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Executives

Patrick Flanigan - Director of IR

Henri Termeer - Chairman and CEO

Mike Wyzga - CFO

David Meeker - President, Lysosomal Storage Disorder Therapeutics

John Butler - President, Genzyme Renal

Mark Enyedy - President, Genzyme Oncology

Joe Lebockey - General Manager of the 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 Corporation first quarter financial results conference call. (Operator Instructions).

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

Patrick Flanigan

Thanks, Tory, and welcome everyone to Genzyme Corporation's first quarter Earnings Call. On this call, we will be making forward-looking statements, including providing EPS guidance, discussing our product development plans and timetables and discussing our plans and timetables, proceeds of larger scale Myozyme manufacturing approval. These forward-looking statements are subject to a number of risks and uncertainties and our actual results may differ materially. Please refer to the section title risk factors in our 2007 10-K for more information on these risks. If during this call we use any non-GAAP financial measures, you will find on our website reconciliation to the most directly comparable GAAP financial measures.

Lastly, I would like to remind everyone of our analyst day in Boston on May, 7. Space is limited so please turn up in advance to reserve your seat.

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

Henri Termeer

Thank you very much, Patrick, and thank you all for joining us this morning. The first quarter 2008 was again a very robust quarter. We were very, very satisfied with the performance. We see that the consensus somewhat and we saw really pretty phase of performance throughout the corporation and most of the businesses.

Revenues were up 25%. Non-GAAP EPS was up 22%. And for 2008, we expect the year to be characterized by this kind of performance on a quarterly basis. We are also and more importantly expecting the number of both near-term events and longer-term programs to fall into place that really will allow us to continue to grow beyond 2011.

In this call, we again reconfirm our objective and our goal to grow non-GAAP EPS by 20% CAGR through 2011 to about $7 in 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 sales of about $400 million. This year we expect also to file for adult AML, about in the US and in Europe.

Clolar, the product involved here, we expect peak sales for these additional indications or the current indications to be about $600 million going forward. This year or early next year in the first half of next year we expect the FDA to take action on the label change for Renagel and Renvela in terms of CKD which will expand that market 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 very importantly we also expect action by the FDA on the BLA for Myozyme to release the large scale plant, the Allston plant to produce products for the United States market.

We talked about that two days ago. We are currently very constrained in the United States as a result of not having that as a lease; we cannot market, or expand the markets in the United States commercially during this year. That isn’t a disappointment; we realize that there is a point that we spoke about on Monday but the product Myozyme is doing extremely well on the global basis as you have noticed. It grows purely based on international sales during the quarter; it was 78% versus last year.

Myozyme is by a margin a significant margin, the most successful license (inaudible) enzyme replacement therapy that we have introduced in our history. In a longer time during this year we expect to continue to make and expand the investments in Campath MS where the program will become important in the 2011, 2012 timeframe. We expect ongoing information about the Phase 2 trial to be able to communicate it to issue during the year; to try confirming this very important program for this very significant market. This year, also in this quarter, we expect to further close the transaction with Isis on mipomersen. Mipomersen is currently in the Phase 3 trial for homozygous, lipid-lowering homozygous FH patients and closer to the time potentially that we get together for the analyst meeting; we will talk about our clinical plans etc so to put that program into perspective.

Again, this is a program for our long-term growth 2000 up to 2012. Traditionally, merger will start and is already starting (inaudible) indications, very exciting indications like chemo sensitization. These small molecule programs for Gaucher disease we expect to make significant progress this year. We will talk about it at the analyst meeting again. We will give you a update as to the current result of the Phase 2 trial and we will go to Phase 3 trial as soon as we can and when we have finalized our discussions with different authorities.

With over 25 programs in Phase 2 trials, most of them we don’t really talk about with some of that in the near future could start and show some results that will lead to late-stage trials for those as well.

Again, I am confirming in this call again our objective, our goal to deliver 20% non-GAAP CAGR EPS through 2011 or $7 a share. Let me now hand over to Mike Wyzga to make some comments on the 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 of this year we did change into a joint venture with BioMarin and Aldurazyme is now reflected in our topline. Excluding Aldurazyme our year-to-year revenue growth was approximately 20%. Again most of all the business groups within our spectrum increased on a year-to-year basis on the revenue side.

The combination of the revenue side that we saw in the continued operating expense leverage that we see as well as the tax efficiency increased our non-GAAP profit after tax to $261 million; that’s an increase of about 24% on a year-on-year basis.

As you could see from our earnings per share across walk during the first quarter on a pre tax basis the expenses that were associated with the stock option expense were $42 million. Amortization expenses increased a little over to about $56 million. The cross mark also reflects about $70 million of equity investment associated to the premium that we paid to the Isis Pharmaceuticals for the rights of mipomersen.

