarter that was $3 million. So we actually declined by $9million in reported revenues because of patients identification of patient onMTAP continue to grow. This continued from a patient point of view to be a veryvery robust story. Next questions.
Operator
Thank you. Our next questioncomes from Jim Birchenough with Lehman Brothers
Jim Birchenough - Lehman Brothers
Yeah. Hi guys. Just following upon the recent Myozyme issue. As you look at capacity for the other enzymetherapeutic Cerezyme, Aldurazyme, Fabrazyme do you foresee any need to scale upthe manufacturing of those products and do you anticipate that you could run fromthese simple problems?
Henri Termeer
It’s a very good point. As youmay recall seven years ago we started to build cell culture, biological cellculture facility in Belgium.That facility is now in a very late phase of being put on line. We areproducing engineering runs and [PV] runs both for Campath and for Myozyme inthose in depth facilities. That will close to not quite double the capacity. Itincreases about by 70% in terms of a fusion capacity. We intend to produce allenzymes in these two facilities. It will take some time to get these facilitiesapproved for each of the individual enzymes and this clearly is an essentialpoint that we produce them and that we get regulatory approval for them andthat we take into account the sensitivity that regulators have with regards tothese biological products.
I think we are very familiar inthe tune to that and we do expect that we will have, that – looked at verycarefully by regulators, we’ve had expansion, and also and over the gears thatfor products like Cerezyme and Fabrazyme and the introduction of Myozyme aswell. And so we have a lot of experience to do this well, but you are quiteright to say that this is something that will take us very, very significantattention on our part making sure that that happens in a good way.
We expect the approval of theMyozyme side the first product in Belgium in the first half of nextyear. Next question?
Operator
Thank you. Chris Raymond ofRobert Baird and Company, your line is open.
Chris Raymond - Robert Baird & Co
Thanks. Just a question onAldurazyme. This drug showed I think quarter stronger growth and we have seenquarter on quarter any way and in a few quarters and as I did the math here therun rate looks to be higher than your guidance for the full year. I’m just kindof curious if you could maybe give us some thoughts on as this becomessomething that has more visibility in your P&L, could we expect to see youguys revisit the guidance or is this sort of a one off quarter, Has morevisibility in your P&L. You maybe comment on that.
Mike Wyzga
No, I wouldn’t call this aone-off quarter in the sense that. You know, Aldurazyme the MPS group hascontinued to show steady growth. I think we have to be careful of this trendingany individual quarter. In the LSD area, the order pattern particularly as weget into geographic areas where you can get, you know, larger single bulkorders can skew any individual quarter a little bit up or down. So, I wouldn’ttrend this quarter exactly but I think this quarter is very supportive ofcontinued strong growth in this product and we are pretty encouraged. Nextquestion.
Operator
Thank you. Geoff Meacham with JPMorgan your line is open.
Geoff Meacham - JP Morgan
A question for you on Synviscsequential trends in first quarter. Can you give us a little bit of color onthat as a volume? Is that ASP coming down? And then when I look at yourguidance for the product, it assumes a second half acceleration and would thisbe assuming basically a faster growth to the Synvisc One launch?
Henri Termeer
Ann.
Ann Merrifield
Surely, first quarter being down,our fourth is driven primarily by the seasonality of this business. We now havethree years of experience with it in our own hands and it is consistent yearafter year. First quarter is lowest, below fourth quarter prior, second quarteris higher. Then third and fourth are somewhere between the two, actually moretowards second than first. First is lowest by a fair amount. So, theseasonality is really what drives the sequential down in Synvisc and also whatdrives the fact that our growth is accelerating. End of the year we are notanticipating any significant volume in the US when Synvisc would launch untilnext year. We are expecting some growing albeit modest growth in Synvisc, onein Europe and other geographies as we movetowards the end of this year.
Henri Termeer
And Geoff, I said we canreconfirm the guidance that we provided last quarter for the year on Synvisc.
