Sanofi (SNY) Q3 2008 Earnings Report, Transcript and Summary

Hello and welcome to Genzyme Corporation’s Third Quarter Financial Results Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions]. This call is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the call over to Mr. Patrick Flanigan, Director of Investor Relations.

Thank you Dory, and welcome everyone to Genzyme Corporation's third quarter earnings conference call. On this call, we will be making forward-looking statements, including providing EPS guidance, discussing our product development plans and timetables and addressing Myozyme manufacturing and supply including the regulatory action timetables for the 2000-liter and 4000-liter production processes. These forward-looking statements are subject to a number of risks and uncertainties and our actual results may differ materially. Please refer to the section titled Risk Factors in our Q2 10-Q for more information on those risks. If during this call we use any non-GAAP financial measure, you'll find on our corporate website reconciliation to the most directly comparable GAAP financial measure. I would now like to turn the call over to Genzyme's Chairman and CEO, Henri Termeer.

Patrick, thank you very much and thank you very much everybody participating this morning. I have with me as usual Mike Wyzga, our Chief Financial Officer. He will make the financial comments, and then a number of the business leaders are present, and a number of other functional leaders, so some will make some comments before we go to Q&A. Quarter three was once again a very robust quarter. It was up 24% from a revenue point of view versus last year. Non-GAAP earnings were $1.04, $0.04 above consensus. And we have pretty much growth throughout the businesses, double-digit growth throughout all of our businesses. As I said to many of you on many of these calls, there is one set of issues that need to work out for us in a very short time to continue the momentum of growth and that has to do with Myozyme. We've talked about it many times. And there were two sides to that. One is the approval of the 2000-liter scale in the United States and the other is the approval of the 4000-liter scale in Europe. And I'm very happy indeed that, yes, there was an advisory committee meeting to discuss our BLA for the 2000-liter and that was a positive meeting as all of you have picked up by now, I'm sure. There's a PDUFA date later in November, I believe November 29. And we will be working very hard with the FDA to get everything done at that time but that still needs be done. But it was very; very gratifying indeed to see that in this meeting, the real need for this product to be released in the United States was being recognized. We have not been able to promote Myozyme in the US now for years, and that's a true limitation and many patients, we are aware of lot of patients. We treat many patients free of charge, but there are many more patients that need to be identified so that they can be helped and that is an extremely exciting prospect, of course, to bring that forward. We see great, great potential for this product. We see it’s in countries that are highly focused like the Netherlands, and where we treat about 100 patients or so at this time, more than Gaucher patients since, I believe, at this time. So it kind of indicates what we can expect here. The second part is the 4000-liter scale in the production that we have been developing over the last five years in Belgium. We have been producing the PV runs, the three PV runs, (inaudible) to be produced. The analytical side of this runs is now behind us and we are very encouraged that we will be able to bring together and filing that will lead to approval in Europe by the EMEA in the first half of next year. We need that capacity in order to meet the global demand. These two things are progressing, have progressed materially since we last talked. They materially change the kind of risk, short-term risks that we had in our picture and we are very encouraged by that. The number of other regulatory events happened in the short-term; Mozobil in the United States has PDUFA date in December, and Synvisc-One also has an advisory committee meeting, I believe, in December. Renvela, the CKD story that I'm sure all of you will come back to, that is still ongoing, we expect that by mid next year. And of course very exciting too is the filing for the adult AML indication for Clolar which we expect before the end of this year. These are short-term things, and in the short-term, with the exception of the Myozyme story that Dow is solidifying, we felt very secure, very solis, and we've shown solid growth that we've projected out what that means for 2011. But of course, we need to bring in the growth drivers for the future and in that area I'm also very gratified to see that again during this quarter we made very, very strong progress was Campath-1H which is our largest single investment. We are continuing to accrue two Phase III clinical trials. Mipomersen is accruing into a whole set of clinical trials, Phase III clinical trials. We've spoken about that before. Early in the quarter, we brought in PTC124 which is in 2b trial for Duchenne’s and I'm sure that some of you may want to hear more about it during this call, it's very exciting indeed. It’s very typical of the kind of products that Genzyme wants to be engaged in where we can make a very significant material contribution to disease that's currently is underserved or not served at all. Genzyme 11 or Genz-112638 is the small molecule for Gaucher disease that is still in preparation to go into Phase III clinical trials next year. We will know the results for the Phase 2 in the early part of next year and we look forward to sharing that with you. Of course you know the interim results there, it's encouraging that we seem to be on the road to having something that does not give up the kind of efficacy that Cerezyme has been providing to these patients and that was our goal. We now need to confirm that by making sure that all the safety issues are covered as well. These are the longer-term pipeline products, just a few of them. There are more mentioned in the press release, there are many more that we can't talk about in the call of this kind, but we are very satisfied indeed that we are gaining real momentum in programs that we'll start to play beyond 2011 timeframe that we've talked about in terms of earnings guidance. The current financial and economic environment is of course tough, it is tough for everybody and it's true that companies of our kind are in a decent position, a good position. Nobody likes to be in a situation where the economy is so volatile as it currently is, and sure the currency rates are volatile, and Mike will talk about that some more. We feel very well organized in that sense and particularly our building of manufacturing capacity in Europe in hindsight now seems to have been a very, very strong hedging move if you like. And the cash flow is very positive for the company, so we are not dependent on credit markets and we are able to do the kinds of deals that we did around Mipomersen that we did around PTC124 that bring products into the company and risk the kind of internally earned cash. Our global diversification clearly helps too, in this moment, and I think that we feel pretty strong and pretty secure as we go despite all the uncertainties in this economy as we go into next year. And it is for that reason that we have confirmed in this press release today our expectations for earnings next year $4.70 and that is very much tracking with the earlier guidance that we gave in terms of 20% CAGR through 2011, from 2006 through 2011. We would expect $7 on that basis by 2011. So, we feel good about it. We feel we are in a very robust position to do that. We feel we have many tools to manage the different uncertainties that occur around the economic environment and feel that we can at this stage give you the outlook of $4.70 for next year. So at this moment, let me ask Mike Wyzga to go over the financial details. Michael?

