Sanofi (SNY) Q4 2008 Earnings Report, Transcript and Summary

Welcome to Genzyme Corporation's Fourth Quarter Financial Results Conference Call. All parties will be in a listen-only mode until the question-and-answer session. [Operator instructions]. Also, 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. Sir you may begin.

Thank you Marianna, and welcome everyone to Genzyme Corporation's fourth quarter and year-end earnings conference call. On this call, we will be discussing Genzyme's future financial outlooks, business plans and strategies. We will be making forward-looking statements, including discussing our earnings, revenue and expense forecast, our development and regulatory approval plans and estimated timetable for several products and development programs, including alglucosidase alfa and our assessment of generic competition for its development. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially. Please refer to the risk factors section of our September 30, 10-Q for more information on those risks. If during this call we use any non-GAAP financial measures, you'll find on our website reconciliation to the most directly comparable GAAP financial measure. Now, I would like to turn the call over to Genzyme's Chairman and CEO, Henri Termeer.

Thank you Patrick, and thank you everybody joining us this morning. We as usual will go through a few comments. Mike Wyzga, our Chief Financial Officer will go through the financial situation and the guidance for next year and then some of the business leaders will make some specific comments on some very important current developments. Clearly Q4 was again a very robust quarter. It was a quarter that was much impacted from an exchange rate point of view versus the remaining the other parts of 2008. And we are very pleased indeed that we managed our way through within a very strong, financially very sound way. Top line was up 13%, adjusted foreign exchange rate; that would have been up 17%. The year was up 21% and because in the beginning of the year the exchange rate was beneficial, adjusted foreign exchange rate the year was up 18% and that lines up very nicely with our projections through 2011. Non-GAAP earnings for the fourth quarter were $1.04 per share which was in the high end of our $1.01 to $1.04 projection that we made earlier this year. And non-GAAP earnings for the year were $4.00 which was up from $3.90 which was our guidance. Of course we started to gear 2008 with $4.00 guidance, we changed it in April when we had to delay on the approval of Myozyme in the United States to $3.90 and we made it up during the year to $4.00 that's indeed very pleasing again. Clearly these are difficult financial times, economic times for everybody including companies in our industry and I think we are benefiting in a very measurable way at current time from the way that we are structured, the way that we are organized. We are highly diversified, both in terms of the products that we have sent it to the market and the products are very valuable in terms of the clinical contribution they make. We are highly diversified in terms of jobs, where we operate and so the pluses or minuses are around the exchange rate movements around the world are somewhat mitigated by that geographical distribution. Same thing for our manufacturing; we pretty much produce half of our products in Europe and the other half in United States and that mitigates also the exchange rate impact to some extend. But this global diversification, this products and operations is clearly very beneficial in managing through these very tumultuous times and it is on that basis that we feel again very confident to talk about our guidance for the coming year. We first talked about our non-GAAP earnings per share expectations at the end of third quarter. We talked about $4.70; that was before the exchange rates started to move. We're confirming as we did earlier in January and confirming again today $4.70 for the year. And this again is result of being able to manage the operations at such rate that we can get to these kinds of earnings. And this is not at the expense of our future as we showed in 2008, we brought in very important programs from the outside and we progressed programs on the inside in a way that in this quarter alone we will see very significant regulatory activities around some of our programs. The most important one is a dose that are run (ph) from Myozyme. We clearly did have an impact of Myozyme being limited of our treatment for Pompe disease being limited in the United States. We would not promote in the United States in the way that we've been enable to do it in Europe. Myozyme of course, around the world has been a very successful introduction, almost $300 million of revenues last year. But in the U.S. it was a product that we couldn't promote and actually we are giving product free of charge to many patients in the United States. We expect that to be resolved during this quarter. We have a PDUFA date by the 28th of February. We well can get the 2000 liter perfusion reactor system approved for a product that will not be called Myozyme, it will be called Lumizyme; and don't ask me all the background around that. But that's where we ended up with the FDA we will introduce Lumizyme in the United States, while maintaining the Myozyme brand globally. And it will be very helpful for indeed once that happens. The other essential regulatory approval that we are waiting for and that we have talked to you about many times, the approval of 4000 liter perfusion reactors in Belgium. It will be filed late in December. We are now in the review cycle with them. I personally feel quite encouraged from what I see there and then again if that runs at normal course we should get approval in the early part of the next quarter in April. But, we have also asked for an expedited review of this, so we'll see where that goes. But both these things happening it will be happening in the coming months. It will make enormous difference for this program, for the patients and also economically for the corporation because this is a very important program, that's showed a tremendous growth rate last year and is still very early in terms of its market penetration. Additionally, this quarter we would expect Synvisc-One to be approved in the United States. We had a good meeting with the FDA last year in December with the financial committee and we're now working all way through to final details for the approval. And then that product will become an important product through the remainder of the year. We introduced Mozobil that was approved late last year in the United States last months in January. And we are guiding in the documents that we sent you, $40 to $50 million in this first year. It's a very interesting product, we're very excited about the interest that we are finding is throughout the United States and actually in Europe as well in terms of compassionate use. European approval of Mozobil is not expected until the second half of this year but, to be off on a good start there and clearly it is something that will impact throughout this year. Renvela, we would expect its first half action in Europe both in terms of end-stage renal disease and CKD and the Pompe form. We would expect action still in the first half this year towards the middle of the year, with the FDA of the CKD indication for Renvela. There are many late stage programs that are progressing throughout this year, all of which are mentioned in the press release and I don't necessarily need to go through it here, but this is going to be a very active year in terms of programs that have become known, that's started to show their potential and while at the same time, being also a very strong year in terms of our current revenue and business development. Our top line projections are, guidance is from $5.2 billion to $5.4 billion, which is of course net of the exchange rate change, which has an impact of about $50 million, if the exchange rate would have been the same between the two years '08 and '09. So clearly, we are on a strong footing and a number of important things are happening. But we are in a very tumultuous economy, tumultuous for our industry and globally. We are well prepared to work our way through this, and we think because the way that we are organized and because the cash flows that we have and because of the opportunities that show up in this kind of environment, we are in a very good position to grow and grow significantly during this period of time in terms of the kind of pipeline that becomes available to us beyond 2011. So we tend to be active during this year in that regard, but we will be active within the constraints of the financial commitments that we have made to you, which is $4.70 non-GAAP earnings this year, about $7 earnings per share in 2011 and revenues on the top line of $5.2 billion to $5.4 billion. So with that, I am asking Mike Wyzga to lead us through the financial detail. Michael?