Geoff Meacham - JP Morgan
And kind of a quick follow-up onthe guidance if I can? Not for Synvisc but overall and you guys have talked alot about the 20% EPS growth to 2011 and most are reflecting operatingleverage. I wonder if you can give us any commentary on what sort of productrevenue growth that you would anticipate to get there without giving any formalnumbers or some sort of general comments.
Henri Termeer
We have commented on that revenuegrowth so it carries about 15% toabout $6.5 billion by 2011. So that there is some leverage clearly and the leverage really comes from the factthat we have products that are expanding and then you get of course asignificant leverage associated with using the same assets to sell thoseproducts.
Geoff Meacham - JP Morgan
Good. Thank you.
Operator
Meg Malloy with Goldman Sachs.Your line is open.
Meg Malloy - Goldman Sachs
Thanks very much. I was wonderingmaybe for David, I realized this is a little premature but if you could sharewith us what your thoughts are in terms of how you would like to see the Phase3 studies constructed for 112638 that would be helpful? Thanks.
David Meeker
Yeah. So we are still workingthrough the exact design of those studies with the regulatory agencies. I thinkwe are quite sure there will be two trials, one will be in a naïve populationand the second will be in patients who are currently treated with Cerezyme andwould be switched over to our product.
Meg Malloy - Goldman Sachs
And in terms of end point forassessment?
David Meeker
Yeah, the end points will have aglobal assessment. I think we will measure all of the things that change and aswe have done in the Phase 2 trials for the hematologic parameters, the organparameters spleen and liver end, the bone as well, so we and then bio markers.So we will have a broad view of exactly how this drug works in all aspects ofthis disease.
Meg Malloy - Goldman Sachs
So would you envision that’sglobal score or is that primary end point?
John Butler
No, it’s a good question. I thinkwe have talked about this obviously, I don’t know where the regulator is goingto end up on this, my guess is that it will be some composite, no it won’t justbe one of those parameters that moves you. To have confidence in your drug youwant to see multiple parameters move and we are seeing that in the phase twostudy of course. So we would expect a similar kind of out come variable for thephase III.
Meg Malloy - Goldman Sachs
Okay. Thanks a lot.
Henri Termeer
Next question.
Operator
Thank you. Our next questioncomes from mark Mark Schoenebaum with Bear Stearns.
Mark Schoenebaum - Bear Stearns
Hey. How are you? Thank you. CanI, maybe ask about late stage programs. I was wondering on Campath, if you canupdate us on how enrollments goes and when do you expect to be done with phaseIII enrollment with Campath and [Astorome] and mipomersen. I was wondering if wecan get a broad regulatory update from you, obviously the hyperlipidemia spaceis changing one from the standpoint of regulatory end points. I was wonderingif you could talk to us about that?
Henri Termeer
Yeah, on the second question onmipomersen I would prefer if Mark, if you could wait till the analyst callbecause at that time we are in a different phase of finalizing this transactionand I think we would feel more comfortable to talk about at that time.
Mark Schoenebaum - Bear Stearns
Okay.
Henri Termeer
So, but on that side let me askMark Enyedy to give you some comments.
Mark Enyedy
This is a reminder there are twophase III studies; one in treatment naïve patients, the other and what we arecalling treatment experienced patients that are the patients with disease asprogressed well on a licenses therapy. These were head to head studies again,against high doze beta-interferon. These are two year studies hence each patientwill be followed two years. The expectation at this point is that the leadingstudy in treatment naïve patients will complete enrollment in the first half of2009 with two year follow up we would expect that to be completed in 2011 andthen a filing later on in that year.
Mark Schoenebaum - Bear Stearns
Can you file on that trial alone?
Mark Enyedy
We believe that we can.
Mark Schoenebaum - Bear Stearns
Okay, thanks.
Henri Termeer
Next question?
Operator
Thank you. Matt Osborne with Lazard,your line is open.
Matt Osborne - Lazard
Hi and thanks for taking thequestion. David, this question on 112638. Can you comment on the patients whoenrolled I know was a naïve study, but were they truly naïve and that they hadnever seen Cerezyme or has it appeared they were washed out and then can youcomment on the deliver volume reduction six months it seemed to be a bit lowerbut perhaps we will see that trend continue 12 months?