Our non-GAAP earnings per share came in at $0.95 and that’s on the basis of 276 million shares outstanding. You should compare that to the $0.78 that we did in Q1 of last year. We did see some fluctuation on the foreign exchange rate 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 1.31 in 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 line and the bottom line increased by $13 million, again compared to last year. We did have a dampening of the FX fluctuation due to the investment that we made in the combination of both product sourcing, as well as the global infrastructure. Now, both of those were implemented years and years ago.

Foreign exchange denominated expenses on our manufacturing plants in Ireland, France and in the UK provided 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 key numbers. Our top line revenue increased with contributions from most of the major product areas. Myozyme revenue as Henri mentioned increased nicely to about $67 million and that was driven 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 Myozyme was changed to a range of $275 million to $285 million.

Aldurazyme increased by 38% over last year to $37 million and that’s an increase of the increase we saw associated with both the volume as well as the pricing. Cerezyme increased to $304 million or 15% over last year and that was reflective of the patient accruals both here in the United States as well as in Europe. Fabrazyme increased nicely to 16% 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 increased pricing; included in that 23% is the launch of Renvela.

Within the biosurgery area Synvisc revenue increased 5% over Q1 of last year and that’s reflecting the impact of increased volume here in the United States. Sepra had a strong Q1 increasing 32% over the last and that’s a direct result of the expansion of the sales force that we put in place. I believe in the mid portion of last year.

Our other major businesses include an oncology transplant and surgeon, all increased by double-digit revenue growth. Within the oncology area it reflects the impact of the Bioenvision transaction which provides us access to Clolar on a global basis.

Our non-GAAP gross margin for the first quarter was $834 million and that’s 76% of revenue. Our gross margin reflects a number of things going on. So let me walk through them rather slowly. The gross margin reflects the payments of to BioMarin for the Aldurazyme sales. Now these payments have reduced our gross margin by almost 4 percentage point over last year.

Within the Q1 margin, we also reflect the impact of the weaker dollar due to the foreign manufacturing facilities that we have, compared to last year our ex-US goods in services as well as our inventory increased by almost $10 million due to the stronger foreign currency. We are also starting to see some of the growing influence of our product mix on a gross margin as we continue to diversify our business out.

Within the operating expense, our non-GAAP research and development came in at $180 million or about 16% of revenue. You should compare this last year’s non-GAAP R&D expenses from Q1 of $146 million, more than half of the $34 million increase on year-to-year basis was due to the increased spending associated with the MS trials, as well as Clolar, AML trials. The R&D expense also included the impact of the cost of the Myozyme MTAP program.

Our non-GAAP SG&A expenses were $295 million for the quarter. Our SG&A increased with the addition of the Aldurazyme sales and marketing expenses as well as the Bioenvision expenses. Now even with investments we continue to see a good deal leverage in the SG&A area, particularly in the arena on the [IST] business groups.

This quarter our non-GAAP SG&A was 27% of revenue and if you compare that against last year, it’s a 14 percentage point reduction from last year. And it did see the impact of foreign exchange in our ex US infrastructure. Year-to-year our operating expense increased by about $17 due to the fluctuation of the FX rate.

Overall our operating expenses as a result of revenue decreased from 44.5% in Q1 of last year to 43.3% this year. Our non-GAAP tax rate was 30% and that reflects the greater utilization of the foreign manufacturing. As I mentioned in prior calls, we are very actively managing the tax rate and the impact it has on the bottom line. Going forward we see a relatively flat tax percentage as we continue to utilize the foreign manufacturing as well as the technological investments overseas.

Our Cash generation continues to be robust, now rather than accumulating large cash balances on our balance sheet, we continue to invest our cash for the future, and Q1 actually was a real great example of this. Cash from net income and proceeds of stock net of one 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 problems continue with the repurchase of approximately a million shares. And finally we invested for future products with a $150 million investment in Isis Pharmaceuticals associated with the licensing of mipomersen. So we exited Q1 at the 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 year non-GAAP guidance was revised to $3.90 on a fully diluted basis. In the second quarter our non-GAAP EPS is expected to remain in the mid $0.90 range. Now before turning it back to Henri, I would like to remind you that you can find the line item both revenue and expense detail in the attached press release or on our website.

With that let me stop and turn it back over to Henri.

Henri Termeer

Thank you, Mike. I would now like to ask some of the business leaders to make a very brief comment on some events in their areas of responsibility. First David Meeker, the President of Therapeutics division. David?

