FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | ||
Or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period fromto |
NOTE REGARDING REFERENCES TO GENZYMEMassachusetts
(State or other jurisdiction of
incorporation or organization) 06-1047163
(I.R.S. Employer Identification No.)
Cambridge, Massachusetts
(Address of principal executive offices)
02142 02142
(Zip Code)(617) 252-7500(Registrant's telephone number, including area code)
(617) 252-7500ýþ No oýþ No o"large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act.ýþ Accelerated filero Non-accelerated filero Smaller reporting company o (Do not check if a smaller reporting company) Smaller reporting companyoýþJuly 31,October 29, 2010: 254,839,847258,991,017NOTE TO UPDATE SECOND QUARTER EARNINGS RELEASE On July 21, 2010, we issued a press release containing our financial results for the three month period ended June 30, 2010, which we furnished as an exhibit to a Current Report on Form 8-K prior to hosting a conference call. Subsequent to July 21, 2010, we identified additional inventories that did not meet our quality specifications. Our decision to discard these inventories has resulted in a second quarter write off of $6.5 million in addition to the $21.9 million write off previously reported. As a result, our second quarter net loss is $(3.8) million or $(0.01) per diluted share, compared with net income of $23.0 thousand or $0.00 per diluted share reported on July 21, 2010."we," "us," "our"“we,” “us,” “our” and "Genzyme"“Genzyme” refer to Genzyme Corporation as a whole, and "our“our board” or “our board of directors"directors” refers to the board of directors of Genzyme Corporation.• our expectations regarding the ability of patients to increaseand/or return to normal dosing of Fabrazyme and Cerezyme based on anticipated availability of those products; • our expectations regarding the duration and amount of the continuing supply allocations of Cerezyme and Fabrazyme and our assessment of the factors that will influence those allocations; • our plans to increase bulk and fill-finish manufacturing capacity for Cerezyme, Fabrazyme and Myozyme/Lumizyme and the expected timing of receipt of regulatory approvals; • our assessment of the potential impact on our future revenues of healthcare reform legislation, including, in the United States, changes to Medicaid rebates for our products, our expected exposure to fees assessed on branded prescription drug manufacturers and possible adjustments in future periods to our estimates associated with government allowances; • our plans and expected timing for continued remediation efforts at our Allston, Massachusetts manufacturing facility, which we refer to as our Allston facility; • our expectations for sales of Renagel/Renvela and Hectorol and the anticipated factors affecting the future growth of these products, including the delay of the bundled payment system for Renagel/Renvela until 2014 and our continued evaluation of reimbursement of Hectorol under the bundled payment system; • our expectation that remediation at our Haverhill, England manufacturing facility is substantially complete and that remaining costs associated with the remediation will not be significant; • our expectations related to accounts receivable for sales to government-owned or supported healthcare facilities in Greece; • the anticipated sale of our genetic testing, diagnostic products and pharmaceutical intermediates business units and related timeframes for these transactions; • the anticipated scope and timing of our workforce reduction plan and the amount and timing of related costs; • our plans to repurchase an additional $1.0 billion of our common stock; • our assessment of competitors and potential competitors and the anticipated impact of potentially competitive products and services, including the switch by our patients to competitor’s products and generic competition, on our revenues; • our assessment of the financial impact of legal proceedings and claims on our financial position and results of operations; • the sufficiency of our cash, investments and cash flows from operations and our expected uses of cash; • our provision for potential tax audit exposures and our expectations regarding our unrecognized tax benefits; • the protection afforded by our patent rights;
2•our expectations regarding the duration and amount of the continuing supply allocations of Cerezyme and Fabrazyme and our assessment of the factors that will influence those allocations;•our plans to increase bulk and fill-finish manufacturing capacity for Cerezyme, Fabrazyme and Myozyme/Lumizyme and the expected timing of receipt of regulatory approvals;•our assessment of the potential impact on our future revenues of healthcare reform legislation recently enacted in the United States;•our expectations regarding Myozyme/Lumizyme revenues;•our expectations for sales of Renagel/Renvela and Hectorol and the anticipated factors affecting the future growth of these products, including the final rule to establish a bundled payment system to reimburse dialysis providers;•our expectations that production interruption at our Haverhill, England manufacturing facility will not result in a supply constraint for Renagel/Renvela, the expected timing of new sevelamer carbonate production and the amount of additional costs we expect to incur during the third quarter of 2010 related to the remediation of this facility;•our assessment of competitors and potential competitors and the anticipated impact of potentially competitive products and services, including generic competition, on our revenues;•our estimates of the cost to complete our research and development programs for companies and assets that we have acquired;•our assessment of the financial impact of legal proceedings and claims on our financial position and results of operations;•the sufficiency of our cash, investments and cash flows from operations and our expected uses of cash;•our provision for potential tax audit exposures and our expectations regarding our unrecognized tax benefits;•the protection afforded by our patent rights; and
• | our expectations regarding the application of certain accounting pronouncements and their effect on our disclosures; and | |
• | our expectations regarding the amortization of intangible assets related to our expected future contingent payments due to Bayer Schering Pharma A.G., or Bayer, Synpac (North Carolina), Inc., or Synpac, and Wyeth Pharmaceuticals (which is now a part of Pfizer Inc. and referred to as Pfizer). |
• | the possibility that current reduced supply allocations of Fabrazyme and Cerezyme need to last longer than expected or need to be more severe than expected because third-party oversight under the consent decree we agreed to with the United States Food and Drug Administration, or FDA, results in delays in product releases, our demand forecasts and estimates are inaccurate, productivity of the new Fabrazyme working cell bank does not result in expected increased productivity as compared to the prior working cell bankand/or we experience any additional disruptions in our manufacturing processes or timeline; | |
• | the possibility that we or a third-party service provider may encounter manufacturing problems due to variety of reasons, including equipment failures, viral or bacterial contamination, cell growth at lower than expected levels, fill-finish issues, disruptions in utility services to manufacturing facilities, human error or regulatory issues; | |
• | our ability to maintain regulatory approvals for our products, services and manufacturing facilities and processes, including our Allston facility, and to obtain approval for proposed changes to enhance our manufacturing processes and new manufacturing capacity, including our new manufacturing facility in Framingham, Massachusetts for Fabrazyme and Cerezyme or an additional bioreactor for the production of Myozyme/Lumizyme in our Geel, Belgium facility, which we refer to as our Geel facility, all in the anticipated time frames; | |
• | our ability to successfully transition fill-finish operations for Cerezyme, Fabrazyme, Myozyme and Thyrogen out of our Allston facility and to our Waterford, Ireland plant and to Hospira, Inc., or Hospira, a third-party contract manufacturer, on the planned timelines because of delays in regulatory approval, manufacturing problems experienced by us or Hospira or for any other reason; | |
• | our ability to manufacture sufficient amounts of our products and maintain sufficient inventories, and to do so in a timely and cost-effective manner and the related risk that we may experience supply constraints as a result of manufacturing problems or inventory shortages; | |
• | potential future product recalls, write offs of inventory or quality holds, including as a result of product inventories failing to meet quality specifications or being subject to continuing quality review; | |
• | the extent to which Gaucher and Fabry disease patients switch to competitors’ products in place of Cerezyme or Fabrazyme or continue to reduce or limit their doses of our products even after product supply stabilizes; | |
• | the possibility that we are not able to repurchase an additional $1.0 billion under our common stock repurchase plan or that the repurchase is delayed; | |
• | the possibility that the sale of our genetic testing business to Laboratory Corporation of America Holdings, or Labcorp, may be delayed or may not be completed on the terms expected or at all due to the risks attendant to such transactions, including delays in obtaining regulatory approvals, the timing of which is determined by government authorities; | |
• | the possibility that we will not be able to complete transactions involving our diagnostic products and pharmaceutical intermediates business units on the expected timeframes or at all, including as a result of uncertainty among potential purchasers created by acquisition efforts ofSanofi-Aventis, or Sanofi; | |
• | the possibility that we are not able to achieve anticipated levels of efficiencies and cost savings or otherwise fully effect the multi-year plan to increase shareholder value that we have begun to implement; |
3
• | the availability of reimbursement for our products and services from third-party payors, the extent of such coverage and the accuracy of our estimates of the payor mix for our products; | |
• | competition from lower cost generic or biosimilar products; | |
• | the impact of legislative or regulatory changes, including implementation of the healthcare reform legislation recently enacted in the United States and the possibility that additional proposals to reduce healthcare costs may be adopted in the United States or elsewhere; | |
• | our ability and the ability of our collaboration partners to successfully complete preclinical and clinical development of new products and services within the anticipated timeframes and for anticipated indications; | |
• | regulatory authorities’ views regarding the safety, efficacy and risk-benefit profiles of our new or current products and our manufacturing processes; | |
• | our ability to expand the use of current and next generation products in existing and new indications; | |
• | our ability to obtain and maintain adequate patent and other proprietary rights protection for our products and services and successfully enforce these proprietary rights; | |
• | our reliance on third parties to provide us with materials and services in connection with the manufacture of our products; | |
• | our ability to continue to generate cash from operations and to effectively use our cash resources to grow our business; | |
• | our ability to establish and maintain strategic license, collaboration, manufacturing and distribution arrangements and to successfully manage our relationships with licensors, collaborators, manufacturers, distributors and partners; | |
• | the impact of changes in the exchange rates for foreign currencies on our product and service revenues in future periods; | |
• | the outcome of legal proceedings by or against us; | |
• | the possibility that our integration of the products and development programs acquired from Bayer may be more costly or time consuming than expected; | |
• | the outcome of our Internal Revenue Service, or IRS, and foreign tax audits; | |
• | acquisition efforts by Sanofi diverting attention of employees, requiring expenditure of substantial time and resources, and disrupting our business activities, and increasing the volatility of our stock price; | |
• | general economic conditions; and | |
• | the possible disruption of our operations due to terrorist activities, armed conflict, severe climate change, natural disasters or outbreak of diseases, including as a result of the disruption of operations of regulatory authorities or our subsidiaries, manufacturing facilities, customers, suppliers, utility providers, distributors, couriers, collaborative partners, licensees or clinical trial sites. |
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Genzyme®
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Page No. | ||||||||||
PART I.
| FINANCIAL INFORMATION | 7 | ||||||||
ITEM 1. |
| Financial Statements | 7 | |||||||
Unaudited, Consolidated Statements of Operations for the Three and | 7 | |||||||||
Unaudited, Consolidated Balance Sheets as of | 8 | |||||||||
Unaudited, Consolidated Statements of Cash Flows for the | 9 | |||||||||
Notes to Unaudited, Consolidated Financial Statements | 10 | |||||||||
ITEM 2. | ||||||||||
|
| 52 | ||||||||
ITEM 3. | ||||||||||
| Quantitative and Qualitative Disclosures About Market Risk | 104 | ||||||||
ITEM 4. | 104 | |||||||||
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PART II.
| 105 | |||||||||
| ITEM 1.
| 105 | ||||||||
| ITEM 1A.
| 110 | ||||||||
| ITEM 2.
| |||||||||
| Unregistered Sales of Equity Securities and Use of Proceeds | 110 | ||||||||
ITEM 6. | 110 | |||||||||
Signatures
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EX-31.2 | ||||||||||
EX-32.1 | ||||||||||
EX-101 INSTANCE DOCUMENT | ||||||||||
EX-101 SCHEMA DOCUMENT | ||||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
ITEM 1. | FINANCIAL STATEMENTS |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: | ||||||||||||||||
Net product sales | $ | 991,547 | $ | 911,894 | $ | 2,862,179 | $ | 2,987,428 | ||||||||
Net service sales | 9,608 | 10,480 | 32,170 | 32,658 | ||||||||||||
Research and development revenue | 645 | 1,392 | 2,506 | 18,912 | ||||||||||||
Total revenues | 1,001,800 | 923,766 | 2,896,855 | 3,038,998 | ||||||||||||
Operating costs and expenses: | ||||||||||||||||
Cost of products sold | 301,866 | 271,966 | 833,959 | 752,371 | ||||||||||||
Cost of services sold | 7,407 | 7,916 | 22,515 | 21,841 | ||||||||||||
Selling, general and administrative | 337,883 | 323,513 | 1,203,918 | 904,024 | ||||||||||||
Research and development | 207,051 | 215,925 | 645,187 | 608,935 | ||||||||||||
Amortization of intangibles | 61,761 | 68,078 | 194,327 | 183,270 | ||||||||||||
Contingent consideration expense | (3,134 | ) | 28,197 | 69,436 | 37,287 | |||||||||||
Total operating costs and expenses | 912,834 | 915,595 | 2,969,342 | 2,507,728 | ||||||||||||
Operating income (loss) | 88,966 | 8,171 | (72,487 | ) | 531,270 | |||||||||||
Other income (expenses): | ||||||||||||||||
Equity in loss of equity method investments | (643 | ) | — | (2,210 | ) | — | ||||||||||
Gains (losses) on investments in equity securities, net | 4,648 | (651 | ) | (26,750 | ) | (1,332 | ) | |||||||||
Gain on acquisition of business | — | — | — | 24,159 | ||||||||||||
Other | (385 | ) | 614 | (643 | ) | (2,347 | ) | |||||||||
Investment income | 2,403 | 4,543 | 8,787 | 14,038 | ||||||||||||
Interest expense | (3,358 | ) | — | (3,358 | ) | — | ||||||||||
Total other income (expenses) | 2,665 | 4,506 | (24,174 | ) | 34,518 | |||||||||||
Income (loss) from continuing operations before income taxes | 91,631 | 12,677 | (96,661 | ) | 565,788 | |||||||||||
Benefit from (provision for) income taxes | (17,385 | ) | 965 | 58,493 | (160,305 | ) | ||||||||||
Income (loss) from continuing operations, net of tax | 74,246 | 13,642 | (38,168 | ) | 405,483 | |||||||||||
Income (loss) from discontinued operations, net of tax | (5,292 | ) | 2,353 | (11,599 | ) | (6,428 | ) | |||||||||
Net income (loss) | $ | 68,954 | $ | 15,995 | $ | (49,767 | ) | $ | 399,055 | |||||||
Net income (loss) per share-basic: | ||||||||||||||||
Income (loss) from continuing operations, net of tax | $ | 0.29 | $ | 0.05 | $ | (0.15 | ) | $ | 1.50 | |||||||
Income (loss) from discontinued operations, net of tax | (0.02 | ) | 0.01 | (0.04 | ) | (0.02 | ) | |||||||||
Net income (loss) | $ | 0.27 | $ | 0.06 | $ | (0.19 | ) | $ | 1.48 | |||||||
Net income (loss) per share-diluted: | ||||||||||||||||
Income (loss) from continuing operations, net of tax | $ | 0.28 | $ | 0.05 | $ | (0.15 | ) | $ | 1.47 | |||||||
Income (loss) from discontinued operations, net of tax | (0.02 | ) | 0.01 | (0.04 | ) | (0.02 | ) | |||||||||
Net income (loss) | $ | 0.26 | $ | 0.06 | $ | (0.19 | ) | $ | 1.45 | |||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 255,359 | 268,957 | 262,293 | 269,923 | ||||||||||||
Diluted | 263,786 | 273,741 | 262,293 | 275,375 | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Revenues: | |||||||||||||||
Net product sales | $ | 974,922 | $ | 1,115,425 | $ | 1,946,547 | $ | 2,152,669 | |||||||
Net service sales | 103,589 | 105,693 | 205,504 | 207,192 | |||||||||||
Research and development revenue | 928 | 7,392 | 1,861 | 17,520 | |||||||||||
Total revenues | 1,079,439 | 1,228,510 | 2,153,912 | 2,377,381 | |||||||||||
Operating costs and expenses: | |||||||||||||||
Cost of products sold | 301,644 | 288,899 | 581,383 | 524,461 | |||||||||||
Cost of services sold | 66,524 | 61,624 | 132,396 | 121,874 | |||||||||||
Selling, general and administrative | 402,535 | 354,128 | 955,845 | 672,089 | |||||||||||
Research and development | 225,558 | 210,522 | 446,488 | 417,447 | |||||||||||
Amortization of intangibles | 67,891 | 63,945 | 138,875 | 121,543 | |||||||||||
Contingent consideration expense | 10,021 | 9,090 | 72,570 | 9,090 | |||||||||||
Total operating costs and expenses | 1,074,173 | 988,208 | 2,327,557 | 1,866,504 | |||||||||||
Operating income (loss) | 5,266 | 240,302 | (173,645 | ) | 510,877 | ||||||||||
Other income (expenses): | |||||||||||||||
Equity in loss of equity method investments | (870 | ) | — | (1,567 | ) | — | |||||||||
Losses on investments in equity securities, net | (31,562 | ) | (105 | ) | (31,399 | ) | (681 | ) | |||||||
Gain on acquisition of business | — | 24,159 | — | 24,159 | |||||||||||
Other | 356 | (2,056 | ) | (246 | ) | (3,035 | ) | ||||||||
Investment income | 3,084 | 4,144 | 6,384 | 9,494 | |||||||||||
Total other income (expenses) | (28,992 | ) | 26,142 | (26,828 | ) | 29,937 | |||||||||
Income (loss) before income taxes | (23,726 | ) | 266,444 | (200,473 | ) | 540,814 | |||||||||
Benefit from (provision for) income taxes | 19,953 | (78,870 | ) | 81,752 | (157,754 | ) | |||||||||
Net income (loss) | $ | (3,773 | ) | $ | 187,574 | $ | (118,721 | ) | $ | 383,060 | |||||
Net income (loss) per share: | |||||||||||||||
Basic | $ | (0.01 | ) | $ | 0.69 | $ | (0.45 | ) | $ | 1.42 | |||||
Diluted | $ | (0.01 | ) | $ | 0.68 | $ | (0.45 | ) | $ | 1.39 | |||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 265,270 | 269,958 | 265,760 | 270,406 | |||||||||||
Diluted | 265,270 | 274,852 | 265,760 | 276,225 | |||||||||||
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 899,165 | $ | 742,246 | ||||
Short-term investments | 101,961 | 163,630 | ||||||
Accounts receivable, net | 935,194 | 793,556 | ||||||
Inventories | 596,730 | 549,293 | ||||||
Assets held for sale | 148,746 | 170,367 | ||||||
Other current assets | 224,397 | 205,284 | ||||||
Deferred tax assets | 184,662 | 178,427 | ||||||
Total current assets | 3,090,855 | 2,802,803 | ||||||
Property, plant and equipment, net | 2,866,947 | 2,627,231 | ||||||
Long-term investments | 165,385 | 143,824 | ||||||
Goodwill | 1,360,978 | 1,360,978 | ||||||
Other intangible assets, net | 1,859,412 | 2,264,148 | ||||||
Deferred tax assets-noncurrent | 590,763 | 376,815 | ||||||
Investments in equity securities | 64,961 | 74,438 | ||||||
Assets held for sale-noncurrent | 293,504 | 274,039 | ||||||
Other noncurrent assets | 126,316 | 136,448 | ||||||
Total assets | $ | 10,419,121 | $ | 10,060,724 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 172,050 | $ | 174,880 | ||||
Accrued expenses | 966,603 | 657,833 | ||||||
Deferred revenue | 38,867 | 23,930 | ||||||
Current portion of contingent consideration obligations | 162,863 | 161,365 | ||||||
Current portion of long-term debt and capital lease obligations | 7,420 | 6,916 | ||||||
Liabilities held for sale | 63,593 | 55,206 | ||||||
Total current liabilities | 1,411,396 | 1,080,130 | ||||||
Long-term debt and capital lease obligations | 1,100,777 | 111,836 | ||||||
Deferred revenue-noncurrent | 21,643 | 13,385 | ||||||
Long-term contingent consideration obligations | 803,500 | 853,871 | ||||||
Liabilities held for sale-noncurrent | — | 4,598 | ||||||
Other noncurrent liabilities | 80,568 | 313,252 | ||||||
Total liabilities | 3,417,884 | 2,377,072 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value | — | — | ||||||
Common stock, $0.01 par value | 2,573 | 2,657 | ||||||
Additional paid-in capital | 5,354,075 | 5,688,741 | ||||||
Share purchase contract | (200,000 | ) | — | |||||
Accumulated earnings | 1,620,329 | 1,670,096 | ||||||
Accumulated other comprehensive income | 224,260 | 322,158 | ||||||
Total stockholders’ equity | 7,001,237 | 7,683,652 | ||||||
Total liabilities and stockholders’ equity | $ | 10,419,121 | $ | 10,060,724 | ||||
| June 30, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 681,807 | $ | 742,246 | |||||
Short-term investments | 152,706 | 163,630 | |||||||
Accounts receivable, net | 890,244 | 899,731 | |||||||
Inventories | 594,112 | 608,022 | |||||||
Other current assets | 193,445 | 210,747 | |||||||
Deferred tax assets | 183,698 | 178,427 | |||||||
Total current assets | 2,696,012 | 2,802,803 | |||||||
Property, plant and equipment, net | 2,846,148 | 2,809,349 | |||||||
Long-term investments | 139,641 | 143,824 | |||||||
Goodwill | 1,403,639 | 1,403,363 | |||||||
Other intangible assets, net | 1,963,429 | 2,313,262 | |||||||
Deferred tax assets-noncurrent | 522,311 | 376,815 | |||||||
Investments in equity securities | 74,227 | 74,438 | |||||||
Other noncurrent assets | 118,492 | 136,870 | |||||||
Total assets | $ | 9,763,899 | $ | 10,060,724 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | 130,323 | $ | 189,629 | |||||
Accrued expenses | 939,516 | 696,223 | |||||||
Deferred revenue | 34,288 | 24,747 | |||||||
Current portion of contingent consideration obligations | 155,898 | 161,365 | |||||||
Current portion of long-term debt and capital lease obligations | 8,510 | 8,166 | |||||||
Total current liabilities | 1,268,535 | 1,080,130 | |||||||
Long-term debt and capital lease obligations | 1,105,956 | 116,434 | |||||||
Deferred revenue-noncurrent | 12,338 | 13,385 | |||||||
Long-term contingent consideration obligations | 821,311 | 853,871 | |||||||
Other noncurrent liabilities | 80,354 | 313,252 | |||||||
Total liabilities | 3,288,494 | 2,377,072 | |||||||
Commitments and contingencies | |||||||||
Stockholders' equity: | |||||||||
Preferred stock, $0.01 par value | — | — | |||||||
Common stock, $0.01 par value | 2,531 | 2,657 | |||||||
Additional paid-in capital | 5,068,602 | 5,688,741 | |||||||
Share purchase contract | (200,000 | ) | — | ||||||
Accumulated earnings | 1,551,375 | 1,670,096 | |||||||
Accumulated other comprehensive income | 52,897 | 322,158 | |||||||
Total stockholders' equity | 6,475,405 | 7,683,652 | |||||||
Total liabilities and stockholders' equity | $ | 9,763,899 | $ | 10,060,724 | |||||
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | (49,767 | ) | $ | 399,055 | |||
Reconciliation of net income (loss) to cash flows from operating activities: | ||||||||
Depreciation and amortization | 371,010 | 329,359 | ||||||
Stock-based compensation | 142,054 | 156,141 | ||||||
Provision for bad debts | 16,495 | 14,700 | ||||||
Contingent consideration expense | 69,436 | 37,287 | ||||||
Equity in loss of equity method investments | 2,210 | — | ||||||
Gain on acquisition of business | — | (24,159 | ) | |||||
Losses on investments in equity securities, net | 26,750 | 1,332 | ||||||
Deferred income tax benefit | (95,550 | ) | (74,949 | ) | ||||
Tax benefit from employee stock-based compensation | 47,982 | 10,956 | ||||||
Excess tax benefit from stock-based compensation | 15,481 | (3,309 | ) | |||||
Other | 4,141 | 8,517 | ||||||
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): | ||||||||
Accounts receivable | (162,618 | ) | 53,044 | |||||
Inventories | (61,806 | ) | 20,539 | |||||
Other current assets | (77,762 | ) | (12,301 | ) | ||||
Accounts payable, accrued expenses and deferred revenue | 315,890 | 40,369 | ||||||
Cash flows from operating activities | 563,946 | 956,581 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchases of investments | (305,784 | ) | (244,208 | ) | ||||
Sales and maturities of investments | 341,089 | 336,918 | ||||||
Purchases of equity securities | (4,724 | ) | (7,548 | ) | ||||
Proceeds from sales of investments in equity securities | 14,208 | 2,365 | ||||||
Purchases of property, plant and equipment | (497,932 | ) | (480,436 | ) | ||||
Investments in equity method investment | (2,915 | ) | — | |||||
Acquisitions | — | (57,238 | ) | |||||
Purchases of other intangible assets | (6,340 | ) | (29,838 | ) | ||||
Other | (9,441 | ) | (7,096 | ) | ||||
Cash flows from investing activities | (471,839 | ) | (487,081 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of common stock | 274,469 | 76,125 | ||||||
Repurchases of our common stock | (800,000 | ) | (413,874 | ) | ||||
Payments under share purchase contract | (200,000 | ) | — | |||||
Excess tax benefits from stock-based compensation | (15,481 | ) | 3,309 | |||||
Proceeds from issuance of debt, net | 994,368 | — | ||||||
Payments of debt and capital lease obligations | (6,245 | ) | (5,908 | ) | ||||
Decrease in bank overdrafts | (43,373 | ) | (17,552 | ) | ||||
Payment of contingent consideration obligation | (100,168 | ) | — | |||||
Other | (2,283 | ) | (5,237 | ) | ||||
Cash flows from financing activities | 101,287 | (363,137 | ) | |||||
Effect of exchange rate changes on cash | (36,475 | ) | 1,090 | |||||
Increase (decrease) in cash and cash equivalents | 156,919 | 107,453 | ||||||
Cash and cash equivalents at beginning of period | 742,246 | 572,106 | ||||||
Cash and cash equivalents at end of period | $ | 899,165 | $ | 679,559 | ||||
Supplemental disclosures of non-cash transactions: | ||||||||
Strategic Transactions — Note 7 | ||||||||
Goodwill and Other Intangible Assets — Note 9 | ||||||||
Long-Term Debt — Note 12 |
| Six Months Ended June 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||||
Cash Flows from Operating Activities: | |||||||||||
Net income (loss) | $ | (118,721 | ) | $ | 383,060 | ||||||
Reconciliation of net income (loss) to cash flows from operating activities: | |||||||||||
Depreciation and amortization | 246,036 | 208,515 | |||||||||
Stock-based compensation | 92,390 | 109,831 | |||||||||
Provision for bad debts | 12,431 | 10,808 | |||||||||
Contingent consideration expense | 72,570 | 9,090 | |||||||||
Equity in loss of equity method investments | 1,567 | — | |||||||||
Gain on acquisition of business | — | (24,159 | ) | ||||||||
Losses on investments in equity securities, net | 31,399 | 681 | |||||||||
Deferred income tax benefit | (62,917 | ) | (50,632 | ) | |||||||
Tax benefit from employee stock-based compensation | 28,392 | 9,239 | |||||||||
Excess tax benefit from (provision for) stock-based compensation | 5,372 | (4,424 | ) | ||||||||
Other | 3,314 | 4,068 | |||||||||
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): | |||||||||||
Accounts receivable | (71,630 | ) | (106,901 | ) | |||||||
Inventories | (47,156 | ) | 21,795 | ||||||||
Other current assets | (20,504 | ) | (903 | ) | |||||||
Accounts payable, accrued expenses and deferred revenue | 132,615 | 30,278 | |||||||||
Cash flows from operating activities | 305,158 | 600,346 | |||||||||
Cash Flows from Investing Activities: | |||||||||||
Purchases of investments | (175,816 | ) | (64,394 | ) | |||||||
Sales and maturities of investments | 187,220 | 150,739 | |||||||||
Purchases of equity securities | (4,030 | ) | (7,363 | ) | |||||||
Proceeds from sales of investments in equity securities | 4,134 | 1,473 | |||||||||
Purchases of property, plant and equipment | (330,298 | ) | (318,324 | ) | |||||||
Investments in equity method investment | (1,466 | ) | — | ||||||||
Acquisitions | — | (117,073 | ) | ||||||||
Purchases of other intangible assets | (6,155 | ) | (18,345 | ) | |||||||
Other | (7,661 | ) | (5,198 | ) | |||||||
Cash flows from investing activities | (334,072 | ) | (378,485 | ) | |||||||
Cash Flows from Financing Activities: | |||||||||||
Proceeds from issuance of common stock | 58,362 | 53,508 | |||||||||
Repurchases of our common stock | (800,000 | ) | (107,134 | ) | |||||||
Payments under shares purchase contract | (200,000 | ) | — | ||||||||
Excess tax benefits from (provision for) stock-based compensation | (5,372 | ) | 4,424 | ||||||||
Proceeds from issuance of debt, net | 994,387 | — | |||||||||
Payments of debt and capital lease obligations | (4,549 | ) | (4,305 | ) | |||||||
Increase (decrease) in bank overdrafts | 23,851 | (14,303 | ) | ||||||||
Payment of contingent consideration obligation | (61,336 | ) | — | ||||||||
Other | 939 | 3,660 | |||||||||
Cash flows from financing activities | 6,282 | (64,150 | ) | ||||||||
Effect of exchange rate changes on cash | (37,807 | ) | 2,113 | ||||||||
Increase (decrease) in cash and cash equivalents | (60,439 | ) | 159,824 | ||||||||
Cash and cash equivalents at beginning of period | 742,246 | 572,106 | |||||||||
Cash and cash equivalents at end of period | $ | 681,807 | $ | 731,930 | |||||||
Supplemental disclosures of non-cash transactions: | |||||||||||
Strategic Transactions—Note 6. | |||||||||||
Goodwill and Other Intangible Assets—Note 8. | |||||||||||
Long-Term Debt—Note 11. |
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
1. | Description of Business |
• | Personalized Genetic Health, which develops, manufactures and distributes therapeutic products with a focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and cardiovascular disease. The unit derives substantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme/Lumizyme, Aldurazyme and Elaprase and royalties earned on sales of Welchol; | |
• | Renal and Endocrinology, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure, and endocrine and immune-mediated diseases. The unit derives substantially all of its revenue from sales of Renagel/Renvela (including sales of bulk sevelamer), Hectorol and Thyrogen; | |
• | Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial-based products, with an emphasis on products that meet medical needs in the orthopaedics and broader surgical areas. The unit derives substantially all of its revenue from sales of Synvisc/Synvisc-One and the Sepra line of products; | |
• | Hematology and Oncology, which develops, manufactures and distributes products for the treatment of cancer, the mobilization of hematopoietic stem cells and the treatment of transplant rejection and other hematologic and auto-immune disorders. The unit derives substantially all of its revenue from sales of Mozobil, Thymoglobulin, Clolar, Campath, Fludara and Leukine; and | |
• | Multiple Sclerosis, which is developing products, including alemtuzumab, for the treatment of MS and other auto-immune disorders. |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
1. Description of Business (Continued)
"Other," but no longer includes our MS business unit, which is now reported as a separate reporting segment called "Multiple Sclerosis."
