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Renagel Reneges on Genzyme

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By Jeff Hwang (TMF CamX)
June 20, 2002

Shares of Genzyme General (Nasdaq: GENZ) took a Thursday-morning pounding, dropping 23% after issuing its second profit warning in three months. After yesterday's close, the drug maker lowered second-quarter earnings expectations to between $0.25-$0.26 per share from $0.30-$0.35 per share, and it lowered full-year guidance to $1.18-$1.23 per share. The First Call estimate had been $1.36 per share.

The culprit for the warning was Genzyme's kidney-dialysis drug, Renagel. In March, the company issued a profit warning due to the 12 weeks of inventory that Renagel's distributors had built up. Genzyme had hoped to cut the inventory levels down to six weeks, while sales of the drug in Brazil would contribute to growth. However, neither of those hopes has come to fruition, as distributors are still sitting on nine weeks of inventory and Renagel sales in Brazil are nonexistent. Renagel will still show 33% sequential growth, from $29.5 million in Q1 to an estimated $40 million in Q2, but the firm has lowered full-year estimates to $200 million-$210 million from $260 million-$280 million.

Looking ahead, Genzyme has increased the size of its Renagel sales force from 48 to 80 people in the U.S., and from 44 to 76 in Europe. Management still expects sales in Brazil soon.

Aside from Renagel, all is not bad for Genzyme. Full-year guidance was raised from $580 million-$600 million to $600 million-$610 million, and Genzyme also increased combined revenue guidance for other therapeutic products from $85 million-$100 million to $90 million-$105 million. Guidance for Fabrazyme was reaffirmed; revenues should come between $25 million-$40 million for the year.

The bottom line: At under $20 a share and 17x this year's revised estimates, Genzyme is starting to look cheap. That's because, at least for the time being, management appears lost and confused. If the current Renagel episode passes as an anomaly, Genzyme General may be worth a look.

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