Sure. Thanks a lot, Henri. As Henri summarized, we exited 2008 on a very positive note, and it puts us in a good position as we entered the new year. Our full year revenue increased to $4.6 billion, and that represents a 21% increase on a year-to-year basis. Q4 revenue increased 13% year-to-year; that despite about $39 million impact to the change in the foreign exchange rate, and obviously we've manage that our way through it on the bottom line as we will talk about. Revenue growth and continued spending control resulted in a full year non-GAAP net income increase of about 18% over 2007. As the worldwide credit markets continued to be a bit fragile, cash generation and cash management are more important than ever. In 2008, we generated over $1.5 billion of cash, predominantly from operations. We used this cash to invest in our strategic late-stage programs with Isis, PTC in the fourth quarter, Osiris. We also repaid our convertible debt of about $700 million and we used the remaining cash to build out additional manufacturing capacity, which will come to the fore in later years. We exited 2008 in fine shape with about $1 billion in cash in our book. Now as you can see from the Q4 earnings per share crosswalk, during the fourth quarter our GAAP income before taxes was $132 million. During the quarter, we recorded $146 million of upfront licensing fee, that's primarily associated with our collaboration with Osiris Therapeutics. During the quarter, we also recorded a startup manufacturing related charge of about $24 million. These costs were from material and overhead expenses associated with incomplete process validation runs which occurred in Belgium. Expenses associated with stock options in Q4 were $45 million and amortization increased slightly to about $50 million in this fourth quarter. Our Q4 non-GAAP income was $288 million, and came it at $1.04 per diluted share. That should be compared to $0.91 per share last year. For the full year, our non-GAAP income was $1.1 billion and came in at $4 per share. We previously announced a lot of our results couple of weeks ago. So I am going to focus on the more important business factors. As I mentioned, the revenue increased to $4.6 billion, and through the first three quarters, the impact of foreign exchange was actually positive to our top line, really turned unfavorable in September as I recall for the full fourth quarter. For the year, the impact of our foreign exchange was net favorable on our revenue and increased our revenue by about $90 million. Setting aside the impact of the FX, our year-to-year revenue increased by about 18%. The Genetic Disease segment, which is our largest segment, once again was the biggest contributor to our overall revenue growth, increasing by $459 million year-to-year and that's about 26%. Despite the impact of U.S manufacturing constraints, worldwide Myozyme revenue increased $95 million year-to-year. Within the Cardiometabolic and Renal segment, we increased by about 15% and that was mostly driven by increased market penetration as well as pricing. Biosurgery revenue increased 15% year-to-year to $491 million, and within the Hematologic and Oncology segment, revenue increased to $117 million for the year. That's due to the full year of European call out revenue. Finally, within our other segment, genetics testing revenue increased by about 12%, and that was driven mostly by reproductive testing services. Our other segment includes genetic testing, diagnostics products, Thymoglobulin in the pharmaceutical product area. Our non-GAAP gross margin for the full year was 76% of our total revenue, with Q4 coming in slightly higher at 77%. The gross margin in the fourth quarter was impacted by the favorable foreign exchange rates in our ex-U.S. manufacturing sites, as well as the timing of the inventory that was produced in prior periods, and that was sold in the fourth quarter. Within our operating expense, our full year non-GAAP R&D expenses increased to $750 million. That's about 16% of our revenue. Year-to-year, our R&D expenses increase was primarily for the two Phase II studies that are going on in the MS area, as well as the Gaucher Phase II small molecule study. Our full year non-GAAP SG&A expenses were approximately $1.2 billion or 27% of revenue. We increased our sales force, improving supporting the launch of Myozyme outside of the United States, as well as the U.S. Renvela launch. We also increased the separate sales force here in the United States. Our overall non-GAAP operating expenses decreased slightly as a percentage of revenue to about 43% from 44% in 2007. Our net interest income decreased in 2007. That's a direct reflection of what's going on in the market with our portfolio yield. Our tax rate before one timers in amortization was about 29% for the year, and that should be compared against the 31% in 2007. We continue to see increased leverage from our foreign manufacturing strategy, due to the increased production that's taking place outside the United States. The net bottom line impact of foreign exchange was negative in the fourth quarter by about $18 million. That was somewhat offset by gains in the Q1, Q2 and Q3 which increased our net income favorably so that the full year come in about $32 million. Our capital expenditures were about $600 million for the year. And as I mentioned, our cash generation was very robust and it came in about $1.5 billion. Once again, we exited the year with $1 billion of cash and virtually no debt. So that closed the books on 2008. Let me give you an update on the some of the more important items in 2009 and in our 2009 guidance. In an increasingly difficult worldwide economy, as Henri mentioned, we're reaffirming our non-GAAP earnings per share in 2009 at $4.70. We remain on track to deliver our earnings goal of 20% compound average growth rate from 2006 to 2011. On the top line we expect our worldwide revenues to increase to approximately $5.2 billion to $5.4 billion in 2009. And that's an increase of between 13% to 17% on a year-on-year basis. Now we use $1.35 rate for the euro, but the best way to look at this is to break apart the incremental growth rate of the revenue. If you look at the incremental growth rate of the revenue, it's about $700 million year-to-year. If you break that into two separate pieces, the first part is the increase of about $850 million that's associated with the volume and the pricing. The second part is the dampening effect of the negative impact of foreign currency exchange fluctuations. We estimate that's about $150 million. So if you look at the constant dollars of the revenue growth, actually the growth rate is somewhere around 21%. Now as I always remind you, Genzyme global infrastructure plays a very significant role in mitigating the bottom line impact of these currency fluctuations, just as it did in the fourth quarter. Let me talk about some of the key business drivers in 2009. This year, we expect Cerezyme revenue to come in between $1.25 billion and $1.28 billion. To break that again into two separate pieces, volume and pricing increased Cerezyme revenue about 7%, that's somewhat offset by the negative 5% impact of foreign exchange. Myozyme revenue was obviously one of our key drivers in 2009, with expected approvals in 2000 liter material in United States and the 4,000 liter in Belgium, we expect to put our manufacturing constraints behind, this increased our revenue by almost 50% on a year-to-year basis. Fabrazyme is expected to increase by about 14%, over 2008 numbers, coming somewhere between $560 million and $570 million for the year. Mozobil is expected to generate between $40 million and $50 million in revenue in its first full year, largely in the United States. The sevelamer product line is expected to increase with the transition to Renvela. Also, we expect increased market penetration on a global basis and the CKD indication somewhere around mid-year. We expect Renagel and Renvela to increase in the range of $725 to $735 million. Again this is a product line that's fairly well impacted on the top line by foreign exchange. Volume and pricing increase is about 13% that's offset by about 6% negative impact of foreign exchange in the year-to-year basis. Our other segment is expected to increase by about -- to about $1 billion in 2009. Our non-GAAP gross margin is expected to come in about 75% of revenue. There's a number of factors affecting the gross margin estimate. The first is the expected approval of our manufacturing facilities both here in the United States as well as in Belgium. When these facilities are approved, they increase both our productivity and capacity over the course of time. But initially we'll have to absorb that underutilized capacity over the units that are produced, as we produce more units the impact will dampen. We also expect the impact of our product mix to slightly dampen our gross margin in 2009 and again once again once we get suitable capacity, unutilized capacity we expect that to turn. Our non-GAAP SG&A expenses will increase with the continued global roll out of Myozyme, Renvela launch as well as Synvisc-One launch. We'll also increase our global efforts in the sales and marketing for Mozobil. Now with that all said, we expect SG&A to be a key leverage area for us. And we expect it to decrease as a percentage of revenue to about 26%. Our non-GAAP R&D is expected to remain about 16% in 2009. Again the major programs haven't really changed all that much, major focus will be on the MS trials as well as Gaucher Small Molecule program. Our net interest income is expected to decline with the first full year of impact of the lower portfolio yields that we expect due to the market. Now despite the increased dollar profitability we expect to maintain approximately 29% non-GAAP tax rate and that's again due to the continuation of our utilized foreign manufacturing. Our diluted weighted average shares outstanding is expected to remain about 281 million shares. Our capital expenditures are expected to be somewhere around $600 million to $650 million for the year. As we continue our manufacturing capacity build out in cell culture, fill and finish the expansion as well as the new polyclonal facility in France. Our our first quarter non-GAAP EPS is expected to be relatively flat with the Q4 for 2008, and this reflects the tight supply of Myozyme and also the expense associated with the access programs. And as a reminder, you can find the line item revenue and expense detail on our press release and our cross walks on our webcast sites. So with that let me stop and tune it over to Henry.