• | our former Genetic Diseases reporting segment is now referred to as “Personalized Genetic Health,” or “PGH,” and now includes our cardiovascular business unit, which previously was reported under the caption “Cardiometabolic and Renal,” and our Welchol product line, which previously was reported as part of our pharmaceutical intermediates business unit under the caption “Other;” | |
• | our former Cardiometabolic and Renal reporting segment is now referred to as “Renal and Endocrinology” and now includes the assets that formerly comprised our immune-mediated diseases business unit, which previously was reported under the caption “Other,” but no longer includes our cardiovascular business unit; and | |
• | our former Hematologic Oncology segment is now referred to as “Hematology and Oncology” and now includes our transplant business unit, which previously was reported under the caption “Other,” but no longer includes our MS business unit, which is now reported as a separate reporting segment called “Multiple Sclerosis.” |
10
“Corporate.”
11
2. | Basis of Presentation and Significant Accounting Policies |
Basis of Presentation
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
2. Basis of Presentation and Significant Accounting Policies (Continued)
Genzyme LLC in our consolidated balance sheets at fair value. Effective January 1, 2010, in accordance with new guidance we adopted for consolidating variable interest entities, we no longer consolidate the results of BioMarin/Genzyme LLC because we determined that the entity does not have a primary beneficiary under the new guidance. As a result, we deconsolidated BioMarin/Genzyme LLC and no longer record the assets and liabilities in our consolidated balance sheets. Instead, effective January 1, 2010, we began to record our portion of BioMarin/Genzyme LLC'sLLC’s results in equity in loss of equity method investments in our consolidated statements of operations.
12
These provisions did not have a significant impact on our results of operations or financial position for the six months ended June 30, 2010.
• | an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on branded prescription drugs and an increase from 15.1% to 17.1% for drugs that are approved exclusively for pediatric patients; | |
• | the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; | |
• | the expansion of the 340(B) Public Health Services, or PHS, drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals and healthcare centers (this provision, however, does not apply to orphan drugs); and | |
• | a requirement that the Medicaid rebate for a drug that is a “line extension” of a preexisting oral solid dosage form of the drug be linked in certain respects to the Medicaid rebate for the preexisting oral solid dosage form, such that the Medicaid rebate for most line extension drugs will be higher than it would have been absent the new law, especially if the preexisting oral solid dosage form has a history of significant price increases. |
Renagel, Renvela and oral Hectorol, and our product Leukine, but be insignificantly impacted for our other products.
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
2. Basis of Presentation and Significant Accounting Policies (Continued)
Total accounts receivable in our
13
• | time vesting stock options; and | |
• | performance and market vesting awards, tied to the achievement of pre-established performance and market goals over a three-year performance period. |
TableContentsour:• stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The estimated fair values of the stock options, including the effect of estimated forfeitures, are then expensed over the options’ vesting periods; • time vesting RSUs are based on the market value of our stock on the date of grant. Compensation expense for time vesting RSUs is recognized over the applicable service period, adjusted for the effect of estimated forfeitures; and • PSUs subject to the cash flow return on investment performance metric, which includes both performance and service conditions, are estimated based on the market value of our stock on the date of grant. PSUs subject to the relative total shareholder return, or R-TSR performance metric, which includes both market and service conditions, are estimated using a lattice model with a Monte Carlo simulation. Compensation expense associated with our PSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures.
14
2. Basis of Presentation and Significant Accounting Policies (Continued)
The fair values of our:
Compensation expense for our PSUs is recognized over the applicable performance period, adjusted for the effect of estimated forfeitures. |
Relevant Requirements | Issued Date/Our Effective | ||||||||||||
ASU Number | of ASU | Dates | Status | ||||||||||
2009-13 | Establishes the accounting and reporting guidance for arrangements under which a vendor will perform multiple revenue-generating activities. Specifically, the provisions of this update address how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. | Issued October 2009. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. | We will adopt the provisions of this update for the first quarter of 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements. |
15
2. Basis of Presentation and Significant Accounting Policies (Continued)
Relevant Requirements | Issued Date/Our Effective | ||||||||||||
ASU Number | of ASU | Dates | Status | ||||||||||
2010-06 | Requires new disclosures and clarifies some existing disclosure requirements about fair value measurements, | Issued January 2010. Effective for the first interim or annual reporting period beginning after December 15, 2009, except for the additional information in the roll forward of Level 3 investments. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim reporting periods within those fiscal years. | We adopted the applicable provisions of this update, except for the additional information in the roll forward of Level 3 investments (as previously noted), in the first quarter of 2010. Besides a change in disclosure, the adoption of this update does not have a material impact on our consolidated financial statements. None of our instruments were reclassified between Level 1, Level 2 or Level 3 in 2010. We are currently assessing the impact the requirement to present a separate line item for each investment in the roll forward of Level 3 investments will have, if any, on our consolidated financial statements. Although this may change the appearance of our fair value reconciliations, we do not believe the adoption will have a material impact on our consolidated financial statements or disclosures. | ||||||||||
2010-11, | Update provides amendments to Subtopic 815-15, | Issued March 2010. Effective at the beginning of each reporting | We | ||||||||||
2010-17, | Update provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. | Issued April 2010. Effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. | We will adopt the provisions of this update beginning January 1, 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements. |
16
Relevant Requirements | Issued Date/Our Effective | |||||
ASU Number | of ASU | Dates | Status | |||
Update | Issued | We | ||||
2010-23, “Health Care Entities: Measuring Charity Care for Disclosure.” | Update requires the measurement basis used in the disclosure of charity care to be cost and that cost be identified as the direct and indirect costs of providing the charity care. Disclosure of the method used to identify or determine direct and indirect costs must be disclosed. Existing guidance does not prescribe a specific measurement basis of charity care for disclosure purposes. This would improve U.S. GAAP by requiring all entities to use the same measurement basis, which will enhance comparability. | Issued August 2010. Effective for fiscal years beginning after December 15, 2010 and should be applied retrospectively to all periods presented. Early adoption is permitted. | We will adopt the provisions of this update beginning January 1, 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements. |
17Table3. Held for Sale and Discontinued Operations ContentsPresentation and Significant Accounting Policies —Basis of Presentation,” to these consolidated financial statements, for all periods presented, our consolidated balance sheets have been recast to reflect the presentation of assets held for sale and our consolidated statements of operations
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Total revenues | $ | 126,848 | $ | 133,748 | $ | 385,707 | $ | 395,897 | ||||||||
Income (loss) before income taxes | $ | (15,279 | ) | $ | 3,840 | $ | (27,461 | ) | $ | (8,456 | ) | |||||
Benefit from (provision for) income taxes | 9,987 | (1,487 | ) | 15,862 | 2,028 | |||||||||||
Income (loss) from discontinued operations, net of tax | $ | (5,292 | ) | $ | 2,353 | $ | (11,599 | ) | $ | (6,428 | ) | |||||
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets held for sale: | ||||||||
Accounts receivable, net | $ | 84,800 | $ | 106,175 | ||||
Inventories | 60,075 | 58,729 | ||||||
Other current assets | 3,871 | 5,463 | ||||||
Total assets held for sale-current | $ | 148,746 | $ | 170,367 | ||||
Property, plant and equipment, net | $ | 209,146 | $ | 182,118 | ||||
Goodwill, net | 42,927 | 42,386 | ||||||
Other intangible assets, net | 41,090 | 49,113 | ||||||
Other noncurrent assets | 341 | 422 | ||||||
Total assets held for sale-noncurrent | $ | 293,504 | $ | 274,039 | ||||
Liabilities held for sale: | ||||||||
Accounts payable | $ | 18,053 | $ | 14,749 | ||||
Accrued expenses | 40,828 | 39,207 | ||||||
Current portion of debt and capital leases(1) | 4,712 | 1,250 | ||||||
Liabilities held for sale-current | $ | 63,593 | $ | 55,206 | ||||
Long-term debt(1) | $ | — | $ | 4,598 | ||||
Liabilities held for sale-noncurrent | $ | — | $ | 4,598 | ||||
(1) | In July 2005, as a result of our acquisition of Equal Diagnostics, Inc., or Equal Diagnostics, we issued promissory notes to the three former shareholders of Equal Diagnostics totaling $10.0 million in principal and interest. The promissory notes were payable over eight years in equal annual installments commencing in March 2007, and ending in March 2014. We were also obligated to make additional cash payments during this period, which we refer to as contingent additional consideration, or CAC, to the three former shareholders based upon the gross margin of the acquired business, as defined by the purchase agreement. | |
In October 2010, we entered an agreement with the three former shareholders of Equal Diagnostics to accelerate payment in full of the notes and estimated CAC. The total payment amount was $7.1 million, which included $4.7 million in principal and interest on the promissory notes and $2.4 million in CAC. |
18
3. Fair Value Measurements
4. | Fair Value Measurements |
• | fixed income investments; | |
• | investments in publicly-traded equity securities; | |
• | derivatives; and | |
• | contingent consideration obligations. |
• | Level 1 — These valuations are based on a “market approach” using quoted prices in active markets for identical assets. Valuations of these products do not require a significant degree of judgment. Assets utilizing Level 1 inputs include money market funds, U.S. government securities, bank deposits and exchange-traded equity securities. | |
• | Level 2 — These valuations are based primarily on a “market approach” using quoted prices in markets that are not very active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Fixed income assets utilizing Level 2 inputs include U.S. agency securities, including direct issuance bonds and mortgage-backed securities, asset-backed securities, corporate bonds and commercial paper. Derivative securities utilizing Level 2 inputs include foreign exchange forward contracts. | |
• | Level 3 — These valuations are based on various approaches using inputs that are unobservable and significant to the overall fair value measurement. Certain assets and liabilities are classified within Level 3 of the fair value hierarchy because they have unobservable value drivers and therefore have little or no transparency. The fair value measurement of the contingent consideration obligations related to our acquisition of certain assets from Bayer, in 2009, is valued using Level 3 inputs. |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
3. Fair Value Measurements (Continued)
a probability-weighted income approach. The measurement is based on significant inputs not observable in the market. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3. During the sixnine months ended JuneSeptember 30, 2010, none of our instruments were reclassified between Level 1, Level 2 or Level 3.
19
Balance as of | ||||||||||||||||||||
September 30, | ||||||||||||||||||||
Description | 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Fixed income investments(1): | Cash equivalents: | Money market funds/other | $ | 814,503 | $ | 814,503 | $ | — | $ | — | ||||||||||
Short-term investments: | U.S. Treasury notes | 13,374 | 13,374 | — | — | |||||||||||||||
Non U.S. Governmental notes | 6,754 | — | 6,754 | — | ||||||||||||||||
U.S. agency notes | 23,926 | — | 23,926 | — | ||||||||||||||||
Corporate notes — global | 36,423 | — | 36,423 | — | ||||||||||||||||
Commercial paper | 21,484 | — | 21,484 | — | ||||||||||||||||
Total | 101,961 | 13,374 | 88,587 | — | ||||||||||||||||
Long-term investments: | U.S. Treasury notes | 70,391 | 70,391 | — | — | |||||||||||||||
Non U.S. Governmental notes | 1,511 | — | 1,511 | — | ||||||||||||||||
U.S. agency notes | 26,490 | — | 26,490 | — | ||||||||||||||||
Corporate notes — global | 66,993 | — | 66,993 | — | ||||||||||||||||
Total | 165,385 | 70,391 | 94,994 | — | ||||||||||||||||
Total fixed income investments | 1,081,849 | 898,268 | 183,581 | — | ||||||||||||||||
Equity holdings(1): | Publicly-traded equity securities | 29,385 | 29,385 | — | — | |||||||||||||||
Derivatives: | Foreign exchange forward contracts | 230 | — | 230 | — | |||||||||||||||
Contingent liabilities(2): | Contingent consideration obligations | (966,363 | ) | — | — | (966,363 | ) | |||||||||||||
Total assets (liabilities) at fair value | $ | 145,101 | $ | 927,653 | $ | 183,811 | $ | (966,363 | ) | |||||||||||
Balance as of | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
Description | 2009 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Fixed income investments(1): | Cash equivalents: | Money market funds/other | $ | 603,109 | $ | 603,109 | $ | — | $ | — | ||||||||||
Short-term investments: | U.S. Treasury notes | 41,040 | 41,040 | — | — | |||||||||||||||
Non U.S. Governmental notes | 4,114 | — | 4,114 | — | ||||||||||||||||
U.S. agency notes | 56,810 | — | 56,810 | — | ||||||||||||||||
Corporate notes — global | 54,825 | — | 54,825 | — | ||||||||||||||||
Commercial paper | 6,841 | — | 6,841 | — | ||||||||||||||||
Total | 163,630 | 41,040 | 122,590 | — | ||||||||||||||||
Long-term investments: | U.S. Treasury notes | 29,793 | 29,793 | — | — | |||||||||||||||
Non U.S. Governmental notes | 4,873 | — | 4,873 | — | ||||||||||||||||
U.S. agency notes | 28,015 | — | 28,015 | — | ||||||||||||||||
Corporate notes — global | 81,143 | — | 81,143 | — | ||||||||||||||||
Total | 143,824 | 29,793 | 114,031 | — | ||||||||||||||||
Total fixed income investments | 910,563 | 673,942 | 236,621 | — | ||||||||||||||||
Equity holdings(1): | Publicly-traded equity securities | 40,380 | 40,380 | — | — | |||||||||||||||
Derivatives: | Foreign exchange forward contracts | 4,284 | — | 4,284 | — | |||||||||||||||
Contingent liabilities(2): | Contingent consideration obligations | (1,015,236 | ) | — | — | (1,015,236 | ) | |||||||||||||
Total assets (liabilities) at fair value | $ | (60,009 | ) | $ | 714,322 | $ | 240,905 | $ | (1,015,236 | ) | ||||||||||
(1) | Changes in the fair value of our fixed income investments and investments in publicly-traded equity securities are recorded in accumulated other comprehensive income, a component of stockholders’ equity, in our consolidated balance sheets. | |
(2) | Changes in the fair value of our contingent consideration obligations are recorded as contingent consideration expense, a component of operating expenses in our consolidated statements of operations. We recorded a total of $69.4 million of contingent consideration |
20
Description | Balance as of June 30, 2010 | Level 1 | Level 2 | Level 3 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fixed income investments(1): | Cash equivalents: | Money market funds/other | $ | 565,413 | $ | 565,413 | $ | — | $ | — | |||||||
Short-term investments: | U.S. Treasury notes | 26,823 | 26,823 | — | — | ||||||||||||
Non U.S. Governmental notes | 8,843 | — | 8,843 | — | |||||||||||||
U.S. agency notes | 72,093 | — | 72,093 | — | |||||||||||||
Corporate notes—global | 44,947 | — | 44,947 | — | |||||||||||||
Total | 152,706 | 26,823 | 125,883 | — | |||||||||||||
Long-term investments: | U.S. Treasury notes | 59,150 | 59,150 | — | — | ||||||||||||
U.S. agency notes | 20,962 | — | 20,962 | — | |||||||||||||
Corporate notes—global | 59,529 | — | 59,529 | — | |||||||||||||
Total | 139,641 | 59,150 | 80,491 | — | |||||||||||||
Total fixed income investments | 857,760 | 651,386 | 206,374 | — | |||||||||||||
Equity holdings(1): | Publicly-traded equity securities | 38,267 | 38,267 | — | — | ||||||||||||
Derivatives: | Foreign exchange forward contracts | (501 | ) | — | (501 | ) | — | ||||||||||
Contingent liabilities(2): | Contingent consideration obligations | (977,209 | ) | — | — | (977,209 | ) | ||||||||||
Total assets (liabilities) at fair value | $ | (81,683 | ) | $ | 689,653 | $ | 205,873 | $ | (977,209 | ) | |||||||
GENZYME CORPORATION AND SUBSIDIARIES
3. Fair Value Measurements (Continued)
Description | Balance as of December 31, 2009 | Level 1 | Level 2 | Level 3 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fixed income investments(1): | Cash equivalents: | Money market funds/other | $ | 603,109 | $ | 603,109 | $ | — | $ | — | |||||||
Short-term investments: | U.S. Treasury notes | 41,040 | 41,040 | — | — | ||||||||||||
Non U.S. Governmental notes | 4,114 | — | 4,114 | — | |||||||||||||
U.S. Government agency notes | 56,810 | — | 56,810 | — | |||||||||||||
Corporate notes—global | 54,825 | — | 54,825 | — | |||||||||||||
Commercial paper | 6,841 | — | 6,841 | — | |||||||||||||
Total | 163,630 | 41,040 | 122,590 | — | |||||||||||||
Long-term investments: | U.S. Treasury notes | 29,793 | 29,793 | — | — | ||||||||||||
Non U.S. Governmental notes | 4,873 | — | 4,873 | — | |||||||||||||
U.S. Government agency notes | 28,015 | — | 28,015 | — | |||||||||||||
Corporate notes—global | 81,143 | — | 81,143 | — | |||||||||||||
Total | 143,824 | 29,793 | 114,031 | — | |||||||||||||
Total fixed income investments | 910,563 | 673,942 | 236,621 | — | |||||||||||||
Equity holdings(1): | Publicly-traded equity securities | 40,380 | 40,380 | — | — | ||||||||||||
Derivatives: | Foreign exchange forward contracts | 4,284 | — | 4,284 | — | ||||||||||||
Contingent liabilities(2): | Contingent consideration obligations | (1,015,236 | ) | — | — | (1,015,236 | ) | ||||||||||
Total assets (liabilities) at fair value | $ | (60,009 | ) | $ | 714,322 | $ | 240,905 | $ | (1,015,236 | ) | |||||||
expense for the nine months ended September 30, 2010 in our consolidated statements of operations, of which $(11.4) million was allocated to our Hematology and Oncology reporting segment and $80.8 million was allocated to our Multiple Sclerosis reporting segment. We recorded $37.3 million of contingent consideration expense for the nine months ended September 30, 2009 in our consolidated statements of operations, including $18.5 million for our Hematology and Oncology reporting segment and $18.8 million for our Multiple Sclerosis reporting segment. |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
3. Fair Value Measurements (Continued)
Changes in the fair value of our Level 3 contingent consideration obligations during the sixnine months ended JuneSeptember 30, 2010 were as follows (amounts in thousands):
Balance as of December 31, 2009 | $ | (1,015,236 | ) | |
Payments | 114,786 | |||
R&D reimbursement received | (14,618 | ) | ||
Contingent consideration expense(1) | (69,436 | ) | ||
Effect of foreign currency translation adjustments | 18,141 | |||
Fair value at September 30, 2010 | $ | (966,363 | ) | |
Balance as of December 31, 2009 | $ | (1,015,236 | ) | |
Payments | 68,940 | |||
R&D reimbursement received | (7,604 | ) | ||
Contingent consideration expense(1) | (72,570 | ) | ||
Effect of foreign currency translation adjustments | 49,261 | |||
Fair value at June 30, 2010 | $ | (977,209 | ) | |
(1) | For the nine months ended September 30, 2010, includes: |
• | $6.8 million of contingent consideration expense attributable to transaction gains and losses resulting from fluctuations in foreign currency exchange rates on liabilities that will be settled in a currency other than the entity’s functional currency; and | |
• | a $20.9 million reduction in contingent consideration expense related to changes in estimates. |
• | 2015 Notes had a fair value of $530.0 million and a carrying value of $498.4 million; and | |
• | 2020 Notes had a fair value of $555.8 million and a carrying value of $495.9 million. |
3. Fair Value Measurements (Continued)
Unrealized Gain/Loss on Foreign Exchange Forward Contracts | ||||||||||||||||
As Reported | ||||||||||||||||
Gross | Net | |||||||||||||||
Asset | Liability | Asset | Liability | |||||||||||||
Derivatives | Derivatives | Derivatives | Derivatives | |||||||||||||
Other | Accrued | Other | Accrued | |||||||||||||
As of: | Current Assets | Expenses | Current Assets | Expenses | ||||||||||||
September 30, 2010 | $ | 4,020 | $ | 3,790 | $ | 230 | $ | — | ||||||||
December 31, 2009 | $ | 9,834 | $ | 5,550 | $ | 4,284 | $ | — |
| Unrealized Gain/Loss on Foreign Exchange Forward Contracts | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | As Reported | ||||||||||
| Gross | Net | |||||||||||
| Asset Derivatives | Liability Derivatives | Asset Derivatives | Liability Derivatives | |||||||||
As of: | Other current assets | Accrued expenses | Other current assets | Accrued expenses | |||||||||
June 30, 2010 | $ | 1,236 | $ | 1,737 | $ | — | $ | 501 | |||||
December 31, 2009 | $ | 9,834 | $ | 5,550 | $ | 4,284 | $ | — |
Total foreign exchange (gains) and losses included in SG&A in our consolidated statements of operations includes unrealized and realized (gains) and losses related to both our foreign exchange forward contracts and our foreign currency assets and liabilities. The net impact of our overall unrealized and realized foreign exchange (gains) and losses for both the three and six months ended June 30, 2010 and 2009 was not significant.