David Meeker

Thank you, Henri. [Therapeutics] group portfolio had a very strong first quarter across each of the products. (inaudible) has previously highlighted group 15% driven probably by a broad global participation in terms of events for these products; we will update the 112638 coming up by mid year and secondly we have initiated the QT study we started in the second quarter of this year and I keep this in moving our programs forward.

Aldurazyme again but growth on this product was driven 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 area was the publication online of an article follow up article on the head to head study out of the AMC. This article provides further detail on how 0.2 milligrams of Fabrazyme and 0.2 milligram of Repligal compare and conclusions of that study are clearer in that 0.2 milligrams and there was no clinical effect on either renal function or a reduction in left ventricular mass or cardiac size. It also shed further light on the issue of antibodies. And I had 0.2 milligrams for either one of the products in the presence of antibodies there was an increase in the urinary GL-3 suggesting some lack of biological activity at that dose in the presence of inhibiting antibodies and what was particularly noteworthy in this new publication is that the data that was provided on the 1 milligram patients was that a 1 milligram urinary GL-3 levels did decrease even in the presence of antibodies and at 1 milligram there was also a reduction in left ventricular mass independent of whether antibodies were present or not.

Myozyme as we discussed in detail on Monday again has a very strong quarter inspite of the absence of significant US participation greater than 900 patients on therapy is highlighted more than 800 of those with the 2000 leader, the recent AAN meeting had several abstract published including the LOTS study itself which we will be speaking and reviewing that data again at analyst day which confirmed positive outcomes and the two primary endpoints and also one abstract which reported on five severely affected patients were part of a French trial and specifically looking at the activity in Myozyme in this very end stage group and despite this really advanced stage of their disease there was some evidence of stabilization in all four of the patients described and improved quality of life and two of them have some evidence of [model] function improvement. So again, I think a very supportive study on patients treated 2000 Leader.

Thank you David and John Butler President of the Renal division.

John Butler

Thanks Henri. It was an active quarter for the Renal business, $168.7 million in sevelamer sales, 23% growth from the prior year and 54% of those sales from the US consistent with prior quarters did a number of milestones occurring in the quarter. First we filed a MAA for Renvela in Europe including dialysis and CKD indications as well as tablet and powder formulations. This should allow us to begin the European roll out of Renvela in the first half of next year.

Additionally we filed an NDA for the powder formulation of Renvela in the US and as Henri mentioned the regulatory process continues for the CKD label expansion in the US. We are working in cooperation with the other companies in this space, we do expect to submit a document to the FDA by mid year and consistent with our previous 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 to that market.

We launched Renvela for dialysis in the beginning of March and in preparation we expanded our sales organization by 25% from 120 to 150 sales reps. We continue to improve reimburse access for the product while not trying to force physicians to switch well managed Renagel patients. Its early days in their launch, but qualitative research tells us that Renvela will allow us some expansion of share in dialysis, but as expected the most significant advantage will be seen when we receive the CKD label.

As reimbursement improves and physicians gain experience, we expect to see prescriptions continue to increase and accelerate. And as our sales reps settle into their new territories and get past the first stage of introducing Renvela, they will get back to core sevelamer message of morbidity and survival benefit compared to calcium binders.

Thank you, Joe Lebockey on transplantation.

Joe Lebockey

Thank you, Henri. As Mike mentioned in his comments, so the transplant business continues to grow as fueled by demand for Thymoglobulin even in the face of the supply constraints we had. Thymoglobulin is growing throughout the world as a standard of care in solid organ transplant and protruding hematological malignancies such as asplastic anemia and hematopoietic stem cell transplantation. Although our current supplier remained constrained to the middle of the year, our manufacturing issues are behind us and we will be building inventory to fuel additional growth as we move into the second half of the year and beyond.

Two keys events in manufacturing that happened for us are the resolution at the beginning of the year of 2007 FDA Warning letter. Responses were sent to the FDA have been accepted by the FDA. The second and seprate issue was regarding the visual appearance of the product. Visual appearance for Thymoglobulin is a release specification.

All products produced since the beginning of this year have met these release specifications and that is why we are confident that we will be building inventory in the second half of the year. The resolution of the product visual appearance has been reviewed and accepted by the FDA and in February we began labeling all products with the full 36-month expiration date. This visual appearance was never an issue that led to patient’s safety or product efficacy concern. We do continue to monitor the visual appearance of any loss distributed during 2007 that may have the potential to not meet this visual inspection criterion. This is why we recently recalled three lots of Thymoglobulin. Majority of these lots had already been consumed and returns from these lots will be limited. The FDA and global regulatory authorities have been extremely helpful to us during this time period and ensure that patients who need Thymoglobulin could receive Thymoglobulin.