Great. Thanks a lot Henri. As Henri mentioned, with a lot of the uncertainty in the market, I'm going to change my format a bit and focus a little bit more on the financial environment and on Genzyme's position in that environment. So, most recently, many foreign currencies have declined versus the US dollar. Now, this is after years of increase. With these fluctuations, I think it's important to understand the structure of Genzyme's business. Our global, commercial, and manufacturing infrastructure has never really been more important now with these fluctuations. So, I'll talk a little bit about that. It's also important to understand our cash flow and balance sheet position. We currently have about $1.5 billion in cash and equivalents on our balance sheet. And the number one thing for us is safeguarding these assets in a very volatile market, so that's very important. Also, to talk a little bit about our cash flow, and equally important how we deploy our cash and that will include the impact of the convertible debt later this year. So, let me try to put these in the context of how Genzyme manages the sustainable growth and profitability. To accomplish this growth, we manage the business in a more complete sense rather than on a line item by line item basis. Our diversification and our diversified business provides very multiple opportunities for us to prioritize both our commercial and our research program to achieve the bottom line on a consistent basis, and I think Q3 is a great year mark of that. We also balanced our short-term and our long-term growth and returns. For example, as Henri touched on, the investments that we made in our global manufacturing infrastructure is now helping us out by dampening the impact of the foreign exchange fluctuations. It also increases our manufacturing capability, which what we are seeing is extremely important and also provides a more efficient tax structure for us. During the third quarter, we started to see some of the benefits of these investments in both the gross margin line, as well as on the lower tax percentage. So that will give you the backdrop of where I am going to go with some of the conversation. So, let me go through some of the details of Q3. As Henri mentioned, revenue increased to approximately $1.2 billion and that's an increase of about 21% on a year-to-year basis. The therapeutics area increased by over 27% from last year, and these increases were driven by the strong ramp rate that we are still seeing in Myozyme, as well as strong Fabrazym and Thyrogen revenue increases. Renagel volume increased by 11% and that was largely due to the increased average sales price that we saw. Within the bio-surgery area, Synvisc and Sepra revenue both increased by about 16% in the aggregate of last year, reflecting the increased volume. Synvisc grew by about 10% and that's a very nice year-to-year increase for us in the sales. The Sepra line of products were extremely strong, they increased by about 25% on a year-to-year basis. As Henri mentioned, it's important to note that, every single major business in our P&L increased by double-digit growth rate on a year-to-year basis and that includes oncology, transplant and genetics. The euro strengthened versus the dollar from $1.38 in Q3 of last year to $1.50 on average this quarter. With about 50% of our total revenue outside of the United States, the top line impact to us is about $31 million. Let me put this in perspective though. Our year-to-year revenue increased by about $200 million in the aggregate so that vast majority of the increase was due to increases other than just foreign exchange. And as I mentioned in my opening, more recently the euro has declined versus the US dollar and it's decreased actually by about 4% since Q2 of this year. This resulted in negative revenue impact of about $18 million. In this, plus seasonality, explains relatively flat revenue growth on a quarter-to-quarter basis this year. Our non-GAAP gross margin in the third quarter was $822 million or about 76% of revenue and it was impacted by a number of factors. Our gross margin reflects the payment to BioMarin for Aldurazyme sales and on a year-to-year basis, this represents about a full percentage point. We also absorb the impact of some of the changes in our product mix. Now, with that said, we are starting to capture the return associated with our manufacturing investment. The unit costs, in the LSD area in particular, came in more favorable due to lower unit costs, as well as lower distribution costs. We are also capturing some of the upside with a favorable exchange rate. Within our operating expense, our non-GAAP research and development expenses were $191 million. That's relatively flat, about 16% of revenue. Our R&D spending was associated with continuing investment in our late-stage program such as Mozobil, the Phase III studies in MS, and adults studies with Clolar. Our non-GAAP SG&A expenses were $370 million for the quarter. The year-to-year increase was focused on sales and marketing investment associated with Myozyme. We also invested in the launches expenses associated with both Renvela and Mozobil. And as I mentioned in my opening, about 45% of our commercial infrastructure is outside the United States and that was heavily impacted by the foreign exchange rate. Total operating expenses in the aggregate were negatively impacted by the $11 million. As you look at it on an exchange rate basis from Q3 of last year, a net income increased by about $60 million due to FX. Our net GAAP, non-GAAP tax rate was about 27% and that reflects some of the investments that we have made in our low tax manufacturing areas. The company's greater utilizations of these foreign manufacturing and technology investments have provided a direct benefit to our tax rate. The specific ones this quarter were associated with the Irish manufacturing facility as well as some Irish tax credits. Going forward, we expect the full year tax rate to be closer to 29% and again, that's based upon the utilization of the foreign manufacturing content as well as the expected impact, rather of the extension of the US R&D tax credit, which occurred just recently. That brings us to the earnings per share, and I will go through the crosswalk. Expenses associated with stock options were about $46 million. The amortization expenses in the third quarter were $55 million. We also paid $100 million for the upfront licensing fee to PTC, which we carved out. And finally, we recorded a loss on our investments of about $14 million. There are two components to this $14 million loss; the largest is a write-off of about $10 million, which was a purchase option, which we decided not to exercise. The remaining $4 million is evaluation of a venture capital fund. Our non-GAAP net income increased 20% to $290 million and that should be compared to against the $241 million last year. Our earnings per share came in as Henri said at $1.04 per diluted share that should be compared against $0.90 in the prior year. Cash on our balance sheet and our cash generation continues to be very strong. Cash from operations and option exercises net of one-time payments was $481 million. And how we deploy our cash is very typical for Genzyme. We continue to augment the capital infrastructure that we have. Our capital expenditures this quarter were $182 million and most of that was focused on the manufacturing facilities in both Belgium and in France. As I mentioned, we utilized about $100 million for the upfront payment to PTC and then finally we paid about $129 million in taxes. We exited Q3 with approximately $1.5 billion in cash and investments. Now, with the continued uncertainty in the market, the strength of our balance sheet continues to be a strategic advantage for the company. Our cash is really invested in three major areas and let me walk through each of those. We have money market investments, we have fixed income investments and we have international cash. We don't hold any auction rate securities or commercial paper outside of those that are invested in the money market accounts. Our money market investment represents the overwhelming portion of it; it’s about 50% of the total balance. This amount is in 11 separate funds, all of which are publicly registered and all of which are AAA rated. Our fixed income amount represents about 40% of our total cash and the majority of that is the AAA rated and all of the rest are A rated with the exception of one $6 million bond, that's the AIG bond. That was downgraded to BBB. The international cash represents about 10% of our total cash balance. This is cash that we generate internationally and helps us for both capital expenditures which we utilize overseas, as well as helps us to manage our FX exposure. Overall, we're very comfortable with our holdings and we don't expect any losses. Now, the net cash position has allowed us to call a convertible note. As you may recall, we have a $690 million convertible notes, which are callable on December 1st of this year. These notes have a coupon of 1.25%. The notes are almost five years old and have been a very effective way for us to finance the company. It's our plan to call that note and to use a portion of the $1.5 billion in cash and investments to repay it. If the stock price is higher than $71.24, then investors may or may not in all likelihood convert to 9.7 million shares of Genzyme stock. In either case, we're going to manage that as part of our -- as Henri mentioned, our 2009 non-GAAP EPS guidance of $4.70. So it will be a push factor for us. Now before turning it back to Henri, I would like to remind you, you can find the line item detail of revenue and expense and either attached to our press release or on the website. With that, let me turn it back to Henri.