were as follows (amounts in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net impact of our overall unrealized and realized foreign exchange (gains) losses | $ | (14,223 | ) | $ | (2,735 | ) | $ | (13,732 | ) | $ | 3,386 |
Net Loss Reported | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
Statements of | September 30, | September 30, | ||||||||||||||||
Derivative Instrument | Operations Location | 2010 | 2009 | 2010 | 2009 | |||||||||||||
Foreign exchange forward contracts | SG&A | $ | 23,623 | $ | 16,275 | $ | 23,242 | $ | 24,173 |
22
| | Net (Gain)/Loss Reported | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| Statement of Operations Location | ||||||||||||||
Derivative Instrument | 2010 | 2009 | 2010 | 2009 | |||||||||||
Foreign exchange forward contracts | SG&A | $ | 4,660 | $ | 18,728 | $ | (381 | ) | $ | 7,898 |
GENZYME CORPORATION AND SUBSIDIARIES
4. Net Income (Loss) Per Share
5. | Net Income (Loss) Per Share |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Income (loss) from continuing operations, net of tax-basic and diluted | $ | 74,246 | $ | 13,642 | $ | (38,168 | ) | $ | 405,483 | |||||||
Income (loss) from discontinued operations, net of tax-basic and diluted | (5,292 | ) | 2,353 | (11,599 | ) | (6,428 | ) | |||||||||
Net income (loss) — basic and diluted | $ | 68,954 | $ | 15,995 | $ | (49,767 | ) | $ | 399,055 | |||||||
Shares used in computing net income (loss) per common share — basic | 255,359 | 268,957 | 262,293 | 269,923 | ||||||||||||
Effect of dilutive securities(1): | ||||||||||||||||
Stock options | 5,678 | 3,209 | — | 4,106 | ||||||||||||
Restricted stock units | 2,313 | 1,565 | — | 1,335 | ||||||||||||
Other | 436 | 10 | — | 11 | ||||||||||||
Dilutive potential common shares | 8,427 | 4,784 | — | 5,452 | ||||||||||||
Shares used in computing net income (loss) per common share — diluted(1) | 263,786 | 273,741 | 262,293 | 275,375 | ||||||||||||
Net income (loss) per share-basic: | ||||||||||||||||
Income (loss) from continuing operations, net of tax | $ | 0.29 | $ | 0.05 | $ | (0.15 | ) | $ | 1.50 | |||||||
Income (loss) from discontinued operations, net of tax | (0.02 | ) | 0.01 | (0.04 | ) | (0.02 | ) | |||||||||
Net income (loss) | $ | 0.27 | $ | 0.06 | $ | (0.19 | ) | $ | 1.48 | |||||||
Net income (loss) per share-diluted: | ||||||||||||||||
Income (loss) from continuing operations, net of tax | $ | 0.28 | $ | 0.05 | $ | (0.15 | ) | $ | 1.47 | |||||||
Income (loss) from discontinued operations, net of tax | (0.02 | ) | 0.01 | (0.04 | ) | (0.02 | ) | |||||||||
Net income (loss) | $ | 0.26 | $ | 0.06 | $ | (0.19 | ) | $ | 1.45 | |||||||
(1) | We did not include the securities described in the following table in the computation of diluted earnings (loss) per share because these securities were anti-dilutive during the corresponding period (amounts in thousands): |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Shares excluded from calculation of diluted loss per share | 4,438 | 20,851 | 22,419 | 16,411 | ||||||||||||
23
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Net income (loss)—basic and diluted | $ | (3,773 | ) | $ | 187,574 | $ | (118,721 | ) | $ | 383,060 | |||||
Shares used in computing net income (loss) per common share—basic | 265,270 | 269,958 | 265,760 | 270,406 | |||||||||||
Effect of dilutive securities(1): | |||||||||||||||
Stock options(2) | — | 3,555 | — | 4,554 | |||||||||||
Restricted stock units | — | 1,303 | — | 1,221 | |||||||||||
Other | — | 36 | — | 44 | |||||||||||
Dilutive potential common shares | — | 4,894 | — | 5,819 | |||||||||||
Shares used in computing net income (loss) per common share—diluted(1) | 265,270 | 274,852 | 265,760 | 276,225 | |||||||||||
Net income (loss) per common share: | |||||||||||||||
Basic | $ | (0.01 | ) | $ | 0.69 | $ | (0.45 | ) | $ | 1.42 | |||||
Diluted | $ | (0.01 | ) | $ | 0.68 | $ | (0.45 | ) | $ | 1.39 | |||||
| Three Months Ended June 30, 2010 | Six Months Ended June 30, 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|
Stock options | 2,316 | 2,633 | |||||||
Restricted stock units | 2,391 | 2,462 | |||||||
Other | 148 | 198 | |||||||
Total shares excluded from calculation of diluted loss per share | 4,855 | 5,293 | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
Shares issuable upon exercise of outstanding options | 23,158 | 19,732 | 21,903 | 14,191 | ||||||||||
GENZYME CORPORATION AND SUBSIDIARIES
5. Comprehensive Income (Loss)
6. | Comprehensive Income (Loss) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) | $ | 68,954 | $ | 15,995 | $ | (49,767 | ) | $ | 399,055 | |||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | 174,636 | 48,546 | (92,731 | ) | 82,178 | |||||||||||
Pension liability adjustments, net of tax(1) | 13 | — | (8 | ) | — | |||||||||||
Unrealized gains (losses) on securities, net of tax: | ||||||||||||||||
Unrealized gains (losses) arising during the period, net of tax | 247 | 6,358 | 246 | (4,592 | ) | |||||||||||
Reclassification adjustment of (gains) losses included in net income (loss), net of tax | (3,533 | ) | (378 | ) | (5,405 | ) | (538 | ) | ||||||||
Unrealized gains (losses) on securities, net of tax(2) | (3,286 | ) | 5,980 | (5,159 | ) | (5,130 | ) | |||||||||
Other comprehensive income (loss) | 171,363 | 54,526 | (97,898 | ) | 77,048 | |||||||||||
Comprehensive income (loss) | $ | 240,317 | $ | 70,521 | $ | (147,665 | ) | $ | 476,103 | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Net income (loss) | $ | (3,773 | ) | $ | 187,574 | $ | (118,721 | ) | $ | 383,060 | |||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation adjustments | (141,890 | ) | 153,780 | (267,367 | ) | 33,632 | |||||||||
Pension liability adjustments, net of tax(1) | (12 | ) | — | (21 | ) | — | |||||||||
Unrealized gains (losses) on securities, net of tax: | |||||||||||||||
Unrealized gains (losses) arising during the period, net of tax | (3,639 | ) | 9,657 | (1 | ) | (10,950 | ) | ||||||||
Reclassification adjustment of (gains) losses included in net income (loss), net of tax | (694 | ) | 37 | (1,872 | ) | (160 | ) | ||||||||
Unrealized gains (losses) on securities, net of tax(2) | (4,333 | ) | 9,694 | (1,873 | ) | (11,110 | ) | ||||||||
Other comprehensive income (loss) | (146,235 | ) | 163,474 | (269,261 | ) | 22,522 | |||||||||
Comprehensive income (loss) | $ | (150,008 | ) | $ | 351,048 | $ | (387,982 | ) | $ | 405,582 | |||||
6. Strategic Transactions
(1) | Tax amounts for all periods were not significant. | |
(2) | Net of $1.9 million of tax for the three months ended and $3.0 million of tax for the nine months ended September 30, 2010 and $(3.4) million of tax for the three months ended and $2.9 million of tax for the nine months ended September 30, 2009. |
7. | Strategic Transactions |
Discount Rate | ||||||||||||||||
Used in | Year of | |||||||||||||||
Purchase | Estimating | Expected | ||||||||||||||
Company/Assets Acquired | Price | IPR&D | Programs Acquired | Cash Flows | Launch | |||||||||||
Bayer Assets (2009) | $ | 1,006.5 | $ | 458.7 | alemtuzumab for MS — US | 16 | % | 2012 | ||||||||
174.2 | alemtuzumab for MS — ex-US | 16 | % | 2013 | ||||||||||||
$ | 632.9 | (1) | ||||||||||||||
Bioenvision, Inc., or Bioenvision (2007) | $ | 349.9 | $ | 125.5 | (2) | Clolar(3) | 17 | % | 2010-2016(4) | |||||||
AnorMED Inc., or AnorMED (2006) | $ | 589.2 | $ | 526.8 | (2) | Mozobil(5) | 15 | % | 2016 | |||||||
(1) | Capitalized as an indefinite-lived intangible asset. | |
(2) | Expensed on acquisition date. |
24
Company/Assets Acquired | Purchase Price | IPR&D | Programs Acquired | Discount Rate Used in Estimating Cash Flows | Year of Expected Launch | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Bayer (2009) | $ | 1,006.5 | $ | 458.7 | alemtuzumab for MS—US | 16 | % | 2012 | |||||||
174.2 | alemtuzumab for MS—ex-US | 16 | % | 2013 | |||||||||||
$ | 632.9 | (1) | |||||||||||||
Bioenvision, Inc., or Bioenvision (2007) | $ | 349.9 | $ | 125.5 | (2) | Clolar(3) | 17 | % | 2010-2016 | (4) | |||||
AnorMED Inc., or AnorMED (2006) | $ | 589.2 | $ | 526.8 | (2) | Mozobil(5) | 15 | % | 2016 | ||||||
GENZYME CORPORATION AND SUBSIDIARIES
(3) | Clolar is approved for the treatment of relapsed and refractory pediatric acute lymphoblastic leukemia, or ALL. The IPR&D projects for Clolar are related to the development of the product for the treatment of other indications. | |
(4) | Year of expected launch reflects both the ongoing launch of products for currently approved indications and the anticipated launch of products in the future for new indications. | |
(5) | Mozobil received marketing approval for use in stem cell transplants in the United States in December 2008 and in Europe in July 2009. Mozobil is also being developed for tumor sensitization. |
8. | Inventories |
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Amounts in thousands) | ||||||||
Raw materials | $ | 104,314 | $ | 103,410 | ||||
Work-in-process | 303,455 | 279,848 | ||||||
Finished goods | 188,961 | 166,035 | ||||||
Total | $ | 596,730 | $ | 549,293 | ||||
Pro Forma Financial Summary
The following pro forma financial summary is presented as if the acquisition from Bayer was completed as of January 1, 2009. The pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities. Material nonrecurring charges related to this acquisition, such as a gain on acquisition of business of $24.2 million, are included in the pro forma financial summaries for the period presented (amounts in thousands, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|---|
| 2009 | 2009 | ||||||
Total revenues | $ | 1,280,470 | $ | 2,477,530 | ||||
Net income | $ | 163,425 | $ | 319,795 | ||||
Net income per share: | ||||||||
Basic | $ | 0.61 | $ | 1.18 | ||||
Diluted | $ | 0.59 | $ | 1.16 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 269,958 | 270,406 | ||||||
Diluted | 274,852 | 276,225 | ||||||
7. Inventories
| June 30, 2010 | December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
Raw materials | $ | 106,394 | $ | 123,434 | ||||
Work-in-process | 283,648 | 288,653 | ||||||
Finished goods | 204,070 | 195,935 | ||||||
Total | $ | 594,112 | $ | 608,022 | ||||
Manufacturing-Related Charges
Cerezyme and Fabrazyme
In order to build a small inventory buffer to help us more consistentlybetter manage delivery of the resupply of Cerezyme to patients and reduce interruptions inavailable. We continued shipping that occur in the absence of inventory, we began shipping Cerezyme to meetat 50% of estimated product demand atthrough the end of February 2010. Although we achieved our goal of building a small inventory buffer during the firstsecond quarter of 2010, we continued shipping at 50%due in part to the impact of demand level due to ana second interruption in operations at our Allston facility
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
7. Inventories (Continued)
at the end ofproduction in March 2010. The interruption resulted2010 resulting from an unexpected citya municipal electrical power failure that compounded issues with the plant'sfacility’s water system. Once production resumed, we continued shipping at the 50% demand level through the end of the second quarter of 2010. We supplied approximately the same amountincreased supply of Cerezyme in July 2010 as we supplied in eachthe third quarter of May 2010 and June 2010, and expect that supply will then increaseCerezyme patients in the following months. However, there willUnited States were able to begin to return to normal dosing levels in September. We expect Cerezyme patients on a global basis to be regional variations when Cerezyme will be available,able to return to normal dosing during the fourth quarter of 2010.
Sincebuild a small inventory buffer, Fabrazyme shipments decreased in the fourth quarter of 2009 and we have beenbegan shipping Fabrazyme at a rate equal to meet approximately 30% of estimated product demand. We have been workingcontinued shipping at 30% of estimated product demand through the third quarter of 2010. We continue to work to increase the productivity of the Fabrazyme manufacturing process, which has performed at the low end of the historical range since the re-start of production.production in June 2009. We have developed a new working cell bank for Fabrazyme that has been approved by the FDA and the European Medicines Agency, or EMA. The new working cell bank has completed threefive runs and has had 30% to 40% greater productivity than the oldprior working cell bank. Fabrazyme patients are beginning to be able to double their doses, starting in the United States, and we expect Fabrazyme patients on a global basis to be able to do so in the fourth quarter of 2010. We expect to continue shippingbe able to fully supply global Fabrazyme atdemand during the 30%first half of demand level through the third quarter and increase shipments of Fabrazyme in the fourth quarter.
2011.
We also recorded charges of $6.0 million for the three months and $7.1 million for the sixnine months ended JuneSeptember 30, 2010 to costcosts of products sold in our consolidated statements of operations, including:
• | $5.6 million of charges during the three months ended September 30, 2010 for manufacturing-related costs associated with various inventory write offs; |
25
We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval of a product. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. As of June 30, 2010, the amount of inventory for Fabrazyme related to the new working cell bank that has not yet been approved for sale was not significant.
Unaudited, Consolidated Financial Statements — (Continued)
• | $16.4 million of charges during the first and second quarters of 2010 to write off Cerezyme and Fabrazymework-in-process material that was unfinished when the interruption occurred in March 2010, based on our determination that such material could not be finished, and other inventory for these products that did not meet the necessary quality specifications; and | |
• | $7.1 million of charges during the first and second quarters of 2010 to write off certain lots of Thyrogen that did not meet the necessary quality specifications. |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
7. Inventories (Continued)
as well as the building in which the equipment was located. As a result, we temporarily suspended production of sevelamer hydrochloride and sevelamer carbonate at this facility so the damaged equipment could be repaired. We resumed production of sevelamer hydrochloride in May 2010. We anticipate that the facility will resume2010 and production of sevelamer carbonate in the fourth quarter ofOctober 2010. We believe that we have adequate supply levels to meet the current demand for both Renagel and Renvela and do not anticipate there will be any supply constraints for either product while the facility undergoes repairs. We recorded $6.1$9.1 million of expenses, net of $2.4 million offor which there were no insurance reimbursements, for the three months ended and $13.7$22.8 million, net of $5.4 million of insurance reimbursements, for the sixnine months ended JuneSeptember 30, 2010,2010. The noted expenses were recorded to cost of products sold in our consolidated statements of operations for Renagel and Renvela related to the remediation cost of our Haverhill, England manufacturing facility, including repairs and idle capacity expenses. We expect to incur approximately $10 millionRemediation of additionalthis facility is substantially complete and we anticipate that any remaining costs related to the remediation of this facility in the third quarter of 2010.will not be significant.
26
8. Goodwill and Other Intangible Assets
9. | Goodwill and Other Intangible Assets |
Personalized | Hematology | |||||||||||||||||||||||
Genetic | Renal and | and | Multiple | |||||||||||||||||||||
Health | Endocrinology | Biosurgery | Oncology | Sclerosis | Total | |||||||||||||||||||
Goodwill | $ | 339,563 | $ | 319,882 | $ | 110,376 | $ | 375,889 | $ | 318,059 | $ | 1,463,769 | ||||||||||||
Accumulated impairment losses(1) | — | — | (102,791 | ) | — | — | (102,791 | ) | ||||||||||||||||
Balance as of December 31, 2009 | 339,563 | 319,882 | 7,585 | 375,889 | 318,059 | 1,360,978 | ||||||||||||||||||
Changes in carrying amounts during the period | — | — | — | — | — | — | ||||||||||||||||||
Balance as of September 30, 2010 | $ | 339,563 | $ | 319,882 | $ | 7,585 | $ | 375,889 | $ | 318,059 | $ | 1,360,978 | ||||||||||||
Goodwill | $ | 339,563 | $ | 319,882 | $ | 110,376 | $ | 375,889 | $ | 318,059 | $ | 1,463,769 | ||||||||||||
Accumulated impairment losses(1) | — | — | (102,791 | ) | — | — | (102,791 | ) | ||||||||||||||||
Balance as of September 30, 2010 | $ | 339,563 | $ | 319,882 | $ | 7,585 | $ | 375,889 | $ | 318,059 | $ | 1,360,978 | ||||||||||||
(1) | Accumulated impairment losses consists of a $102.8 million pre-tax charge recorded in 2003 to write off the goodwill of our Biosurgery reporting segment’s orthopaedics reporting unit. |
27
| Personalized Genetic Health | Renal and Endocrinology | Biosurgery | Hematology and Oncology | Multiple Sclerosis | Other | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Goodwill | $ | 339,563 | $ | 319,882 | $ | 110,376 | $ | 375,889 | $ | 318,059 | $ | 261,631 | $ | 1,725,400 | ||||||||
Accumulated impairment losses(1) | — | — | (102,792 | ) | — | — | (219,245 | ) | (322,037 | ) | ||||||||||||
Balance as of December 31, 2009 | 339,563 | 319,882 | 7,584 | 375,889 | 318,059 | 42,386 | 1,403,363 | |||||||||||||||
Net exchange differences arising during the period | — | — | — | — | — | (19 | ) | (19 | ) | |||||||||||||
Other changes in carrying amounts during the period | — | — | — | — | — | 295 | 295 | |||||||||||||||
Balance as of June 30, 2010 | $ | 339,563 | $ | 319,882 | $ | 7,584 | $ | 375,889 | $ | 318,059 | $ | 42,662 | $ | 1,403,639 | ||||||||
Goodwill | $ | 339,563 | $ | 319,882 | $ | 110,376 | $ | 375,889 | $ | 318,059 | $ | 261,907 | $ | 1,725,676 | ||||||||
Accumulated impairment losses(1) | — | — | (102,792 | ) | — | — | (219,245 | ) | (322,037 | ) | ||||||||||||
Balance as of June 30, 2010 | $ | 339,563 | $ | 319,882 | $ | 7,584 | $ | 375,889 | $ | 318,059 | $ | 42,662 | $ | 1,403,639 | ||||||||
GENZYME CORPORATION AND SUBSIDIARIES
Other Intangible Assets
As of September 30, 2010 | As of December 31, 2009 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Other | Other | Other | Other | |||||||||||||||||||||
Intangible | Accumulated | Intangible | Intangible | Accumulated | Intangible | |||||||||||||||||||
Assets | Amortization | Assets | Assets | Amortization | Assets | |||||||||||||||||||
Finite-lived other intangible assets: | ||||||||||||||||||||||||
Technology(1) | $ | 1,901,744 | $ | (950,023 | ) | $ | 951,721 | $ | 2,142,211 | $ | (845,047 | ) | $ | 1,297,164 | ||||||||||
Distribution rights(2) | 446,584 | (274,017 | ) | 172,567 | 440,521 | (227,726 | ) | 212,795 | ||||||||||||||||
Patents | 187,780 | (141,013 | ) | 46,767 | 187,780 | (131,140 | ) | 56,640 | ||||||||||||||||
License fees | 98,698 | (52,081 | ) | 46,617 | 98,647 | (47,052 | ) | 51,595 | ||||||||||||||||
Customer lists | 868 | (796 | ) | 72 | 838 | (559 | ) | 279 | ||||||||||||||||
Trademarks | 60,227 | (51,471 | ) | 8,756 | 60,227 | (47,464 | ) | 12,763 | ||||||||||||||||
Total finite-lived other intangible assets | 2,695,901 | (1,469,401 | ) | 1,226,500 | 2,930,224 | (1,298,988 | ) | 1,631,236 | ||||||||||||||||
Indefinite-lived other intangible assets: | ||||||||||||||||||||||||
IPR&D | 632,912 | — | 632,912 | 632,912 | — | 632,912 | ||||||||||||||||||
Total other intangible assets | $ | 3,328,813 | $ | (1,469,401 | ) | $ | 1,859,412 | $ | 3,563,136 | $ | (1,298,988 | ) | $ | 2,264,148 | ||||||||||
| As of June 30, 2010 | As of December 31, 2009 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Other Intangible Assets | Accumulated Amortization | Net Other Intangible Assets | Gross Other Intangible Assets | Accumulated Amortization | Net Other Intangible Assets | ||||||||||||||
Finite-lived other intangible assets: | ||||||||||||||||||||
Technology(1) | $ | 1,939,330 | $ | (942,470 | ) | $ | 996,860 | $ | 2,180,232 | $ | (877,611 | ) | $ | 1,302,621 | ||||||
Distribution rights(2) | 446,427 | (260,557 | ) | 185,870 | 440,521 | (227,726 | ) | 212,795 | ||||||||||||
Patents | 188,651 | (138,520 | ) | 50,131 | 188,651 | (131,898 | ) | 56,753 | ||||||||||||
License fees | 98,272 | (50,031 | ) | 48,241 | 98,647 | (47,052 | ) | 51,595 | ||||||||||||
Customer lists | 87,421 | (48,282 | ) | 39,139 | 87,423 | (43,822 | ) | 43,601 | ||||||||||||
Trademarks | 60,608 | (50,332 | ) | 10,276 | 60,608 | (47,623 | ) | 12,985 | ||||||||||||
Total finite-lived other intangible assets | 2,820,709 | (1,490,192 | ) | 1,330,517 | 3,056,082 | (1,375,732 | ) | 1,680,350 | ||||||||||||
Indefinite-lived other intangible assets: | ||||||||||||||||||||
IPR&D | 632,912 | — | 632,912 | 632,912 | — | 632,912 | ||||||||||||||
Total other intangible assets | $ | 3,453,621 | $ | (1,490,192 | ) | $ | 1,963,429 | $ | 3,688,994 | $ | (1,375,732 | ) | $ | 2,313,262 | ||||||
(1) | For the year ended December 31, 2009, includes a gross technology intangible asset of $240.3 million and related accumulated amortization of $(24.0) million related to the consolidated results of BioMarin/Genzyme LLC. Effective January 1, 2010, under new guidance we adopted for consolidating variable interest entities, we no longer consolidate the results of this joint venture and no longer include this gross technology asset and the related accumulated amortization or a related other noncurrent liability in our consolidated balance sheets. | |
(2) | Includes an additional $6.1 million for the nine months ended September 30, 2010 for additional payments made or accrued in connection with the reacquisition of the Synvisc sales and marketing rights from Pfizer in January 2005. As of September 30, 2010, the contingent royalty payments to Pfizer payable under the agreement are substantially complete. We completed the contingent royalty payments to Pfizer related to North American sales of Synvisc in the first quarter of 2010 and anticipate completing the remaining contingent royalty payments to Pfizer related to sales of the product outside of the United States by the first quarter of 2011. |
8. Goodwill and Other Intangible Assets (Continued)
Estimated | ||||||||||||
Revenue- | Estimated | Total | ||||||||||
Based | Other | Estimated | ||||||||||
Amortization | Amortization | Amortization | ||||||||||
Year Ended December 31, | Expense(1) | Expense | Expense(1) | |||||||||
2010 (remaining three months) | $ | 36,449 | $ | 35,223 | $ | 71,672 | ||||||
2011 | 119,026 | 165,043 | 284,069 | |||||||||
2012 | 94,173 | 140,355 | 234,528 | |||||||||
2013 | 29,552 | 124,721 | 154,273 | |||||||||
2014 | 26,315 | 106,135 | 132,450 | |||||||||
Thereafter | 21,667 | 344,062 | 365,729 |
Year Ended December 31, | Estimated Revenue- Based Amortization Expense(1) | Estimated Other Amortization Expense | Total Estimated Amortization Expense(1) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2010 (remaining six months) | $ | 49,255 | $ | 91,146 | $ | 140,401 | ||||
2011 | 119,112 | 175,060 | 294,172 | |||||||
2012 | 94,168 | 148,174 | 242,342 | |||||||
2013 | 29,545 | 131,432 | 160,977 | |||||||
2014 | 26,308 | 109,116 | 135,424 | |||||||
Thereafter | 21,578 | 352,219 | 373,797 |
9. Investment in BioMarin/Genzyme LLC
(1) | Includes estimated future amortization expense for: |
• | the Synvisc distribution rights based on the forecasted respective future sales of Synvisc and the resulting future contingent payments we may be required to make to Pfizer and the Myozyme/Lumizyme patent and technology rights pursuant to a license agreement with Synpac (North Carolina), Inc., or Synpac, based on forecasted future net sales of Myozyme/Lumizyme and the milestone payments we may be required to make to Synpac. These contingent payments will be recorded as intangible assets when the payments are accrued; and | |
• | the technology intangible assets resulting from our acquisition of the worldwide rights to Fludara, which are being amortized based on the forecasted future sales of Fludara. |
10. | Investment in BioMarin/Genzyme LLC |
• | consolidated the income (losses) of BioMarin/Genzyme LLC and recorded BioMarin’s portion of BioMarin/Genzyme LLC’s income (losses) as minority interest in our consolidated statements of operations; and | |
• | recorded the assets and liabilities of BioMarin/Genzyme LLC in our consolidated balance sheets at fair value. |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
9. Investment in BioMarin/Genzyme LLC (Continued)
BioMarin/Genzyme LLC. Under the new guidance, the entity with the power to direct the activities that most significantly impact a variable interest entity'sentity’s economic performance is the primary beneficiary. We have concluded that BioMarin/Genzyme LLC is a variable interest entity, but does not have a primary beneficiary because the power to direct the activities of BioMarin/Genzyme LLC that most significantly impact its performance, is in fact, shared equally between us and BioMarin through our commercialization rights and BioMarin'sBioMarin’s manufacturing rights. Effective January 1, 2010, we no longer consolidate the results of BioMarin/Genzyme LLC and instead record our
29
11. | Investments in Equity Securities |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Gross gains (losses) on investments in equity securities | $ | 6,125 | $ | (36 | ) | $ | 8,370 | $ | 422 | |||||||
Less: charges for impairment of investments | (1,477 | ) | (615 | ) | (35,120 | ) | (1,754 | ) | ||||||||
Gains (losses) on investments in equity securities, net | $ | 4,648 | $ | (651 | ) | $ | (26,750 | ) | $ | (1,332 | ) | |||||
in the future, if the decline in value has become “other than temporary,” we will write down our investment in Isis common stock to its then current market value and record an impairment charge to our consolidated statements of operations.
12. | Long-Term Debt |
2015 and 2020 Senior Notes
30
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
11. Long-Term Debt (Continued)
• | a $7.7 million increase to other noncurrent assets for the capitalized debt offering costs, including $6.3 million for commissions and $1.4 million of other offering expenses; and | |
• | a $1.0 billion increase to long-term liabilities for the principal of the Notes, offset by $5.7 million for the debt discount on the Notes. |
• | 100% of the principal amount of the Notes redeemed; or | |
• | the sum of the present values of the remaining scheduled payments of interest and principal thereon discounted at the Treasury Rate plus 25 basis points in the case of our 2015 Notes and 30 basis points in the case of our 2020 Notes. |
change of control as provided in the indenture for the Notes.
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12. Stockholders' Equity
13. | Stockholders’ Equity |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
12. Stockholders' Equity (Continued)
In June 17, 2010, we entered into an accelerated share repurchase agreement with Goldman Sachs & Co., or Goldman Sachs, under which we will repurchaserepurchased $1.0 billion worth of shares of our common stock. Our effective per share purchase price will be based generally on the average of the daily volume weighted average prices per share of our common stock less a discount, calculated during a periodat an effective purchase price of up$63.79 per share. Pursuant to four months. In connection with thisthe agreement, in June 2010, we paid $1.0 billion to Goldman Sachs and received 15.6 million shares, of which:
• | $800.0 million, or 80%, represents the value, based on the closing price of our common stock on June 17, 2010, of the 15.6 million shares of our common stock that Goldman Sachs delivered to us; and | |
• | $200.0 million, or 20%, represents an advance payment that covers a higher effective per share purchase price than the price on June 17, 2010 and additional shares Goldman Sachs delivered to us at the end of the program in October 2010. |
We recorded the $1.0 billion payment to the bank as a decrease to stockholders' equity in our consolidated balance sheet as of June 30, 2010, consisting of decreases of $0.2 million in common stock and $799.8 million in additional paid-in capital as well as a $200.0 million share purchase contract receivable for the advance payment described above.
The total number of shares ultimately repurchased will not be known until the calculation period ends and a final settlement occurs. Upon final settlement, we will either receive a settlement amount of additional shares of our common stock or be required to remit a settlement amount, payable, at our option, in cash or common stock. Shares repurchased under this agreement will be deemed authorized shares that are no longer outstanding.
outstanding shares.
New | Original | |||||||
Post-Termination | Post-Termination | |||||||
Period | Period | |||||||
Grant date fair value as of May 26, 2010 | $ | 50.00 | $ | 50.00 | ||||
Term | 19 months | 10 months | ||||||
Dividend | 0 | 0 | ||||||
Volatility | 38.00 | % | 30.00 | % | ||||
Risk-free interest rate | 0.63 | % | 0.32 | % |
| New Post-Termination Period | Original Post-Termination Period | |||||
---|---|---|---|---|---|---|---|
Grant date fair value as of May 26, 2010 | $50.00 | $50.00 | |||||
Term | 19 months | 10 months | |||||
Dividend | 0 | 0 | |||||
Volatility | 38.00 | % | 30.00 | % | |||
Risk-free interest rate | 0.63 | % | 0.32 | % |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
12. Stockholders' Equity (Continued)
Based on our analysis, we recorded an additional $9.1 million of stock-based compensation expense in our consolidated statements of operations for the three months ended June 30, 2010, as these options were fully vested, for the valuation adjustment related to the modification of these stock options.
• | acceleration of the unvested portions of the RSUs granted in May 2008; and | |
• | pro-ration of the vesting of the RSUs granted in May 2009 over a19-month, instead of a three-year, period. |
32
• | an $8.2 million reduction for the reversal of the cumulative to-date stock-based compensation expenses recorded through May 25, 2010, prior to the modifications; offset, in part, by | |
• | $13.2 million of additional stock-based compensation expenses for the period from May 26, 2010 through September 30, 2010 based on the new, reduced grant date fair value of these awards. |
• | time vesting stock options; and | |
• | performance and market vesting awards comprised of PSUs, tied to the achievement of pre-established performance and market goals over a three-year performance period, and cash. |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
12. Stockholders' Equity (Continued)
• | cash flow return on invested capital; and | |
• | R-TSR measured against the performance of a subset of biotechnology peer companies (currently 28 companies) in the S&P 500 Health Care Index. |
33
| ||||
| Percentile | |||
Performance Level | Rank | |||
Threshold | ||||
| 65th | |||
Maximum | 75th |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
12. Stockholders' Equity (Continued)
of PSUs subject to the R-TSR performance metric, which includes both market and service conditions. The lattice model requires various highly judgmental assumptions to determine the fair value of the awards. This model samples paths of our stock price and the stock prices of a group of peer companies in the S&P 500 Health Care Index, which we refer to as the Peer Group, and calculates the resulting change in cash flow multiple at the end of the forecasted performance period. This model iterates these randomly forecasted results until the distribution of results converge on a mean or estimated fair value.