And as Henri mentioned, the transplant will continue to grow with the filings of Mozobil with the FDA and the MAA in the middle of this year, with the US and EU regulatory authorities.

We are planning launches for Mozobil in the first half of 2009 and we are currently working to file additional countries before the end of this year. Prior to approval of Mozobil patient assistant programs, have expanded from the US into the EU and additional international countries to meet the needs of physicians and patients who are demanding access to the product. Also as Henri mentioned, we continue to expand our clinical programs with Mozobil to expand the potential of this product.

Henri Termeer

Thank you, Joe and then lastly Mark Enyedy of oncology.

Mark Enyedy

Thanks Henri. Oncology and MS are off to a strong start both in the clinic and in the market place. We grew revenue by just under 30%. This growth was driven by the successful integration of the Bioenvision operations in Europe where we more than doubled Clolar revenue over Q1 of 2007.

In addition, building on the label expansion that we received late last year we were placed to see a material 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 study with Campath and MS were presented on the platform at AEN by our principal investigator Dr. Alastair Coles. These data confirmed the profound efficacy results that we saw in year one and two years demonstrating superiority over Rebif in relapsing remitting patients across all efficacy parameters.

Most importantly confirming at three years significant improvement in baseline disability scores in the Campath’s treated patient. In simple terms, our patients got better during the course of this study. These data have been submitted to a major medial journal and we expect publication of these results in the second half of the year at which point we can go through the results in much greater detail.

Looking forward in oncology, we have collected the response data for the full patient cohort in our pivotal study with Clolar in adult AML. These data will be presented at ASCO in late May and will be used as the basis for regulatory filings in the fourth quarter of this year. So, there was solid progress with the business during the first part 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). Our first question comes from Brian Abrahams with Oppenheimer.

Brian Abrahams - Oppenheimer

Hi. Thanks for taking my questions. This may be a question for David.

Among the patients who are currently on the Myozyme MTAP type program, can you give us a sense of the proportion who already is being pre approved to receive commercials drugs versus those who are going to need to go through the reimbursement process once 2000 Lead is approved? Thanks

Henri Termeer

David?

David Meeker

Yeah, the majority, vast majority of those patients were pre-designed commercial drug and were pre-approved, now we will need to go back and get them reapproved, but to your point the fact that they have successfully moved through once and we don’t anticipate that being a significant problem. And second that will happen at a time when we have approval 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 and we were utilizing the inventories that have been produced through the small scale in the US for both infantile patients and Late-Onset patients. Revenues in the US were $12 million in the second quarter. And I think in the quarter just finished the first quarter that was $3 million. So we actually declined by $9 million in reported revenues because of patients identification of patient on MTAP continue to grow. This continued from a patient point of view to be a very very robust story. Next questions.

Operator

Thank you. Our next question comes from Jim Birchenough with Lehman Brothers

Jim Birchenough - Lehman Brothers

Yeah. Hi guys. Just following up on the recent Myozyme issue. As you look at capacity for the other enzyme therapeutic Cerezyme, Aldurazyme, Fabrazyme do you foresee any need to scale up the manufacturing of those products and do you anticipate that you could run from these simple problems?

Henri Termeer

It’s a very good point. As you may recall seven years ago we started to build cell culture, biological cell culture facility in Belgium. That facility is now in a very late phase of being put on line. We are producing engineering runs and [PV] runs both for Campath and for Myozyme in those in depth facilities. That will close to not quite double the capacity. It increases about by 70% in terms of a fusion capacity. We intend to produce all enzymes in these two facilities. It will take some time to get these facilities approved for each of the individual enzymes and this clearly is an essential point that we produce them and that we get regulatory approval for them and that we take into account the sensitivity that regulators have with regards to these biological products.

I think we are very familiar in the tune to that and we do expect that we will have, that – looked at very carefully by regulators, we’ve had expansion, and also and over the gears that for products like Cerezyme and Fabrazyme and the introduction of Myozyme as well. And so we have a lot of experience to do this well, but you are quite right to say that this is something that will take us very, very significant attention on our part making sure that that happens in a good way.

We expect the approval of the Myozyme side the first product in Belgium in the first half of next year. Next question?

Operator

Thank you. Chris Raymond of Robert Baird and Company, your line is open.

Chris Raymond - Robert Baird & Co

Thanks. Just a question on Aldurazyme. This drug showed I think quarter stronger growth and we have seen quarter on quarter any way and in a few quarters and as I did the math here the run rate looks to be higher than your guidance for the full year. I’m just kind of curious if you could maybe give us some thoughts on as this becomes something that has more visibility in your P&L, could we expect to see you guys revisit the guidance or is this sort of a one off quarter, Has more visibility in your P&L. You maybe comment on that.