Mike thanks very much. Now, we'll have three of our business leaders make a few comments on their specific business areas; first, you Geoff on LSDs.

Thank you, Henri. As reviewed in the earnings release, this is a good quarter for the LSD portfolio ending with $561 million, which continues our trend a very strong growth of 26.3% year-over-year across the portfolio. When adjusting for Aldurazyme, which did not appear in our 2007 results prior to the JV restructure, LSD growth was 17.7%. I'll briefly highlight three areas of focus on the portfolio and we'll begin with Myozyme. As Henri said, we are very pleased with the strong consensus at the advisory panel meeting yesterday that the LOTS trial had demonstrated the effectiveness of 2000-liter in the late-onset patient population. As you know, the panel voted 16 to 1 in favor of this conclusion. In addition, the vote to not restrict the product to patients 18 years or older was followed by a suggestion to adopt a clinical definition of infantile-onset, which would make the 2000-liter product available to both children and adults with Pompe. We will learn of the FDA's decision on the approval of the 2000-liter product by November 29. Otherwise, Myozyme posted a quarter-end at $76.7 million and a strong year-on-year growth of 43%. As we discussed in last call, we have now exceeded the 1000 patient mark and continue to identify patients as awareness grows in the neuromuscular community. With regards to supply, the 4000-liter manufacturing process continues to be on track. We have completed the required three PV runs at the facility in Belgium and comparability data so far is in line with our expectations. A site inspection in Belgium in August was also successful. We are still on track for January submission of a Type II variation for the 4000-liter material approval and anticipate this approval to be in the first half of 2009. As Henri mentioned, the 4000-liter approval remains necessary for us to meet global demand and supply will continue to be tight through this period. With these two key milestones gaining definition, the future for Myozyme as the leading growth driver, and the LSD portfolio, is coming into focus for us. I would also like to highlight today that a key part of this picture is the next generation product for the treatment of Pompe disease. We are actively moving a highly potent version of GAA optimized for muscle targeting through preclinical development and plan to file an IND on this candidate in the first half of 2010. We expect this molecule to offer five times potency on a dose basis versus the current product. I would like to move on now to make a few comments about Fabrazyme which posted a $126.5 million, up 20% year-on-year. As I think we discussed last time, we have recently formally started a clinical trial which we believe will not only offer more flexible regime for boys with Fabry disease, but also lead to a more sustainable regimens for families and for health systems overall. We just completed the European roundtable on Fabry disease where over 300 physicians and investigators from 38 countries gathered in Athens to discuss the developments in the field; highlighting again our activity and commitment to the Fabry field and to this as a growth driver within the portfolio. Finally, I would like to make a few comments about Cerezyme which closed the quarter at $309.3 million, up 8% year-on-year. Global patient identification rate has held steady in 2008 and also year-on-year and we continue to make progress both in mature and in developing markets. It's important to note that in this maturing franchise that the year-on-year growth figure comes in the context of some 220 patients who have participated in trials in the Gaucher space. I’d also like to provide now a short update on the 112638 program, as Henri mentioned our orally available small molecule for the treatment of Type 1 Gaucher. At this time the single dose study data has been completed. It has met our expectations showing no overall effect on QTC, prolongation of the therapeutic dose. We have submitted this data to the FDA and are planning to hold an end of Phase II study meeting with the FDA sometime in the first quarter of 2009, with the intent to initiate a global Phase III development program in the first half of 2009. We are increasingly positive and excited about the substantial impact this therapy can make, as Henri said, and we look forward to its entry into the Gaucher environment in near future. That's all for now, Henri. Back to you.