Expected dividend yield | 0% | |
Range of risk free rate of return | 1.33% | |
Range of our expected stock price volatility | 35.11% | |
Range of Peer Group expected stock price volatility | 21.27% | |
Range of our average closing stock prices on the grant dates | $ | |
Range of Peer Group average closing stock prices on the grant dates | $ | |
Range of our historical total shareholder return on the grant dates | 5.75% | |
Range of historical total shareholder return for the Peer Group on the grant dates | (19.78)% |
34
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Pre-tax stock-based compensation expense, net of estimated forfeitures(1) | $ | (40,807 | ) | $ | (41,089 | ) | $ | (126,019 | ) | $ | (140,320 | ) | ||||
Less: tax benefit from stock options | 13,366 | 11,151 | 37,640 | 35,602 | ||||||||||||
Total stock-based compensation expense, net of tax | $ | (27,441 | ) | $ | (29,938 | ) | $ | (88,379 | ) | $ | (104,718 | ) | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Pre-tax stock-based compensation expense, net of estimated forfeitures(1) | $ | (44,694 | ) | $ | (65,167 | ) | $ | (92,335 | ) | (109,773 | ) | ||||
Less: tax benefit from stock options | 13,476 | 15,144 | 26,548 | 27,733 | |||||||||||
Total stock-based compensation expense, net of tax | $ | (31,218 | ) | $ | (50,023 | ) | $ | (65,787 | ) | $ | (82,040 | ) | |||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
Stock-based compensation expense capitalized to inventory | $ | 4,038 | $ | 5,729 | $ | 7,840 | $ | 9,141 |
(1) | We also capitalized the following amounts of stock-based compensation expense to inventory, all of which is attributable to participating employees that support our manufacturing operations (amounts in thousands): |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock-based compensation expense capitalized to inventory | $ | 3,955 | $ | 3,623 | $ | 11,795 | $ | 12,764 |
14. GENZYME CORPORATION AND SUBSIDIARIESNotes to Unaudited, Consolidated Financial Statements (Continued)13. Commitments and ContingenciesCommitments and Contingencies are retaining ashave retained to be the third-party expert under the consent decree. The plan, as revised, which will be subject to FDA approval, is expected to take approximately 3-4three to four years to complete and will include a timetable of specified compliance milestones. If the milestones are not met in
35
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
13. Commitments and Contingencies (Continued)
experts' experts’ fees. In November 2009, the lawsuits were consolidated inIn Re Genzyme Corp. Securities Litigationand a lead plaintiff was appointed. In March 2010, the plaintiffs filed a consolidated amended complaint that extended the class period from October 24, 2007 through November 13, 2009.2009 and named additional individuals as defendants. In June 2010, we filed a motion to dismiss the class action. IfThe plaintiffs filed an opposition to our motion to dismiss in August 2010 and we filed a reply in support of our motion to dismiss in September 2010. A hearing on the motion to dismiss is scheduled to be held in January 2011.
36
37
38
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
13. Commitments and Contingencies (Continued)
Court Actions have been consolidated inIn Re Genzyme Derivative Litigationand the plaintiffs have agreed to a joint stipulation staying these cases until our board of directors has had sufficient time to exercise its duties and complete an appropriate investigation, which is ongoing. On July 9, 2010, one of the State Court Actions was dismissed without prejudice for plaintiffs'plaintiffs’ failure to serve process on the defendants. The Middlesex Court also ordered transfer and consolidation of the remaining two State Court Actions in the Suffolk Superior Court Business Litigation Session. The court has indicated that discovery in that action also will be stayed for some period pending theour board of director'sdirector’s completion of its ongoing investigation in response to the shareholders demand.
39
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
14. Benefit from (Provision for) Income Taxes
15. | Benefit from (Provision for) Income Taxes |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Benefit from (provision for) income taxes | $ | (17,385 | ) | $ | 965 | $ | 58,493 | $ | (160,305 | ) | ||||||
Effective tax rate | 19 | % | (8 | )% | (61 | )% | 28 | % |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
| (Amounts in thousands) | ||||||||||||
Benefit from (provision for) income taxes | $ | 19,953 | $ | (78,870 | ) | $ | 81,752 | $ | (157,754 | ) | |||
Effective tax rate | (84 | )% | 30 | % | (41 | )% | 29 | % |
Our effective tax rate for all periods presented varies from the U.S. statutory tax rate as a result of:
• | income and expenses taxed at rates other than the U.S. statutory tax rate; | |
• | our provision for state income taxes; | |
• | domestic manufacturing benefits; | |
• | benefits related to tax credits; and | |
• | non-deductible stock-based compensation expenses totaling $10.3 million for the three months ended and $30.1 million for the nine months ended September 30, 2010, as compared to $8.7 million for the three months ended and $38.3 million for the nine months ended September 30, 2009. |
paid in the amount of $9.5 million for the three months ended September 30, 2010 and $19.5 million for the nine months ended September 30, 2010.
jurisdictions and tax expenses in the amount of $20.6 million resulting from the remeasurement of the deferred tax assets related to our acquisition of certain assets from Bayer in 2009.
40
15. Segment Information
16. | Segment Information |
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
15. Segment Information (Continued)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: | ||||||||||||||||
Personalized Genetic Health(1) | $ | 404,183 | $ | 369,878 | $ | 1,147,227 | $ | 1,501,566 | ||||||||
Renal and Endocrinology | 270,431 | 260,418 | 781,233 | 750,163 | ||||||||||||
Biosurgery | 156,732 | 145,647 | 458,080 | 404,496 | ||||||||||||
Hematology and Oncology(2) | 167,296 | 143,593 | 500,103 | 344,156 | ||||||||||||
Multiple Sclerosis(2) | — | — | — | 12,357 | ||||||||||||
Other | 3,082 | 3,737 | 9,835 | 24,759 | ||||||||||||
Corporate | 76 | 493 | 377 | 1,501 | ||||||||||||
Total | $ | 1,001,800 | $ | 923,766 | $ | 2,896,855 | $ | 3,038,998 | ||||||||
Income (loss) before income taxes: | ||||||||||||||||
Personalized Genetic Health(1,3) | $ | 135,274 | $ | 124,758 | $ | 176,283 | $ | 806,664 | ||||||||
Renal and Endocrinology | 138,398 | 119,193 | 366,358 | 336,361 | ||||||||||||
Biosurgery | 47,369 | 40,277 | 137,972 | 102,360 | ||||||||||||
Hematology and Oncology(2) | 19,719 | (24,155 | ) | 59,915 | (44,170 | ) | ||||||||||
Multiple Sclerosis(2) | (28,203 | ) | (45,423 | ) | (170,483 | ) | (64,030 | ) | ||||||||
Other(4) | (1,429 | ) | (153 | ) | (5,123 | ) | 190 | |||||||||
Corporate(5) | (219,497 | ) | (201,820 | ) | (661,583 | ) | (571,587 | ) | ||||||||
Total | $ | 91,631 | $ | 12,677 | $ | (96,661 | ) | $ | 565,788 | |||||||
(1) | Includes the impact of: | |
• increased shipments of Cerezyme for the three months ended September 30, 2010; and | ||
• supply constraints for Cerezyme and Fabrazyme for the nine months ended September 30, 2010 and the three and nine months ended September 30, 2009. | ||
(2) | On May 29, 2009, we acquired the worldwide rights to the oncology products Campath, Fludara and Leukine and alemtuzumab for MS from Bayer. As of that date, we ceased recognizing research and development revenue for Bayer’s reimbursement of a portion of the development costs for alemtuzumab for MS. The fair value of the research and development costs for alemtuzumab for MS that will be reimbursed by Bayer is accounted for as an offset to the contingent consideration obligations for alemtuzumab for MS. |
41
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Revenues: | |||||||||||||||
Personalized Genetic Health(1,3) | $ | 350,540 | $ | 581,728 | $ | 743,044 | $ | 1,131,688 | |||||||
Renal and Endocrinology | 258,379 | 247,277 | 510,802 | 489,745 | |||||||||||
Biosurgery | 163,982 | 139,327 | 301,348 | 258,849 | |||||||||||
Hematology and Oncology(2) | 176,497 | 111,990 | 332,807 | 200,563 | |||||||||||
Multiple Sclerosis(2) | — | 5,066 | — | 12,357 | |||||||||||
Other | 129,753 | 142,568 | 265,612 | 283,171 | |||||||||||
Corporate | 288 | 554 | 299 | 1,008 | |||||||||||
Total | $ | 1,079,439 | $ | 1,228,510 | $ | 2,153,912 | $ | 2,377,381 | |||||||
Income (loss) before income taxes: | |||||||||||||||
Personalized Genetic Health(1,3) | $ | 70,571 | $ | 332,700 | $ | 43,555 | $ | 684,495 | |||||||
Renal and Endocrinology | 113,436 | 111,106 | 227,960 | 217,168 | |||||||||||
Biosurgery | 61,608 | 33,750 | 90,603 | 62,083 | |||||||||||
Hematology and Oncology(2) | 31,826 | (17,030 | ) | 40,196 | (20,015 | ) | |||||||||
Multiple Sclerosis(2) | (52,355 | ) | (2,161 | ) | (142,280 | ) | (18,607 | ) | |||||||
Other(4) | (447 | ) | 15,013 | 3,781 | 10,215 | ||||||||||
Corporate(5) | (248,365 | ) | (206,934 | ) | (464,288 | ) | (394,525 | ) | |||||||
Total | $ | (23,726 | ) | $ | 266,444 | $ | (200,473 | ) | $ | 540,814 | |||||
GENZYME CORPORATION AND SUBSIDIARIES
15. Segment Information (Continued)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Contingent consideration expenses: | ||||||||||||||||
Hematology and Oncology | $ | 1,661 | $ | 14,157 | $ | (11,413 | ) | $ | 18,487 | |||||||
Multiple Sclerosis | (4,795 | ) | 14,040 | 80,849 | 18,800 | |||||||||||
Total contingent consideration expenses | $ | (3,134 | ) | $ | 28,197 | $ | 69,436 | $ | 37,287 | |||||||
�� |
In addition, income (loss) before income taxes for our Multiple Sclerosis reporting segment includes a gain on acquisition of business of $24.2 million for the nine months ended September 30, 2009 for which there were no comparable amounts in 2010. The fair value of the identifiable assets acquired of $1.03 billion exceeded the fair value of the purchase price for the transaction of $1.01 billion. | ||
(3) | Includes a charge of $175.0 million recorded to SG&A for the nine months ended September 30, 2010 for the upfront disgorgement of past profits provided for in the consent decree we entered into with the FDA. For more information about the consent decree, see Note 14., “Commitments and Contingencies,” to these consolidated financial statements. | |
(4) | Excludes the results for our genetic testing and diagnostic products business units which have met the criteria for discontinued operations and, accordingly, are included in discontinued operations for all periods presented. | |
(5) | Loss before income taxes for Corporate includes our corporate, general and administrative and corporate science activities, our stock-based compensation expenses for our continuing operations, as well as net gains (losses) on our investments in equity securities, investment income, interest expense and other income and expense items that we do not specifically allocate to a particular reporting segment. |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Contingent consideration expenses: | |||||||||||||||
Hematology and Oncology | $ | (34,506 | ) | $ | 4,330 | $ | (13,074 | ) | $ | 4,330 | |||||
Multiple Sclerosis | 44,527 | 4,760 | 85,644 | 4,760 | |||||||||||
Total contingent consideration expenses | $ | 10,021 | $ | 9,090 | $ | 72,570 | $ | 9,090 | |||||||
In addition, income (loss) before income taxes for our Multiple Sclerosis reporting segment includes a gain on acquisition of business of $24.2 million for the three and six months ended June 30, 2009 for which there were no comparable amounts in 2010. The fair value of the identifiable assets acquired of $1.03 billion exceeded the fair value of the purchase price for the transaction of $1.01 billion.
GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
15. Segment Information (Continued)
Segment Assets
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Segment Assets(1): | ||||||||
Personalized Genetic Health(2,3) | $ | 1,856,507 | $ | 1,987,916 | ||||
Renal and Endocrinology | 1,282,564 | 1,283,731 | ||||||
Biosurgery | 522,029 | 509,064 | ||||||
Hematology and Oncology | 1,398,140 | 1,406,684 | ||||||
Multiple Sclerosis | 951,372 | 956,448 | ||||||
Other(1) | 442,250 | 444,406 | ||||||
Corporate(3,4) | 3,966,259 | 3,472,475 | ||||||
Total | $ | 10,419,121 | $ | 10,060,724 | ||||
| June 30, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
Segment Assets(1): | |||||||||
Personalized Genetic Health(2) | $ | 1,211,225 | $ | 1,525,602 | |||||
Renal and Endocrinology | 1,193,872 | 1,283,731 | |||||||
Biosurgery | 482,117 | 509,064 | |||||||
Hematology and Oncology | 1,343,840 | 1,406,684 | |||||||
Multiple Sclerosis | 951,332 | 956,448 | |||||||
Other | 447,740 | 462,978 | |||||||
Corporate(3) | 4,133,773 | 3,916,217 | |||||||
Total | $ | 9,763,899 | $ | 10,060,724 | |||||
(1) | Assets for our five reporting segments and Other include primarily accounts receivable, inventory and certain fixed and intangible assets, including goodwill. Assets for Other includes the assets of our genetic testing, diagnostic products and pharmaceutical intermediates business units, all of which have met the held for sale criteria. As a result, we now report the assets for these three business units under the captions “assets held for sale” and “assets held for sale-noncurrent” in our consolidated balance sheets. | |
(2) | For the year ended December 31, 2009, includes a gross technology intangible asset of $240.3 million and related accumulated amortization of $(24.0) million related to our consolidation of the results of BioMarin/Genzyme LLC. Effective January 1, 2010, under new guidance we adopted for consolidating variable interest entities, we no longer consolidate the results of this joint venture and no longer include this gross technology asset and the related accumulated amortization or a related other noncurrent liability in our consolidated balance sheet. | |
(3) | As of September 30, 2010, reflects there-allocation of plant and equipment (and associated accumulated depreciation) from Corporate to PGH based on changes in how we review our business. |
42
(4) | Includes the assets related to our corporate, general and administrative operations, and corporate science activities that we do not allocate to a particular segment. Segment assets for Corporate consist of the following (amounts in thousands): |
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Cash, cash equivalents, short- and long-term investments in debt securities | $ | 1,166,511 | $ | 1,049,700 | ||||
Deferred tax assets, net | 775,425 | 555,242 | ||||||
Property, plant & equipment, net | 1,560,813 | 1,344,664 | ||||||
Investments in equity securities | 64,961 | 74,438 | ||||||
Other | 398,549 | 448,431 | ||||||
Total | $ | 3,966,259 | $ | 3,472,475 | ||||
17. | Supplemental Guarantor Information |
43
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net product sales | $ | 604,776 | $ | 14 | $ | 386,757 | $ | — | $ | 991,547 | ||||||||||
Net service sales | 7,734 | — | 1,874 | — | 9,608 | |||||||||||||||
Research and development revenue | 335 | — | 310 | — | 645 | |||||||||||||||
Total revenues | 612,845 | 14 | 388,941 | — | 1,001,800 | |||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||
Cost of products sold | 226,569 | 22,147 | 53,150 | — | 301,866 | |||||||||||||||
Cost of services sold | 5,591 | — | 1,816 | — | 7,407 | |||||||||||||||
Selling, general and administrative | 54,687 | 151,206 | 131,990 | — | 337,883 | |||||||||||||||
Research and development | 129,973 | 28,587 | 48,491 | — | 207,051 | |||||||||||||||
Amortization of intangibles | 48,159 | — | 13,602 | — | 61,761 | |||||||||||||||
Contingent consideration expense | 12,838 | — | (15,972 | ) | — | (3,134 | ) | |||||||||||||
Total operating costs and expenses | 477,817 | 201,940 | 233,077 | — | 912,834 | |||||||||||||||
Operating income (loss) | 135,028 | (201,926 | ) | 155,864 | — | 88,966 | ||||||||||||||
Other income (expenses): | ||||||||||||||||||||
Equity in loss of equity method investments | (643 | ) | — | — | — | (643 | ) | |||||||||||||
Gains on investments in equity securities, net | 4,648 | — | — | — | 4,648 | |||||||||||||||
Other | (906 | ) | — | 521 | — | (385 | ) | |||||||||||||
Inter-subsidiary income (expense) | (30,232 | ) | 77,366 | (47,134 | ) | — | — | |||||||||||||
Investment income | 261 | 1,670 | 472 | — | 2,403 | |||||||||||||||
Interest expense | (4,808 | ) | — | 1,450 | — | (3,358 | ) | |||||||||||||
Total other income (expenses) | (31,680 | ) | 79,036 | (44,691 | ) | — | 2,665 | |||||||||||||
Income (loss) from continuing operations before income taxes | 103,348 | (122,890 | ) | 111,173 | — | 91,631 | ||||||||||||||
Benefit from (provision for) income taxes | (31,735 | ) | 44,151 | (29,801 | ) | — | (17,385 | ) | ||||||||||||
Income (loss) from continuing operations, net of tax | 71,613 | (78,739 | ) | 81,372 | — | 74,246 | ||||||||||||||
Income (loss) from discontinued operations, net of tax | (7,190 | ) | (6 | ) | 1,904 | — | (5,292 | ) | ||||||||||||
Income from subsidiaries | 4,531 | — | — | (4,531 | ) | — | ||||||||||||||
Net income (loss) | $ | 68,954 | $ | (78,745 | ) | $ | 83,276 | $ | (4,531 | ) | $ | 68,954 | ||||||||
44
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net product sales | $ | 489,115 | $ | 9 | $ | 422,770 | $ | — | $ | 911,894 | ||||||||||
Net service sales | 8,774 | — | 1,706 | — | 10,480 | |||||||||||||||
Research and development revenue | 1,302 | — | 90 | — | 1,392 | |||||||||||||||
Total revenues | 499,191 | 9 | 424,566 | — | 923,766 | |||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||
Cost of products sold | 215,939 | 5,613 | 50,414 | — | 271,966 | |||||||||||||||
Cost of services sold | 3,337 | — | 4,579 | — | 7,916 | |||||||||||||||
Selling, general and administrative | 205,058 | 363 | 118,092 | — | 323,513 | |||||||||||||||
Research and development | 137,376 | 28,632 | 49,917 | — | 215,925 | |||||||||||||||
Amortization of intangibles | 49,787 | — | 18,291 | — | 68,078 | |||||||||||||||
Contingent consideration expense | 17,633 | — | 10,564 | — | 28,197 | |||||||||||||||
Total operating costs and expenses | 629,130 | 34,608 | 251,857 | — | 915,595 | |||||||||||||||
Operating income (loss) | (129,939 | ) | (34,599 | ) | 172,709 | — | 8,171 | |||||||||||||
Other income (expenses): | ||||||||||||||||||||
Gains (losses) on investments in equity securities, net | (651 | ) | — | — | — | (651 | ) | |||||||||||||
Other | 805 | — | (191 | ) | — | 614 | ||||||||||||||
Inter-subsidiary income (expense) | (21,000 | ) | 135,046 | (114,046 | ) | — | — | |||||||||||||
Investment income | 524 | 3,579 | 440 | — | 4,543 | |||||||||||||||
Interest expense | (2,479 | ) | — | 2,479 | — | — | ||||||||||||||
Total other income (expenses) | (22,801 | ) | 138,625 | (111,318 | ) | — | 4,506 | |||||||||||||
Income (loss) from continuing operations before income taxes | (152,740 | ) | 104,026 | 61,391 | — | 12,677 | ||||||||||||||
Benefit from (provision for) income taxes | 60,259 | (37,197 | ) | (22,097 | ) | — | 965 | |||||||||||||
Income (loss) from continuing operations, net of tax | (92,481 | ) | 66,829 | 39,294 | — | 13,642 | ||||||||||||||
Income from discontinued operations, net of tax | 1,038 | — | 1,315 | — | 2,353 | |||||||||||||||
Income from subsidiaries | 107,438 | — | — | (107,438 | ) | — | ||||||||||||||
Net income (loss) | $ | 15,995 | $ | 66,829 | $ | 40,609 | $ | (107,438 | ) | $ | 15,995 | |||||||||
45
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net product sales | $ | 1,648,428 | $ | 53 | $ | 1,213,698 | $ | — | $ | 2,862,179 | ||||||||||
Net service sales | 26,560 | — | 5,610 | — | 32,170 | |||||||||||||||
Research and development revenue | 1,940 | — | 566 | — | 2,506 | |||||||||||||||
Total revenues | 1,676,928 | 53 | 1,219,874 | — | 2,896,855 | |||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||
Cost of products sold | 573,241 | 3,895 | 256,823 | — | 833,959 | |||||||||||||||
Cost of services sold | 15,501 | — | 7,014 | — | 22,515 | |||||||||||||||
Selling, general and administrative | 636,247 | 153,317 | 414,354 | — | 1,203,918 | |||||||||||||||
Research and development | 429,786 | 73,759 | 141,642 | — | 645,187 | |||||||||||||||
Amortization of intangibles | 149,426 | — | 44,901 | — | 194,327 | |||||||||||||||
Contingent consideration expense | (79,893 | ) | — | 149,329 | — | 69,436 | ||||||||||||||
Total operating costs and expenses | 1,724,308 | 230,971 | 1,014,063 | — | 2,969,342 | |||||||||||||||
Operating income (loss) | (47,380 | ) | (230,918 | ) | 205,811 | — | (72,487 | ) | ||||||||||||
Other income (expenses): | ||||||||||||||||||||
Equity in loss of equity method investments | (2,210 | ) | — | — | — | (2,210 | ) | |||||||||||||
Losses on investments in equity securities, net | (26,750 | ) | — | — | (26,750 | ) | ||||||||||||||
Other | (2,725 | ) | — | 2,082 | — | (643 | ) | |||||||||||||
Inter-subsidiary income (expense) | (24,954 | ) | 300,475 | (275,521 | ) | — | — | |||||||||||||
Investment income | 595 | 6,987 | 1,205 | — | 8,787 | |||||||||||||||
Interest expense | (7,336 | ) | — | 3,978 | — | (3,358 | ) | |||||||||||||
Total other income (expenses) | (63,380 | ) | 307,462 | (268,256 | ) | — | (24,174 | ) | ||||||||||||
Income (loss) from continuing operations before income taxes | (110,760 | ) | 76,544 | (62,445 | ) | — | (96,661 | ) | ||||||||||||
Benefit from (provision for) income taxes | 70,179 | (41,456 | ) | 29,770 | — | 58,493 | ||||||||||||||
Income (loss) from continuing operations, net of tax | (40,581 | ) | 35,088 | (32,675 | ) | — | (38,168 | ) | ||||||||||||
Income (loss) from discontinued operations, net of tax | (13,048 | ) | (6 | ) | 1,455 | — | (11,599 | ) | ||||||||||||
Income from subsidiaries | 3,862 | — | — | (3,862 | ) | — | ||||||||||||||
Net income (loss) | $ | (49,767 | ) | $ | 35,082 | $ | (31,220 | ) | $ | (3,862 | ) | $ | (49,767 | ) | ||||||
46
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Net product sales | $ | 1,631,600 | $ | 11 | $ | 1,355,817 | $ | — | $ | 2,987,428 | ||||||||||
Net service sales | 27,346 | — | 5,312 | — | 32,658 | |||||||||||||||
Research and development revenue | 18,441 | — | 471 | — | 18,912 | |||||||||||||||
Total revenues | 1,677,387 | 11 | 1,361,600 | — | 3,038,998 | |||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||
Cost of products sold | 654,739 | (174,635 | ) | 272,267 | — | 752,371 | ||||||||||||||
Cost of services sold | 8,641 | — | 13,200 | — | 21,841 | |||||||||||||||
Selling, general and administrative | 566,242 | 1,376 | 336,406 | — | 904,024 | |||||||||||||||
Research and development | 407,047 | 70,992 | 130,896 | — | 608,935 | |||||||||||||||
Amortization of intangibles | 145,831 | — | 37,439 | — | 183,270 | |||||||||||||||
Contingent consideration expense | 23,629 | — | 13,658 | — | 37,287 | |||||||||||||||
Total operating costs and expenses | 1,806,129 | (102,267 | ) | 803,866 | — | 2,507,728 | ||||||||||||||
Operating income (loss) | (128,742 | ) | 102,278 | 557,734 | — | 531,270 | ||||||||||||||
Other income (expenses): | ||||||||||||||||||||
Losses on investments in equity securities, net | (1,332 | ) | — | — | — | (1,332 | ) | |||||||||||||
Gain on acquisition of business | 23,068 | — | 1,091 | — | 24,159 | |||||||||||||||
Other | 388 | — | (2,735 | ) | — | (2,347 | ) | |||||||||||||
Inter-subsidiary income (expense) | (32,222 | ) | 406,365 | (374,143 | ) | — | — | |||||||||||||
Investment income | 2,247 | 10,507 | 1,284 | — | 14,038 | |||||||||||||||
Interest expense | (7,282 | ) | — | 7,282 | — | — | ||||||||||||||
Total other income (expenses) | (15,133 | ) | 416,872 | (367,221 | ) | — | 34,518 | |||||||||||||
Income (loss) from continuing operations before income taxes | (143,875 | ) | 519,150 | 190,513 | — | 565,788 | ||||||||||||||
Benefit from (provision for) income taxes | 70,935 | (175,877 | ) | (55,363 | ) | — | (160,305 | ) | ||||||||||||
Income (loss) from continuing operations, net of tax | (72,940 | ) | 343,273 | 135,150 | — | 405,483 | ||||||||||||||
Income (loss) from discontinued operations, net of tax | (12,231 | ) | — | 5,803 | — | (6,428 | ) | |||||||||||||
Income from subsidiaries | 484,226 | — | — | (484,226 | ) | — | ||||||||||||||
Net income (loss) | $ | 399,055 | $ | 343,273 | $ | 140,953 | $ | (484,226 | ) | $ | 399,055 | |||||||||
47
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 396,570 | $ | 52,068 | $ | 450,527 | $ | — | $ | 899,165 | ||||||||||
Short-term investments | — | 101,961 | — | — | 101,961 | |||||||||||||||
Accounts receivable, net | 435,279 | (11 | ) | 499,926 | — | 935,194 | ||||||||||||||
Inventories | 210,147 | 84,241 | 302,342 | — | 596,730 | |||||||||||||||
Assets held for sale | 94,230 | — | 54,516 | — | 148,746 | |||||||||||||||
Other current assets | 50,298 | (376 | ) | 174,475 | — | 224,397 | ||||||||||||||
Intercompany accounts and notes receivable | 202,946 | 60,940 | 542,083 | (805,969 | ) | — | ||||||||||||||
Deferred tax assets | 166,185 | 6,916 | 11,561 | — | 184,662 | |||||||||||||||
Total current assets | 1,555,655 | 305,739 | 2,035,430 | (805,969 | ) | 3,090,855 | ||||||||||||||
Property, plant and equipment, net | 1,369,266 | 209,068 | 1,288,613 | — | 2,866,947 | |||||||||||||||
Long-term investments | — | 165,385 | — | — | 165,385 | |||||||||||||||
Intercompany notes receivable | 52,048 | — | 211,925 | (263,973 | ) | — | ||||||||||||||
Goodwill | 1,271,120 | — | 89,858 | — | 1,360,978 | |||||||||||||||
Other intangible assets, net | 1,262,716 | — | 596,696 | — | 1,859,412 | |||||||||||||||
Deferred tax assets-noncurrent | 539,205 | (815 | ) | 52,373 | — | 590,763 | ||||||||||||||
Investment in equity securities | 64,961 | — | — | — | 64,961 | |||||||||||||||
Investment in subsidiaries | 2,757,255 | — | — | (2,757,255 | ) | — | ||||||||||||||
Assets held for sale-noncurrent | 216,557 | — | 76,947 | — | 293,504 | |||||||||||||||
Other noncurrent assets | 66,990 | — | 59,326 | — | 126,316 | |||||||||||||||