Thank you Michael. So now let me ask John Butler to make a few comments. After John, Mark Enyedy some comments and then Geff McDonough. John?

Thanks Henri. Our cardiometabolic and renal disease area continues to make good progress in the fourth quarter. Sevelamer sales in the quarter were affected by FX changes but the underlying volume growth and U.S pricing power remained strong. The launch of Renvela in U.S has clearly allowed us to reaccelerate growth. 2008 volume growth versus 2007 was almost 9.5% in the U.S., volume growth in the prior year had slowed to less than 8%. Even last quarter versus the prior where revenue was flat, global volume grew at about 2%. Prices continued to be a growth driver in the U.S with price contributing almost 8% growth 2008 versus 2007. Renvela now accounts for over 20% of new prescriptions written for sevelamer, with an average dosage that's about 8% higher than Renagel and has maintained that differential for the last couple of months. And we expect to see this prescription trend continue as we announced in January our intention to remove Renagel from the U.S market before the end of the year. From a competitive perspective, we're in a strong position both short and longer term with the entry of a generic calcium acetate in the U.S. our short term share has increased significantly. Our regulatory discussions in Europe continue for Renvela as well as our discussions with the FDA regarding the expansion of our label for Renvela II (ph) the CKD population. We expect a positive outcome for both by the middle of this year. Recently we've been notified of two new Paragraph IV fillings on our Renagel patents. We remain extremely confident in the strength of our sevelamer patent state and will defend them appropriately. As we've communicated previously, we expect generic entry into the U.S. market in early 2015 if we're granted the six month pediatric extension. As part of our life cycle management strategy in bone and mineral disease, as mentioned earlier we filed an IND for our advanced phosphate binder at the end of last year, and we expect to start a Phase II, III study as soon as possible, certainly before the middle of this year. We expect the APB to be available before the Renagel patents expire. As mentioned before we are targeting a product profile that provides phosphate lowering at 1.5 to 2 times the potency of Renvela. Our other Phase III program Mipomersen continues to progress as well. Since closing the deal with Isis in June, we've transferred all regulatory activities in Genzyme. We had informal discussions with European regulatory authorities. We've begun three important new clinical programs studying Mipomersen and heterozygous FH high risk and statin intolerant patients. We still expect to have a first patient in, in the study of severe hypercholesterolemia shortly as screening is ongoing. And we expect data to be available from our homozygous FH study by the middle of this year. We look forward to updating you on both the APB and Mipomersen study at our Analyst Day in May. Mark?