Thank you, Geoff. John Butler?

Thanks, Henri. The Renvela launch has continued to accelerate in the US. Third quarter total Sevelamer prescriptions grew by almost 5% versus the second quarter. That's the largest percent increase quarter-to-quarter since the first quarter of 2002. Renvela now represents over 9% of the prescriptions in the month of September with an average dose over 6-grams per day, which is up 7.5% higher than an average Renagel prescription. Overall, share of the prescription phosphate binder market was over 51%. It was at an all time high in September. Now, growth in the US is considerably greater than in the international markets, where international sales growth has been dampened by FX rates and seasonality, and of course no market outside the US has Renvela to help drive its growth, but the regulatory process for Renvela is on track in Europe and we do expect registration by the middle of 2009. In the US, we continue to work towards the CKD indication. We have received a written response from the FDA to our position paper asking for more information. We think we can answer these questions posed with available data. Therefore, we are not adjusting our guidance of registration by mid-2009. And turning to our development pipeline, we continue to be on track to file an IND for our next generation advanced phosphate binders GENZ 644470 by the end of this year. And Mipomersen continues to advance as well, as Henri mentioned. In Q3, we began a Phase III heterozygous FH study and completed enrollment in our pivotal homozygous FH study as well. We expect data from the homozygous trial by the middle of next year. We are on track to begin three more Mipomersen studies this year and aphaeresis-eligible patient study, as well as two studies in high risk patient population. Now, the results of these studies will be critical to inform the design of our outcomes trial, which we continue to work towards initiating as soon as possible. Henri?

Thank you, John. And lastly, Mark Enyedy.

Thanks, Henri. We continue to make significant progress across our multiple sclerosis and hematology/oncology portfolios. Last month, the World Congress on Treatment and Research in MS was held in Montreal, during which several presentations reported data from our Alemtuzumab development program. The highlight of the Congress for our program was a platform presentation providing update on the three year results from our Phase II study comparing Alemtuzumab head-to-head against Rebif in over 300 previously untreated MS patients. With regard to the two primary endpoints of the study, the data presented confirmed that after at least three years on study, patients taking Alemtuzumab had a significantly reduced risk of sustained accumulation of disability and relapse and comparison to patients in the Rebif form. Most important, the mean disability of patients on Alemtuzumab improved from baseline, indicating a significant recovery of neurological function, whereas the mean disability of those on Rebif worsened. Again, this result was significant and supported by an increase in brain volume in months 12 through 36 as measured by MRI. In addition to confirming the primary endpoints previously on reported data from secondary endpoints from the study were also presented, which showed that the proportion of clinically disease-free patients was significantly higher in the Alemtuzumab arm with the study than in the Rebif arm at years one, two, and three on the study with more than 70% of the Alemtuzumab patients being free of disease at three years versus 39% of the patients on Rebif. Clinically disease-free in this study was defined at the absence of both relapse and sustained accumulation of disability during the time periods assessed. So we were very pleased that the data reported at ECTRIMS continue to support what we see as an encouraging product profile, with improved efficacy, quality of life, and convenience relative to a licensed therapy with a manageable safety profile, and we expect final data from this study to be published eminently in a peer-reviewed publication. Regarding our hematology and oncology portfolio, we are looking forward to two major product launches with Mozobil and Clolar within the next three quarters. Hemag is an important and growing market for Genzyme. We currently generate more than $500 million in revenue in this space and combined, we expect that Mozobil and Clolar can provide an additional $1 billion in peak sales. This is also a market of increasing leverage for us. We currently have four business units operating in this space and have pursued a number of joint initiatives with our commercial and medical organizations. These efforts will expand with the pending approval of Mozobil and Clolar with each of the sales forces is being trained on both products to provide a coordinated approach to support patients and physicians across the complementary customer base for these products. So we are very much looking forward to an FDA approval for Mozobil in December, followed by an EU approval for the product in the first half of '09. In parallel, we are on track to file a supplement to the Clolar NDA with the FDA this quarter for the adult AML indication with approval by the middle of next year and then EU registration later in 2009. On the development side, we will again have a substantial presence at ASH this quarter, with a number of presentations including data with Mozobil and stem-cell mobilization, tumor sensitization and pharmaco-economic outcomes and data from our key Clolar studies including duration of remission from our adult AML studying IFT’s in transplant and myelodysplastic syndrome. So, this is really very much an exciting moment for our MS and Hemag portfolios. We look forward to updating you as these efforts progress.

Thank you very much, Mark. Operator, now we can move to Q&A.

Thank you. [Operator Instructions]. Our first question comes from Brian Abrahams with Oppenheimer.

Hi, thanks very much for taking my question. There was a lot of discussion at yesterday's advisory committee meeting about what post marketing surveillance could be implemented for 2000-liter Myozyme. I was wondering if you could talk broadly about what types of post marketing commitments you believe could potentially satisfy the concerns of the FDA and the panelists and to give us kind of a general sense of what you might consider proposing to the agency in this regard. Thanks.

Its early days Brian but I think that Geoff will have a few comments on that. Geoff?