Total assets | $ | 9,155,773 | $ | 679,377 | $ | 4,411,138 | $ | (3,827,197 | ) | $ | 10,419,121 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 89,733 | $ | 296 | $ | 82,021 | $ | — | $ | 172,050 | ||||||||||
Accrued expenses | 380,783 | (3,931 | ) | 589,751 | — | 966,603 | ||||||||||||||
Intercompany accounts and notes payable | 48,161 | (85,726 | ) | 843,534 | (805,969 | ) | — | |||||||||||||
Deferred revenue | 26,297 | — | 12,570 | — | 38,867 | |||||||||||||||
Current portion of contingent consideration obligations | 79,540 | — | 83,323 | — | 162,863 | |||||||||||||||
Current portion of long-term debt and capital lease obligations | 7,350 | — | 70 | — | 7,420 | |||||||||||||||
Liabilities held for sale | 54,013 | 52 | 9,528 | — | 63,593 | |||||||||||||||
Total current liabilities | 685,877 | (89,309 | ) | 1,620,797 | (805,969 | ) | 1,411,396 | |||||||||||||
Long-term debt and capital lease obligations | 1,100,738 | — | 39 | — | 1,100,777 | |||||||||||||||
Long-term debt intercompany | — | — | 263,973 | (263,973 | ) | — | ||||||||||||||
Deferred revenue-noncurrent | 21,616 | — | 27 | — | 21,643 | |||||||||||||||
Long-term contingent consideration obligations | 326,913 | — | 476,587 | — | 803,500 | |||||||||||||||
Other noncurrent liabilities | 19,392 | 17,250 | 43,926 | — | 80,568 | |||||||||||||||
Total liabilities | 2,154,536 | (72,059 | ) | 2,405,349 | (1,069,942 | ) | 3,417,884 | |||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||
Preferred stock, $0.01 par value | — | — | — | — | — | |||||||||||||||
Common stock, $0.01 par value | 2,573 | — | — | — | 2,573 | |||||||||||||||
Additional paid-in capital | 5,354,075 | — | — | — | 5,354,075 | |||||||||||||||
Share purchase contract | (200,000 | ) | — | — | — | (200,000 | ) | |||||||||||||
Accumulated earnings | 1,620,329 | — | — | — | 1,620,329 | |||||||||||||||
Accumulated other comprehensive income | 224,260 | — | — | — | 224,260 | |||||||||||||||
Total stockholders’ equity | 7,001,237 | — | — | — | 7,001,237 | |||||||||||||||
Subsidiary equity | — | 751,436 | 2,005,819 | (2,757,255 | ) | — | ||||||||||||||
Total liabilities and stockholders’ equity: | $ | 9,155,773 | $ | 679,377 | $ | 4,411,168 | $ | (3,827,197 | ) | $ | 10,419,121 | |||||||||
48
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 358,759 | $ | 103,119 | $ | 280,368 | $ | — | $ | 742,246 | ||||||||||
Short-term investments | 11,649 | 151,981 | — | — | 163,630 | |||||||||||||||
Accounts receivable, net | 310,731 | — | 482,825 | — | 793,556 | |||||||||||||||
Inventories | 226,730 | 76,205 | 246,358 | — | 549,293 | |||||||||||||||
Assets held for sale | 120,967 | — | 49,400 | — | 170,367 | |||||||||||||||
Other current assets | 112,614 | 251 | 92,419 | — | 205,284 | |||||||||||||||
Intercompany accounts and notes receivable | — | 798,907 | 272,166 | (1,071,073 | ) | — | ||||||||||||||
Deferred tax assets | 169,615 | 3,486 | 5,326 | — | 178,427 | |||||||||||||||
Total current assets | 1,311,065 | 1,133,949 | 1,428,862 | (1,071,073 | ) | 2,802,803 | ||||||||||||||
Property, plant and equipment, net | 1,147,549 | 189,320 | 1,290,362 | — | 2,627,231 | |||||||||||||||
Long-term investments | 11,668 | 132,156 | — | — | 143,824 | |||||||||||||||
Intercompany notes receivable | 207,891 | 25 | 200,407 | (408,323 | ) | — | ||||||||||||||
Goodwill | 1,271,120 | — | 89,858 | — | 1,360,978 | |||||||||||||||
Other intangible assets, net | 1,746,607 | — | 517,541 | — | 2,264,148 | |||||||||||||||
Deferred tax assets–noncurrent | 372,408 | — | 4,407 | — | 376,815 | |||||||||||||||
Investment in equity securities | 74,438 | — | — | — | 74,438 | |||||||||||||||
Investment in subsidiaries | 4,264,074 | — | — | (4,264,074 | ) | — | ||||||||||||||
Assets held for sale–noncurrent | 192,762 | — | 81,277 | — | 274,039 | |||||||||||||||
Other noncurrent assets | 91,412 | — | 45,036 | — | 136,448 $ | |||||||||||||||
Total assets | $ | 10,690,995 | $ | 1,455,450 | $ | 3,657,749 | $ | (5,743,470 | ) | $ | 10,060,724 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 43,807 | $ | — | $ | 131,073 | $ | — | $ | 174,880 | ||||||||||
Accrued expenses | 447,099 | 9,603 | 201,131 | — | 657,833 | |||||||||||||||
Intercompany accounts and notes payable | 1,408,904 | (323,590 | ) | (14,241 | ) | (1,071,073 | ) | — | ||||||||||||
Deferred revenue | 13,736 | — | 10,194 | — | 23,930 | |||||||||||||||
Current portion of contingent consideration obligations | 69,037 | — | 92,328 | — | 161,365 | |||||||||||||||
Current portion of long-term debt and capital lease obligations | 6,874 | — | 42 | — | 6,916 | |||||||||||||||
Liabilities held for sale | 62,688 | — | (7,482 | ) | — | 55,206 | ||||||||||||||
Total current liabilities | 2,052,145 | (313,987 | ) | 413,045 | (1,071,073 | ) | 1,080,130 | |||||||||||||
Long-term debt and capital lease obligations | 111,795 | — | 41 | — | 111,836 | |||||||||||||||
Long-term debt intercompany | — | 144,382 | 263,941 | (408,323 | ) | — | ||||||||||||||
Deferred revenue–noncurrent | 13,356 | — | 29 | — | 13,385 | |||||||||||||||
Long-term contingent consideration obligations | 582,050 | — | 271,821 | — | 853,871 | |||||||||||||||
Liabilities held for sale–noncurrent | 4,598 | — | — | — | 4,598 | |||||||||||||||
Other noncurrent liabilities | 243,399 | 21,798 | 48,055 | — | 313,252 | |||||||||||||||
Total liabilities | 3,007,343 | (147,807 | ) | 996,932 | (1,479,396 | ) | 2,377,072 | |||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||
Preferred stock, $0.01 par value | — | — | — | — | — | |||||||||||||||
Common stock, $0.01 par value | 2,657 | — | — | — | 2,657 | |||||||||||||||
Additional paid-in capital | 5,688,741 | — | — | — | 5,688,741 | |||||||||||||||
Accumulated earnings | 1,670,096 | — | — | — | 1,670,096 | |||||||||||||||
Accumulated other comprehensive income | 322,158 | — | — | — | 322,158 | |||||||||||||||
Total stockholders’ equity | 7,683,652 | — | — | — | 7,683,652 | |||||||||||||||
Subsidiary equity | 1,603,257 | 2,660,817 | (4,264,074 | ) | — | |||||||||||||||
Total liabilities and stockholders’ equity: | $ | 10,690,995 | $ | 1,455,450 | $ | 3,657,749 | $ | (5,743,470 | ) | $ | 10,060,724 | |||||||||
| June 30, 2010 | December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
Cash, cash equivalents, short- and long-term investments in debt securities | $ | 974,154 | $ | 1,049,700 | ||||
Deferred tax assets, net | 706,009 | 555,242 | ||||||
Property, plant & equipment, net | 1,986,309 | 1,787,054 | ||||||
Investments in equity securities | 74,227 | 74,438 | ||||||
Other | 393,074 | 449,783 | ||||||
Total | $ | 4,133,773 | $ | 3,916,217 | ||||
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES' FINANCIAL CONDITIONSUBSIDIARIES
Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income (loss) | $ | (49,767 | ) | $ | 35,082 | $ | (31,220 | ) | $ | (3,862 | ) | $ | (49,767 | ) | ||||||
Reconciliation of net income (loss) to cash flows from operating activities: | ||||||||||||||||||||
Depreciation and amortization | 255,855 | — | 115,155 | — | 371,010 | |||||||||||||||
Stock-based compensation | 118,589 | — | 23,465 | — | 142,054 | |||||||||||||||
Provision for bad debts | 16,315 | — | 180 | — | 16,495 | |||||||||||||||
Contingent consideration expense | (79,893 | ) | — | 149,329 | — | 69,436 | ||||||||||||||
Equity in loss of equity method investments | 2,210 | — | — | — | 2,210 | |||||||||||||||
Intercompany | 639,261 | (149,412 | ) | (491,488 | ) | 1,639 | — | |||||||||||||
Losses on investments in equity securities, net | 26,750 | — | — | — | 26,750 | |||||||||||||||
Deferred income tax benefit | (72,581 | ) | — | (22,969 | ) | — | (95,550 | ) | ||||||||||||
Tax benefit from employee stock-based compensation | 47,982 | — | — | — | 47,982 | |||||||||||||||
Excess tax benefit from stock-based compensation | 15,481 | — | — | — | 15,481 | |||||||||||||||
Other | 28,885 | — | (24,744 | ) | — | 4,141 | ||||||||||||||
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): | ||||||||||||||||||||
Accounts receivable | (68,337 | ) | 11 | (94,292 | ) | — | (162,618 | ) | ||||||||||||
Inventories | 65,158 | (8,036 | ) | (118,928 | ) | — | (61,806 | ) | ||||||||||||
Other current assets | (19,317 | ) | 627 | (59,072 | ) | — | (77,762 | ) | ||||||||||||
Accounts payable, accrued expenses and deferred revenue | (673,591 | ) | 43,867 | 945,614 | — | 315,890 | ||||||||||||||
Cash flows from operating activities | 253,000 | (77,861 | ) | 391,030 | (2,223 | ) | 563,946 | |||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Purchases of investments | — | (305,784 | ) | — | — | (305,784 | ) | |||||||||||||
Sales and maturities of investments | 685 | 340,404 | — | — | 341,089 | |||||||||||||||
Purchases of equity securities | (4,724 | ) | — | — | — | (4,724 | ) | |||||||||||||
Proceeds from sales of investments in equity securities | 14,208 | — | — | — | 14,208 | |||||||||||||||
Purchases of property, plant and equipment | (371,082 | ) | (1,163 | ) | (125,687 | ) | — | (497,932 | ) | |||||||||||
Investments in equity method investment | (2,915 | ) | — | — | — | (2,915 | ) | |||||||||||||
Purchases of other intangible assets | (6,166 | ) | — | (174 | ) | — | (6,340 | ) | ||||||||||||
Other | (1,809 | ) | — | (7,632 | ) | — | (9,441 | ) | ||||||||||||
Cash flows from investing activities | (371,803 | ) | 33,457 | (133,493 | ) | — | (471,839 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from issuance of common stock | 274,469 | — | — | — | 274,469 | |||||||||||||||
Repurchases of our common stock | (800,000 | ) | — | — | — | (800,000 | ) | |||||||||||||
Payments under shares purchase contract | (200,000 | ) | — | — | — | (200,000 | ) | |||||||||||||
Excess tax benefit from stock-based compensation | (15,481 | ) | — | — | — | (15,481 | ) | |||||||||||||
Proceeds from issuance of debt, net | 994,368 | — | — | — | 994,368 | |||||||||||||||
Payments of debt and capital lease obligations | (6,245 | ) | — | — | — | (6,245 | ) | |||||||||||||
Decrease in bank overdrafts | (43,373 | ) | — | — | — | (43,373 | ) | |||||||||||||
Payment of contingent consideration obligation | (28,027 | ) | — | (72,141 | ) | — | (100,168 | ) | ||||||||||||
Other | 3,695 | (6,647 | ) | 669 | — | (2,283 | ) | |||||||||||||
Cash flows from financing activities | 179,406 | (6,647 | ) | (71,472 | ) | — | 101,287 | |||||||||||||
Effect of exchange rate changes on cash | (22,792 | ) | — | (15,906 | ) | 2,223 | (36,475 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | 37,811 | (51,051 | ) | 170,159 | — | 156,919 | ||||||||||||||
Cash and cash equivalents at beginning of period | 358,759 | 103,119 | 280,368 | — | 742,246 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 396,570 | $ | 52,068 | $ | 450,527 | $ | — | $ | 899,165 | ||||||||||
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Genzyme | Guarantor | Non-Guarantor | ||||||||||||||||||
Corporation | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income (loss) | $ | 399,055 | $ | 343,273 | $ | 140,953 | $ | (484,226 | ) | $ | 399,055 | |||||||||
Reconciliation of net income (loss) to cash flows from operating activities: | ||||||||||||||||||||
Depreciation and amortization | 236,295 | 1,103 | 91,961 | — | 329,359 | |||||||||||||||
Stock-based compensation | 156,141 | — | — | — | 156,141 | |||||||||||||||
Provision for bad debts | 14,177 | — | 523 | — | 14,700 | |||||||||||||||
Contingent consideration expense | 23,629 | — | 13,658 | — | 37,287 | |||||||||||||||
Intercompany | 36,777 | (344,151 | ) | (163,875 | ) | 471,249 | — | |||||||||||||
Gain on acquisition of business | (23,068 | ) | — | (1,091 | ) | — | (24,159 | ) | ||||||||||||
Losses on investments in equity securities, net | 1,332 | — | — | — | 1,332 | |||||||||||||||
Deferred income tax benefit | (35,971 | ) | — | (38,978 | ) | (74,949 | ) | |||||||||||||
Tax benefit from employee stock-based compensation | 10,956 | — | — | — | 10,956 | |||||||||||||||
Excess tax benefit from stock-based compensation | (3,309 | ) | — | — | — | (3,309 | ) | |||||||||||||
Other | 12,241 | (9,400 | ) | 5,676 | — | 8,517 | ||||||||||||||
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): | ||||||||||||||||||||
Accounts receivable | 9,782 | 10 | 43,252 | — | 53,044 | |||||||||||||||
Inventories | 39,633 | (961 | ) | (18,133 | ) | — | 20,539 | |||||||||||||
Other current assets | 3,822 | 370 | (16,493 | ) | — | (12,301 | ) | |||||||||||||
Accounts payable, accrued expenses and deferred revenue | (97,186 | ) | 15,994 | 121,561 | — | 40,369 | ||||||||||||||
Cash flows from operating activities | 784,306 | 6,238 | 179,014 | (12,977 | ) | 956,581 | ||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Purchases of investments | — | (244,101 | ) | (107 | ) | — | (244,208 | ) | ||||||||||||
Sales and maturities of investments | — | 336,918 | — | — | 336,918 | |||||||||||||||
Purchases of equity securities | (7,548 | ) | — | — | — | (7,548 | ) | |||||||||||||
Proceeds from sales of investments in equity securities | 2,365 | — | — | — | 2,365 | |||||||||||||||
Purchases of property, plant and equipment | (249,507 | ) | (44,802 | ) | (186,127 | ) | — | (480,436 | ) | |||||||||||
Acquisitions | (27,867 | ) | — | (29,371 | ) | — | (57,238 | ) | ||||||||||||
Purchases of other intangible assets | (29,838 | ) | — | — | — | (29,838 | ) | |||||||||||||
Other | (4,509 | ) | — | (2,587 | ) | — | (7,096 | ) | ||||||||||||
Cash flows from investing activities | (316,904 | ) | 48,015 | (218,192 | ) | — | (487,081 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from issuance of common stock | 76,125 | — | — | — | 76,125 | |||||||||||||||
Repurchases of our common stock | (413,874 | ) | — | — | — | (413,874 | ) | |||||||||||||
Excess tax benefit from stock-based compensation | 3,309 | — | — | — | 3,309 | |||||||||||||||
Payments of debt and capital lease obligations | (5,922 | ) | — | 14 | — | (5,908 | ) | |||||||||||||
Decrease in bank overdrafts | (17,552 | ) | — | — | — | (17,552 | ) | |||||||||||||
Other | (1,679 | ) | 559 | (4,117 | ) | — | (5,237 | ) | ||||||||||||
Cash flows from financing activities | (359,593 | ) | 559 | (4,103 | ) | — | (363,137 | ) | ||||||||||||
Effect of exchange rate changes on cash | (11,788 | ) | (2,098 | ) | 1,999 | 12,977 | 1,090 | |||||||||||||
Increase (decrease) in cash and cash equivalents | 96,021 | 52,714 | (41,282 | ) | — | 107,453 | ||||||||||||||
Cash and cash equivalents at beginning of period | 330,277 | 11,647 | 230,182 | — | 572,106 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 426,298 | $ | 64,361 | $ | 188,900 | $ | — | $ | 679,559 | ||||||||||
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES’ FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | Personalized Genetic Health, which develops, manufactures and distributes therapeutic products with a focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as LSDs, and cardiovascular disease. The unit derives substantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme/Lumizyme, Aldurazyme and Elaprase and royalties earned on sales of Welchol; | |
• | Renal and Endocrinology, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure, and endocrine and immune-mediated diseases. The unit derives substantially all of its revenue from sales of Renagel/Renvela (including sales of bulk sevelamer), Hectorol and Thyrogen; | |
• | Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial-based products, with an emphasis on products that meet medical needs in the orthopaedics and broader surgical areas. The unit derives substantially all of its revenue from sales of Synvisc/Synvisc-One and the Sepra line of products; | |
• | Hematology and Oncology, which develops, manufactures and distributes products for the treatment of cancer, the mobilization of hematopoietic stem cells and the treatment of transplant rejection and other hematologic and auto-immune disorders. The unit derives substantially all of its revenue from sales of Mozobil, Thymoglobulin, Clolar, Campath, Fludara and Leukine; and | |
• | Multiple Sclerosis, which is developing products, including alemtuzumab, for the treatment of MS and other auto-immune disorders. |
• | our former Genetic Diseases reporting segment is now referred to as ���Personalized Genetic Health,” or “PGH,” and now includes our cardiovascular business unit, which previously was reported under the |
52
caption “Cardiometabolic and Renal,” and our Welchol product line, which previously was reported as part of our pharmaceutical intermediates business unit under the caption “Other;” |
• | our former Cardiometabolic and Renal reporting segment is now referred to as “Renal and Endocrinology” and now includes the assets that formerly comprised our immune-mediated diseases business unit, which previously was reported under the caption “Other,” but no longer includes our cardiovascular business unit; and | |
• | our former Hematologic Oncology segment is now referred to as “Hematology and Oncology” and now includes our transplant business unit, which previously was reported under the caption “Other,” but no longer includes our multiple sclerosis business unit, which is now reported as a separate reporting segment called “Multiple Sclerosis.” |
“Corporate.”
In
53
Update In the United States, affected employees are being offered severance packages, including severance payments, temporary healthcare coverage assistance and outplacement services. Similar packages will be offered to Second Quarter Earnings Release
On July 21, 2010,affected employees outside of the United States in accordance with local laws. In connection with the elimination of filled positions in the first phase of the workforce reduction plan, we issued a press release containingestimate incurring total charges of $24 million to $27 million, primarily for one-time severance benefits and facilities-related costs. These charges are expected to occur in the fourth quarter of 2010. The 1,000 positions expected to be eliminated exclude positions within our financial resultsgenetic testing business unit, for the three month period ended June 30, 2010, which we furnishedhave entered into an agreement to sell, and positions within our diagnostic products and pharmaceutical intermediates business units, for which similar transactions are targeted by the end of 2010. The workforce reduction plan is being implemented to reduce costs and increase efficiencies as an exhibitpart of a larger plan to a Current Report on Form 8-K prior to hosting a conference call. Subsequent to July 21, 2010, we identified additional inventories that did not meet our quality specifications. Our decision to discard these inventories has resultedincrease shareholder value announced in a second quarter write off of $6.5 million in addition to the $21.9 million write off previously reported. As a result, our second quarter net loss is $(3.8) million or $(0.01) per diluted share, compared with net income of $23.0 thousand or $0.00 per diluted share reported on July 21,May 2010.
Estimates" Estimates” in Part II., Item 7. to our 2009Form 10-K. Excluding the addition of our policy for PSUs to our stock-based compensation policy, there have been no significant changes to our critical accounting policies or significant judgments and estimates since December 31, 2009. Additional information regarding our provisions and estimates for our product sales allowances, sales allowance reserves and accruals, and distributor fees and our revised stock-based compensation policy are included below.
• | Contractual adjustments — We offer chargebacks and contractual discounts and rebates, which we collectively refer to as contractual adjustments, to certain private institutions and various government agencies in both the United States and international markets. We record chargebacks and contractual discounts as allowances against accounts receivable in our consolidated balance sheets. We account for rebates by establishing an accrual for the amounts payable by us to these agencies and institutions, which is included in accrued liabilities in our consolidated balance sheets. We estimate the allowances and accruals for our contractual adjustments based on historical experience and current contract prices, using both internal data as well as information obtained from external sources, such as independent market research agencies and data from wholesalers. We continually monitor the adequacy of these estimates and adjust the allowances and accruals periodically throughout each quarter to reflect our actual experience. In evaluating these allowances and accruals, we consider several factors, including significant changes in the sales performance of our products subject to contractual adjustments, |
54
inventory in the distribution channel, changes in U.S. and foreign healthcare legislation impacting rebate or allowance rates, changes in contractual discount rates and the estimated lag time between a sale and payment of the corresponding rebate; |
• | Discounts — In some countries, we offer cash discounts for certain products as an incentive for prompt payment, which are generally a stated percentage off the sales price. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience; and | |
• | Sales returns — We record allowances for product returns at the time product sales are recorded. The product returns reserve is estimated based on the returns policies for our individual products and our experience of returns for each of our products. We also consider the product’s lifecycle and possible competition pending, including generic products. If the price of a product changes or if the history of product returns changes, the reserve is adjusted accordingly. We determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, or those within the same or similar therapeutic category. |
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Product sales allowances: | ||||||||||||||||||||||||||||||||
Contractual adjustments | $ | 211,790 | $ | 159,281 | $ | 52,509 | 33 | % | $ | 611,815 | $ | 442,863 | $ | 168,952 | 38 | % | ||||||||||||||||
Discounts | 7,628 | 6,628 | 1,000 | 15 | % | 22,132 | 19,668 | 2,464 | 13 | % | ||||||||||||||||||||||
Sales returns | 3,749 | 7,019 | (3,270 | ) | (47 | )% | 19,005 | 22,917 | (3,912 | ) | (17 | )% | ||||||||||||||||||||
Total product sales allowances | $ | 223,167 | $ | 172,928 | $ | 50,239 | 29 | % | $ | 652,952 | $ | 485,448 | $ | 167,504 | 35 | % | ||||||||||||||||
Total gross product sales | $ | 1,214,714 | $ | 1,084,822 | $ | 129,892 | 12 | % | $ | 3,515,131 | $ | 3,472,876 | $ | 42,255 | 1 | % | ||||||||||||||||
Total product sales allowances as a percent of total gross product sales | 18 | % | 16 | % | 19 | % | 14 | % |
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||
Product sales allowances: | |||||||||||||||||||||||||||
Contractual adjustments | $ | 221,061 | $ | 149,049 | $ | 72,012 | 48 | % | $ | 401,489 | $ | 285,229 | $ | 116,260 | 41 | % | |||||||||||
Discounts | 7,702 | 6,764 | 938 | 14 | % | 14,504 | 13,040 | 1,464 | 11 | % | |||||||||||||||||
Sales returns | 7,711 | 9,375 | (1,664 | ) | (18 | )% | 15,256 | 15,898 | (642 | ) | (4 | )% | |||||||||||||||
Total product sales allowances | $ | 236,474 | $ | 165,188 | $ | 71,286 | 43 | % | $ | 431,249 | $ | 314,167 | $ | 117,082 | 37 | % | |||||||||||
Total gross product sales | $ | 1,211,396 | $ | 1,280,613 | $ | (69,217 | ) | (5 | )% | $ | 2,377,796 | $ | 2,466,836 | $ | (89,040 | ) | (4 | )% | |||||||||
Total product sales allowances as a percent of total gross product sales | 20 | % | 13 | % | 18 | % | 13 | % |
Total product sales allowances increased for both the three and sixnine months ended JuneSeptember 30, 2010, primarily due to:
• | increased contractual adjustments totaling $38.8 million for the three months and $115.9 million for the nine months for our Renal and Endocrinology reporting segment, and $12.5 million for the three months and $42.7 million for the nine months for our Biosurgery reporting segment; | |
• | $3.6 million for the three months and $30.1 million for the nine months of increased product sales allowances for our Hematology and Oncology reporting segment primarily due to contractual adjustments related to sales of Campath, Fludara and Leukine, which we acquired from Bayer in May 2009; and | |
• | changes in our overall product mix. |
55
Total accounts receivable in our
one to 4three years. We recorded a charge of $7.2 million to bad debt expense, a component of SG&A in our consolidated statements of operations for the three and six months ended June 30,second quarter of 2010 to write down the accounts receivable balances held by our subsidiary in Greece to present value using a 10% risk adjusted discount rate.
These provisions did not have a significant impact on our results of operations or financial position for the six months ended June 30, 2010.
• | an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on branded prescription drugs and an increase from 15.1% to 17.1% for drugs that are approved exclusively for pediatric patients; | |
• | the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; | |
• | the expansion of the 340(B) PHS drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals and healthcare centers (this provision, however, does not apply to orphan drugs); and | |
• | a requirement that the Medicaid rebate for a drug that is a “line extension” of a preexisting oral solid dosage form of the drug be linked in certain respects to the Medicaid rebate for the preexisting oral solid dosage form, such that the Medicaid rebate for most line extension drugs will be higher than it would have been absent the new law, especially if the preexisting oral solid dosage form has a history of significant price increases. |
Renagel, Renvela and oral Hectorol, and our product Leukine, but be insignificantly impacted for our other products.
56
$28 $28 billion through 2019, ranging from $2.5 billion to $4.1 billion annually. Beginning in 2013, a 2.3% excise tax will be imposed on sales of all medical devices except retail purchases by the public intended for individual use.
adopted by other countries facing budget constraints.