David Meeker
Yeah, so the vast, vast majoritywere truly naïve. I’m hesitating because I have sort of a vague sense thatthere may have been somebody who was previously on Cerezyme but had a long washup period but we can confirm that and get back. But the principal here is thesewere truly naïve patients to answer your question. With regard to the liver --the way I would think about that as a liver as an organ in Gaucher disease doesnot increase nearly the amount that spleens do. So you know spleen multipleswere normal, anywhere from 10 to 25 times normal or larger, whereas the livermainly increased by one to two fold normal. So, the decreases in the liver aregoing to be proportionally less and what we are looking for in the liver ismore you know getting them back to normal, as opposed to thinking more aboutpercentage decreases there.
Matt Osborne - Lazard
Great. Thank you.
Operator
Our next question comes fromAaron Reames with Wachovia
Aaron Reames – Wachovia
Yes, thank you for taking myquestions. I had a question for Ann, just as a follow up kind up on long termguidance for the Biosurgery business and December of ’07 there were somegeneral numbers of about peak estimates being around $1 billion and I waswondering if you can provide us some additional clarity on what the breakdownmight be for Sepra and then maybe Synvisc, Synvisc One, etcetera, so we canhave a better idea of how to model this on a going forward basis.
Ann Merrifield
Yes, I believe the specifics ofwhat we said in December were less than a billion in 2011. The primary driversthere are Synvisc growth, both Synvisc and Synvisc One together. With SynviscOne being a large piece of the equation in the outer years as we move forward.Sepra in the second largest driver and both continuing to grow in the 20% plusrange as it has been year over year and the two of those explained the bulk ofthe transition. Sepra and Sepra spray are laparoscopic version of Sepra film,Synvisc and Synvisc One. The precise breakdown is between the two. We aren’tbeing specific about it at this time.
David Meeker
During the analyst meeting again,we will provide some further insight into this. This is really the earningscall for the first quarter, so – I know everybody is very interested to getahead of towards the analyst meeting -- that's a few weeks from now. So, if wecan focus on the current, it would be appreciated.
Analyst
All right, thank you.
Operator
Our next question comes from PhilNadeau with Cowen and Company
Phil Nadeau - Cowen and Company
Good morning. Thanks for takingmy question. My question is on gross margins. Looks like in the quarter theywere about 120 basis points below your full year guidance of 77% and this mightkind of make sense that the Myozyme issues will also impact gross margins butyet it seems like you have reiterated your guidance, so what through thebalance of this year is going to bring gross margins up that incremental 120basis points to hit guidance?
Henri Termeer
Mike.
Mike Wyzga
Yeah. Gross margins have beenimpacted by the mix predominantly of Aldurazyme genetics and Myozyme which haveabsorbed a larger percentage of our revenue base.
Keep in mind as we continue todiversify our business and launch new products, when you launch a new productthe startup costs associated with these lines are probably the lowest that they’regoing to be. So as you get some speed and niche and you start to expand thenewer products, you’ll start to get better gross margins on that line.
Secondarily, we are starting toconsume some of the capacity that we have out there with some of the products.So as you start to consume that excess capacity your margins will continue togrow, particularly in the latter portion of the year. So we do see a lot ofleverage coming from our gross margin not for just this year but going forwardas well.
Henri Termeer
Next question.
Operator
Thank you. Bill Tanner with LeerinkSwann. Your line is open.
Bill Tanner - Leerink Swann
Thanks for taking question.Maybe, Mark, just to go back to the comment you made on Campath for MS. So youare thinking that you could actually file for approval based on the one studyin treatment-naïve patients?
Mark Enyedy
Yeah. Bill, I think the way tothink about it is, we have a 300 plus patient randomized control rater-blinded study that we’ve just reportedon and then we will recapitulate that study in a much – in a larger patientpopulation. And I think that those two data sets put together should besufficient to support a label for the product at least in the treatment-naïvepatients and parallel with that we have this treatment experience study thatwill be fully enrolled by the time that we file for the treatment-naïvepatient. So I think the combination of the development effort will support inthe approval.