Good morning. We've made significant progress with our oncology and MS portfolios in 2008 and look forward to continuing that momentum in 2009. As Henry mentioned in mid December, the FDA approved Mozobil for using combination with G-CSF in preparation for oncologist transplant. We shipped our first product before year-end and after six weeks the launch is proceeding quite well. We have initially targeted 60 centers which account for roughly 75% of the market and have received orders from roughly two-thirds of these target accounts. In total, we received orders from over 80 centers over these first six weeks and reorders account for more than half of our current volume. We're particularly encouraged to see some centers using the products in the front line setting and also that orders are coming from centers with no prior experience with the product either through clinical trials or compassionate use. So it's early days, but we're very pleased with the adoption in the U.S. market to date. In Europe, we continue to expect action on our marketing application by mid-year and on a global basis. We see the demand for compassionate use remains quite high with almost 400 patients outside the U.S. participating in the program from over 20 countries and much of that demand is coming from our key EU markets. We are also very much on track with Clolar which will be our second key catalyst for growth in 2009. '08 revenue was up over almost 90% over 2007, it was roughly 60% of these revenues coming from the adult AML particularly in the relapse, refractory setting. On the regulatory front, you may recall that we filed for expansion of our label and frontline AML in November and anticipated decision from before the end of June which support continued robust growth in the products throughout 2009. Outside of the U.S. we expect to file for EU approval on the second half of this year and continue to expand our registrations from the pediatric indication in both Latin America as well as the Pacific Rim. On the MS side of the house, the Phase III studies continue to accrue nicely and particularly we've seen roughly 70% increase in patients and screening following the publications of the Phase II results in the New England Journal of Medicine last fall. Given these trends, we expect a complete enrollment in the treatment naïve study next quarter, which will allow us to file in 2011 and anticipate our first approval in 2012. As outlined in today's earnings release, we have amended the protocol for the study in the treatment experienced patients to eliminate the 24 mg Alemtuzumab arm. The final analysis of our Phase II study showed no significant differences in efficacy and safety between the 12 and 24 mg doses. So we elected to eliminate this arm of the study in order to accelerate enrollment in this study which we now expect to complete accrual in the first half of 2010. So we generated significant momentum with these portfolios over the past year and look forward to updating you as these efforts progress in 2009. Jeff?

Thank you, Mark. This is a good quarter for the Genetic Disease portfolio ending with $558 million and overall revenues of $2.23 billion representing a full year, year-on-year growth of 26% as Mike said which includes the addition of Aldurazyme revenue in 2008. As Mike also mentioned the weakened euro, put downward pressure on our revenues in Q4 but underlying volume growth and patient accruals were consistent across the products. I'll make a few comments on the portfolio. In spite of ongoing inventory constraints, Myozyme had a strong full year 2008 ending with revenues of $296 million, a year-on-year growth of 48% driven by strong global demand. The two major approval milestones we have discussed continue to be on track. First, we continue to move towards the decision on the new approval of 4000 liter material in Europe with actions from the EMEA expected in April according to the standard timelines. As we have said the Type-II variation were submitted in December and questions so far have been inline with our expectations to meet this timeline. In the U.S., we continue to anticipate FDA approval on February 28th, the PDUFA day and are in the process of finalizing the ramps in the post approval study design. Regarding the future of Myozyme in a world beyond supply constraints, we are increasingly becoming aware of undiagnosed patients in the neuromuscular field, it will be our non-specific clinical diagnosis weakness. As the treating community begins to test these patients, we're seeing up to 4% to 5% of these cases are actually carrying a diagnosis of Pompe. I'd also like to highlight today that a key part of this picture is the next generation product for the treatment of Pompe's disease. We continue to move 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. Fabrazyme posted revenues of $494 million, up 16.5% year-on-year, driven by strong patient accruals globally. The field trial which we discussed last time has begun enrollment. Most sites have completed their approvals, and is well underway at this time. I have to remind you this is a trial which we believe a lot from more flexible dosing regimes for boys who are in a very early state of Fabry's disease. For Cerezyme, we closed the year at $1.24 billion. That's 9.3% year-on-year. Worldwide patient accruals have been strong this year in spite of it having been an inactive year for competitive clinical trials as we discussed previously. Today as we close the year, the majority of these trials are fully enrolled. This has been a very good year for data regarding the long-term safety as well as the convenience of Cerezyme, I'd like to highlight today that Q2Q4 study was published by Kishnani at all last month in molecular genetics and metabolism, and just to remind you, this study looked at the ability of an every four weekly regiment of Cerezyme to maintain patients in a steady state of disease control and it's conclusions are for a powerful and unique option for more convenient dosing regimen for many patients with Gaucher. With regard to 112638, our orally available small molecule for the treatment of Type I Gaucher, we've just completed our end of Phase II meeting with the FDA. At this time, the single dose therapeutic study met the FDA's expectations and has been deemed a negative study in accordance with ICH guidelines. 112638 showed no effect on QTC prolongation at the therapeutic dose and further QT studies are not required for the Phase III program to proceed. The one year data from this Phase II trial will be presented on February 20th at the world meeting in San Diego. The full dataset from 26 patients will be presented there at 52 weeks. Finally, we maintain our intention to initiate a global Phase III program for this molecule mid year, comprised of two trials and remain excited about the substantial impact this therapy can make in a Gaucher world for both treated and treatment naïve patients. Finally, the Ataluren, formerly PTC124 program continues with good momentum as Henri mentioned at JPMorgan. The Phase III pivotal trial was enrolled two months early with 174 patients. We would expect top line from that trial to be available in the early part of 2010. And in addition, Ataluren will be moving into pivotal clinical development for cystic fibrosis in the first half of this year. And back to you, Henri.

Thank you, Geoff. Operator, now we can move to Q&A.

Thank you. (Operator Instructions). Our first question comes from Geoff Porges of Bernstein.

Thanks very much for talking the question. This is going to be a little bit controversial, but Mike, may be you could address the issue of adjusted EPS. I was just struck by that your press release that you excluded manufacturing write-offs and obviously you've excluded as you have in your policy of some payments. And given that both of these things be recurring part of your strategy, manufacturing variances and write-off-set happen all the time, why wouldn't you include those in your adjusted or pro forma EPS guidance and estimates and frankly should we anticipate that the $7 and the $4.70 that you've given us in guidance are subject to exclusions for upfront payments and any manufacturing write-offs that you might encounter? Thank you.