• | the vendor receives, or will receive, an identifiable benefit (goods or services) in exchange for the consideration; and | |
• | the vendor can reasonably estimate the fair value of the benefit received. |
57
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Distributor fees: | ||||||||||||||||||||||||||||||||
Included in contractual adjustments and recorded as a reduction to product sales | $ | 7,347 | $ | 4,987 | $ | 2,360 | 47 | % | $ | 19,919 | $ | 17,144 | $ | 2,775 | 16 | % | ||||||||||||||||
Charged to SG&A | 1,020 | 3,371 | (2,351 | ) | (70 | )% | 5,913 | 10,400 | (4,487 | ) | (43 | )% | ||||||||||||||||||||
Total distributor fees | $ | 8,367 | $ | 8,358 | $ | 9 | — | $ | 25,832 | $ | 27,544 | $ | (1,712 | ) | (6 | )% | ||||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||
Distributor fees: | |||||||||||||||||||||||||||
Included in contractual adjustments and recorded as a reduction to product sales | $ | 5,685 | $ | 7,909 | $ | (2,224 | ) | (28 | )% | $ | 11,745 | $ | 12,156 | $ | (411 | ) | (3 | )% | |||||||||
Charged to SG&A | 1,547 | 3,481 | (1,934 | ) | (56 | )% | 4,893 | 7,028 | (2,135 | ) | (30 | )% | |||||||||||||||
Total distributor fees | $ | 7,232 | $ | 11,390 | $ | (4,158 | ) | (37 | )% | $ | 16,638 | $ | 19,184 | $ | (2,546 | ) | (13 | )% | |||||||||
Stock-Based Compensation
58
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Product revenue | $ | 991,547 | $ | 911,894 | $ | 79,653 | 9 | % | $ | 2,862,179 | $ | 2,987,428 | $ | (125,249 | ) | (4 | )% | |||||||||||||||
Service revenue | 9,608 | 10,480 | (872 | ) | (8 | )% | 32,170 | 32,658 | (488 | ) | (1 | )% | ||||||||||||||||||||
Total product and service revenue | 1,001,155 | $ | 922,374 | 78,781 | 9 | % | 2,894,349 | 3,020,086 | (125,737 | ) | (4 | )% | ||||||||||||||||||||
Research and development revenue | 645 | 1,392 | (747 | ) | (54 | )% | 2,506 | 18,912 | (16,406 | ) | (87 | )% | ||||||||||||||||||||
Total revenues | $ | 1,001,800 | $ | 923,766 | $ | 78,034 | 8 | % | $ | 2,896,855 | $ | 3,038,998 | $ | (142,143 | ) | (5 | )% | |||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
Product revenue | $ | 974,922 | $ | 1,115,425 | $ | (140,503 | ) | (13 | )% | $ | 1,946,547 | $ | 2,152,669 | $ | (206,122 | ) | (10 | )% | ||||||||
Service revenue | 103,589 | 105,693 | (2,104 | ) | (2 | )% | 205,504 | 207,192 | (1,688 | ) | (1 | )% | ||||||||||||||
Total product and service revenue | 1,078,511 | 1,221,118 | (142,607 | ) | (12 | )% | 2,152,051 | 2,359,861 | (207,810 | ) | (9 | )% | ||||||||||||||
Research and development revenue | 928 | 7,392 | (6,464 | ) | (87 | )% | 1,861 | 17,520 | (15,659 | ) | (89 | )% | ||||||||||||||
Total revenues | $ | 1,079,439 | $ | 1,228,510 | $ | (149,071 | ) | (12 | )% | $ | 2,153,912 | $ | 2,377,381 | $ | (223,469 | ) | (9 | )% | ||||||||
Product Revenue
Reporting Segments | | Products | Approved Indications | ||||||
---|---|---|---|---|---|---|---|---|---|
Personalized Genetic Health | Cerezyme | Gaucher disease | |||||||
Fabrazyme | Fabry disease | ||||||||
Myozyme/Lumizyme | Pompe disease | ||||||||
Aldurazyme | MPS I | ||||||||
Elaprase | MPS II | ||||||||
Royalties earned on sales of and product sales of Welchol | Reduction of LDL in patients with hypercholesterolemia | ||||||||
Cholestagel | Reduction of LDL in patients with hypercholesterolemia | ||||||||
Renal and Endocrinology | Renagel/Renvela and bulk sevelamer | Control of serum phosphorus in patients with chronic kidney disease, or CKD, on dialysis and in Europe in CKD patients both on and not on dialysis with serum phosphorus above a certain level | |||||||
Hectorol | Secondary hyperparathyroidism in CKD patients |
Thyrogen | An adjunctive diagnostic agent used in the follow-up treatment of patients with well-differentiated thyroid cancer and an adjunctive therapy in the ablation of remnant thyroid tissue in patients that have undergone thyroid removal | |||
Biosurgery | Synvisc/Synvisc-One/Jonexa | Treatment of pain associated with osteoarthritis | ||
Sepra products | Prevention of adhesions following various surgical procedures in the abdomen and pelvis | |||
Hematology and Oncology | Mozobil | Mobilization of hematopoietic stem cells |
59
Reporting Segments | Approved Indications | |||
Thymoglobulin | Immunosuppression of certain types of cells responsible for organ rejection in transplant patients and treatment of aplastic anemia | |||
Clolar | Relapsed and refractory pediatric ALL | |||
Campath | ||||
Fludara | Leukemia and lymphoma | |||
Leukine | Reduction of the incidence of severe and life-threatening infections in older adult patients with acute myelogenous leukemia | |||
Other | ||||
Pharmaceutical intermediates products | Pharmaceutical intermediates |
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Personalized Genetic Health | $ | 404,151 | $ | 369,873 | $ | 34,278 | 9 | % | $ | 1,147,152 | $ | 1,501,481 | $ | (354,329 | ) | (24 | )% | |||||||||||||||
Renal and Endocrinology | 270,297 | 260,262 | 10,035 | 4 | % | 780,783 | 749,986 | 30,797 | 4 | % | ||||||||||||||||||||||
Biosurgery | 147,140 | 134,557 | 12,583 | 9 | % | 425,208 | 370,798 | 54,410 | 15 | % | ||||||||||||||||||||||
Hematology and Oncology | 167,295 | 143,586 | 23,709 | 17 | % | 500,076 | 341,076 | 159,000 | 47 | % | ||||||||||||||||||||||
Other product revenue | 2,664 | 3,616 | (952 | ) | (26 | )% | 8,960 | 24,087 | (15,127 | ) | (63 | )% | ||||||||||||||||||||
Total product revenue | $ | 991,547 | $ | 911,894 | $ | 79,653 | 9 | % | $ | 2,862,179 | $ | 2,987,428 | $ | (125,249 | ) | (4 | )% | |||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
Personalized Genetic Health | $ | 350,517 | $ | 581,685 | $ | (231,168 | ) | (40 | )% | $ | 743,001 | $ | 1,131,608 | $ | (388,607 | ) | (34 | )% | ||||||||
Renal and Endocrinology | 258,229 | 247,269 | 10,960 | 4 | % | 510,486 | 489,724 | 20,762 | 4 | % | ||||||||||||||||
Biosurgery | 151,807 | 127,113 | 24,694 | 19 | % | 278,068 | 236,241 | 41,827 | 18 | % | ||||||||||||||||
Hematology and Oncology | 176,490 | 110,846 | 65,644 | 59 | % | 332,781 | 197,490 | 135,291 | 69 | % | ||||||||||||||||
Other product revenue | 37,879 | 48,512 | (10,633 | ) | (22 | )% | 82,211 | 97,606 | (15,395 | ) | (16 | )% | ||||||||||||||
Total product revenue | $ | 974,922 | $ | 1,115,425 | $ | (140,503 | ) | (13 | )% | $ | 1,946,547 | $ | 2,152,669 | $ | (206,122 | ) | (10 | )% | ||||||||
Personalized Genetic Health
60
identified impairs the viability of cells used in the manufacturing process and is not known to cause infection in humans. We completed sanitization of the facility and resumed production there in the third quarter of 2009. Cerezyme and Fabrazyme inventories were not sufficient to avoid shortages.
We resumed Cerezyme shipments in the fourth quarter of 2009. In February 2010, we began shipping Cerezyme at a rate equal to 50% of estimated product demand in order to build a small inventory buffer to help us more consistentlybetter manage delivery of the resupply of Cerezyme to patients and reduce interruptions inavailable. We continued shipping that occur in the absence of inventory, we began shipping Cerezyme to meetat 50% of estimated product demand atthrough the end of February 2010. Although we achieved our goal of building a small inventory buffer during the firstsecond quarter of 2010, we continued shipping atdue in part to the 50%impact of demand level due to ana second interruption in operations at our Allston facility at the end ofproduction in March 2010. The interruption resulted2010 resulting from an unexpected citya municipal electrical power failure that compounded issues with the facility'sfacility’s water system. Once production resumed, we continued shipping at the 50% of demand level through the end of the second quarter of 2010. We supplied approximately the same amountincreased supply of Cerezyme in July 2010 as we supplied in eachthe third quarter of May 2010 and June 2010, and expect that supply will then increaseCerezyme patients in the following months. However, there willUnited States were able to begin to return to normal dosing levels in September. We expect Cerezyme patients on a global basis to be regional variations when Cerezyme will be available,able to return to normal dosing during the fourth quarter of 2010.
Sincebuild a small inventory buffer, Fabrazyme shipments decreased in the fourth quarter of 2009 and we have beenbegan shipping Fabrazyme at a rate equal to meet approximately 30% of estimated product demand. We have been workingcontinued shipping at 30% of estimated product demand through the third quarter of 2010. We continue to work to increase the productivity of the Fabrazyme manufacturing process, which has performed at the low end of the historical range since the re-start of production.production in June 2009. We have developed a new working cell bank for Fabrazyme that has been approved by the FDA and EMA. The new working cell bank has completed threefive runs and has had 30% to 40% greater productivity than the oldprior working cell bank. WeFabrazyme patients are beginning to be able to double their doses, starting in the United States, and we expect Fabrazyme patients on a global basis to continue shipping Fabrazyme at the 30% of demand level through the third quarter and increase shipments of Fabrazymebe able to do so in the fourth quarter of 2010.
We expect to be able to fully supply global Fabrazyme demand during the first half of 2011.
61
We have implemented a Risk Evaluation and Mitigation Strategy, or REMS, which we call the Lumizyme ACE Program, to ensure that the appropriate patients receive Lumizyme commercially. We have initiated this program with the health care professionals involved in the Alglucosidase Alfa Temporary Access Program, or ATAP, the program created in 2007 through which we have provided therapy free of charge to nearly 200 patients prior to commercial approval of Lumizyme. We will keep ATAP open until August 20, 2010 to ensure that patients have uninterrupted therapy while working to enroll participants in the Lumizyme ACE Program. We have also begun working with U.S. health care
professionals to enable those adult patients who have been waiting to access treatment to begin Lumizyme therapy.
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Cerezyme | $ | 179,781 | $ | 93,599 | $ | 86,182 | 92 | % | $ | 497,664 | $ | 687,656 | $ | (189,992 | ) | (28 | )% | |||||||||||||||
Fabrazyme | 33,882 | 115,161 | (81,279 | ) | (71 | )% | 126,607 | 371,664 | (245,057 | ) | (66 | )% | ||||||||||||||||||||
Myozyme/Lumizyme | 106,223 | 85,980 | 20,243 | 24 | % | 284,336 | 232,645 | 51,691 | 22 | % | ||||||||||||||||||||||
Aldurazyme | 40,766 | 40,331 | 435 | 1 | % | 124,314 | 116,358 | 7,956 | 7 | % | ||||||||||||||||||||||
Other Personalized Genetic Health | 43,499 | 34,802 | 8,697 | 25 | % | 114,231 | 93,158 | 21,073 | 23 | % | ||||||||||||||||||||||
Total Personalized Genetic Health | $ | 404,151 | $ | 369,873 | $ | 34,278 | 9 | % | $ | 1,147,152 | $ | 1,501,481 | $ | (354,329 | ) | (24 | )% | |||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||||
Cerezyme | $ | 138,736 | $ | 298,087 | $ | (159,351 | ) | (53 | )% | $ | 317,883 | $ | 594,057 | $ | (276,174 | ) | (46 | )% | ||||||||
Fabrazyme | 39,484 | 134,302 | (94,818 | ) | (71 | )% | 92,725 | 256,503 | (163,778 | ) | (64 | )% | ||||||||||||||
Myozyme/Lumizyme | 92,054 | 79,273 | 12,781 | 16 | % | 178,113 | 146,665 | 31,448 | 21 | % | ||||||||||||||||
Aldurazyme | 43,651 | 39,190 | 4,461 | 11 | % | 83,548 | 76,027 | 7,521 | 10 | % | ||||||||||||||||
Other Personalized Genetic Health | 36,592 | 30,833 | 5,759 | 19 | % | 70,732 | 58,356 | 12,376 | 21 | % | ||||||||||||||||
Total Personalized Genetic Health | $ | 350,517 | $ | 581,685 | $ | (231,168 | ) | (40 | )% | $ | 743,001 | $ | 1,131,608 | $ | (388,607 | ) | (34 | )% | ||||||||
PGH product revenue increased for the three months ended September 30, 2010 due to the increased shipments of Cerezyme in the third quarter of 2010 offset, in part, by unfavorable exchange rate fluctuations for the three months ended September 30, 2010. PGH product revenue decreased for the three and sixnine months ended JuneSeptember 30, 2010, primarily due to the temporary suspension of production at our Allston facility in June 2009 during a time of already low levels of inventory for Cerezyme and Fabrazyme, resulting in supply constraints for Cerezyme and Fabrazyme since that time offset, in part, by:
• | continued growth in sales volume for Aldurazyme and other PGH products, primarily Elaprase; and | |
• | the addition of sales of Lumizyme after it received FDA approval in May 2010. |
Cerezyme and Fabrazyme
The supply constraint for Cerezyme adversely impacted Cerezyme revenue by $154.9 million for the three months ended JuneSeptember 30, 2010 and by $280.5 million fordue to the six months ended June 30, 2010.increased product supply. The weakening of foreign currencies, primarily the Euro, against the U.S. dollar, adversely impacted Cerezyme revenue by $1.5$3.7 million for the three months ended JuneSeptember 30, 2010. The supply constraints for Cerezyme for the nine months ended September 30, 2010 adversely impacted Cerezyme revenue by approximately $200 million for the nine months ended September 30, 2010. Exchange rate fluctuations, primarily the Euro against the U.S. dollar, positively impacted Cerezyme revenue by $5.9$2.2 million for the sixnine months ended JuneSeptember 30, 2010. Our results of operations are dependent on sales of Cerezyme and any reduction in revenue from sales of this product adversely affects our results of operations. Sales of Cerezyme were approximately 13%as a percentage of total revenues, for all periods presented, reflect periods of supply constraints due to the production interruptions at our Allston facility in June 2009 and March 2010. Sales of Cerezyme were:
• | approximately 18% of our total revenues for the three months ended September 30, 2010, as compared to approximately 10% of our total revenues for the three months ended September 30, 2009; and | |
• | approximately 17% of our total revenues for the nine months ended September 30, 2010, as compared to approximately 23% of our total revenues for the nine months ended September 30, 2009. |
62
period of 2009, primarily due to a longer period of supply constraints for Cerezyme during the first nine months of 2010.
Tableproducts and a loss of Contentsour overall market share of Gaucher and Fabry patients. Cerezyme currently competes with VPRIVtm
negatively affected by competitive products, a product made by Shire Human Genetic Therapies Inc., a business unit of Shire plc, or Shire, andShire. In addition, Protalix Biotherapeutics Ltd., or Protalix. After our products experienced supply constraints,Protalix, is also currently developing, UPLYSOtm, a product candidate for the treatment of Gaucher disease. In response to the Cerezyme shortages, Shire and Protalix were ableallowed, prior to receiving marketing approval to offer, their developmental therapies for the treatment of Gaucher disease to patients in the United States through an FDA-approved treatment investigational new drug application, or T-IND, protocol and to patients in the European Union and other countries through pre-approval access programs. In February 2010, Shire received marketing approval for VPRIV™VPRIV from the FDA and, in late FebruaryAugust 2010, and announced that it will price this therapy lower than Cerezyme. Shire also received a positive opinionmarketing authorization for VPRIV from the EMA Committee for Human Medicinal Product in June 2010. Shire has announced that it expects its manufacturing plant to be approved for commercial product in late 2011 or early 2012.European Commission. Protalix submitted itsa new drug application, or NDA, for UPLYSO™UPLYSO to the FDA in December 2009 and has beenwas granted "fast track"“fast track” designation withand assigned a Prescription Drug User Fee Act, or PDUFA, date ofin February 25, 2011. In DecemberNovember 2009, Protalix andentered an agreement with Pfizer entered intopursuant to which Pfizer was granted an agreementexclusive, worldwide license to develop and commercialize UPLYSO. The FDA has granted orphan drug status to both Shire'sShire’s and Protalix'sProtalix’s therapies for the treatment of Gaucher disease. Outside of the United States, Fabrazyme currently competes with Replagal, a product marketed by Shire.Shire, outside the United States. In the United States, Replagal is available under aT-IND approved by the FDA has approvedin December 2009. In June 2010, Shire closed enrollment in the T-IND and announced that it will continue to support a T-IND for Replagal.limited number of emergency new drug requests. In August 2010, Shire reported that it had withdrawn its biologics license application, or BLA, for Replagal that it had submitted in December 2009 to the FDA, and for which it had been granted "fast track"“fast track” designation, to consider updating it with additional clinical data. In June 2010, Shire closed enrollment in its T-IND in the United States for Replagal and announced plans to actively manage emergency requests for the drug from new patients.
We are aware that some
63
Aldurazyme
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Renagel/Renvela (including sales of bulk sevelamer) | $ | 178,755 | $ | 181,702 | $ | (2,947 | ) | (2 | )% | $ | 513,428 | $ | 527,699 | $ | (14,271 | ) | (3 | )% | ||||||||||||||
Hectorol | 49,285 | 36,869 | 12,416 | 34 | % | 133,173 | 98,880 | 34,293 | 35 | % | ||||||||||||||||||||||
Thyrogen | 42,257 | 41,691 | 566 | 1 | % | 134,182 | 123,377 | 10,805 | 9 | % | ||||||||||||||||||||||
Other Renal and Endocrinology | — | — | — | N/A | — | 30 | (30 | ) | (100 | )% | ||||||||||||||||||||||
Total Renal and Endocrinology | $ | 270,297 | $ | 260,262 | $ | 10,035 | 4 | % | $ | 780,783 | $ | 749,986 | $ | 30,797 | 4 | % | ||||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||||
Renagel/Renvela (including sales of bulk sevelamer) | $ | 170,066 | $ | 175,398 | $ | (5,332 | ) | (3 | )% | $ | 334,673 | $ | 345,997 | $ | (11,324 | ) | (3 | )% | ||||||||
Hectorol | 41,863 | 28,981 | 12,882 | 44 | % | 83,888 | 62,011 | 21,877 | 35 | % | ||||||||||||||||
Thyrogen | 46,300 | 42,860 | 3,440 | 8 | % | 91,925 | 81,686 | 10,239 | 13 | % | ||||||||||||||||
Other Renal and Endocrinology | — | 30 | (30 | ) | (100 | )% | — | 30 | (30 | ) | (100 | )% | ||||||||||||||
Total Renal and Endocrinology | $ | 258,229 | $ | 247,269 | $ | 10,960 | 4 | % | $ | 510,486 | $ | 489,724 | $ | 20,762 | 4 | % | ||||||||||
Sales of Renagel/Renvela, including sales of bulk sevelamer, decreased slightly for the three and six months ended JuneSeptember 30, 2010, primarily due to a volume decrease in Brazil offset by a volume increase in the United States. Sales of Renagel/Renvela, including sales of bulk sevelamer, decreased slightly for the nine months ended September 30, 2010, primarily due to the effect of Renagel pricing in Brazil and the conversion of patients to Renvela in the United States.Brazil. In 2009, we decreased the price of Renagel in Brazil in connection with successfully negotiating aan agreement with the government tender in the face of Brazil despite competition from two similar products that had been approved in that country. This agreement was successfully negotiated again in the third quarter of 2010. Total revenue for Renagel/Renvela, including sales of bulk sevelamer, reflects the increasing percentage of Renvela sales within the United States. The weakening of foreign currencies, primarily the Euro, against the U.S. dollar, had no significant impact onadversely affected Renagel revenue by $3.2 million for the three months ended JuneSeptember 30, 2010. Exchange rate fluctuations positively impacted Renagel revenue by $6.7$3.4 million for the sixnine months ended JuneSeptember 30, 2010.
64
manufacturing facility, including repairs and idle capacity expenses. We expect to incur approximately $10 millionRemediation of additionalthis facility is substantially complete and we anticipate that any remaining costs related to the remediation of this facility in the third quarter of 2010.
will not be significant.
65
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Synvisc/Synvisc-One | $ | 99,998 | $ | 87,526 | $ | 12,472 | 14 | % | $ | 287,191 | $ | 233,114 | $ | 54,077 | 23 | % | ||||||||||||||||
Sepra products | 40,858 | 37,831 | 3,027 | 8 | % | 116,970 | 108,173 | 8,797 | 8 | % | ||||||||||||||||||||||
Other Biosurgery | 6,284 | 9,200 | (2,916 | ) | (32 | )% | 21,047 | 29,511 | (8,464 | ) | (29 | )% | ||||||||||||||||||||
Total Biosurgery | $ | 147,140 | $ | 134,557 | $ | 12,583 | 9 | % | $ | 425,208 | $ | 370,798 | $ | 54,410 | 15 | % | ||||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||||
Synvisc/Synvisc-One | $ | 107,686 | $ | 82,417 | $ | 25,269 | 31 | % | $ | 187,193 | $ | 145,588 | $ | 41,605 | 29 | % | ||||||||||
Sepra products | 38,935 | 36,038 | 2,897 | 8 | % | 76,112 | 70,342 | 5,770 | 8 | % | ||||||||||||||||
Other Biosurgery | 5,186 | 8,658 | (3,472 | ) | (40 | )% | 14,763 | 20,311 | (5,548 | ) | (27 | )% | ||||||||||||||
Total Biosurgery | $ | 151,807 | $ | 127,113 | $ | 24,694 | 19 | % | $ | 278,068 | $ | 236,241 | $ | 41,827 | 18 | % | ||||||||||
Biosurgery product revenue increased for the three and sixnine months ended JuneSeptember 30, 2010, primarily due to increased sales forof Synvisc/Synvisc-One due to the addition of Synvisc-One sales in the United States. We received marketing approval for Synvisc-One in the United States in February 2009. Exchange rate fluctuations primarily the Euro against the U.S. dollar, positively impacted Biosurgery revenue by $2.2$2.6 million for the sixnine months ended JuneSeptember 30, 2010. The weakening of foreign currencies, primarily the Euro against the U.S. dollar, had no significant impact on Biosurgery revenue for the three months ended JuneSeptember 30, 2010.
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Mozobil | $ | 23,630 | $ | 12,896 | $ | 10,734 | 83 | % | $ | 64,737 | $ | 35,383 | $ | 29,354 | 83 | % | ||||||||||||||||
Thymoglobulin | 56,891 | 53,412 | 3,479 | 7 | % | 168,033 | 157,699 | 10,334 | 7 | % | ||||||||||||||||||||||
Clolar | 26,129 | 21,182 | 4,947 | 23 | % | 76,337 | 59,050 | 17,287 | 29 | % | ||||||||||||||||||||||
Other Hematology and Oncology | 60,645 | 56,096 | 4,549 | 8 | % | 190,969 | 88,944 | 102,025 | >100 | % | ||||||||||||||||||||||
Total Hematology and Oncology | $ | 167,295 | $ | 143,586 | $ | 23,709 | 17 | % | $ | 500,076 | $ | 341,076 | $ | 159,000 | 47 | % | ||||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||||||||||
Mozobil | $ | 22,141 | $ | 11,650 | $ | 10,491 | 90 | % | $ | 41,107 | $ | 22,487 | $ | 18,620 | 83 | % | |||||||||
Thymoglobulin | 58,232 | 53,632 | 4,600 | 9 | % | 111,142 | 104,287 | 6,855 | 7 | % | |||||||||||||||
Clolar | 25,520 | 19,708 | 5,812 | 29 | % | 50,208 | 37,868 | 12,340 | 33 | % | |||||||||||||||
Other Hematology and Oncology | 70,597 | 25,856 | 44,741 | >100 | % | 130,324 | 32,848 | 97,476 | >100 | % | |||||||||||||||
Total Hematology and Oncology | $ | 176,490 | $ | 110,846 | $ | 65,644 | 59 | % | $ | 332,781 | $ | 197,490 | $ | 135,291 | 69 | % | |||||||||
Hematology and Oncology product revenue increased for the three and sixnine months ended JuneSeptember 30, 2010, primarily due to:
• | increased sales of Mozobil due to increased penetration of the product in the United States and the launch of the product in Europe in August 2009; and | |
• | increased demand for Clolar, Campath and Leukine. |
Exchange rate fluctuations had no significant impact on
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Other product revenue | $ | 2,664 | $ | 3,616 | $ | (952 | ) | (26 | )% | $ | 8,960 | $ | 24,087 | $ | (15,127 | ) | (63 | )% | ||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||||||||||
Total Other product revenue | $ | 37,879 | $ | 48,512 | $ | (10,633 | ) | (22 | )% | $ | 82,211 | $ | 97,606 | $ | (15,395 | ) | (16 | )% | |||||||
Other product revenue decreased for the three and sixnine months ended JuneSeptember 30, 2010 primarily due to decreased demand for pharmaceutical intermediates products.
66
segment.
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Personalized Genetic Health | $ | 32 | $ | 5 | $ | 27 | >100 | % | $ | 75 | $ | 85 | $ | (10 | ) | (12 | )% | |||||||||||||||
Biosurgery | 9,392 | 10,443 | (1,051 | ) | (10 | )% | 31,709 | 31,619 | 90 | — | ||||||||||||||||||||||
Hematology and Oncology | — | — | N/A | N/A | — | 737 | (737 | ) | (100 | )% | ||||||||||||||||||||||
Other service revenue | 184 | 32 | 152 | >100 | % | 386 | 217 | 169 | 78 | % | ||||||||||||||||||||||
Total service revenue | $ | 9,608 | $ | 10,480 | $ | (872 | ) | (8 | )% | $ | 32,170 | $ | 32,658 | $ | (488 | ) | (1 | )% | ||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
Personalized Genetic Health | $ | 23 | $ | 43 | $ | (20 | ) | (47 | )% | $ | 43 | $ | 80 | $ | (37 | ) | (46 | )% | ||||||||
Biosurgery | 11,771 | 11,344 | 427 | 4 | % | 22,317 | 21,176 | 1,141 | 5 | % | ||||||||||||||||
Hematology and Oncology | — | 292 | (292 | ) | (100 | )% | — | 737 | (737 | ) | (100 | )% | ||||||||||||||
Other service revenue | 91,795 | 94,014 | (2,219 | ) | (2 | )% | 183,144 | 185,199 | (2,055 | ) | (1 | )% | ||||||||||||||
Total service revenue | $ | 103,589 | $ | 105,693 | $ | (2,104 | ) | (2 | )% | $ | 205,504 | $ | 207,192 | $ | (1,688 | ) | (1 | )% | ||||||||
Service revenue decreased slightly for the three and sixnine months ended JuneSeptember 30, 2010. Biosurgery service revenue decreased for the three months ended September 30, 2010 and increased slightly for the nine months ended September 30, 2010 primarily due to a decreasefluctuations in genetic testing service revenue due to a decrease in demand for higher priced genetics testing services offset, in part, by an increase in Biosurgery service revenue due to increased demand for Carticel and MACI.demand. Exchange rate fluctuations had no significant impact on service revenue for the three and sixnine months ended JuneSeptember 30, 2010.