Mike Wyzga

No, I wouldn’t call this a one-off quarter in the sense that. You know, Aldurazyme the MPS group has continued to show steady growth. I think we have to be careful of this trending any individual quarter. In the LSD area, the order pattern particularly as we get into geographic areas where you can get, you know, larger single bulk orders can skew any individual quarter a little bit up or down. So, I wouldn’t trend this quarter exactly but I think this quarter is very supportive of continued strong growth in this product and we are pretty encouraged. Next question.

Operator

Thank you. Geoff Meacham with JP Morgan your line is open.

Geoff Meacham - JP Morgan

A question for you on Synvisc sequential trends in first quarter. Can you give us a little bit of color on that as a volume? Is that ASP coming down? And then when I look at your guidance for the product, it assumes a second half acceleration and would this be 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 have three years of experience with it in our own hands and it is consistent year after year. First quarter is lowest, below fourth quarter prior, second quarter is higher. Then third and fourth are somewhere between the two, actually more towards second than first. First is lowest by a fair amount. So, the seasonality is really what drives the sequential down in Synvisc and also what drives the fact that our growth is accelerating. End of the year we are not anticipating any significant volume in the US when Synvisc would launch until next year. We are expecting some growing albeit modest growth in Synvisc, one in Europe and other geographies as we move towards the end of this year.

Henri Termeer

And Geoff, I said we can reconfirm the guidance that we provided last quarter for the year on Synvisc.

Geoff Meacham - JP Morgan

And kind of a quick follow-up on the guidance if I can? Not for Synvisc but overall and you guys have talked a lot about the 20% EPS growth to 2011 and most are reflecting operating leverage. I wonder if you can give us any commentary on what sort of product revenue growth that you would anticipate to get there without giving any formal numbers or some sort of general comments.

Henri Termeer

We have commented on that revenue growth so it carries about 15% to about $6.5 billion by 2011. So that there is some leverage clearly and the leverage really comes from the fact that we have products that are expanding and then you get of course a significant leverage associated with using the same assets to sell those products.

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 wondering maybe for David, I realized this is a little premature but if you could share with us what your thoughts are in terms of how you would like to see the Phase 3 studies constructed for 112638 that would be helpful? Thanks.

David Meeker

Yeah. So we are still working through the exact design of those studies with the regulatory agencies. I think we are quite sure there will be two trials, one will be in a naïve population and the second will be in patients who are currently treated with Cerezyme and would be switched over to our product.

Meg Malloy - Goldman Sachs

And in terms of end point for assessment?

David Meeker

Yeah, the end points will have a global assessment. I think we will measure all of the things that change and as we have done in the Phase 2 trials for the hematologic parameters, the organ parameters 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 of this disease.

Meg Malloy - Goldman Sachs

So would you envision that’s global score or is that primary end point?

John Butler

No, it’s a good question. I think we have talked about this obviously, I don’t know where the regulator is going to end up on this, my guess is that it will be some composite, no it won’t just be one of those parameters that moves you. To have confidence in your drug you want to see multiple parameters move and we are seeing that in the phase two study of course. So we would expect a similar kind of out come variable for the phase III.

Meg Malloy - Goldman Sachs

Okay. Thanks a lot.

Henri Termeer

Next question.

Operator

Thank you. Our next question comes from mark Mark Schoenebaum with Bear Stearns.

Mark Schoenebaum - Bear Stearns

Hey. How are you? Thank you. Can I, maybe ask about late stage programs. I was wondering on Campath, if you can update us on how enrollments goes and when do you expect to be done with phase III enrollment with Campath and [Astorome] and mipomersen. I was wondering if we can get a broad regulatory update from you, obviously the hyperlipidemia space is changing one from the standpoint of regulatory end points. I was wondering if you could talk to us about that?

Henri Termeer

Yeah, on the second question on mipomersen I would prefer if Mark, if you could wait till the analyst call because at that time we are in a different phase of finalizing this transaction and 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 ask Mark Enyedy to give you some comments.

Mark Enyedy

This is a reminder there are two phase III studies; one in treatment naïve patients, the other and what we are calling treatment experienced patients that are the patients with disease as progressed well on a licenses therapy. These were head to head studies again, against high doze beta-interferon. These are two year studies hence each patient will be followed two years. The expectation at this point is that the leading study in treatment naïve patients will complete enrollment in the first half of 2009 with two year follow up we would expect that to be completed in 2011 and then 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 the question. David, this question on 112638. Can you comment on the patients who enrolled I know was a naïve study, but were they truly naïve and that they had never seen Cerezyme or has it appeared they were washed out and then can you comment on the deliver volume reduction six months it seemed to be a bit lower but perhaps we will see that trend continue 12 months?

