UPDATE 5-Genzyme sees drug supply progress, shares up

* Q2 EPS ex-items $0.18 vs Wall Street view $0.51

* Revenue falls to $1.08 billion from $1.23 billion

* Sees progress in increasing drug supply, divesting units

* Shares up over 2 percent
(Adds CEO comment; updates shares)

By Toni Clarke

BOSTON, July 21 (BestGrowthStock)- Genzyme Corp (GENZ.O: ) signaled
it is recovering from a manufacturing crisis that has caused
shortages of two of its biggest-selling drugs and virtually
eliminated profits, lifting its shares over 2 percent.

The maker of drugs for rare and chronic diseases said on
Wednesday its second-quarter earnings plunged, and it cut its
profit forecast for the year.

But investors took heart after the company said it expects
supplies of Cerezyme, its drug to treat Gaucher disease, and
Fabrazyme, its drug for Fabry disease, to increase later in the
year.

In an additional sign of progress, the company said it is
on track to divest some businesses by the end of the year and
has a “multiyear” plan in place to make the company more
efficient.

“We are the tail-end of this very, very tough year,” Chief
Executive Henri Termeer said on a conference call with
investors. “We are deeply engaged in an effort to understand
costs in the organization and streamline operations.”

Last year Genzyme was forced to temporarily close its
manufacturing plant in Boston because of a viral contamination,
leading to shortages of Cerezyme and Fabrazyme.

Genzyme is the world’s dominant supplier of drugs to treat
Gaucher and Fabry disease, which are rare, inherited disorders
in which patients lack, or are deficient in, key enzymes for
breaking down fats. The buildup of fatty deposits can cause
organ damage and death.

The shortage has provided an unlooked-for opportunity for
rival Shire Plc (SHP.L: ) to gain market share.

The crisis led activist investors Carl Icahn and Ralph
Whitworth of Relational Investors LLC to push Genzyme to make
changes to its board and to its strategy, including divesting
noncore businesses.

It also led to a consent decree with the U.S. government
under which it will pay a fine of $175 million for
manufacturing violations related to its Allston plant in
Boston. As part of the consent decree, Genzyme is required to
move its filling and finishing operations for products sold in
the United States out of its plant in Boston by Nov. 28.

The company said it has confidence it can meet that
deadline, avoiding potentially hefty fines.

“To the extent you believe they will be able to execute on
what they say they are going to do, and you believe that there
aren’t going to be any more manufacturing problems, you can
make the argument that Genzyme is a cheap stock with relatively
good growth prospects,” said William Tanner, an analyst at
Lazard Capital Markets.

Net profit in the second quarter fell to $23,000, or nil
per share, from $187.6 million, or 68 cents a share, a year
earlier. Excluding one-time items, the company earned 18 cents
a share, far below the average analyst forecast of 51 cents,
according to Thomson Reuters I/B/E/S.

Revenue fell to $1.08 billion from $1.23 billion, missing
the average analyst forecast of $1.16 billion.

Genzyme, which is based in Cambridge, Massachusetts,
lowered its forecast for the year, saying it expects earnings
per share excluding one-time items of $1.90 to $2.00. It
previously forecast $2.80 to $3.20.

The company said it expects 2010 revenue of $4.4 billion to
$4.5 billion. Previously it forecast $5.23 billion to $5.53
billion.

The new outlook reflects the company’s anticipated
divestiture of its genetics, diagnostics and pharmaceuticals
businesses, as well as the impact of drug supply constraints
and healthcare reform and foreign exchange fluctuations.

Genzyme’s shares were up 2.2 percent to $53.41 in afternoon
trading on Nasdaq after rising as high as $54.80 earlier.

Stock Market Investing

(Reporting by Toni Clarke, editing by Gerald E. McCormick
and Tim Dobbyn)

UPDATE 5-Genzyme sees drug supply progress, shares up