Brian thanks for the question. I think at this point as Henri said, it is a little bit early to know and I think what you heard in the panel meeting yesterday was a high level of uncertainty of how a post marketing study could really move this field meaningfully forward on top of the already a very substantial and very large trial effort that was pulled together for LOTS. So, I think there is really a desire to understand something about how this product will behave over the long-term and thinking about how we can put together a trial structure or a structured registry kind of template to allow for that experience to be generated is something that we will be clearly need to engage with the FDA. Having said that, there maybe some areas in these specific populations that were discussed yesterday, namely very young patients, potentially even infantile patients that would sustain a more formal protocol. So, we'll look forward to that discussion with the FDA.

Great, thanks very much.

Our next question comes from Ian Somaiya with Thomas Weisel Partners.

Thanks. Just a question on your 2009 guidance; I was hoping to get a little bit more insight on how we should think about the new year or at least how you are thinking about the new year in terms of the regulatory milestones that are coming up and what's baked into the guidance? I guess the one thing we know right now, I just wanted you to confirm this is we should assume that the convert is redeemed in stock or should we assume that in cash? Then if we could talk about the milestones as it relates to the two Mozobil plants -- Myozyme plants and then Mozobil (inaudible) approval.

Okay. Many questions in one; Mike, go ahead.

There is a convert one. The bonds that were put on December 1st as well as the call; so if the stock price is below $71.24, we expect them to require cash payment anyway. So, some of it is -- a lot of the convert is whether it's going to be above $71.24 on that date.

But which your 2009 guidance assumes cash conversion or stock conversion?

What we have assumed is in either case we would manage the earnings so that we would come back to the non-GAAP $4.70. So what we're trying to get to is if the stock price is above, obviously it goes to 9.7 million shares and we would handle the elusion in a number of different ways. You make prioritization around the programs, as I've talked about in the past. We -- tax rate, etcetera, etcetera or we could do a stock buyback based upon circumstances in the market. If it converts for cash then we obviously have the cash to afford to buyback. So, in either case, we would manage the earnings to $4.70. To come up with a hypothesis of whether it's going to be in or whether it's going to be out is a little difficult right now.

Okay. And then the question on the different milestones, the most important milestone I hear you mentioned is the approvals for Mozobil. We would expect the US approval for Mozobil to come before the end of the year, and I would expect European approval for Mozobil to come by mid next year. For Clolar, we would expect the approval for US adult AML to come by mid next year and for CKD, Renvela, we would expect the US label extension, if you like, to come by mid next year, and for European approval of Renvela to come by mid next year. Does that respond to your questions?

I mean I guess the basic assumption is that all the regulatory milestones come out positive or favorable and on the Myozyme front, the question was specific to the I guess, the 4000-liter plant. I think you mentioned in the press release that the product looks similar to the 2000-liter material. Can you just maybe extrapolate or give us a little bit more color on that? Will you need additional trials or is the assumption, the data you have today is enough for filing and approval?

I'll ask Allison to make comment in a minute, but let me just clarify. In terms of the earnings guidance, the actual impact of these individual programs in terms of $4.70 next year is going to be minimal. We don't expect very big financial impact. These are the milestones and the timing where we would expect these milestones to be delivered, but from what (inaudible) area is going to be relative minimal impact for next year. Well, this have an impact if the approval of 2000 buyers in US and the approval of 4000 manufacturing in Europe. Those we do need. Alison, can you make a comment on the 4000 comparability?

Yes, thank you, Henri. I’d like to just say that I think we've learnt and also a lot about scaling up of our manufacturing process from scaling up from 160 to 2000. As you heard from Henri earlier, we have completed our three process validation run and has been looking at the analytical analysis from that. We're actually very confident that we can get approval based on the biochemical comparability and we've already been actually working with the EMEA and the European authorities in preparation for the submission and to facilitate that approval as quickly as possible.

Okay. Thank you.

Next question?

Our next question comes from Katherine Kim with Banc of America Securities.

Hi. Thank you for taking my questions. The question I have is, was there anything discussed during the close manufacturing session that may affect the approvability of Myozyme?

Alison, can you handle that because you were there?

Yes. So, the closed session in the morning was actually a very straight-forward discussion. There was no voting by the panel. It was really just discussion about the biochemical differences that we know exists between the 160 and the 2000-liter scale. I think that the discussion in the morning was very much focused, everybody recognized and talked about really, the main decision of the day was the discussion in the afternoon around the clinical effectiveness of the LOTS data, and the fact that they found out positive was really the most important piece of the day.

Okay. Thank you.

Our next question comes from Geoffrey Porges with Bernstein.

Yes, thanks. I just like to follow-up on that question. So, is it your conclusion that the appearance of differences in immunogenicity and adverse event rates between the 160-liter and 2000-liter is not associated with the biochemical differences or is there, did the panel or did the FDA experts suggest there may be some association? And then are there biochemical differences between 2000-liter and 4000-liter or can you assure us that they don't have any of the differences that have been noted between 160 and 2000?

Alison, do you want to try and handle that? It’s interesting how you word the question the appearance of this and that was the way that the panel discussion went. There would appear that there was that few. We don't think there is really a difference between these two products from an immunogenicity or from an adverse event point of view. Alison, do you want to make more comments on that?

Yes, just to confirm that. I think that we feel very strongly that we don't believe there is a difference in the immunogenicity and particularly I think we presented data yesterday comparing similar patient populations, when you look at infants versus infants with the two different scales. We believe there is not a difference in the immunogenicity. Yesterday a lot of the discussion that the panel and a number of the panel members actually picked up on it, that the FDA in particular picked up on a difference in anaphylaxis and that was really down to one patient difference, which I think a number of the panel members really were questioning and we felt that one patient, we didn't have the four patients like FDA, we had three. I think the panel members were picking up on that as well. I forgot your second part of your question.