David Meeker

Yeah, so the vast, vast majority were truly naïve. I’m hesitating because I have sort of a vague sense that there may have been somebody who was previously on Cerezyme but had a long wash up period but we can confirm that and get back. But the principal here is these were 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 does not increase nearly the amount that spleens do. So you know spleen multiples were normal, anywhere from 10 to 25 times normal or larger, whereas the liver mainly increased by one to two fold normal. So, the decreases in the liver are going to be proportionally less and what we are looking for in the liver is more you know getting them back to normal, as opposed to thinking more about percentage decreases there.

Matt Osborne - Lazard

Great. Thank you.

Operator

Our next question comes from Aaron Reames with Wachovia

Aaron Reames – Wachovia

Yes, thank you for taking my questions. I had a question for Ann, just as a follow up kind up on long term guidance for the Biosurgery business and December of ’07 there were some general numbers of about peak estimates being around $1 billion and I was wondering if you can provide us some additional clarity on what the breakdown might be for Sepra and then maybe Synvisc, Synvisc One, etcetera, so we can have a better idea of how to model this on a going forward basis.

Ann Merrifield

Yes, I believe the specifics of what we said in December were less than a billion in 2011. The primary drivers there are Synvisc growth, both Synvisc and Synvisc One together. With Synvisc One 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% plus range as it has been year over year and the two of those explained the bulk of the transition. Sepra and Sepra spray are laparoscopic version of Sepra film, Synvisc and Synvisc One. The precise breakdown is between the two. We aren’t being 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 earnings call for the first quarter, so – I know everybody is very interested to get ahead of towards the analyst meeting -- that's a few weeks from now. So, if we can focus on the current, it would be appreciated.

Analyst

All right, thank you.

Operator

Our next question comes from Phil Nadeau with Cowen and Company

Phil Nadeau - Cowen and Company

Good morning. Thanks for taking my question. My question is on gross margins. Looks like in the quarter they were about 120 basis points below your full year guidance of 77% and this might kind of make sense that the Myozyme issues will also impact gross margins but yet it seems like you have reiterated your guidance, so what through the balance of this year is going to bring gross margins up that incremental 120 basis points to hit guidance?

Henri Termeer

Mike.

Mike Wyzga

Yeah. Gross margins have been impacted by the mix predominantly of Aldurazyme genetics and Myozyme which have absorbed a larger percentage of our revenue base.

Keep in mind as we continue to diversify our business and launch new products, when you launch a new product the startup costs associated with these lines are probably the lowest that they’re going to be. So as you get some speed and niche and you start to expand the newer products, you’ll start to get better gross margins on that line.

Secondarily, we are starting to consume 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 to grow, particularly in the latter portion of the year. So we do see a lot of leverage coming from our gross margin not for just this year but going forward as well.

Henri Termeer

Next question.

Operator

Thank you. Bill Tanner with Leerink Swann. 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 you are thinking that you could actually file for approval based on the one study in treatment-naïve patients?

Mark Enyedy

Yeah. Bill, I think the way to think about it is, we have a 300 plus patient randomized control rater-blinded study that we’ve just reported on and then we will recapitulate that study in a much – in a larger patient population. And I think that those two data sets put together should be sufficient to support a label for the product at least in the treatment-naïve patients and parallel with that we have this treatment experience study that will be fully enrolled by the time that we file for the treatment-naïve patient. So I think the combination of the development effort will support in the approval.

Bill Tanner - Leerink Swann

And could you just remind us, I was looking through the slides from the analyst meeting last year, there was one on the patients from the Campath study that developed ITP. Is there any follow up on those patients to report?

Mark Enyedy

So, no new cases of ITP in the study, all five are patients that we continue to follow have returned to normal platelet count. So one of those patients without any further therapeutic intervention, the other four were treated with a combination of either steroids or Rituxan but they are all off any intervention and have normal platelet counts.

Henri Termeer

And that’s as of the last check on them, a month ago.

David Meeker

Database lock here was March so a month ago and so there is an extension protocol where we are filing all these patients. So they continue to be monitored under the risk management plan that we put in place so they come in for monthly CBC and so we are pretty current on them.

Bill Tanner - Leerink Swann

Okay. Thank you.

Henri Termeer

Next question

Operator

Thank you. Our next question comes from Adam Walsh with Jeffries.

Adam Walsh – Jeffries & Co.