Bill Tanner - Leerink Swann
And could you just remind us, Iwas looking through the slides from the analyst meeting last year, there wasone on the patients from the Campath study that developed ITP. Is there anyfollow up on those patients to report?
Mark Enyedy
So, no new cases of ITP in thestudy, all five are patients that we continue to follow have returned to normalplatelet count. So one of those patients without any further therapeuticintervention, the other four were treated with a combination of either steroidsor Rituxan but they are all off any intervention and have normal platelet counts.
Henri Termeer
And that’s as of the last checkon them, a month ago.
David Meeker
Database lock here was March so amonth ago and so there is an extension protocol where we are filing all thesepatients. So they continue to be monitored under the risk management plan thatwe put in place so they come in for monthly CBC and so we are pretty current onthem.
Bill Tanner - Leerink Swann
Okay. Thank you.
Henri Termeer
Next question
Operator
Thank you. Our next question comesfrom Adam Walsh with Jeffries.
Adam Walsh – Jeffries & Co.
Hi. Thanks for taking myquestion. Henri, we seemed certainly a lot of interest from large pharma andbiotech or the biopharma space. And Glaxo did an acquisition last night, Merckwent out there talking about they are still on the hunt for biotech company. Iam just curious to get your most recent thoughts on M&A as it pertains toGenzyme? And whether or not specifically the Myozyme supply constraint hasshifted your thinking on the timing in any way? Thanks.
Henri Termeer
Myozyme is, its a disappointmentthat we counterfoil to US market at the current time, but there is no doubt inany one of our minds both in terms of the products efficacy and by the test forthe many hundreds of patients were undergone that they are being treated. Andour ability to get approval with the FDA and they have been very cooperativeand they just want to see the LOTS data as part of the decision process. So,Myozyme is a very good space in terms of the risk associated with it. But it isa process that we had hoped would be more advanced at this stage. So, we haveto do some work there.
In terms of M&A what we areseeing in the market is probably accelerating a little bit, particularly withJapanese now involved as well from what we have seen last year and the yearbefore. There are thousands of small biotechnology companies out there and Iwould imagine that we will continue to see transactions. The transaction thismorning is very interesting and it shows tremendous value that is being createdthrough biotechnology and the pipelines that are being developed bybiotechnology companies and in our case the way we look at this world is we areparticipants. We have done transactions in the past. We did the transaction --we are in the middle of finalizing transactions with Isison the extremely exciting program that we consider as a blockbuster lookingforward. These kinds of programs are very important for us and possibly for usas well to continue to develop the pipelines necessary to continue growth. Weare very confident after 25 years that we can boast -- get profits approvedthrough clinical development manufactured through manufacturing scale-up andmarketed through building marketing organization. So, we feel in that sensevery well prepared to take on programs that really fit the way we look at theworld that we want to serve which is patients that and disease situations thatare very touchy where we can bring in significant improvement therapeuticapproval to these patients and we will be interested to look outside andanywhere to find programs that we can (inaudible) forward and fit into thispicture that we have developed over so many years. A very very exciting world Ithink we find ourselves into and one that we feel very well prepared for.
Analyst
All right thank you.
Henri Termeer
Thank you.
Operator
Our next question comes from GeoffreyPorges with Bernstein.
Geoffrey Porges - Bernstein
Thanks very much. Just somehousekeeping questions on the quarter for David. Could you give us a sense ofhow Fabrazyme and Cerezyme did ex-currency and also what patient adds werethere? And then David maybe you could just comment upon the progress andoutlook for newborn screening. Where does that stand after the Illinois legislation?Thanks.
Henri Termeer
David.
David Meeker
Yeah for the Cerezyme growthduring the year ex was a little more than 9%. The Fabrazyme growth during theyear ex effects was about 10%. The adds on a patient basis in the quarter againthey are hesitant to have people following this too closely because it is ametric which can vary up and down but we had solid patient approvals for bothCerezyme and Fabrazyme which put us on a runway for being in the 200 through300 plus patients approved yearly that we have been experiencing for the pastfew years but both of those are quite strong.