The biochemical differences between 2000 and 4000?

Between 2000 and 4000?

I think you gave the answer to the last question. We feel confident of that.

What we're seeing so far, we're confident that there are no biochemical differences.

Okay. Thank you. That's very helpful.

Our next question comes from Jim Birchenough with Barclays Capital.

Just to follow-up on this line of questioning. Can you remind us what the burden is for Type II variance in Europe and as you consider 4000-liters potentially going in front of the FDA, do you think its worthwhile doing an immunogenicity study specifically and if so, when might you start that?

Alison, do you want to say, or David?

With regard to the European filing, I mean I think that will be, I mean, Alison can correct me here. A traditional review of the biochemical characteristics for this product they will judge whether it's sufficiently similar and approve it on that basis. With regard to the US and whether we would need to do additional clinical work to look at potential immunogenicity differences, I think what Alison referenced is the most important takeaway here is that the differences that were being discussed yesterday between the 160 and the 2000-liter were very small individual patient differences and the conclusion that there is a real immunogenicity difference between the products was not clear and I think it was not clear in the panel discussions. So, we would not anticipate that we would need to do or sort of even want to do a specific study looking at immunogenicity around the 4000-liter product. Once it's in patients, we'll collect that data of course.

I just want to make sure I understand. With the Type II variance in Europe you don't require any clinical data. Is there a decision point between now and mid '09, where EMEA may come back to you and say we're not granting the Type II variance, or do you just find that out at the end?

So, let me just repeat the fact that we have already been working with the EMEA and had discussions about the biochemical comparability between the two scales and at this point, we're confident, again, that we are going to submit that biochemical comparability for the basis of approval.

Great. Thanks, Allison.

Our next question comes from Yaron Werber with Citi.

Yeah, hi; congrats on yesterday's panel. It’s too bad, it's - we’re in a pretty tough environment right now in the market and just talks about acting correctly. But I wanted to ask a question about foreign currency, Mike. The -- we're beginning to see the US dollar now strengthening and the European central banks are cutting interest rates. They cut again I believe over night. So, and if you talk to our currency team here, they continue to expect that the dollar is going to strengthen as we go forward into the next year. The impact as far as I can tell was about $0.04 on the upside this quarter. Can you -- and you don't hedge, obviously you have some natural hedges, which are about 40%, 45%, but they are not obviously not sufficient. Can you help us understand how would you deal with that next year? Is the answer essentially cutting expenses to deal with the headwinds or would you by any chance consider starting to hedge? Thanks.

No, I don't think we'll consider starting to hedge. If you look at, as I say, Q3, Q3 was actually a pretty good precursor of what's to come. If you look at Q3 versus Q3 of last year, obviously the euro strength was still strengthening. It went from $1.38 as I recall to $1.50 this year in Q3. We did capture both the upside as well as the on both the top line as well as we hedged out naturally through our manufacturing as well as our SG&A infrastructure. If you look at Q2 to Q3, it turned. It actually went down by 4% and despite that, we captured the upside on the bottom line as well. What's happening Yaron is that about 50% of our sales are ex-US. We have about 45% or so of our manufacturing is ex-US and that continues to grow based upon the mix of products. So, we continue to invest there, so we continue to become more naturally hedged as ever. In addition, most of the infrastructure that we're putting in place on the commercial side is also taking place ex-US and it's about right now it's about 45%. So that will continue to increase. So with those things increasing, those natural hedges will continue to increase on both the top line as well as on the operating expense. So, we're pretty kind of safe in our position. Now with that all said, obviously we have a lot of dials to turnover, we're a very diversified business and we do make management decisions based upon where we are ending up in the quarter with regard to how much we invest in our commercial infrastructure and commercial programs, as well as how much and how fast we increase our R&D burn. So we'll manage all of those dials and that’s sort of what I was touching on in my initial conversation around and in the script was that because we are so diversified both on the product line basis, as wells as on a global basis, we have a lot of dials to spin it on and to make our numbers and that's essentially how we'll manage our way through the FX, as well as turns on the revenue line.

Next question?

Our next question comes from Mark Schoenebaum with Deutsche Bank.

Hey, thanks for taking my question. Couple housekeeping matters. On Myozyme, can you give us an updated figure on things that you're willing to disclose around; A, the number of patients in MTAP right now, I think we know that. and then B, the number of non-MTAP patients that you've identified and I think you made a statement at one point that at the time of Myozyme 2000-liter approval in the US, you expected that 50 to 150, so do you think the upper end of that range is real and do you have a waitlist in Europe for patients that are identified but not yet on therapy and can you give us a sense of how big that is? And then just on foreign currency, I didn't hear. Can you give the sequential EBIT impact or operating income impact and the sequential revenue?

Geoff, you handle the patient questions. To get to these patient questions to this finance that you are trying to get to and to actually make it like it is a step function is you could come to the wrong conclusion, that clearly we have the MTAP patients that are treated free of charge. We have a backlog of patients that we know about in the United States that are not being treated and etcetera. The interesting part here is the numbers of patients that are in these markets are being identified or yet to be identified. For that, you need to really look at what is the experience in some areas where you've seen some real rapid growth related to the specific rate of these diseases being organized in that country. And Geoff if you give some color to it in that sense then you can probably come to a better conclusion about what to expect in terms of growth rates here.