Yeah. It isn't that controversial. I mean we're fairly consistent with what rest of the peer groups do. What we generally do is we look at both GAAP numbers and non-GAAP numbers as in the following fashion. GAAP numbers are obviously, we have to file with the SEC. But in addition, we also want to look at the business health or the cash value of the business. So we're fairly consistent with our amortization as well as the 123R carve outs. With regard to any sort of one-time events that occur like the manufacturing PV runs from time to time, we will have those and we will carve those off separately. If you look at our peer groups, and it's interesting, I was reviewing some of the other peer groups that we have. Look at Amgen for example. Amgen does essentially the same carve out. They carve out the 123R expenses associated with stock options. They also carve out amortization of technology, amortization of acquired product line, legal proceedings, restructuring costs that are associated with leases, severance, asset impairments and salary depreciation, carve out and then merger expenses right after the decision of change in manufacturing processes, inventory repo, reimbursement changes, semi completed manufacturing assets in IP R&D. So we are fairly consistent with what the industry does and to be fair, we show both the GAAP and the non-GAAP numbers.

Okay. Thanks.

You're welcome.

Our next question is from Geoff Meacham of JPMorgan.

Hi, guys. Question for you on Myozyme in Europe. I know you guys had a mid January release that prioritize children for Myozyme. I am wondering if you can ballpark at all the adult patients that you've turned away so far and maybe what the new capacity we could add here to Myozyme based on European approval in mid year?

Geoff?

So thanks for the question, Geoff. First on the comment that the prioritization of the pediatric population in the January timeframe was really collaboratively arrived at by a group of stakeholders from the Patients Association and advocacy community as well as clinicians and the ability of this community to pull together to spare or preserve inventory in January was really remarkable. And we've seen very satisfying achievement of several skip doses in January, in order to preserve inventory and make it through this tight period. As Henri had said, we do believe that we are on track for the approval of the 4000 liter material and as soon as that is in place, we are ready in position to resume the growth curve which we really left at the middle of the second quarter of 2008, if you look back at historical trends. So, we would expect that patients who have not initiated a treatment in the period really over the last quarter through the end of this coming quarter, will really add substantially to the growth trajectory at the time of the European approval. To give you a precise number, of course, is difficult to do because not all of those patients are evident to us in the processes of coming to diagnosis.

Okay. Just as a follow-up, what are the next steps with respect to the EMEA approval? I know you guys asked for expedited review, will you tell us if you get it and then are they effectively signed off on any kind of immunogenicity or a PK equivalent study?

Let me ask Alison Lawton, our Head of Regulatory Affairs throughout the world to give an answer to that, Geoff.

Okay.

So I think, I said before that we work very closely with Raptor in Europe on this submission. We are very confident with the comparability data that we have developed for the 4000 liter material. We were able to supply early data actually to the Raptor prior to even submitting officially the application in December. So, they were able to look at some of that data early. So we've done everything we can and we have worked very closely with the Raptor through this process to facilitate that review. It's not like an FDA situation where you ask for an accelerated approval and they confirm that you have that, I should say priority review, sorry. And so, we really won't know until we get the approval, whether they've expedited it or not. And so, all I can say at this point is we are very confident in the data. We've been working very closely with the Raptor, they are clearly very active on the review of this submission and obviously we are hopeful that things will be expedited, but we can't say at this point that that's going to happen.

And if they don't expedite, it still be April.

April, absolutely which is the standard timeline for a Type II variation in Europe.

Very helpful, thank you.

Our next question is from Brian Abrahams of Oppenheimer & Company. Brian Abrahams - Oppenheimer & Company: Hi, thanks very much for taking my question. Question for Geoff on 112638. Now that you had the end of Phase II meeting with the FDA, I was wondering if you could give us a few more details on what the Phase III trial design might look like, in particular what the duration of treatment would be and whether or not we might see data this year? Thanks.

Thanks for the question, Brian. We will do two trials in the development of the small molecule, one to address the naïve population. We would expect that trial to in many ways look similar to our Phase II and to track the shape of the data in response that we saw in that trial, which was almost universal and very consistent in terms of timing. We would expect that naïve trials to last less than a year based on what we were able to observe in the Phase II. With respect to the maintenance population, there we will be looking to demonstrate stability for patients who are currently treated with Cerezyme. I think one of the most remarkable things about this therapy is how closely the results we've seen in the current Phase II naïve population resemble the results we see with Cerezyme and our experience over the last 15 years. So the maintenance trial will be designed with the duration to show meaningful stability and a switch situation. So in either of those cases I would not expect us to have data in the course of 2009. I would hope depending on the enrollment timeline to be able to have some sense of that information towards the latter half of 2010. Brian Abrahams - Oppenheimer & Company: And just as a quick follow up, is there a way that you might be able to strategically position the agent to help protect against any erosion from competitive enzyme replacements that might enter the market?

Well, I think the way we think about competition in this space is related to what remaining on that need this group is facing. And I think that the two major areas that are continuing to present a problem for the population are first, convenience and we're hoping to meet that in the very near term as I said earlier with our every four week (inaudible) for Cerezyme which will become part of the label for the drug in most territories later this year and early next year. I think the small molecule offers yet more convenient option and we would help to make that broadly available for patients on enzyme therapy of any kind. And the other unmet need of course is in the bone compartment and the bone data for the Phase II in the small molecule trial is something that will take yet a few more months to fully digest. But of course we would hope that the small molecule would be able to impact on that compartment. Having said that in the last two years, we've had a remarkable number of publications in the literature supporting the ability of Cerezyme to meaningfully impact the bone as well and increasingly seeing that in a dose related fashion in several different publications. So for us I think the unmet need remains the focus and between the evolving value of evidence for Cerezyme in the body of data that we're developing on the small molecule, we hope both will continue to meet those unmet needs. Brian Abrahams - Oppenheimer & Company: Thanks, that's very helpful.

Sure.

