Genzyme Corp. (GENZ) filed Quarterly Report for the period ended 2009-06-30.
Genzyme Corporation is a global biotechnology company dedicated to making a major positive impact on the lives of people with serious diseases. The company\'s broad product portfolio is focused on rare genetic disorders renal disease and osteoarthritis and includes an industry-leading array of diagnostic products and services. Genzyme\'s commitment to innovation continues today with research into novel approaches to cancer heart disease and other areas of unmet medical need. Genzyme Corp. has a market cap of $13 billion; its shares were traded at around $48.191 with a P/E ratio of 14.09 and P/S ratio of 2.82. Genzyme Corp. had an annual average earning growth of 20.2% over the past 10 years. GuruFocus rated Genzyme Corp. the business predictability rank of 3.5-star.
Highlight of Business Operations:
•decided not to process approximately 80% of the Cerezyme work-in-process material that was in inventory when we temporarily suspended production at our Allston facility on June 16, 2009. As a result, we have recorded $8.4 million as a pre-tax charge to cost of products sold in our consolidated statement of operations for the three and six months ended June 30, 2009 and a reduction to inventories in our consolidated balance sheet as of June 30, 2009 to write off this material; and •made further adjustments to the fair values of the assets acquired in connection with our transaction with Bayer after determining that the fair value of the Leukine developed technology was overstated by $3.4 million and the fair value of the IPR&D for alemtuzumab for MS was understated by $6.6 million. As a result, we have recorded $3.4 million as a decrease to technology and $6.6 million as an increase to IPR&D, both components of other intangible assets, in our consolidated balance sheet as of June 30, 2009 and as a net $3.2 million pre-tax increase to the gain on acquisition of business in our consolidated statement of operations for the three and six months ended June 30, 2009. STRATEGIC TRANSACTIONS
•exclusively license worldwide rights to Campath; •exclusively license Bayer\'s worldwide rights to the oncology products Fludara and Leukine; and •acquire a new Leukine manufacturing facility located in Lynnwood, Washington, contingent upon the facility receiving FDA approval, which is expected in 2011. Of the $964.1 million total contingent consideration obligations recorded as of the acquisition date, $529.1 million related to Campath, Fludara and Leukine, and $435.0 million related to alemtuzumab for MS. The contingent consideration obligations are net of the continued funding expected to be received from Bayer for the development of alemtuzumab for MS.
•a percentage of revenues from sales of alemtuzumab for MS capped at a total compensation of $1.25 billion or ten years, whichever comes first; •a percentage of the combined revenues from sales of Campath, Fludara and Leukine capped at a total compensation of $500.0 million or eight years, whichever comes first; •sales-based milestone payments determined as a percentage of annual worldwide revenues of alemtuzumab for MS beginning in 2021 if certain minimum annual revenue targets are achieved, provided that we do not exercise our right to buyout such potential future milestones in 2020 for a one-time payment of up to $900.0 million; •up to $150.0 million if certain annual combined revenues of Campath, Fludara and Leukine are reached beginning in 2011; and •between $75.0 million and $100.0 million for the Leukine manufacturing facility, following the receipt of FDA approval of the facility. We will utilize Bayer for certain transition services and purchase commercial supply of Fludara and Leukine from Bayer. We have employed certain members of Bayer\'s commercial teams for all three products and have an opportunity to employ certain members of Bayer\'s manufacturing team if we acquire the Leukine facility. The transaction has been accounted for as a business combination under FAS 141R and is included in our results of operations beginning on May 29, 2009, the date of acquisition. The results for Campath, Fludara and Leukine are included in our Hematologic Oncology reporting segment and the development costs of alemtuzumab for MS are included in our MS business unit, which is reported under the caption "Other."
The fair value of the identifiable assets acquired in this transaction of $1.03 billion exceeded the fair value of the purchase price of $1.01 billion. As a result, in accordance with FAS 141R, we recognized a gain on acquisition of business of $24.2 million in our consolidated statements of operations for the three and six months ended June 30, 2009. The fair value of the consideration and assets remain subject to potential adjustments.
On January 27, 2009, we purchased certain intellectual property in the fields of prenatal testing and reproductive health from EXACT Sciences for our diagnostic testing services business and 3,000,000 shares of EXACT Sciences common stock. We paid EXACT Sciences total cash consideration of $22.7 million. Of this amount, we allocated $4.5 million to the acquired shares of EXACT Sciences common stock based on the fair value of the stock on the date of acquisition, which we recorded as an increase to investments in equity securities in our consolidated balance sheet as of March 31, 2009. As the purchased assets did not qualify as a business combination under FAS 141R and have not reached technological feasibility nor have alternative future use, we allocated the remaining $18.2 million to the acquired intellectual property, which we recorded as a charge to research and development expenses in our consolidated statement of operations for the three months ended March 31, 2009. We will pay EXACT Sciences an additional $1.9 million by July 2010, unless such amount is required to satisfy certain of EXACT Sciences\' indemnification obligations.
None of the incomplete technology programs we have acquired through our business combinations prior to January 1, 2009 had reached technological feasibility nor had an alternative future use and, therefore, the fair value of those programs was expensed on the acquisition date and classified in our consolidated statements of operations within the line item Purchase of In-Process Research and Development. In May 2009, we acquired the worldwide rights to the oncology products Campath, Fludara and Leukine and alemtuzumab for MS. The transaction was accounted for as a business combination. At the date of acquisition, alemtuzumab for MS had not reached technological feasibility nor had an alternative future use and is therefore considered to be IPR&D. Accordingly, we capitalized the $632.9 million fair value of the IPR&D for alemtuzumab for MS, which is included in Other intangible assets, net in our consolidated balance sheet as of June 30, 2009. Of this amount, $415.6 million is related to the development of the product for sale in the United States and $217.3 million is related to the development of the product for sales outside of the United States. Amortization of these capitalized IPR&D assets will commence upon our receipt of the necessary approvals to sell alemtuzumab for MS in each area. We currently anticipate receiving approval for alemtuzumab for MS in the United States in 2012 and outside of the United States starting in 2013.
GENZ is in the portfolios of Edward Owens of Vanguard Health Care Fund, Edward Owens of Vanguard Health Care Fund, PRIMECAP Management, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Kenneth Fisher of Fisher Asset Management, LLC.
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