With regard to the newbornscreening area, which we talked about several times, I mean this is an areathat is just continuing to gain strength and interest. The areas that continueto lead the floor is that at the US level at the NIH and newborn screeningpanels, there are lots of discussions and we hope that one day we will benominated as one of the keys that should be considered as a national recommendation.The Illinois law we referenced previously ishaving passed Washingtonstate is about to engage in a pilot program to be in newborn screening there.The Taiwanese experience of course which is a phenomenally robust experience innewborn screening and I think that that information – that data out of Taiwanis going to very much inform the world because it’s such a complete data setand Austria is about to come online. So, again I think, slowly but graduallyaround the world people are beginning to engage them.
Geoffrey Porges - Bernstein
Thanks very much.
Operator
Our next question comes from JimBirchenough with Lehman Brothers.
Jim Birchenough - Lehman Brothers
Yeah. Hi, guys. Just a follow-upquestion on Campath MS. The suggestion at AAN was that very few patients gotthe second dose at year two and just wondering how you think aboutcommercializing a drug that may only be given once and could have profounddisease modifying effects for many years. How do you make it a commercial goalor something like that?
Mark Enyedy
Yeah, just to clarify. All buttwo patients received two course of the therapy on the two to three study itwas just reported out at AAN. The way the protocol was designed was that thethird dose was at the discretion of the investigator and out of some 220 oddpatients on Campath in that study about 45 of them received the third dose. Wehad the clinical hold as the result of the ITP situation which did have animpact on patients receiving the third dose not the second dose. And wecontinue to evaluate the pricing question here. I think it’s premature to havethat discussion. I think we will have a better handle on this as we havelong-term follow up data from the two to three patients and we see how theyrespond as part of this extension protocol as I described earlier. We areproviding for redosing of those patients and so I think that will give us a clearerpicture in terms of the commercial model to support the product in the market.
Jim Birchenough - Lehman Brothers
Fine. Thanks.
Operator
Our next question comes from [KhyatiThakrar] with Mehta Partners. Your line is open. Please check your mute button,we are not able to hear you. We will go to the next question, Yaron Werber withCitigroup, your line is open.
Richard – Citigroup
Hi, good morning and this isactually Richard here for Yaron. Can you give us some guidance on the 2009expenses, assuming that there is a delay in the Myozyme approval; is that goingto change our expenses options. Thanks.
Henri Termeer
Was the question guidance on 2009expenses?
Richard – Citigroup
Yes.
Henri Termeer
This is way too early to talkabout 2009 in terms of expenses. We will talk about that when we get a littlecloser to that year but the way to guide yourself, you think through what we dounder a whole range of different circumstances including the one that you aresuggesting that potential also delay in Myozyme which we do not expect. We will-- we would manage the company accordingly and expenses are not fixed.
Most of the expenses areassociated with programs that we take on, such as Myozyme MS -- the Campath MSthat we have talked about a few times here. Those are programs we take onbecause we can fit them into and can afford them into the P&L that we have.We are very firm on what we have told you, started to tell you about a year agoand reconfirm today again that we tend to grow earnings per share on a CAGRbasis for 2011 by 20% and we will manage accordingly. So, that’s the way toanswer there and besides how the distribution of expenses and investments,etcetera, is in 2009 I would prefer to wait till we get a little bit closer.
Henri Termeer
Next question.
Operator
Our next question comes from MarkSchoenebaum with Bear Stearns.
Mark Schoenebaum - Bear Stearns
Oh, great. I’m actually here withfollow-up -- there are actually a couple of questions for David. On Myozyme,are you going to give us the number -- the actual number of commercial patientson that drug and break it out in US and EU. And then just on -- you weretalking earlier about urinary GL-3 levels and some of the data that came out atFabrazyme paper. How does the FDA look at urinary GL-3 levels.
David Meeker
Yeah. So, on the Myozymequestion. Maybe the way to think about the Myozyme, as we had indicated there aremore than 900 patients currently receiving therapy. You know about 40 of thoseare in the clinical trial and then we have the MTAP program here in the USwhich is 140 and that’s more or less the charitable group. We have -- there isa smaller number of additional patients around the globe; they are also gettingcharitable products. So, again, that allows you a direction to get at thenumber of the commercial patients today.