Three Months Ended | Increase/ | Increase/ | ||||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | Nine Months Ended September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
International product and service revenue | $ | 474,298 | $ | 476,848 | $ | (2,550 | ) | (1 | )% | $ | 1,454,713 | $ | 1,600,554 | $ | (145,841 | ) | (9 | )% | ||||||||||||||
% of total product and service revenue | 47 | % | 52 | % | 50 | % | 53 | % |
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
International product and service revenue | $ | 501,568 | $ | 606,988 | $ | (105,420 | ) | (17 | )% | $ | 1,015,027 | $ | 1,158,100 | $ | (143,073 | ) | (12 | )% | |||||||
% of total product and service revenue | 47% | 50% | 47% | 49% |
International product and service revenue decreased for the three and six months ended JuneSeptember 30, 2010, primarily due to a decrease in international sales volume for Cerezyme and Fabrazyme for the three and six months ended JuneSeptember 30, 2010 due to supply constraints.
This decrease was offset, in part, by:
• | growth in the international sales volume of Myozyme, Aldurazyme, Elaprase, Thyrogen, Synvisc, Seprafilm, Thymoglobulin and Clolar for the nine months ended September 30, 2010; | |
• | the addition of international product sales of Campath as of May 29, 2009 in lieu of and in excess of international royalties formerly earned on sales of Campath prior to our transaction with Bayer; |
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• | the addition of international sales of Fludara and additional sales of Campath as of May 2009 and sales of Mozobil in Europe beginning in the third quarter of 2009; and | |
• | exchange rate fluctuation, primarily the Euro against the U.S. dollar, which positively impacted total product and service revenue by $7.4 million for the nine months ended September 30, 2010. |
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Renal and Endocrinology | $ | 134 | $ | 156 | $ | (22 | ) | (14 | )% | $ | 450 | $ | 177 | $ | 273 | >100 | % | |||||||||||||||
Biosurgery | 200 | 647 | (447 | ) | (69 | )% | 1,163 | 2,079 | (916 | ) | (44 | )% | ||||||||||||||||||||
Hematology and Oncology | 1 | 7 | (6 | ) | (86 | )% | 27 | 2,343 | (2,316 | ) | (99 | )% | ||||||||||||||||||||
Multiple Sclerosis | — | — | — | N/A | — | 12,357 | (12,357 | ) | (100 | )% | ||||||||||||||||||||||
Other | 310 | 90 | 220 | >100 | % | 566 | 471 | 95 | 20 | % | ||||||||||||||||||||||
Corporate | — | 492 | (492 | ) | (100 | )% | 300 | 1,485 | (1,185 | ) | (80 | )% | ||||||||||||||||||||
Total research and development revenue | $ | 645 | $ | 1,392 | $ | (747 | ) | (54 | )% | $ | 2,506 | $ | 18,912 | $ | (16,406 | ) | (87 | )% | ||||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
Renal and Endocrinology | $ | 150 | $ | 8 | $ | 142 | >100 | % | $ | 316 | $ | 21 | $ | 295 | >100 | % | ||||||||||
Biosurgery | 404 | 870 | (466 | ) | (54 | )% | 963 | 1,432 | (469 | ) | (33 | )% | ||||||||||||||
Hematology and Oncology | 7 | 852 | (845 | ) | (99 | )% | 26 | 2,336 | (2,310 | ) | (99 | )% | ||||||||||||||
Multiple Sclerosis | — | 5,066 | (5,066 | ) | (100 | )% | — | 12,357 | (12,357 | ) | (100 | )% | ||||||||||||||
Other | 67 | 99 | (32 | ) | (32 | )% | 256 | 381 | (125 | ) | (33 | )% | ||||||||||||||
Corporate | 300 | 497 | (197 | ) | (40 | )% | 300 | 993 | (693 | ) | (70 | )% | ||||||||||||||
Total research and development revenue | $ | 928 | $ | 7,392 | $ | (6,464 | ) | (87 | )% | $ | 1,861 | $ | 17,520 | $ | (15,659 | ) | (89 | )% | ||||||||
Total research and development revenue decreased for the three and sixnine months ended JuneSeptember 30, 2010, primarily due to a decrease in Multiple Sclerosis research and development revenue as a result of our acquisition from Bayer of the rights to alemtuzumab and termination of the Campath profit share arrangement. As of May 29, 2009, the effective date of our acquisition from Bayer, we ceased recognizing research and development revenue for Bayer'sBayer’s reimbursement of a portion of the development costs for alemtuzumab for MS. The fair value of the research and development costs to be reimbursed by Bayer is accounted for as an offset to the contingent consideration obligations for alemtuzumab for MS.
Three Months Ended | Increase/ | Increase/ | ||||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | Nine Months Ended September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Gross product profit | $ | 689,681 | $ | 639,928 | $ | 49,753 | 8 | % | $ | 2,028,220 | $ | 2,235,057 | $ | (206,837 | ) | (9 | )% | |||||||||||||||
Product margin | 70 | % | 70 | % | 71 | % | 75 | % | ||||||||||||||||||||||||
Gross service profit | $ | 2,201 | $ | 2,564 | $ | (363 | ) | (14 | )% | $ | 9,655 | $ | 10,817 | $ | (1,162 | ) | (11 | )% | ||||||||||||||
Service margin | 23 | % | 24 | % | 30 | % | 33 | % | ||||||||||||||||||||||||
Total gross product and service profit | $ | 691,882 | $ | 642,492 | $ | 49,390 | 8 | % | $ | 2,037,875 | $ | 2,245,874 | $ | (207,999 | ) | (9 | )% | |||||||||||||||
Total product and service margin | 69 | % | 70 | % | 70 | % | 74 | % |
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Gross product profit | $ | 673,278 | $ | 826,526 | $ | (153,248 | ) | (19 | )% | $ | 1,365,164 | $ | 1,628,208 | $ | (263,044 | ) | (16 | )% | |||||||
Product margin | 69% | 74% | 70% | 76% | |||||||||||||||||||||
Gross service profit | $ | 37,065 | $ | 44,069 | $ | (7,004 | ) | (16 | )% | $ | 73,108 | $ | 85,318 | $ | (12,210 | ) | (14 | )% | |||||||
Service margin | 36% | 42% | 36% | 41% | |||||||||||||||||||||
Total gross product and service profit | $ | 710,343 | $ | 870,595 | $ | (160,252 | ) | (18 | )% | $ | 1,438,272 | $ | 1,713,526 | $ | (275,254 | ) | (16 | )% | |||||||
Total product and service margin | 66% | 71% | 67% | 73% |
Gross Product Profit and Product Margin
• | increased sales volumes for Cerezyme, Myozyme, Aldurazyme, Elaprase, Hectorol, Synvisc, Seprafilm, Mozobil and Clolar; | |
• | the addition of sales of Lumizyme after it received FDA approval in May 2010; and |
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• | charges of $8.4 million for the three months ended September 30, 2010 for the amortization of inventorystep-up of Campath, Fludara and Leukine resulting from our transaction with Bayer in May 2009 as compared to $17.7 million for the three months ended September 30, 2009. |
• | decreased sales volume for Cerezyme and Fabrazyme due to supply constraints; | |
• | price decreases for Renagel outside of the United States, primarily in Brazil in connection with successfully negotiating an agreement with the government of Brazil despite competition from two similar products that had been approved in that country; and | |
• | charges of $27.3 million for the nine months ended September 30, 2010 for the amortization of inventorystep-up of Campath, Fludara and Leukine resulting from our transaction with Bayer in May 2009 as compared to $24.4 million for the nine months ended September 30, 2009. |
• | increased sales volumes for Myozyme, Aldurazyme, Elaprase, Hectorol, Synvisc, Seprafilm, Mozobil and Clolar; and | |
• | the addition of sales of Lumizyme after it received FDA approval in May 2010. |
• | a shift in product mix to lower margin products attributable to the supply constraints for Cerezyme and Fabrazyme for the nine months ended September 30, 2010; | |
• | the increase in sales volume for Myozyme, Aldurazyme and Elaprase, all of which are lower margin products; | |
• | the addition of sales of Fludara and Leukine and additional sales of Campath as of the end of May 29, 2009, all of which are lower margin products; and | |
• | charges of $27.3 million for the nine months ended September 30, 2010 for the amortization of inventorystep-up of Campath, Fludara and Leukine resulting from our transaction with Bayer in May 2009 as compared to $24.4 million for the nine months ended September 30, 2009. |
• | $5.6 million was for manufacturing-related costs associated with various inventory write offs; and | |
• | $9.1 million, for which there was no insurance reimbursement, was for the temporary suspension of production of sevelamer hydrochloride and sevelamer carbonate and subsequent remediation of our Haverhill, England facility resulting from an explosion and fire in December 2009. |
which:
• | $5.6 million was for manufacturing-related costs associated with various inventory write offs; | |
• | $16.4 million was for the write off of Cerezyme and Fabrazyme inventory; | |
• | $22.8 million, net of $5.4 million of insurance reimbursements, was related to the temporary suspension of production of sevelamer hydrochloride and sevelamer carbonate and subsequent remediation of our Haverhill, England facility resulting from an explosion and fire in December 2009; and | |
• | $7.1 million was for the write off of Thyrogen inventory. |
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Our gross product profit and product margin for the threenine months ended JuneSeptember 30, 2010 were also impacted by the unfavorable effect of foreign exchange rates on product sales outside of the United States, offset, in part, by the favorable effect of such rates on the cost of those products. Our gross product profit and product margin for the six months ended June 30, 2010 were also impacted by the favorable effect of foreign exchange rates on product sales outside of the United States, offset, in part, by the unfavorable effect of such rates on the cost of those products.
We expect to incur approximately $10 million of additional costs related to the remediation of our Haverhill, England facility in the third quarter of 2010.
2009.
decrease in service revenue as a result of fluctuations in demand.
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 337,883 | $ | 323,513 | $ | 14,370 | 4 | % | $ | 1,203,918 | $ | 904,024 | $ | 299,894 | 33 | % | ||||||||||||||||
% of total revenue | 34 | % | 35 | % | 42 | % | 30 | % |
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Selling, general and administrative expenses | $ | 402,535 | $ | 354,128 | $ | 48,407 | 14 | % | $ | 955,845 | $ | 672,089 | $ | 283,756 | 42 | % | |||||||||
% of total revenue | 37 | % | 29 | % | 44 | % | 28 | % |
SG&A increased for the three and six months ended JuneSeptember 30, 2010, primarily due to spending increases of:
severance charges.
• | $178.0 million for PGH, primarily due to a charge of $175.0 million relating to the consent decree we entered into with the FDA that provides for an upfront disgorgement of past profits; | |
• | $9.7 million for Renal and Endocrinology, primarily due to an increase in sales and marketing expenses related to the Renvela product launch and increased litigation expenses for Renagel/Renvela and Hectorol; | |
• | $25.5 million for Hematology and Oncology, primarily due to an increase in sales and marketing expenses to support the addition of Campath, Fludara and Leukine and sales force expansion to support the launch of Mozobil in Europe beginning in the third quarter of 2009; and | |
• | $80.5 million for Corporate, primarily due to increased spending related to upgrading our information technology systems, including installation and implementation of a new enterprise resource planning system worldwide, the costs for which did not meet the criteria for capitalization, as well as increased employee benefit costs and stock based compensation expense and expenses related to our contested 2010 director elections. |
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Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Research and development expenses | $ | 207,051 | $ | 215,925 | $ | (8,874 | ) | (4 | )% | $ | 645,187 | $ | 608,935 | $ | 36,252 | 6 | % | |||||||||||||||
% of total revenue | 21 | % | 23 | % | 22 | % | 20 | % |
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Research and development expenses | $ | 225,558 | $ | 210,522 | $ | 15,036 | 7 | % | $ | 446,488 | $ | 417,447 | $ | 29,041 | 7 | % | |||||||||
% of total revenue | 21 | % | 17 | % | 21 | % | 18 | % |
Research and development expenses increaseddecreased for the three and six months ended JuneSeptember 30, 2010, primarily due to:
• | a $4.4 million decrease for the three months ended September 30, 2010 on our PGH research and development programs, primarily due to decrease in expenses as a result of the completion of the ATAP in August 2010; | |
• | a $10.3 million decrease in spending for the three months ended September 30, 2010 on our Renal and Endocrinology research and development programs, primarily due to a decrease in spending as a result of the termination of our clinical trial for next generation advanced phosphate binders. |
to:
• | an $18.9 million increase in spending for the nine months ended September 30, 2010 on our PGH research and development programs, primarily due to expenses related to the ongoing eliglustat tartrate phase 3b study; | |
• | an $8.6 million increase in spending for the nine months ended September 30, 2010 on our Hematology and Oncology research and development programs, primarily due to increase in research and development spending related to Campath, Fludara and Leukine; and | |
• | a $24.2 million increase in spending for the nine months ended September 30, 2010 for Corporate, primarily due to increases in personnel, support services and consulting expenses. |
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Amortization of intangibles | $ | 61,761 | $ | 68,078 | $ | (6,317 | ) | (9 | )% | $ | 194,327 | $ | 183,270 | $ | 11,057 | 6 | % | |||||||||||||||
% of total revenue | 6 | % | 7 | % | 7 | % | 6 | % |
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| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Amortization of intangibles | $ | 67,891 | $ | 63,945 | $ | 3,946 | 6 | % | $ | 138,875 | $ | 121,543 | $ | 17,332 | 14 | % | |||||||||
% of total revenue | 6 | % | 5 | % | 6 | % | 5 | % |
Amortization of intangibles expense increased for the three and sixnine months ended JuneSeptember 30, 2010, primarily due to the acquisition of the worldwide marketing and distribution rights to the oncology products Campath, Fludara and Leukine from Bayer and to additional amortization expense for the Synvisc sales and marketing rights we reacquired from Pfizer.
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
Contingent consideration expense | $ | (3,134 | ) | $ | 28,197 | $ | (31,331 | ) | >(100 | )% | $ | 69,436 | $ | 37,287 | $ | 32,149 | 86 | % | ||||||||||||||
% of total revenue | — | 3 | % | 2 | % | 1 | % |
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Contingent consideration expense | $ | 10,021 | $ | 9,090 | $ | 931 | 10 | % | $ | 72,570 | $ | 9,090 | $ | 63,480 | >100 | % | |||||||||
% of total revenue | 1 | % | 1 | % | 3 | % | — |
In June 2009, we recorded contingent consideration obligations totaling $964.1 million for the acquisition date fair value of the contingent royalty and milestone payments due to Bayer based on future sales and the successful achievement of certain sales volumes for Campath, Fludara and Leukine and for alemtuzumab for MS.
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Discount Rate | ||||||||||||||||||||||
Used in | Year of | Estimated | ||||||||||||||||||||
Company/Assets | Purchase | Estimating | Expected | Cost to | ||||||||||||||||||
Acquired | Price | IPR&D | Programs Acquired | Cash Flows | Launch | Complete | ||||||||||||||||
Bayer Assets (2009) | $ | 1,006.5 | $ | 458.7 | alemtuzumab for MS — US | 16 | % | 2012 | $ | 148.4 | (1) | |||||||||||
174.2 | alemtuzumab for MS — ex-US | 16 | % | 2013 | $ | 56.4 | (2) | |||||||||||||||
$ | 632.9 | (3) | ||||||||||||||||||||
Bioenvision (2007) | $ | 349.9 | $ | 125.5 | (4) | Clolar(5) | 17 | % | 2010-2016 | (6) | $ | 17.3 | ||||||||||
AnorMED (2006) | $ | 589.2 | $ | 526.8 | (4) | Mozobil(7) | 15 | % | 2016 | $ | 12.1 | |||||||||||
Company/Assets Acquired | Purchase Price | IPR&D | Programs Acquired | Discount Rate Used in Estimating Cash Flows | Year of Expected Launch | Estimated Cost to Complete | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Bayer (2009) | $ | 1,006.5 | $ | 458.7 | alemtuzumab for MS—US | 16 | % | 2012 | $ | 169.7 | (1) | |||||||
174.2 | alemtuzumab for MS—ex-US | 16 | % | 2013 | $ | 64.4 | (2) | |||||||||||
$ | 632.9 | (3) | ||||||||||||||||
Bioenvision (2007) | $ | 349.9 | $ | 125.5 | (4) | Clolar(5) | 17 | % | 2010-2016 | (6) | $ | 20.0 | ||||||
AnorMED (2006) | $ | 589.2 | $ | 526.8 | (4) | Mozobil(7) | 15 | % | 2016 | $ | 14.9 | |||||||
(1) | Does not include anticipated reimbursements from Bayer totaling approximately $44 million. | |
(2) | Does not include anticipated reimbursements from Bayer totaling approximately $16 million. | |
(3) | Capitalized as an indefinite-lived intangible asset. | |
(4) | Expensed on acquisition date. | |
(5) | Clolar is approved for the treatment of relapsed and refractory pediatric ALL. The IPR&D projects for Clolar are related to the development of the product for the treatment of other indications. | |
(6) | Year of expected launch reflects both the ongoing launch of the products for currently approved indications and the anticipated launch of the products in the future for new indications. | |
(7) | Mozobil received marketing approval for use in stem cell transplants in the United States in December 2008 and in Europe in July 2009. Mozobil is also being developed for tumor sensitization. |
Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||
September 30, | Increase/ | (Decrease) | September 30, | Increase/ | (Decrease) | |||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | % Change | 2010 | 2009 | (Decrease) | % Change | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Equity in loss of equity method investments | $ | (643 | ) | $ | — | $ | (643 | ) | N/A | $ | (2,210 | ) | $ | — | $ | (2,210 | ) | N/A | ||||||||||||||
Gains (Losses) on investment in equity securities, net | 4,648 | (651 | ) | 5,299 | >100 | % | (26,750 | ) | (1,332 | ) | (25,418 | ) | >(100 | )% | ||||||||||||||||||
Gain on acquisition of business | — | — | — | N/A | — | 24,159 | (24,159 | ) | (100 | )% | ||||||||||||||||||||||
Other | (385 | ) | 614 | (999 | ) | >(100 | )% | (643 | ) | (2,347 | ) | 1,704 | 73 | % | ||||||||||||||||||
Investment income | 2,403 | 4,543 | (2,140 | ) | (47 | )% | 8,787 | 14,038 | (5,251 | ) | (37 | )% | ||||||||||||||||||||
Interest Expense | (3,358 | ) | — | (3,358 | ) | N/A | (3,358 | ) | — | (3,358 | ) | N/A | ||||||||||||||||||||
Total other income (expenses) | $ | 2,665 | $ | 4,506 | $ | (1,841 | ) | (41 | )% | $ | (24,174 | ) | $ | 34,518 | $ | (58,692 | ) | >(100 | )% | |||||||||||||
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) % Change | Increase/ (Decrease) | Increase/ (Decrease) % Change | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||||
Equity in loss of equity method investments | $ | (870 | ) | $ | — | $ | (870 | ) | N/A | $ | (1,567 | ) | $ | — | $ | (1,567 | ) | N/A | ||||||||
Losses on investment in equity securities, net | (31,562 | ) | (105 | ) | (31,457 | ) | >(100 | )% | (31,399 | ) | (681 | ) | (30,718 | ) | >(100 | )% | ||||||||||
Gain on acquisition of business | — | 24,159 | (24,159 | ) | (100 | )% | — | 24,159 | (24,159 | ) | (100 | )% | ||||||||||||||
Other | 356 | (2,056 | ) | 2,412 | >100 | % | (246 | ) | (3,035 | ) | 2,789 | 92 | % | |||||||||||||
Investment income | 3,084 | 4,144 | (1,060 | ) | (26 | )% | 6,384 | 9,494 | (3,110 | ) | (33 | )% | ||||||||||||||
Total other income (expenses) | $ | (28,992 | ) | $ | 26,142 | $ | (55,134 | ) | >(100 | )% | $ | (26,828 | ) | $ | 29,937 | $ | (56,765 | ) | >(100 | )% | ||||||
Equity in Loss of Equity Method Investments
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Gross gains (losses) on investments in equity securities | $ | 6,125 | $ | (36 | ) | $ | 8,370 | $ | 422 | |||||||
Less: charges for impairment of investments | (1,477 | ) | (615 | ) | (35,120 | ) | (1,754 | ) | ||||||||
Gains (losses) on investments in equity securities, net | $ | 4,648 | $ | (651 | ) | $ | (26,750 | ) | $ | (1,332 | ) | |||||
in the future, if the decline in value has become “other than temporary,” we will write down our investment in Isis common stock to its then current market value and record an impairment charge to our consolidated statements of operations.
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Tableour 2020 Notes totaling $500.0 million in principal, a portion of Contents
which was not capitalizable.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Benefit from (provision for) income taxes | $ | (17,385 | ) | $ | 965 | $ | 58,493 | $ | (160,305 | ) | ||||||
Effective tax rate | 19 | % | (8 | )% | (61 | )% | 28 | % |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
| (Amounts in thousands) | ||||||||||||
Benefit from (provision for) income taxes | $ | 19,953 | $ | (78,870 | ) | $ | 81,752 | $ | (157,754 | ) | |||
Effective tax rate | (84 | )% | 30 | % | (41 | )% | 29 | % |
Our effective tax rate for all periods presented varies from the U.S. statutory tax rate as a result of:
• | income and expenses taxed at rates other than the U.S. statutory tax rate; | |
• | our provision for state income taxes; | |
• | domestic manufacturing benefits; | |
• | benefits related to tax credits; and | |
• | non-deductible stock-based compensation expenses totaling $10.3 million for the three months ended and $30.1 million for the nine months ended September 30, 2010, as compared to $8.7 million for the three months ended and $38.3 million for the nine months ended September 30, 2009. |
paid in the amount of $9.5 million for the three months ended September 30, 2010 and $19.5 million for the nine months ended September 30, 2010.
jurisdictions and tax expenses in the amount of $20.6 million resulting from the remeasurement of the deferred tax assets related to our acquisition of certain assets from Bayer in 2009.
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Total revenues | $ | 126,848 | $ | 133,748 | $ | 385,707 | $ | 395,897 | ||||||||
Income (loss) from discontinued operations before income taxes | $ | (15,279 | ) | $ | 3,840 | $ | (27,461 | ) | $ | (8,456 | ) | |||||
Benefit from (provision for) income taxes | 9,987 | (1,487 | ) | 15,862 | 2,028 | |||||||||||
Loss from discontinued operations, net of tax | $ | (5,292 | ) | $ | 2,353 | $ | (11,599 | ) | $ | (6,428 | ) | |||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (49,767 | ) | $ | 399,055 | |||
Non-cash charges, net | 600,009 | 455,875 | ||||||
Net income, excluding net non-cash charges | 550,242 | 854,930 | ||||||
Increase in cash from working capital changes | 13,704 | 101,651 | ||||||
Cash flows from operating activities | $ | 563,946 | $ | 956,581 | ||||
| Six Months Ended June 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (118,721 | ) | $ | 383,060 | |||
Non-cash charges, net | 430,554 | 273,017 | ||||||
Net income, excluding net non-cash charges | 311,833 | 656,077 | ||||||
Increase (decrease) in cash from working capital changes | (6,675 | ) | (55,731 | ) | ||||
Cash flows from operating activities | $ | 305,158 | $ | 600,346 | ||||
Cash provided by operating activities decreased $295.2$392.6 million for the sixnine months ended JuneSeptember 30, 2010, driven by a $344.2$304.7 million decrease in net income, excluding net non-cash charges, offset by a $49.1and an $87.9 million decrease in working capital, primarily due to the Cerezyme and Fabrazyme supply constraints and a corresponding reduction in collection activities for these products. We also recorded a liability of $175.0 million for the nine months ended September 30, 2010 related to the consent decree we entered into with the FDA that provides for an upfront disgorgement of past profits, for which there was no comparable liability for the same period of 2009.
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• | a $41.7 million increase in depreciation and amortization expenses; | |
• | a $32.1 million increase in contingent consideration expenses related to an increase in the fair value of the contingent consideration obligations recorded as a result of our acquisition of certain assets from Bayer in May 2009; and | |
• | a $25.4 million increase in gains (losses) on investments in equity securities, net, primarily due to a charge of $32.3 million recorded in June 2010 to write down our investment in Isis to fair value as the unrealized losses were determined to be other than temporary, offset in part, by a gain of $7.3 million recorded on the sale of our investment in EXACT Sciences. |
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from investing activities: | ||||||||
Net sales of investments, excluding investments in equity securities | $ | 35,305 | $ | 92,710 | ||||
Net sales (purchases) of investments in equity securities | 9,484 | (5,183 | ) | |||||
Purchases of property, plant and equipment | (497,932 | ) | (480,436 | ) | ||||
Acquisitions, net of acquired cash | — | (57,238 | ) | |||||
Investments in equity method investment | (2,915 | ) | — | |||||
Purchases of other intangible assets | (6,340 | ) | (29,838 | ) | ||||
Other investing activities | (9,441 | ) | (7,096 | ) | ||||
Cash flows from investing activities | $ | (471,839 | ) | $ | (487,081 | ) | ||
| Six Months Ended June 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Cash flows from investing activities: | ||||||||
Net sales (purchases) of investments, excluding investments in equity securities | $ | 11,404 | $ | 86,345 | ||||
Net sales (purchases) of investments in equity securities | 104 | (5,890 | ) | |||||
Purchases of property, plant and equipment | (330,298 | ) | (318,324 | ) | ||||
Acquisitions, net of acquired cash | — | (117,073 | ) | |||||
Investments in equity method investment | (1,466 | ) | — | |||||
Purchases of other intangible assets | (6,155 | ) | (18,345 | ) | ||||
Other investing activities | (7,661 | ) | (5,198 | ) | ||||
Cash flows from investing activities | $ | (334,072 | ) | $ | (378,485 | ) | ||
For the sixnine months ended JuneSeptember 30, 2010, capital expenditures accounted for significant cash outlays for investing activities. During the sixnine months ended JuneSeptember 30, 2010, we used $330.3$497.9 million of cash to fund the purchase of property, plant and equipment, primarily related to the ongoing expansion of our manufacturing capacity in the Republic ofWaterford, Ireland, Lyon, France and Geel, Belgium, planned improvements at our Allston facility, the additional manufacturing capacity we are constructing in Framingham, Massachusetts and capitalized costs related to the implementation of an enterprise softwareresource planning system.
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Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of our common stock | $ | 274,469 | $ | 76,125 | ||||
Repurchases of our common stock | (800,000 | ) | (413,874 | ) | ||||
Payments under share purchase contract | (200,000 | ) | — | |||||
Excess tax benefit from stock-based compensation | (15,481 | ) | 3,309 | |||||
Proceeds from the issuance of debt | 994,368 | — | ||||||
Payments of debt and capital lease obligations | (6,245 | ) | (5,908 | ) | ||||
Decrease in bank overdrafts | (43,373 | ) | (17,552 | ) | ||||
Payment of contingent consideration obligation | (100,168 | ) | — | |||||
Other financing activities | (2,283 | ) | (5,237 | ) | ||||
Cash flows from financing activities | $ | 101,287 | $ | (363,137 | ) | |||
| Six Months Ended June 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of our common stock | $ | 58,362 | $ | 53,508 | ||||
Repurchases of our common stock | (800,000 | ) | (107,134 | ) | ||||
Payments under shares purchase contract | (200,000 | ) | — | |||||
Excess tax benefits from stock-based compensation | (5,372 | ) | 4,424 | |||||
Proceeds from the issuance of debt | 994,387 | — | ||||||
Payments of debt and capital lease obligations | (4,549 | ) | (4,305 | ) | ||||
Increase (decrease) in bank overdrafts | 23,851 | (14,303 | ) | |||||
Payment of contingent consideration obligation | (61,336 | ) | — | |||||
Other financing activities | 939 | 3,660 | ||||||
Cash flows from financing activities | $ | 6,282 | $ | (64,150 | ) | |||
Cash used by financing activities decreased by $70.4$464.4 million for the sixnine months ended JuneSeptember 30, 2010, as compared to the same period of 2009, primarily as a result of $994.4 million of proceeds, net of a $5.6 million discount, from the issuance in June 2010 of $1.0 billion in principal of debt, including $500.0 million in aggregate principal amount of our 2015 Notes and $500.0 million in aggregate principal amount of our 2020 Notes. These proceeds were offset by a $692.9$800.0 million increase in cash used to repurchase shares of our common stock.stock, an increase of $386.1 million from 2009. Also, cash used by financing activities increased as a result of an advance payment to Goldman Sachs of $200.0 million recorded in June 2010 as part of the repurchase of our common stock. Finally, the proceeds from issuance of debt were also offset by $61.3$100.2 million in contingent consideration payments to Bayer in the sixnine months ended JuneSeptember 30, 2010, for which there were no comparable payments for the same period of 2009.
