Genzyme Corp: Earnings Preview

Genzyme Corp. (GENZ) is slated to announce its third quarter results on October 20. The Zacks Consensus Estimate is 33 cents, well above the year-earlier earnings. We note that performance in the second half of 2009 was heavily impacted by the temporary shutdown of the company’s Allston Landing manufacturing facility, which affected the supply of key products.

Second Quarter Highlights

Genzyme reported second quarter earnings of 6 cents per share (excluding one-time items but including the impact of stock-based compensation expense), well below the Zacks Consensus Estimate of 36 cents and the year-earlier earnings of 64 cents. Excluding the impact of stock-based compensation expense, earnings came in at 18 cents.

With the company struggling to emerge from manufacturing problems, we were not surprised to see the dismal second quarter results. Second quarter revenues declined 12% to $1.08 billion, mainly due to restricted supplies of Cerezyme and Fabrazyme.

Genzyme’s Personalized Genetic Health business was the most adversely affected by the temporary shutdown of the company’s Allston Landing facility in June 2009. The Personalized Genetic Health segment posted sales of $350.5 million, down 40%.

Production and supply of two products, Cerezyme and Fabrazyme, were mainly affected by the temporary shutdown. While Cerezyme sales declined 53% to $138.7 million, Fabrazyme revenues declined 71% to $39.5 million.

Other segments like Renal & Endocrinology, Biosurgery and Hematology and Oncology grew during the quarter. While Renal & Endocrinology grew 4% to $258.4 million, Biosurgery grew 18% to $164 million. The Hematology and Oncology segment increased 58% to $176.5 million.

Agreement of Estimate Revisions

While there have been no earnings estimate revisions over the past seven days, one of the 5 analysts covering Genzyme have increased their third quarter earnings estimates over the past 30 days with no movements in the opposite direction.

For fiscal 2010, only one of the six analysts covering the stock has increased their estimates over the past 30 days. The Zacks Consensus Estimate for 2010 is $1.37.

Earnings Surprise

Genzyme has delivered a mixed performance over the past four quarters. While the company missed expectations in the second quarter of 2010 and the fourth quarter of 2009, results were in line with expectations in the third quarter of 2009. Meanwhile, first quarter 2010 results came in well above expectations. The average earnings surprise for the last four quarters was a negative 20.6%.

For the third quarter, Genzyme could deliver a positive surprise of 9.09%. The company has been working on resolving its supply situation and better-than-expected sales of Cerezyme could help boost results.

Recommendation

We currently have a Neutral recommendation on Genzyme. We are pleased to see that Genzyme is taking steps to emerge from the impact of the temporary shutdown of the Allston plant.

However, we believe that the company may have to face additional challenges before it is able to restore its normal production and supply schedule. Moreover, the FDA’s consent decree could result in Genzyme incurring additional costs in case of non-compliance.

We view the recent approval of Lumizyme as a major positive and are pleased to see the company working on expanding its product portfolio and pipeline so as to reduce its dependence on a handful of products for growth. Meanwhile, we note that French pharma giant Sanofi-Aventis (SNY) recently launched a hostile bid to acquire Genzyme.

GENZYME-GENERAL (GENZ): Free Stock Analysis Report

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