Mark Schoenebaum - Bear Stearns
US and Euro?
David Meeker
No, it’s worldwide.
Mark Schoenebaum - Bear Stearns
Can you give us US-Europe data?
David Meeker
I wouldn’t break out that furtherat this point, probably because I don’t have that accurate number arranged forme but …
Mark Schoenebaum - Bear Stearns
Okay.
David Meeker
I think the bulk of the patientsare in Europe.
Mark Schoenebaum - Bear Stearns
In that scenario.
David Meeker
Your question -- can you justrepeat the question on the urinary GL-3?
Mark Schoenebaum - Bear Stearns
Oh, yeah I was wondering abouturinary GL-3 levels and there were some other companies out there they havebeen talking to FDA about -- about potentially having registration end-pointsaround urinary GL-3 levels in Fabry’s disease. I was just wondering what your perspectiveon that was? What do you think the FDA’s response is?
David Meeker
Yeah. We have a lot of obviousexperience with the FDA in terms of trying to develop clinical and hardclinical end-points for this and that is challenging. I mean our Phase IV studywhich, you know, we looked actual clinical events cardiac, renal, and CNSevents and those are very hard endpoints and that was an extremely challengingtrial to do and we got to those end points after long discussions with the FDA.The urinary GL-3 is a non-validated biomarker. I think we are all quiteintrigued by it and it tells us something about the biologic activity of theenzymes in the body meaning that if those urinary GL-3 levels are going up ordown. I am considered -- they are going down, I am reassured that I am gettingperhaps the kind of activity I want from my enzyme and if it is going up, I amworried. But it tells me I am going to have the clinical outcome that I need.So it may be in the category of necessary but not sufficient to show clinicalbenefit. I think that answers your questions but I would surprise to be honest withyou if that wasn’t an acceptable input.
Analyst
Okay, great. Thanks.
Operator
Our final question comes from [KhyatiThakrar] with Mehta Partners. Your line is open.
Khyati Thakrar - Mehta Partners
Yeah. Thank you for taking myquestion. I would like to understand the existing market and market potentialof Synvisc One and Mozobil.
Henri Termeer
The market potential for SynviscOne, again this is a very open question and I would rather prefer again to waitto the analyst meeting to respond to that. And broadly let me answer this way,we estimate currently in the United States the penetration of all products inthis category Synvisc and competitive -- as competitive products in thiscategory have penetrated the osteophoresis pain market in the knee by about8-9%. So the market potential is clearly a great deal more. We have alwaysthought that the market potential was somewhat impacted by the very difficult therapy,the therapeutic burden of having multiple injections to get pain relief andthat’s why Genzyme and other companies have developed -- are developing and wehave developed an approach to get the pain relief in a single injection. Webelieve that has the potential to significantly change the market dynamics aspatients would be more willing to take one injection than multiple injectionsgiven the time loss and the cost associated with breaking away from work etcetera et cetera. So we are hopeful indeed that once we have (inaudible) approval in United Statesand of course we are at the beginnings of testing these high policies in Europe that these markets will significantly expand. Andthat’s why not only Genzyme but significantcompanies are quite interested in this because pain osteoarthritis pain in theknee for patients, particularly patients that are still very active is a veryreal problem for these patients and a very real economic problem as well. As ofthat let me refer to the analystmeeting maybe to get further detail on these points.
Operator, did you say this wasthe last question.
Operator
Yes. That was our final question.
Henri Termeer
Thank you very much. Thank youvery much everybody participating this morning. We look forward to see many ofyou at the analyst meeting in May. Again to repeat the date….
Patrick Flanigan
May 7.
Henri Termeer
May 7. And as Patrick says, itwould be great if you could confirm your presence soon so that we’ll make surethat there is sufficient space for everybody. We look forward to seeing youthen and until the next time many regards. Bye-bye.
Operator
Thank you for joining today’sconference. That does conclude the call at this time. You may disconnect.
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