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Genzyme earnings jump, but analysts remain doubtful

Genzyme Corp. of Cambridge reported a fourfold increase in earnings for the third quarter, prompting executives to say the company had turned the corner. Genzyme Corp. of Cambridge reported a fourfold increase in earnings for the third quarter, prompting executives to say the company had turned the corner. (Michele McDonald for The Boston Globe)
By Robert Weisman
Globe Staff / October 21, 2010

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Third-quarter earnings jumped more than fourfold at Genzyme Corp., with executives proclaiming yesterday that the troubled Cambridge biotechnology company is finally on the upswing.

“Quarter three really observed the beginning of the financial recovery,’’ chief executive Henri A. Termeer told securities analysts on a conference call. The company has been struggling in the face of manufacturing problems, supply shortages, a regulatory fine, and most recently, a hostile takeover campaign.

Despite the higher profits, some Wall Street analysts said they were disappointed with Genzyme’s overall performance in the third quarter and predicted it soon would be absorbed by French suitor Sanofi Aventis SA, which has launched an unsolicited $85 billion bid for the firm.

Genzyme reported [earnings] this morning that were generally unsatisfactory,’’ analysts Joshua Schimmer and Steve Yoo at health care investment bank Leerink Swann wrote in a note to investors. “Since this could well be the last time Genzyme has a chance to report earnings before being acquired by Sanofi, we thought the company might be able to dig deeper to post solid performance across all franchises.’’

Still, shares of Genzyme gained 22 cents, or 0.3 percent, on the Nasdaq exchange yesterday, closing at $72.11, more than $3 above the $69 a share Sanofi has offered. Genzyme’s board rejected the bid, saying it undervalued the company, but the French pharmaceutical giant is now taking its proposal directly to shareholders.

Genzyme posted a profit of $69 million for the three months ending Sept. 30. That was an increase from a $16 million profit in the corresponding period last year, when the company was rationing two of its best-selling drugs because of a virus at its Allston Landing manufacturing plant that temporarily halted production.

The improved earnings were powered by renewed sales of one of those drugs, Cerezyme, which treats the rare genetic disorder Gaucher disease. Genzyme’s per-share earnings climbed to 26 cents in this year’s third quarter from 6 cents a year ago. Third-quarter revenue increased to just over $1 billion from $924 million last year.

While the bid from Sanofi cast a shadow over yesterday’s earnings report, Genzyme executives declined to discuss it in their call with analysts. The company has scheduled an investment conference in New York tomorrow at which it is expected to explain why it believes Sanofi’s bid is insufficient.

Sanofi, meanwhile, released a statement affirming that a waiting period under US antitrust law had expired, allowing it to press forward with its tender offer. Under the offer, Genzyme stockowners will have to Dec. 10 to turn over their shares to Sanofi. Many market watchers are anticipating Sanofi will raise its price to lure more stockowners.

In yesterday’s conference call, Genzyme executives told analysts that the last three months of this year will be the first normal quarter for its manufacturing operation since the viral contamination was discovered in the summer of 2009. Production of Cerezyme already has returned to normal levels, while production of Fabrazyme, which treats Fabry disease, is increasing rapidly.

The positive news on the manufacturing front was offset by a setback in the company’s drug development program for its leukemia treatment Clolar, which failed to meet a key goal in a late-stage study.

Robert Weisman can be reached at weisman@globe.com.