Our next question is from Yaron Werber of Citi.

Yeah, hi thanks for taking my question. I have a question about Myozyme supply. I mean from what I understand it's a 4000 liter process but you actually have two reactors. So, the first question is, is that right is it actually 8000 liters that you are about to get approval, hopefully by April and then if so can you help us understand would that kind of supply and would the 2000 in the U.S. and a proven those 8000 liters also gets approved in the U.S. what can you sell long-term or do you just build another plant? Thanks.

Yeah, it's a great question Yaron and Geff you can take it. It's clear that we went for one 2000 liter reactor that was dedicated to Myozyme to what is 10,000 liters now. So we have 5x where were we started from. And so that can treat many more patients but Geff do you can you put some brackets around that?

Sure, I mean I think the issue of capacity is something that we are continually reassessing and building towards as we anticipate the growth in demand for products. So as Henri said, we're in a window now well for the foreseeable future. We don't anticipate a constraint on global supply. However, as we did in this case, building capacity to meet demand as it evolves, some years ahead. We would continually to evaluate how demand is evolving and respond appropriately. But we would foresee as Henry said with a 5x increase in capacity that the foreseeable medium term would not be any problem.

Yeah. We are of course continuously expanding our protein production capability that does not involve just Myozyme but also all the other enzyme replacement therapies in and Syrogen (ph). We are midway to the building up a plant a year framing (ph) them which will become available, I think by 2011 or so, is that right? You would stop that's confirmation.

That's correct Henri.

So, we are building additional capacity and have been doing so. This plant now in Belgium that's now becoming dedicated, at least an important piece of it to Myozyme. That started five years ago. And of course we can continue to expand that plant as well. The big problem in biological's is manufacturing, and manufacturing skill. You need to take these decisions five years ahead of the need and we have put most of the decisions for the next five years actually already in place quite some time ago. Next question?

Our next question is from Ian Somaiya of Thomas Partners Weisel Partners.

Yep, thank you. Just a question on the Myozyme sales guidance. Should we basically assume that the Myozyme sales stay relatively inline with what you reported the past couple of quarters until the European approval comes through and just related question, how quickly can the material from the plant be in the hands of physicians are there any steps that could hold that up?

Geff.

Hello Ian, it's good question. Yes we would anticipate to stay on the current trajectory until European approval. We are operating in a situation today with very tight inventories and we are constrained by supply in terms of overall growth. From the perspective of the European approval, we've have been working to put all logistical steps in place to anticipate a distribution of that material into Europe at the time of approval within a very, very short period of time. And this is a process that we've undergone with past scale, we still feel comfortable that we can do it quickly. In other words, it would not be a gating period between the approval and provision of the material.

Thank you.

Thank you.

Our next question is from May-Kin Ho of Goldman Sachs.

Hi question on Myozyme, market had indicated that there are some patients with neurological disease that you are finding with Pompe disease. How are you thinking about the number of patients now?

Geoff?

So it's a good question, May and I think the honest answer is we don't know. But I think we are getting increasing certainty around how to think about the question. I think Henri mentioned in our last earnings call, that one of the ways we try to understand the potential in these diseases is to look at markets that are perhaps a little bit ahead of the curve and in this example, I think the Netherlands provides a nice illustration there. So Pompe was first described by a professor in the Netherlands in a level of awareness that's relatively small and highly networked community is very high. So in a population of a roughly 16 million people there are around 120 patients identified today with Pompe. So if you correlate that or cross walk it to the U.S. for the population of about 300 million, you might expect to be someone in the range of 2500 patients in the U.S. So if you just think about it in those terms this is a Gaucher like opportunity. There are roughly that number of patients who we would expect to be treatment eligible. Does that answer your question?

Yes thank you.

Our next question is from Jim Birchenough of Barclays.

Hi guys. Just a question on pricing. With healthcare reform, the economic downturn, you've got competitors potentially coming into the market and you may have your own oral come in for Cerezyme. How confident are you, that you can maintain or even increase price from current levels and just on the related question on pricing, how do you have confidence that you can maintain a premium price for Campath for MS if you've gotten oncology supply available. Thanks.

These are two questions, then I ask Mark comment on the Campath question. And Geoff, do you want to take the other two questions?

Sure. So from the point of view pricing overall, not specifically on Cerezyme to begin with; the core of our overall pricing strategy is that we try to capture the value that these products represent to the patients who are treated and of course we are very focused on making a very large difference to their health and to their health outcomes. And I think in the universe where we are operating these are for that reason, these products are necessary. There are not elective or discretionary in that sense. So we concern ourselves mainly we are thinking about how we partner with governments who are very concerned obviously with how to maintain a sustainable framework for providing these therapies. As Henri began this call by saying that we recognize there is a very tough global environment we are in and we are working very actively with governments around the world to figure out how the sustainably provide these therapies going forward. With respect to the impact of the small molecule for us that will depend totally on the level to which we believe this molecule can add value, and we'll not think so much about the pricing until we have a firmer understanding of that.

The big limitation in times of pricing and kind of environmental thing what you may want to look at to get some feel for this, independent from our comments; is the rarity the impact of rarity. There are a number of different programs, product programs available like in hemophilia factor VIII and factor IX. And the pricing situation despite the fact there is sometimes competition is pretty stable and the prime reason here is that these are very rare diseases. The service levels and the intensity to we make sure that people do get supply throughout the world on a continuous basis are very demanding indeed and this you don't get the kind of effect that you do get as an environment where it maybe there is much less of a distribution and maintenance activity involved. So, we think the picture around pricing and of course we do have a competitive picture in the case of Fabry disease with Fabrazyme or REPLAGAL is that companies will sell and sent their programs on a clinical basis and the service basis, rather than on a price basis. That has to be seen in the future, but that certainly generally the experience in the field. The Campath question is different and Mark, you make the comment.