Hi. Thanks for taking my question. Henri, we seemed certainly a lot of interest from large pharma and biotech or the biopharma space. And Glaxo did an acquisition last night, Merck went out there talking about they are still on the hunt for biotech company. I am just curious to get your most recent thoughts on M&A as it pertains to Genzyme? And whether or not specifically the Myozyme supply constraint has shifted your thinking on the timing in any way? Thanks.

Henri Termeer

Myozyme is, its a disappointment that we counterfoil to US market at the current time, but there is no doubt in any one of our minds both in terms of the products efficacy and by the test for the many hundreds of patients were undergone that they are being treated. And our ability to get approval with the FDA and they have been very cooperative and 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 is a process that we had hoped would be more advanced at this stage. So, we have to do some work there.

In terms of M&A what we are seeing in the market is probably accelerating a little bit, particularly with Japanese now involved as well from what we have seen last year and the year before. There are thousands of small biotechnology companies out there and I would imagine that we will continue to see transactions. The transaction this morning is very interesting and it shows tremendous value that is being created through biotechnology and the pipelines that are being developed by biotechnology companies and in our case the way we look at this world is we are participants. We have done transactions in the past. We did the transaction -- we are in the middle of finalizing transactions with Isis on the extremely exciting program that we consider as a blockbuster looking forward. These kinds of programs are very important for us and possibly for us as well to continue to develop the pipelines necessary to continue growth. We are very confident after 25 years that we can boast -- get profits approved through clinical development manufactured through manufacturing scale-up and marketed through building marketing organization. So, we feel in that sense very well prepared to take on programs that really fit the way we look at the world that we want to serve which is patients that and disease situations that are very touchy where we can bring in significant improvement therapeutic approval to these patients and we will be interested to look outside and anywhere to find programs that we can (inaudible) forward and fit into this picture that we have developed over so many years. A very very exciting world I think 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 Geoffrey Porges with Bernstein.

Geoffrey Porges - Bernstein

Thanks very much. Just some housekeeping questions on the quarter for David. Could you give us a sense of how Fabrazyme and Cerezyme did ex-currency and also what patient adds were there? And then David maybe you could just comment upon the progress and outlook for newborn screening. Where does that stand after the Illinois legislation? Thanks.

Henri Termeer

David.

David Meeker

Yeah for the Cerezyme growth during the year ex was a little more than 9%. The Fabrazyme growth during the year ex effects was about 10%. The adds on a patient basis in the quarter again they are hesitant to have people following this too closely because it is a metric which can vary up and down but we had solid patient approvals for both Cerezyme and Fabrazyme which put us on a runway for being in the 200 through 300 plus patients approved yearly that we have been experiencing for the past few years but both of those are quite strong.

With regard to the newborn screening area, which we talked about several times, I mean this is an area that is just continuing to gain strength and interest. The areas that continue to lead the floor is that at the US level at the NIH and newborn screening panels, there are lots of discussions and we hope that one day we will be nominated as one of the keys that should be considered as a national recommendation. The Illinois law we referenced previously is having passed Washington state 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 in newborn screening and I think that that information – that data out of Taiwan is going to very much inform the world because it’s such a complete data set and Austria is about to come online. So, again I think, slowly but gradually around the world people are beginning to engage them.

Geoffrey Porges - Bernstein

Thanks very much.

Operator

Our next question comes from Jim Birchenough with Lehman Brothers.

Jim Birchenough - Lehman Brothers

Yeah. Hi, guys. Just a follow-up question on Campath MS. The suggestion at AAN was that very few patients got the second dose at year two and just wondering how you think about commercializing a drug that may only be given once and could have profound disease modifying effects for many years. How do you make it a commercial goal or something like that?

Mark Enyedy

Yeah, just to clarify. All but two patients received two course of the therapy on the two to three study it was just reported out at AAN. The way the protocol was designed was that the third dose was at the discretion of the investigator and out of some 220 odd patients on Campath in that study about 45 of them received the third dose. We had the clinical hold as the result of the ITP situation which did have an impact on patients receiving the third dose not the second dose. And we continue to evaluate the pricing question here. I think it’s premature to have that discussion. I think we will have a better handle on this as we have long-term follow up data from the two to three patients and we see how they respond as part of this extension protocol as I described earlier. We are providing for redosing of those patients and so I think that will give us a clearer picture 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 [Khyati Thakrar] 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 with Citigroup, your line is open.

Richard – Citigroup

Hi, good morning and this is actually Richard here for Yaron. Can you give us some guidance on the 2009 expenses, assuming that there is a delay in the Myozyme approval; is that going to change our expenses options. Thanks.

Henri Termeer

Was the question guidance on 2009 expenses?

