Washington Editor

Genzyme Corp., which has moved to the forefront of a bidding war for AnorMED Inc., on Thursday reported third-quarter earnings that came out ahead of consensus projections but nonetheless failed to impress many observers.

Excluding special charges, its net earnings totaled 73 cents per share, representing 20 percent growth and beating analyst forecasts of 71 cents. But with a $149.4 million charge for the impairment of goodwill, as well as other one-time fees, the Cambridge, Mass.-based company's earnings were just 6 cents per share. While its underlying revenues totaled $808.6 million, a 14 percent increase over the same quarter last year and "stronger than we had expected," CEO Henri Termeer said in a conference call, investors had wanted more.

On Thursday, Genzyme's stock (NASDAQ:GENZ) slid $1.08 to close at $66.90, although the shares traded lower earlier in the session.

The company retains its strong foundation, with nearly $1.7 billion in cash reserves as of Sept. 30, and is in a good position to execute its proposed $580 million deal for AnorMED, of Vancouver, British Columbia. That company's Phase III cancer drug, Mozobil, would be a prime addition to Genzyme's portfolio and would serve as a near-term revenue boost. The drug, also called AMD3100, could be on the U.S. market by 2008 and elsewhere just a year later.

"I think a product like Mozobil would certainly fill a gap," AnorMED Chairman and interim CEO Kenneth Galbraith told BioWorld Today, adding that Genzyme would need such an addition to maintain its "40-times multiple on earnings."

He called Genzyme's offer "superior" to that put forth two weeks ago by AnorMED's other suitor, Millennium Pharmaceuticals Inc., which proposed a $515 million purchase while also targeting Mozobil in what Galbraith labeled "the battle of Boston." Millennium, also based in Cambridge, has until the end of business Monday to match or top Genzyme's offer, and if it does, Galbraith said AnorMED would stick with Millennium.

If not, then AnorMED would enter the proposed form of support agreement negotiated with Genzyme, which offered to pay $13.50 per AnorMED share, up from its first offer of $8.55 per share made six weeks ago. That initial proposal, Galbraith suggested, might have coincided with a mid-quarter indication of earnings weakness. In between Genzyme's bids, Millennium made a $12-per-share offer. (See BioWorld Today, Aug. 31, 2006, and Sept. 27, 2006.)

"If Genzyme thinks that buying AnorMED at $13.50 per share is a great investment opportunity for Genzyme shareholders," Galbraith said, "I can't understand why Millennium wouldn't think the same thing for its shareholders, or even more."

For Millennium, which reported about $626 million in cash reserves on June 30, Mozobil is seen as complementary to Velcade (bortezomib), and Galbraith said "it's going to be a question" of how highly Millennium values the drug, suggesting that the company could boost its bid with more cash or even add stock to increase the offer.

But to "play a winning hand," he added, "they're going to have to look at exceeding Genzyme's offer and trying to cut off the additional bidding war."

Under certain circumstances, Millennium would be entitled to a termination fee of $19.5 million if it opts out of the bidding. Should any other companies seek to enter the fray, and there were other parties interested in Mozobil before Genzyme and Millennium's offers surfaced, they'd likely do so after the dust settles along the Charles River, Galbraith said.

The drug is designed to improve hematopoietic stem cell collection for transplants. A small-molecule CXCR4 chemokine antagonist, it works by releasing stem cells from the bone marrow into circulation. Stem cell transplants offer a potential cure for patients with certain hematological malignancies, but at present, about 55,000 transplant-eligible patients worldwide are unable to optimize the benefit of transplant due to suboptimal stem cell collection.

Data from two registration-enabling trials are expected next year. The randomized, double-blind trials are testing Mozobil's use with the current standard of care for stem-cell mobilization, granulocyte-colony stimulating factor (G-CSF), compared to placebo with G-CSF in multiple myeloma and non-Hodgkin's lymphoma patients. Patient enrollment is complete in the multiple myeloma trial and almost done in the other. Both are being conducted under the special protocol assessment process with the FDA.

Mozobil's potential annual sales of more than $100 million in the not-too-distant future are an attractive fit for its existing transplant and oncology franchises. Of note, Genzyme boasts a transplant infrastructure in 60 countries. "Given the fact that 60 percent of transplants are done outside North America," Galbraith said, "that global infrastructure would obviously be of good value."

For Genzyme, Termeer said the company is "seeing very robust momentum" around products driving growth.

Its top-selling drug was Cerezyme (imiglucerase), the enzyme-replacement therapy for Type I Gaucher's disease that generated $252.2 million in sales that were 6 percent higher than last year's third quarter. Sales of other enzyme-replacement therapies grew at a more dramatic rate: Fabrazyme (agalsidase beta) climbed to $93.2 million, up 18 percent, Aldurazyme (laronidase) reached $25 million, up 24 percent, and Myozyme (alglucosidase alfa) totaled $20.4 million in its first full quarter of sales.

Revenue for Renagel (sevelamer), a phosphate binder for patients with end-stage renal disease, grew to $134.7 million. Sales of another kidney drug, Hectorol, increased to $25.5 million.

The company's diagnostics and genetics business increased revenue to $89.3 million. Genzyme's transplant group produced $37.6 million in combined sales of Thymoglobulin (anti-thymocyte globulin, rabbit) and Lymphoglobuline (anti-thymocyte globulin, equine). Its oncology revenue grew to $16.5 million, driven by increased sales of Clolar (clofarabine) and also comprising profits and royalties from Campath (alemtuzumab).

Within Genzyme's biosurgery business, Termeer expressed disappointment that sales of Synvisc (hylan G-F 20) only reached $55.9 million, a drop from last year because of increased competition. But he said efforts to distinguish that product's benefits from competitors, as well as next-generation products, would drive future growth.

On Thursday, AnorMED's stock (NASDAQ:ANOR) dropped 18 cents to $13.90. Shares in Millennium (NASDAQ: MLNM) lost 6 cents to close at $9.97.