Sure. So I think the first matter, we would expect that the price of Campath was in multiple sclerosis would reflect the value that we create with this both on an absolute basis and relative to the then currently available therapy. That's an evolving picture, which will be driven by the risk benefit profile that's created as a result of the data that we generate from the pivotal studies. At bottom, we'll look to continue to make the product available in the oncology setting, while at the same time capturing the value that we create in multiple sclerosis. We recognize that this is going to be a complex set of considerations. We are evaluating a range of alternatives that will allow us to meet the demands in patients needs in each of those markets and would expect it, ultimately those will involve very direct conversations with government authorities and payers about this situation and crafting solutions that are designed to meet the needs of the individual markets. But it's early days and we're very actively engaged in this conversation.

Next question?

Our next question is from Mark Schoenebaum of Deutsche Bank.

Hey guys, thanks for taking my question. I appreciate it. Congratulations on good Myozyme guidance. I just want to be clear about something, is that your position Mike, and I apologize for harping on this, but I just want to follow up. Is it your position, I just wanted to understand your position, is it your position that your peer group excludes cash milestone payments to R&D partners from their non-GAAP EPS. I just think it's important to know so it can help us make apples-to-apples PE comparisons, so I just like to clarify, is that your position?

No. My position is that it depends on the fact and circumstances how the licensing deals is prepared. Often milestone payments for unapproved products are always expenses R&D for example. Post approved milestones are capitalized in the balance sheet based upon the significance. So it depends on type of deal structure that you're talking about. So as far as amortization, we will amortize some of the payments based upon the size of the payments, post approval of the milestones and the significance of the milestone payments. But upfront milestones in and of themselves you can't make a blank statement based upon the fact and circumstances of the deal structure.

And what was your total cash milestone payments to R&D partners in 2008, please?

Why don't you give me a call after the...

Okay, sounds good. Thank you.

Next question is from Chris Raymond of Robert Baird.

Thanks. I wanted to ask a question of the sevelame guidance, if I could. So, just doing the math, '08 grew up by 12% and with the guidance that you provided, we are looking at 7% to 8%. Yet in John, in your prepared comments you mentioned more mind share, reaccelerated growth and also you've got obviously the pre-dialysis indication coming. Can you reconcile that guidance is the roof or upside you guys are leaving or is there some other factor that you think is going to impact things negatively? Thanks.

Yes, FX is an important contributor there. Chris I think Mike mentioned that FX had a negative impact of about 6% in that calculation year-over-year. So, I think if you factor that in you'll see and we are expecting as a kind of try to focus on the volume growth that the volume growth is still strong and with Renvela and particularly access to the CKD market, we do continue to think that there is opportunity to grow this product significantly.

The CKD market, that's not until the second half?

Second of the year and obviously just getting approval in the second half of the year, just ramping that up, that's not a significant 2009 event frankly. And particularly when you think about Europe that also is launched country-by-country as we gain reimbursement. So the real opportunity in CKD is clearly beyond 2009.

Okay, great. Thank you.

Our next question is from Phil Nadeau of Cowen & Company. Phil Nadeau - Cowen & Company: Good morning. Thanks for taking my questions. My question is on the approval of the 4000 liter facility in the U.S. There's some sentiment on the panel that reviewed the 2000 liter application that they would like to see some of the post approval requirements from the 2000 liter be completed before there's any submission for a larger facility or approval of a larger facility. Wondering if that position is at all been adapted by the FDA, and if you could may be just give us some more information and your understanding of what has to happen before the 4000 liter itself can be approved in the U.S.?

Alison?

Yeah. So I think that the comments that you make about the panel is certainly not reflected in how FDA is thinking or I think would look at this. I think the most important piece is the comparability data that we have, which as I said already, we believe is very strong. We've already initiated some discussions with the FDA around the 4K material, and started to have discussions with them about the submission and what we're seeing so far. So I certainly do not anticipate that they would ask us to complete post approval commitments on the 2000 liter, as part of a 4000 liter submission. I think they are actually very interested in understanding what our 4000 liter data looks like and to work with us on that. Phil Nadeau - Cowen & Company: And maybe a follow-up, if I may. Is the 4000 liter package that you're supplying to the U.S. regulatory speaks as same as the one that you've supplied to the European regulators, or are there any major differences between the two packages?

No, we haven't yet submitted that obviously to the FDA. We're still working on that submission. I think like all submissions, it will contain the same data. It's very important that we're transparent with both sets of regulators so that they believe, that they know that seeing all of the data available. So the only thing that we normally do is we do change the focus of the submission slightly because that's the requirement and preference for how the reviewers look at those. And so that's really what we're working on at this point. Phil Nadeau - Cowen & Company: Great. Thank you.

Our next question is from Aaron Reames of Wachovia.

Thanks for taking my questions and congratulations on the quarter. My first question I had is I was wondering if there is any further clarity that you could offer regarding how the orphan designation for Myazyme and Lumizyme will be handled in the United States and is it likely that both will have the orphan designation with a breakpoint, the currently determined by age and then presence of cardiomyopathy?

Alison, can you take that? This is kind of an interesting question. It's bit of a technical question, caused by this remarkable Lumizyme business.

And I guess the analysis before I apologize because I need to follow-up. But there are two potential opportunities here, is that under the orphan designation, the definition of a different product is slightly different necessarily from BLA that having a separate BLA. So one route could be that they decide the orphan designation is still valid for the Lumizyme product. Another option is that we justify why we believe that since Lumizyme is a separate BLA, and FDA consider it to be different that we go the route of saying it should have its own orphan exclusivity. We are still in the discussions around some of those aspects.

Okay, thank you. And then my second question was really on the validation runs. I was wondering if you could maybe expand upon why there were incomplete validation runs at the Belgium facilities, and was that specifically attributable to Myozyme, and if so, is it standard cut-off points used during the optimization runs or does it signify that some variability in manufacturing process that Genzyme still working to optimize?

Geoff, do you want to take that?

Sure, thanks for the question, Aaron. I think the process of validation for any new facility does involve runs that are either stopped or abbreviated for a variety of reasons. These PV runs that Mike referred to were not part of the or not considered to be part of the formal run up to the submission. So, the way to think about that is as part of the normal development process that we would undergo for a new facility.

