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JANUARY 9, 2004
By Amy Tsao Genzyme: Beyond "Orphan" Diseases Though the biotech made its name developing drugs for extremely limited markets, CEO Henri Termeer is now targeting broader areas When Henri Termeer became CEO of Genzyme (GENZ ) in 1983, he decided that one of its main priorities would be treatments for rare genetic diseases. To the surprise of many, the strategy worked. The markets for drugs that treat "orphan" diseases (defined by the National Institute of Health as affecting fewer than 200,000 people in the U.S. at any time) were bigger than anticipated, and patients were willing to pay the relatively high prices for such treatments. The Cambridge (Mass.)-based Genzyme's biggest seller, the hugely profitable Cerezyme (a treatment for Gaucher disease, in which patients lack enough of an enzyme critical in removing a certain type of fat from cells), is expected to be a $700 million drug in 2003 when the figures come in. Fast forward two decades, and Termeer's Genzyme is a far more diversified company -- focused on both genetic disorders as well as illnesses that affect larger patient populations. Its fastest-growing drug is Renagel, which is used for dialysis patients. COMPETITION GAINING? As 2004 starts, Genzyme has two newly approved drugs for genetic diseases ready to go. And thanks to its acquisition of emerging biotech Sangstat last fall, it's selling thymoglobulin, which helps reduce the chance of organ rejection is transplant patients. Certainly, Genzyme, which reported $178.3 million in income on $1.1 billion in revenues in 2002, has its share of challenges as a new year begins. Wall Street is fretting over imminent competition for Renagel, a $157 million drug in 2002, from rival Amgen (AMGN ). "We want to see how the competitive dynamics will turn out," says Weidong Huang, vice-president at TimesSquare Asset Management. "We'll be watching the dialysis market in 2004." (Neither Huang nor his firm owns shares in Genzyme.) Analysts expect Genzyme to report a 29% rise in 2003 earnings per share, to $1.39. (Full-year earnings are scheduled to be reported on Feb. 19.) For 2004, analysts forecast a 24% rise in EPS, to $1.73. Genzyme's stock was trading around $49 as of Jan. 9. Termeer spoke with me on Jan. 6 about new directions and challenges for Genzyme company. Edited excerpts of our conversation follow: Q: What are your goals for Genzyme in 2004? A: We've become a more diverse company over the years. We'll pay a lot of attention to building this diversified picture. Our growth rate will be quite consistent with the past. We'll have top-line growth of 20% to 25%, and the bottom line, adjusted for transactions, will be consistent with the top line. Q: Your company is known for its focus on rare genetic diseases, yet you've been branching out in new directions. Will you continue to do so? A: We will continue to build our genetic-diseases business. We're quite comfortable in that space. But we also have Synvisc, which is used to treat osteoarthritis, a much bigger disease. We have thymoglobulin from Sangstat, used in transplantation. And we just put a drug for multiple sclerosis in clinical testing. Renagel has become very material for us. It [is used in] a very expensive disease area that's growing enormously fast. We're working on a new formulation of Renagel that would effectively treat patients with chronic kidney disease [the pre-dialysis market]. Oncology is very interesting to us. It's akin to orphan disease because many cancers are very small. Q: Are Genzyme's cancer researchers beginning to deliver products? A: Our Molecular Oncology division is still working on vaccines. That hasn't been successful yet. The group is also working on anti-angiogenesis drugs, which work by starving tumors of nutrients, but mostly they are in [earlier] research stages. We have a few trials, but haven't made a breakthrough there yet. We've been looking for a long time now -- and continue to -- to become a relevant player in oncology. Q: Analysts on Wall Street seem worried about coming competition for Renagel. What's your view on its growth in the next several years? A: We don't think the upcoming Amgen product is actually competitive. We see it as complementary. It has generally been concluded [at scientific meetings] that the amount of Renagel patients need didn't really decrease, so that market won't change much. Renagel, which is a phosphate binder, now gets more than 50% of prescriptions in this area, [even though] there has been competition from other phosphate binders. Plus, the market has also expanded. And we're still in the relatively early stage of expansion into Asian and European markets. We're in a good position, though we don't take it for granted. We're quite bullish on continued growth for Renagel.
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