Richard – Citigroup

Yes.

Henri Termeer

This is way too early to talk about 2009 in terms of expenses. We will talk about that when we get a little closer to that year but the way to guide yourself, you think through what we do under a whole range of different circumstances including the one that you are suggesting 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 are associated with programs that we take on, such as Myozyme MS -- the Campath MS that we have talked about a few times here. Those are programs we take on because 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 ago and reconfirm today again that we tend to grow earnings per share on a CAGR basis for 2011 by 20% and we will manage accordingly. So, that’s the way to answer 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 Mark Schoenebaum with Bear Stearns.

Mark Schoenebaum - Bear Stearns

Oh, great. I’m actually here with follow-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 patients on that drug and break it out in US and EU. And then just on -- you were talking earlier about urinary GL-3 levels and some of the data that came out at Fabrazyme paper. How does the FDA look at urinary GL-3 levels.

David Meeker

Yeah. So, on the Myozyme question. Maybe the way to think about the Myozyme, as we had indicated there are more than 900 patients currently receiving therapy. You know about 40 of those are in the clinical trial and then we have the MTAP program here in the US which is 140 and that’s more or less the charitable group. We have -- there is a smaller number of additional patients around the globe; they are also getting charitable products. So, again, that allows you a direction to get at the number 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 further at this point, probably because I don’t have that accurate number arranged for me but …

Mark Schoenebaum - Bear Stearns

Okay.

David Meeker

I think the bulk of the patients are in Europe.

Mark Schoenebaum - Bear Stearns

In that scenario.

David Meeker

Your question -- can you just repeat the question on the urinary GL-3?

Mark Schoenebaum - Bear Stearns

Oh, yeah I was wondering about urinary GL-3 levels and there were some other companies out there they have been talking to FDA about -- about potentially having registration end-points around urinary GL-3 levels in Fabry’s disease. I was just wondering what your perspective on that was? What do you think the FDA’s response is?

David Meeker

Yeah. We have a lot of obvious experience with the FDA in terms of trying to develop clinical and hard clinical end-points for this and that is challenging. I mean our Phase IV study which, you know, we looked actual clinical events cardiac, renal, and CNS events and those are very hard endpoints and that was an extremely challenging trial 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 quite intrigued by it and it tells us something about the biologic activity of the enzymes in the body meaning that if those urinary GL-3 levels are going up or down. I am considered -- they are going down, I am reassured that I am getting perhaps the kind of activity I want from my enzyme and if it is going up, I am worried. 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 clinical benefit. I think that answers your questions but I would surprise to be honest with you if that wasn’t an acceptable input.

Analyst

Okay, great. Thanks.

Operator

Our final question comes from [Khyati Thakrar] with Mehta Partners. Your line is open.

Khyati Thakrar - Mehta Partners

Yeah. Thank you for taking my question. I would like to understand the existing market and market potential of Synvisc One and Mozobil.

Henri Termeer

The market potential for Synvisc One, again this is a very open question and I would rather prefer again to wait to 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 in this category Synvisc and competitive -- as competitive products in this category have penetrated the osteophoresis pain market in the knee by about 8-9%. So the market potential is clearly a great deal more. We have always thought that the market potential was somewhat impacted by the very difficult therapy, the therapeutic burden of having multiple injections to get pain relief and that’s why Genzyme and other companies have developed -- are developing and we have developed an approach to get the pain relief in a single injection. We believe that has the potential to significantly change the market dynamics as patients would be more willing to take one injection than multiple injections given the time loss and the cost associated with breaking away from work et cetera et cetera. So we are hopeful indeed that once we have (inaudible) approval in United States and of course we are at the beginnings of testing these high policies in Europe that these markets will significantly expand. And that’s why not only Genzyme but significant companies are quite interested in this because pain osteoarthritis pain in the knee for patients, particularly patients that are still very active is a very real problem for these patients and a very real economic problem as well. As of that let me refer to the analyst meeting maybe to get further detail on these points.

Operator, did you say this was the last question.

Operator

Yes. That was our final question.

Henri Termeer

Thank you very much. Thank you very much everybody participating this morning. We look forward to see many of you at the analyst meeting in May. Again to repeat the date….

Patrick Flanigan

May 7.

Henri Termeer

May 7. And as Patrick says, it would be great if you could confirm your presence soon so that we’ll make sure that there is sufficient space for everybody. We look forward to seeing you then and until the next time many regards. Bye-bye.

Operator

Thank you for joining today’s conference. That does conclude the call at this time. You may disconnect.

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Source: Genzyme Corp. Q1 2008 Earnings Call Transcript
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