Okay. And then in terms of inventory that can be distributed to patients, can you quantify how many patients can be treated with inventory that's on hand that's accumulated over the last five months?

I can't quantify it in terms of the number of patients, because of it depends so critically on the weights and the distribution of patients. But we have sufficient inventory ready to be released into the European market on approval that we do not anticipate any constraint on the number of patients who are waiting or who could be diagnosed in the timeframe of 2009.

Great. Thanks for taking my questions.

Next question is from Shiv Kapoor of Morgan Joseph. Shiv Kapoor - Morgan Joseph & Co.: Thanks for taking my question. Could you discuss in little more detail your clinical program and regulatory strategy on Genz-112638 specially following your recent FDA meeting. I am really interested in if you are driving into certain subset of patients, like patients who can't tolerate IV infusion or mild patients who can't tolerate miglustat or in combination with Cerezyme for patients who are not reaching goals on Cerezyme?

Now, this program has been designed for Gaucher patients, not for subset of Gaucher patients. That's very important, actually very important, very good question and very important for all of us to think about this in-depth kind of way, but Geoff, can you explain a little more.

Yeah. I answered an earlier question Shiv, around the idea on how we think about competition by saying that we are really interested in meeting the remaining unmet need in the disease, and that how we think about the small molecule. We set a very high threshold for ourselves in development and as you might be aware, this small molecule is a ceramide analog. It's a very different kind of chemical from the aminosugar series that gave rise to miglustat and as a result it is highly potent, highly specific and has a very different set of characteristics clinically including in addition to being very well tolerated, it is extraordinary in its ability to reduce substrate and all Gaucher patients independent of their mutation or of their background in the patients that we have treated so far, and I think as Henri rightly said, we therefore view it as a very important contribution to the field that should be thought of more like Cerezyme and it's ability to impact the disease. So I think when we think about the development we think about it as a program that should make the use of this drug clear for all Gaucher patients and in distinction to miglustat which is currently indicated for patients who are unable to tolerate Cerezyme, we would anticipate this therapy being available to all patients. Shiv Kapoor - Morgan Joseph & Co.: Okay

Operator, I would like to take the next three questions and then I would invite any questions that don't get answered, I would invite you very much to get make sure you do get satisfaction to your question and please call Patrick or any one of us so that we can deal with any outstanding questions. But we do need for us, we do need to finish this in next five or so minutes. So the next three questions, operator?

Our next question is from Sapna Srivastava of Morgan Stanley.

Hi, thanks for taking the questions. It's Dave calling in for Sapna. Just on Cerezyme, when you look at the sort of the '08 quarters, there was... it was pretty range bound and your guidance is implying some growth. So I was wondering if you could just quantify if possible, how much of your growth was sort of robbed from the other competitor trials and where do you see the growth coming in '09 for Cerezyme?

Geoff ?

Yeah, so thanks for the question, Dave. So the growth in 2008 from a volume perspective was quite robust. And as I mentioned in my earlier comments, in spite of one of the most active years we have ever seen from the point of view of competitive trials. So, in some ways of course naïve patients and switch patients are diverted into those development programs, by the same token those same development programs continue to raise the level of awareness of Gaucher disease and we are continuing to find patients who are eligible and in need of therapy. I would anticipate that in 2009 we would have robust growth for Cerezyme on a volume basis in spite of our own competitive program around the development of 112638, but the burden of other competitive trials will be lower in 2009 than it was in 2008 based on what we know today. I would add to that just the reminder that Cerezyme today is available in 90 countries and the level of awareness in those countries is variable. So we continued to identify patients not only in the US and Western Europe, but in countries around the world that are really still learning about the disease and building infrastructure in that area.

Next question?

Our next question is from Maged Shenouda of UBS.

Sure, hi. My question has to do with Myozyme. How much revenue are you recognizing per patient on Myozyme currently and how has that changed over the last year. I'm trying to get a sense of how we should be modeling this as more adult patients are in therapy?

Geff?

So we've said historically that the blended rate per year for a patient on Myozyme is around $400,000 per year. We have seen that figure migrate slightly as the mix of patients coming under therapy has been heavier. And I think if you were to use a figure somewhere between 400,000 and 500,000 going forward, I think it would more accurately capture how adult patients are coming to therapy. But like all of our therapies which were based on a pro weights basis, there is a bell curve if you will, of weights and resulting annual cost.

Okay, thank you.

Sure.

Our next question is from Matt Osbourne of Lazard.

Hi and thanks for taking the question. Just a question if you can elaborate again on the review that's going on in Europe with the 4000 liter material. Is March 19th the date that the CHMP could give it a positive pending or request for supplementary data either based on the 60 day or 30 day review?

Alison?

Yeah, so thanks for the question and the March 19th date certainly based on a typical Type II variation for the 60 day review, and given that mission went in December and was formally accepted in January that means that the decision would be made indeed at CHMP meeting in March, which is the second week of March and usually its towards the end of that. So the 19th of March is the date that we have down, as obviously we're watching very closely and expecting the CHMP opinion at that time. And then we also know with Type II variations that that 30 days is the fairly typical for the commission decision on approval after that CHMP decision. So that, absolutely you are correct is the timeline based on our current April approval that we have been talking about assuming that we don't get any expedited review, obviously that would bring that forward.

Great Thank you.

Thank you very much operator. I think this was the last question.

Yes.

Again thank you very much everybody participating in this call. We will have -- of course coming up in May, our Analyst Meeting which we will be communicating with you on and of course prior to that we will have the earnings call for the first quarter in April, is there a date Patrick?

22.

April the 22nd. And we all look forward. Its only two months or so, from today. We look forward to talking to you at that moment much of these Myozymes questions be moot, we trust and we can move on to other things. It's great to have you here. I know there were more questions in the queue and please do call us and do get satisfaction in terms of the answers to your questions. Again, we will talk to you all in April. Thank you so much for being here.

This does conclude today's conference call. You may disconnect at this time.