Okay. Thanks, Henri and thanks, Mark for the question. So just a reminder that the way the process of patients are coming to our awareness, meaning Genzyme's awareness in the US, we have a very formal process by which patients can engage with Genzyme with a HIPAA release and that is what generated the lower bound of the range in the 50s that you heard about in the panel meeting yesterday. We are aware through our conversations with physicians in the field of other patients. We have no way to reliably quantitate that number which is why we gave the kind of range that you heard in the Q2 call of 50 to 150 and I think at the time that and maybe even now that the likelihood of approval seems to be more certain or at least is taking a more solid shape. That number of patients who are willing to engage with us directly will become greater. But I think that range of 50 to 150 still remains a reasonable first step as Henri was saying and I think to put Henri's comments into perspective regarding the level of awareness if you look at countries like Germany with about 100 patients or an excess of 100 patients on therapy and a larger number than that identified today and you’re correct for the population, I think you can quickly see that the level of awareness and penetration here in the US today remains quite low. I think there's a very good reason for that we've been very taken out both Genzyme and the community of patients and physicians with managing through the current circumstances and I think once we're in a place where we can focus on bringing further programs to bear on raising awareness we will see the results of that come into play in 2009.

Can you give a ballpark European figure for the backlog? You mentioned over a 100 in Germany.

Sorry, I hadn't forgotten your that part...

Okay sorry.

So getting to the European side of the equation, we have in some countries a reasonable idea and other countries a less clear idea as we do in the US of what the pipeline is. But I think it is worth mentioning that the reality of this scale-up process and the timing that we have described in a very transparent way, not only to you but to the treatment community is influencing the rate at which physicians are putting patients onto therapy. So, I think it's very reasonable to conclude from this quarter's numbers and from the slope going into next year that clinicians are going to be thoughtful about the rate at which they bring patients through. So, we would anticipate that that restraint if you will is something that will really change in a meaningful way when we have approval of the 4000-liter material in the first half. So to directly answer the question about Europe, we don’t have a number in mind. It's not a number that we can collect per se, but we definitely have this feeling that we are not seeing the number that is potential translate into accruals.

I repeat again in the Netherlands, which is [for example] Pompe wasn't a document and this disease is extremely well known as I have noticed myself being a veteran in that country and Erasmus University has been a pioneer in this field forever, and play the big role in the whole clinical development and the discovery side of this field. In that country where patients have been organized for years in a very good way with 16 million people, we are treating over a hundred people right now. That is just a straightforward example of the kind of thing to expect. We certainly see this in the category of Gaucher disease. With Gaucher disease, we have been around 16 years in terms of truly protecting how many patients there were. It has grown for 16 years. It's just a little bit of function of rarity. In this case, we have a few outstanding examples. In Gaucher, we had that in Israel. In this case, we have it in the Netherlands of how many patients are potentially there.

And the sequential EBIT and revenue FX impacts?

The impact on the top line year-to-year was $31 million, as I mentioned in my script. We also have -- we paid an incremental operating expense cost to us of about $11 million, so that nets you down to an EBIT of approximately $20 million.

What about quarter-on-quarter?

Quarter-on-quarter, I don't have the -- I have the top line, which I believe is $18 million. I don't have the bottom line for you to...

Okay. Thanks. Thank you very much.

Next question?

Our next question comes from Geoffrey Meacham with JPMorgan.

Hi. Thanks for taking the question. Not to beat the dead horse on this Myozyme thing, but I just want to ask the question on the commercial availability. Can we assume that the vast majority of the MTAP patients will get commercial access to Myozyme, when you approve the 2000-liter, when the FDA approves it? And then the second part to this is, will the LOTS extension trial patients and then the 53 patients that you guys talked about in your advisory committee documents, will those patients have to wait until 4000-liter approval?

Geoff, do you want to [answer]?

Sure. So thanks for the question. I think the MTAP population we would expect to transition in a pretty smooth way. These are patients, many of whom were previously on commercial therapy and at the time of approval, we would expect them to work their way through a natural process pretty quickly. Remember that the current MTAP population already includes the LOTS extension patients who have been rolling through over the last couple of months. So, we would include them in the same category. Of those patients who are waiting, we would not anticipate that they would have to wait until 4000-liter approval in the US, but their timeframe for rolling onto commercial therapy will be reflecting more of the natural new patient timeline as oppose to those MTAP patients who are a little bit more primed if you will.

Okay. Just a quick follow-up, if I can.

Sure.

Just on your 2009 guidance, so is it safe to assume that this assumes effectively very basically no Myozyme capacity constraints in the second half of next year and then already assumes approval in launch of Renvela and CKD in the US? Thanks.

I just answer the question for Myozyme that is the case.

John?

It does assume that, but I think as Henri mentioned earlier, the impact of CKD in the US right after approval in the second half of the year, it's really minimal. I don't think it's a material impact to that -- with the guidance at all.

Okay, thank you.

Our next question comes from Phil Nadeau with Cowen & Company. Phil Nadeau - Cowen & Company: Good morning and thanks for taking my questions. Just one more on Myozyme; it seemed from the panel yesterday that the FDA is likely to require a design of a post approval study before they approve the 2000-liter facility. How long will that design process take and can you possibly get that done by the November PDUFA date?

We all are working very hard to get it done by the November date. That's clearly the objective and we will be meeting as soon as we can, probably early next week, with the FDA. We have a number of proposals in mind. It is a discussion that needs to take place. I think everybody that came through this meeting extremely aware of the urgency to get on with it. So, we work very hard to meet the requirements to get it all done by the PDUFA date. Phil Nadeau - Cowen & Company: Thank you.

Our next question comes from Meg Malloy with Goldman Sachs.

Thanks very much. Two quick ones, first on Myozyme and what you are contemplating in terms of additional studies and what would your thinking be about doing a dose finding study or dose range study in juvenile patients? Separately, can you elaborate a little bit on the nature of the FDA's questions in CKD and why you think you don't need to do additional studies to address them? Thanks.

Okay. One for Geoff, one for John; Geoff?

So Meg, I'll just reiterate that the design and the specific kinds of proposals around this protocol is something that we'll work during the next couple of weeks here, as Henri mentioned. With regards to your suggestion around dose, it's not a bad idea at all. In fact, we are already conducting and have been conducting a dose trial as part of our post marketing commitments for the 160-liter material with the FDA. So, it's something that we believe we've answered pretty well in the development of the program and are now working to clarify through this existing post-marketing commitment. So, we wouldn't anticipate that being a focus for this protocol. John?

Thank you.

Meg, so again based on the unusual nature of this process with the FDA and the three companies working together I think we're being a little more careful about what we communicate in an ongoing regulatory process. As I’ve talked about before at the essence, the question is round who is the appropriate patient to identify, who would benefit from phosphate binder use before they start dialysis and I think it's just looking for more clarity around how do we define that patient population.

Okay. Thanks very much.

Our next question comes from Matt Osborne with Lazard.

Thanks for taking the question. Just to switch gears over to Mozobil. It appears around 900 patients on compassionate use now. Can you talk about [Mark] the rate of conversion of these patients to commercial supply? And then just one quick question on Synvisc-One, it seems like it's a low risk strategy for moving to a less frequent dosing. But I believe you're also looking for longer duration of therapy. Can you discuss what the FDA maybe looking at in the December panel committee? Thank you.

David, if you can take the Mozobil…

These are single-use patients. So, the important thing about the compassionate use experience is that it's allowing individual physicians and centers to get experience with the products and so that's a very important part of this. The commercial switch will happen once we get approval for the product of course later this year in the US and then in the first half or middle…

You want to clarify David, how it is used so that everybody understands that.

So briefly Mozobil is a drug that's designed to help mobilize stem cells for the use of bone marrow transplant. So, it has several advantages from the current situation, where patients are mobilized either using chemotherapeutic regimen, where the chemotherapy is given and then that results in the bone marrow being primed, followed by rebound stem cells which can be mobilized that creates a lot of uncertainty in terms of the exact time when cells peak and can be harvested with reliability. So Mozobil will bring increased reliability to this process and for a number of patients, who have failed to mobilize in the setting of standard of care. This has been shown to allow them to mobilize quite reliably. So, those are the two.

Okay.

I’ll say there is one based on our dialogue with the FDA thus far. We expect that they will acknowledge the statistical significance of our results, but ask questions about the clinical significance of those results. We feel, we’ve a good case to make, but the panel [is] December 9th and we'll wait for that. Synvisc-One though, is not proposing to be an extension of the duration of pain relief. It's presented as a simple dosing change. So, six months pain relief with a single dose versus our original product, which involve two injections.

Okay, great. Thank you.

Operator, if we can have two more questions, then probably we’ll be done.

Thank you. Our next question comes from Aaron Reames with Wachovia Capital Markets.

Thanks for taking my questions and congratulations on yesterdays outcome. First question I had is, I was wondering if you’ve started to build inventory, Myozyme inventory from the two 4000-liter bioreactors in Belgium. And then second question is on the follow-on, was that the product obtained through the Novazyme acquisition and do you feel that it would be necessary and/or feasible to run head-to-head studies against Myozyme to get that approved?

It's a good questions, Geoff?

Both great questions. So, yes, we are starting to build inventory from 4000-liter PV runs and from the subsequent runs that will occur before approval. With respect to the next generation GAA, it is an internally generated program unrelated to the acquisition. I think we’ve a lot of road to travel here as we move all of these scales through approval and not the least of the considerations will be how additional products can be brought there for the Pompe community. So, I think it's just too early to say.

All right. Thank you.

Our final question comes from Maged Shenouda with UBS

Sure. Hi, so how would you characterize the economic sensitivity of your biosurgery mainly Synvisc and diagnostics businesses?

The sensitivity in the economic sense, currently in the economic environment?

Yes.

I’d characterize that’s being relatively modest because these are inexpensive therapies and they deal with acute problems and we haven't noticed very and particularly sensitive regulatory environment or reimbursement environment around these products. So I’d say that of course in the Europe, some of these products are self-pay and that could happen in individual patients’ impact. But they are so relatively low cost that I don't think it will have the kind of impact that you could see around other kinds of programs. But Ann do you have a few?

No, I agree. We're monitoring the European market, where there is more self-pay involvement than elsewhere carefully haven't seen anything thus far. Our pricing is somewhat lower in Europe again so the out-of-pocket cost is mitigated even beyond what US pricing is. So we'll keep our eye on it, but we don't anticipate a major impact.

And how about the diagnostics business?

The genetic diagnostics business, we don't think so. This was prenatal testing and oncology testing. These are very, very severe environments, where getting the right answer is critically important. So, I don't think that has much of an impact. The economy won't have much of an impact in those areas unless broad based government breakdowns could have an impact because many of these programs are supported through CMS but that's extremely unlikely.

Okay. Great. Thank you.

Thank you all very, very much for participating this morning. If we didn't get to you in terms of the questions, please do not hesitate to be in touch with us or Patrick and we'll make sure that we get you the answers and we respond to your questions. We very much look forward to seeing you soon again. Thank you very much.

Thank you for joining today's conference. That does conclude the call at this time.