Table The 2015 Notes have an annual interest rate of Contents
3.625% and the 2020 Notes have an annual interest rate of 5.000%. Interest accrues on the Notes from June 17, 2010 and is payable semi-annually in arrears on June 15 and December 15 of each year starting on December 15, 2010.
• | 100% of the principal amount of the Notes redeemed; or | |
• | the sum of the present values of the remaining scheduled payments of interest and principal thereon discounted at the Treasury Rate plus 25 basis points in the case of our 2015 Notes and 30 basis points in the case of our 2020 Notes. |
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The total number of shares ultimately repurchased will not be known until the calculation period ends and a final settlement occurs. Upon final settlement, we will either receive a settlement amount of additional shares of our common stock or be required to remit a settlement amount, payable, at our option, in cash or common stock. Shares repurchased under this agreement will be deemed authorized shares that are no longer outstanding.
Long-term debt obligations(1,2) Capital lease obligations(2) Operating leases(2) Contingent payments(3) Interest obligations(4) Defined pension benefit plans payments Unconditional purchase obligations Capital commitments(5) Total contractual obligations Framingham, Massachusetts, U.S (approximately 38% for software development). Westborough, Massachusetts, U.S. (primarily software development) Lyon, France Geel, Belgium Waterford, Ireland Allston, Massachusetts, U.S. Ridgefield, New Jersey, U.S. Haverhill, England Other Total estimated cost to completeJuneSeptember 30, 2010, we had committed to make the following payments under contractual obligations. These obligations (amountsinclude those associated with our assets held for sale discussed in millions): Payments Due by Period Total July 1, 2010
through
December 31, 2010 2011 2012 2013 2014 After 2014 $ 1,022.0 $ 0.2 $ 1.6 $ 1.7 $ 1.8 $ 1.8 $ 1,014.9 141.9 7.6 15.5 15.5 16.9 18.9 67.5 374.3 39.9 69.4 52.6 33.9 27.5 151.0 1,796.2 132.8 211.6 117.1 297.8 481.2 555.7 348.8 23.8 44.2 44.1 44.0 44.0 148.7 31.3 1.0 1.9 2.2 2.4 2.9 20.9 99.8 41.1 28.1 19.6 7.0 2.0 2.0 1,084.0 405.0 532.9 117.6 25.3 3.2 — $ 4,898.3 $ 651.4 $ 905.2 $ 370.4 $ 429.1 $ 581.5 $ 1,960.7 (1)Includes $500.0 million in principal of our 2015 NotesNote 3., “Held for Sale and $500.0 million in principal of our 2020 Notes.(2)See Note L., "Long-term Debt and Leases"Discontinued Operations,” to our consolidated financial statements included in Item 8 of Exhibit 99 to our thisForm 8-K filed with the SEC on June 14, 2010 for additional information on long-term debt and lease obligations.(3)For all periods presented consists primarily of a total of $1.80 billion of contingent royalty and milestone payments, the value of which has not been risk adjusted or discounted, that we are obligated to pay to Bayer based on future sales and the successful achievement of certain sales volumes for Campath, Fludara and Leukine and alemtuzumab for MS.10-QBayer is also eligible to receive a payment between $75.0 million and $100.0 million for a new Leukine manufacturing facility located in Lynnwood, Washington upon the facility receiving FDA approval, which is expected in 2011. We have not included any amounts for the contingent payments for this facility because we cannot be certain that the FDA will approve the facility or do so in the anticipated timeframe.Contingent payments also include a $20.0 million milestone payment to Synpac estimated to occur in 2010 once sales of Myozyme/Lumizyme reach $400.0 million. Contingent payments exclude any liabilities pertaining to uncertain tax positions as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities.From time to time, as a result of mergers, acquisitions or license arrangements, we may enter into agreements under which we may be obligated to make contingent payments upon the occurrence of certain events, and/or royalties on sales of acquired products or distribution rights. The actual amounts for and the timing of contingent payments may depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the United States Patent and Trademark Office, the FDA and other regulatory authorities, the existence and scope of third-party intellectual property, the reimbursement and competitive landscape around these products, the volume of sales or gross margin of a product in a specified territory and other factors described under the heading "Risk Factors" below. Because we cannot predict with certainty the amount or specific timing of contingent payments, we have included amounts for contingent payments that we believe are probable of being paid in our contractual obligations table. See Note C., "Strategic Transactions," to our consolidated financial statementsincluded in Item 8 of Exhibit 99 to our Form 8-K filed with the SEC on June 14, 2010 for additional information on our transaction with Bayer.(4)Represents interest payment obligations related to the senior notes that we issued in June 2010, promissory notes to three former shareholders of Equal Diagnostics and the mortgage payable we assumed in connection with the purchase of land and a manufacturing facility we formerly leased in Framingham, Massachusetts.(5)Consists of contractual commitments to vendors that we have entered into as of June 30, 2010 related to our outstanding capital and internally developed software projects. Our estimated cost of completion for assets under construction as of June 30, 2010 is as follows (amounts in millions): Payments Due by Period October 1, 2010 through Contractual Obligations Total December 31, 2010 2011 2012 2013 2014 After 2014 Long-term debt obligations(1,2,3) $ 1,022.0 $ 4.9 $ 0.5 $ 0.5 $ 0.6 $ 0.6 $ 1,014.9 Capital lease obligations(3) 138.0 3.7 15.5 15.5 16.9 18.9 67.5 Operating leases(3,4) 354.3 20.0 69.4 52.6 33.8 27.5 151.0 Contingent payments(5,6) 1,752.7 89.3 211.6 117.1 297.8 481.2 555.7 Interest obligations(7) 337.7 12.9 44.1 44.0 44.0 44.0 148.7 Defined pension benefit plans payments 30.8 0.5 1.9 2.2 2.4 2.9 20.9 Unconditional purchase obligations(8) 79.4 20.7 28.1 19.6 7.0 2.0 2.0 Capital commitments(9) 750.0 174.2 383.9 138.9 49.8 3.2 — Total contractual obligations $ 4,464.9 $ 326.2 $ 755.0 $ 390.4 $ 452.3 $ 580.3 $ 1,960.7 Cost to
Complete at
June 30, 2010 $ 428.1 33.8 12.0 344.2 28.5 96.1 27.0 26.0 88.3 $ 1,084.0 (1) Includes $4.7 million in principal and interest on promissory notes payable to three former shareholders of Equal Diagnostics. These notes were paid in full in October 2010. See Note 3., “Held for Sale and Discontinued Operations,” to our consolidated financial statements included in this Form 10-Q for more information on the payment of the notes. (2) Includes $500.0 million in principal of our 2015 Notes and $500.0 million in principal of our 2020 Notes. (3) See Note L., “Long-Term Debt and Leases” to our consolidated financial statements included in Item 8 of Exhibit 99 to ourForm 8-K filed with the SEC on June 14, 2010 for additional information on long-term debt and lease obligations. (4) Includes a total of $57.5 million of operating leases associated with discontinued operations, primarily our genetic testing business. Leases related to our diagnostic products business were not significant.
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(5) | For all periods presented consists primarily of contingent royalty and milestone payments, the value of which has not been risk adjusted or discounted, that we are obligated to pay to Bayer based on future sales and the successful achievement of certain sales volumes for Campath, Fludara and Leukine and alemtuzumab for MS. Bayer is also eligible to receive a payment between $75.0 million and $100.0 million for a new Leukine manufacturing facility located in Lynnwood, Washington upon the facility receiving FDA approval, which is expected in 2011. We have not included any amounts for the contingent payments for this facility because we cannot be certain that the FDA will approve the facility or do so in the anticipated timeframe. Contingent payments also exclude any liabilities pertaining to uncertain tax positions as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. | |
Contingent payments also include a $20.0 million milestone payment to Synpac estimated to occur in 2010 once net sales of Myozyme/Lumizyme reach $400.0 million. | ||
From time to time, as a result of mergers, acquisitions or license arrangements, we may enter into agreements under which we may be obligated to make contingent payments upon the occurrence of certain events, and/or royalties on sales of acquired products or distribution rights. The actual amounts for and the timing of contingent payments may depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the United States Patent and Trademark Office, the FDA, the EMA and other regulatory authorities, the existence and scope of third-party intellectual property, the reimbursement and competitive landscape around these products, the volume of sales or gross margin of a product in a specified territory and other factors described under the heading “Risk Factors” below. Because we cannot predict with certainty the amount or specific timing of contingent payments, we have included amounts for contingent payments that we believe are probable of being paid in our contractual obligations table. See Note C., “Strategic Transactions,” to our consolidated financial statements included in Item 8 of Exhibit 99 to ourForm 8-K filed with the SEC on June 14, 2010 for additional information on our transaction with Bayer. | ||
(6) | Includes $2.4 million in contingent additional consideration payable to three former shareholders of Equal Diagnostics. This consideration was paid in full in October 2010. See Note 3., “Held for Sale and Discontinued Operations,” to our consolidated financial statements included in thisForm 10-Q for more information on the payment of this consideration. | |
(7) | Represents interest payment obligations related to the senior notes that we issued in June 2010, promissory notes to three former shareholders of Equal Diagnostics and the mortgage payable we assumed in connection with the purchase of land and a manufacturing facility we formerly leased in Framingham, Massachusetts. | |
(8) | Includes a total of $17.4 million of unconditional purchase obligations associated with our genetic testing business unit, which is included in our discontinued operations. See Note 2., “Basis of Presentation and Significant Accounting Policies —Basis of Presentation,” to our consolidated financial statements included in thisForm 10-Q for more information on the discontinued operations. | |
(9) | Consists of contractual commitments to vendors that we have entered into as of September 30, 2010 related to our outstanding capital and internally developed software projects. These commitments include $61.7 million related to our discontinued operations, primarily our genetic testing business. Cost to complete for our diagnostic products business were not significant. Our estimated cost of completion for assets under construction as of September 30, 2010 is as follows (amounts in millions): |
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Cost to | ||||
Complete at | ||||
Location | September 30, 2010 | |||
Framingham, Massachusetts, United States (approximately 31% for software development). | $ | 237.4 | ||
Westborough, Massachusetts, United States (primarily software development) | 61.7 | |||
Lyon, France | 3.4 | |||
Geel, Belgium | 307.3 | |||
Waterford, Ireland | 31.8 | |||
Allston, Massachusetts, United States | 61.7 | |||
Ridgefield, New Jersey, United States | 12.3 | |||
Haverhill, England | 6.7 | |||
Other | 27.7 | |||
Total estimated cost to complete | $ | 750.0 | ||
• | expanding and maintaining existing and constructing additional manufacturing operations, including investing significant funds to expand our Allston, Massachusetts, Geel, Belgium and Waterford, Ireland facilities and constructing a new manufacturing facility in Framingham, Massachusetts with capacity for Cerezyme and Fabrazyme; | |
• | implementing process improvements and system updates for our biologics manufacturing operations; | |
• | product development and marketing; | |
• | strategic business initiatives; | |
• | upgrading our information technology systems, including installation and implementation of a new enterprise resource planning system worldwide; | |
• | contingent payments under business combinations, license and other agreements, including a milestone payment to Synpac if net sales of Myozyme/Lumizyme reach $400.0 million, as well as payments related to our license of mipomersen from Isis, ataluren from PTC Therapeutics, Inc., or PTC, and Prochymal and Chondrogen from Osiris Therapeutics, Inc., or Osiris, as well as contingent consideration obligations related to our acquisition of the worldwide rights to the oncology products Campath, Fludara and Leukine and alemtuzumab for MS from Bayer; | |
• | consulting and other fees related to our compliance with the consent decree; | |
• | working capital and satisfaction of our obligations under capital and operating leases; and | |
• | repayment of our 2015 Notes and our 2020 Notes. |
contingent consideration obligations related to our acquisition of the worldwide rights to the oncology products Campath, Fludara and Leukine and alemtuzumab for MS from Bayer (for more information on these payments please read Note C., "Strategic Transactions," to our consolidated financial statements included in Item 8 of Exhibit 99 to our Form 8-K filed with the SEC on June 14, 2010);
In May 2010, we announceddirectors authorized a $2.0 billion stockshare repurchase program.plan. In June 2010, we executed an accelerated share repurchase agreement with Goldman Sachs for the repurchase of $1.0 billion of our common stock, which we financed with the net proceeds of our $1.0 billion senior note offering. On October 18, 2010, we completed the first half of the planned share repurchase, repurchasing 15.7 million shares at an average price of $63.79 per share under the accelerated share repurchase agreement. We plan to repurchase the additionalremaining $1.0 billion of shares authorized under the plan before June 2011.
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Relevant Requirements | Issued Date/Our Effective | ||||||||||||
ASU Number | of ASU | Dates | Status | ||||||||||
2009-13 | Establishes the accounting and reporting guidance for arrangements under which a vendor will perform multiple | Issued October 2009. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. | We will adopt the provisions of this update for the first quarter of 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements. |
Requires new disclosures and clarifies some existing disclosure requirements about fair value measurements, | Issued January 2010. Effective for the first interim or annual reporting period beginning after December 15, 2009, except for the additional information in the roll forward of Level 3 investments. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim reporting periods within those fiscal years. | We adopted the applicable provisions of this update, except for the additional information in the roll forward of Level 3 investments (as previously noted), in the first quarter of 2010. Besides a change in disclosure, the adoption of this update does not have a material impact on our consolidated financial statements. None of our instruments were reclassified between Level 1, Level 2 or Level 3 in 2010. We are currently assessing the impact the requirement to present a separate line item for each investment in the roll forward of Level 3 investments will have, if any, on our consolidated financial statements. Although this may change the appearance of our fair value reconciliations, we do not believe the adoption | ||||
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Relevant Requirements | Issued Date/Our Effective | |||||||
ASU Number | of ASU | Dates | Status | |||||
will have a material impact on our consolidated financial statements or disclosures. | ||||||||
2010-11, | Update provides amendments to Subtopic 815-15, | Issued March 2010. Effective at the beginning of each reporting | We | |||||
2010-17, | Update provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. | Issued April 2010. Effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. | We will adopt the provisions of this update beginning January 1, 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements. | |||||
Update | Issued July 2010. Generally effective for interim and annual reporting periods ending on or after December 15, 2010, | We | ||||||
2010-23, “Health Care Entities: Measuring Charity Care for Disclosure.” | Update requires the measurement basis used in the disclosure of charity care to be cost and that cost be | Issued August 2010. Effective for fiscal years beginning after December 15, 2010 and should be applied | We will adopt the provisions of this update beginning January 1, 2011. We are currently assessing the impact the |
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Relevant Requirements | Issued Date/Our Effective | |||||
ASU Number | of ASU | Dates | Status | |||
identified as the direct and indirect costs of providing the charity care. Disclosure of the method used to identify or determine direct and indirect costs must be disclosed. Existing guidance does not prescribe a specific measurement basis of charity care for disclosure purposes. This would improve U.S. GAAP by requiring all entities to use the same measurement basis, which will enhance comparability. | retrospectively to all periods presented. Early adoption is permitted. | provisions of this update will have, if any, on our consolidated financial statements. |
we confirmed that Vesivirus 2117 was the cause of declines in cell productivity in one previous instance in 2008 at our Allston facility and one previous instance in 2008 at our BelgiumGeel facility. We were able to detect the virus in 2009 at our Allston facility using a highly specific assay we had developed after standard tests were unable to identify the cause of the productivity declines that occurred in 2008. We are in the process of adding steps to increase the robustness of
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anticipated in late 2011.
Outside
The approval of treatment protocols and access programs for Shire's and Protalix's therapies has allowed physicians to treat Fabry and Gaucher disease patients with the therapies ahead of their commercial availability.
to switch to competitive products during the period of supply constraint. These actions may result in additional patients switching to our competitors' therapies. In July 2010, the EMA issued a temporary recommendation to physicianshealthcare providers that new Fabry disease patients be treated with ReplagelReplagal as an alternative to Fabrazyme because of continued supply shortages of Fabrazyme. We also have encouraged patients to switch to competitors products during the period of supply constraints. In addition, the institution of treatment guidelines and dose conservation measures during the supply constraint presentsconstraints present the risk that physicians and patients will not resume regularprior treatment or dosage levels after the supply constraint hasconstraints have ended. Our revenues from the sale of Cerezyme and Fabrazyme may be negatively impacted by patients switching to our competitors’ therapies and by long-term adoption by patients of lower treatment or dosage levels.
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• | issuing warning letters; | |
• | levying fines and other civil penalties; | |
• | imposing consent decrees; | |
• | suspending regulatory approvals; | |
• | refusing to approve pending applications or supplements to approved applications; | |
• | suspending manufacturing activities or product sales, imports or exports; | |
• | requiring us to communicate with physicians and other customers about concerns related to actual or potential safety, efficacy, and other issues involving our products; | |
• | mandating product recalls or seizing products; and | |
• | criminal prosecution. |
compliance at our Allston facility for an additional five years. If we are unable to satisfy the terms of the consent decree, or if satisfaction of our obligations takes longer than expected, our business couldwould be adversely impacted.
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• | conduct substantial research and development; | |
• | undertake preclinical and clinical testing, sampling activity and other costly and time-consuming measures; | |
• | develop andscale-up manufacturing processes; and | |
• | pursue marketing and manufacturing approvals and, in some jurisdictions, pricing and reimbursement approvals. |
• | failure of the product candidate in preclinical studies; | |
• | delays or difficulty enrolling patients in clinical trials, particularly for disease indications with small patient populations; | |
• | patients exhibiting adverse reactions to the product candidate or indications of other safety concerns; | |
• | insufficient clinical trial data to support the effectiveness or superiority of the product candidate; | |
• | our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner, if at all; | |
• | our failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate, the facilities or the process used to manufacture the product candidate; or | |
• | changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or of an existing product for a new indication no longer desirable. |
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• | our ability, and the ability of our collaborators, to efficiently manufacture sufficient quantities of each product to meet demand and to do so in a timely and cost efficient manner; | |
• | acceptance by the medical community of each product or service; | |
• | the availability of competing treatments that are deemed safer, more efficacious, more convenient to use, more cost effective, or having a more reliable source of supply; | |
• | compliance with regulation by regulatory authorities of these products and services and the facilities and processes used to manufacture these products; | |
• | the scope of the labeling approved by regulatory authorities for each product and competitive products or risk management activities, including a Risk Evaluation and Mitigation Strategy, which we call the Lumizyme ACE Program; | |
• | the effectiveness of our sales force; | |
• | the availability and extent of coverage, pricing and level of reimbursement from governmental agencies and third-party payors; and | |
• | the size of the patient population for each product or service and our ability to identify new patients. |
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In October 2010, Amicus entered into an agreement with GlaxoSmithKline plc pursuant to which GlaxoSmithKline plc was granted an exclusive worldwide license to develop, manufacture and commercialize this product candidate.
PhosLo®PhosLo®, a prescription calcium acetate preparation marketed in the United States and Fosrenol®Fosrenol®, a prescription lanthanum carbonate marketed in the United States, Europe, Canada and Latin America. Generic formulations of PhosLo were launched in the United States in 2008 and 2009. Renagel and Renvela also compete withover-the-counter calcium carbonate products such as TUMS®TUMS® and metal-based options such as aluminum and magnesium. Our core patents protecting Renagel and Renvela expire in 2014 in the United States and in Europe in 2015. However, our Renagel and Renvela patents are the subjects of Abbreviated New Drug Application, or ANDA, filings in the United States by generic drug manufacturers, which could subject those products to generic competition before 2014, as described in more detail in this Risk Factors section under the heading,"“Some of our products will likely face competition from lower cost generic or follow-on products."”Supartz®Supartz®/Artz®Artz®; Hyalgan®Hyalgan®; Orthovisc®Orthovisc®; Euflexxa®Euflexxa®; Monovisc™Monovisctm, which is marketed in Europe and Turkey; and Durolane®Durolane®, which is marketed in Europe and Canada. Durolane and Euflexxa are produced by bacterial fermentation, which may provide these products a competitive advantage over avian-sourced Synvisc/Synvisc-One. We believe that single injection products will have a competitive advantage over multiple injection products. Synvisc-One is currently the only single injection viscosupplementation product approved in the United States, but competitors are seeking FDA approval for their single injection products. Furthermore, several companies market products that are not
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Competition for Campath for patients with B-CLL includes single agent and combination chemotherapy regimens; Rituxan®/MabThera® (rituximab), which is marketed globally; Treanda®/Ribomustin® (bendamustine) which is marketed globally; and Arzerra® (ofatumumab), which is marketed in the United States and Europe. There are also other therapies under clinical study for the treatment of B-CLL, including lumiliximab and lenalidomide. Competition for Clolar for the treatment of pediatric patients 1 to 21 years old with relapsed or refractory ALL after at least two prior regimens includes cytarabine and mitoxantrone, which are available as generics with no significant commercial promotion, and Arranon®/Atriance® (nelarabine), which is indicated for the treatment of patients with T-cell ALL whose disease has not responded to or has relapsed following treatment with at least two chemotherapy regimens. T-cell ALL is estimated to represent less than 20% of pediatric ALL patients. In addition, there are anti-cancer agents in clinical trials for the treatment of relapsed pediatric ALL. Leukine primarily competes with two colony stimulating growth factors, Neupogen® (filgrastim) and Neulasta® (pegfilgrastim). The primary competition for Fludara is generic versions of fludarabine. Mozobil primarily competes with Neupogen and generic chemo-mobilization regimens.
third-party payors. These third-party payors may not provide adequate insurance coverage or reimbursement for our products, and services, which could reduce demand for our products and services and impair our financial results.
• | challenging the prices charged for healthcare products and services; | |
• | limiting both the coverage and the amount of reimbursement for new therapeutic products; | |
• | reducing existing reimbursement rates for commercialized products; | |
• | refusing to provide insurance coverage for a commercialized product if there is a lower cost alternative; | |
• | denying or limiting coverage for products that are approved by the FDA, EMA or other governmental regulatory bodies but are considered experimental or investigational by third-party payors; and | |
• | refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA, EMA or other applicable marketing approval. |
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payment system that will begin on January 1, 2011. The final rule delays until 2014 the inclusion of ESRD-related oral drugs such as Renagel/Renvela and other oral phosphate binders that do not have an IV equivalent, in the bundled payment system. As a result, Renagel/Renvela will continue to be separately reimbursed by Medicare until 2014. However, beginning January 1, 2011, the bundled payment system will include ESRD-related IV drugs and biologics and their oral equivalents, including intravenous Vitamin D analogs and their oral equivalents such as Hectorol for Infusion and Hectorol capsules.
All of these events would likely cause the market value of our securities to decline.
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Building our facilities is expensive, and our ability to recover these costs will depend on increased revenue from the products produced at the facilities. In addition, to maintain product supply and to adequately prepare to launch a number of our late-stage product candidates, we must successfully implement a number of manufacturing projects on schedule, operate our facilities at appropriate production capacity, optimize manufacturing asset utilization, continue our use of third-party contract manufacturers and maintain a state of regulatory compliance.
Growth in our business may also contribute to fluctuations in our operating results, which may cause the price of our securities to decline. Our revenue may fluctuate due to many factors, including changes in:
We may also experience fluctuations in our quarterly results due to price changes and sales incentives. For example, purchasers of our products, particularly wholesalers, may increase purchase orders in anticipation of a price increase and reduce order levels following the price increase. We occasionally offer sales incentives and promotional discounts on some of our products and services that could cause similar fluctuations. In addition, some of our products, including Synvisc/Synvisc-One, are subject to seasonal fluctuation in demand.
example, we believe that a virus that we detected in one of our bioreactors used at our Allston facility to produce Cerezyme was likely introduced through a raw material used in the manufacturing process.
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• | terminate the agreements covering the strategic alliance or limit our access to the underlying intellectual property; | |
• | fail to devote financial or other resources to the alliances and thereby hinder or delay development, manufacturing or commercialization activities; | |
• | fail to successfully develop, manufacture or commercialize any products; | |
• | do not agree on the development, regulatory, filing or commercialization strategy; or | |
• | fail to maintain the financial resources necessary to continue financing their portion of the development, manufacturing, or commercialization costs of their own operations. |
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• | pay monetary damages; | |
• | stop commercial activities relating to the affected products or services; | |
• | obtain a license in order to continue manufacturing or marketing the affected products or services; or | |
• | compete in the market with a different product or service. |
• | the diversion of management’s time and attention; | |
• | the expenditure of large amounts of cash on legal fees, expenses, and payment of damages; | |
• | limitations on our ability to continue some of our operations; | |
• | decreased demand for our products and services; and | |
• | injury to our reputation. |
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We may incur substantial costs aspatent infringement. If such patent infringement lawsuit is brought within a resultstatutory45-day period, then a30-month stay of litigation or other proceedings.
We are or may become a partyFDA approval for the ANDA is triggered. In recent years, generic manufacturers have used Paragraph IV certifications extensively to litigation or other proceedingschallenge the applicability of patents listed in the ordinary courseFDA’s Approved Drug Products List with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, on a wide array of innovative therapeutic products. We expect this trend to continue and to implicate drug products with even relatively modest revenues.
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• | Focusing on our core businesses and on establishing operational excellence in manufacturing; | |
• | Capitalizing on near-term revenue growth drivers, including maximizing the potential of products that are early in their launch stages, as well as important therapies in development that are expected to be launched over the next three to five years; | |
• | Balancing revenue and earnings growth with cash flow return on investment; | |
• | Improving our operating margins by reducing costs across the company; and | |
• | Optimizing our capital structure by implementing a $2.0 billion share repurchase plan. |
We have several ongoing legal proceedings on whichperiod of time we will continue to expend substantial sums. For example, we have initiated patent infringement litigation against several generic manufacturers. In addition,expect.
Someunits as part of our products are prescribed by healthcare providers for uses not approved by the FDA, the EMA or comparable regulatory agencies. Although healthcare providers may lawfully prescribeplan to focus on our products for off-label uses, any promotion by us of off-label uses would be unlawful. Some of our practices intended to make healthcare providers aware of off-label uses of our products without engaging in off-label promotion could nonetheless be misconstrued as off-label promotion. Although we have policies and procedures in place designed to help assure ongoing compliance with regulatory requirements regarding off-label promotion, some non-compliant actions may nonetheless occur. Regulatory authorities could commence investigations into our practices and/or take enforcement action against us if they believe we are promoting, or have promoted, our products for off-label use. For example, the U.S. government has instituted an investigation into Genzyme's sales, marketing and promotion of Seprafilm. We are cooperating with the government in this inquiry.
We have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the future, orcore business, we may be unable to do socomplete such transactions on favorable terms.the timeframes expected or at all. Our insurersagreement with LabCorp to sell our genetic testing business also remains subject to customary closing conditions, including approval pursuant to theHart-Scott-Rodino Antitrust Improvements Act of 1976. Failure to meet these closing conditions could result in the delay of the sale or termination of the purchase agreement.
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Regardlessbe time consuming and expensive. The impact of meritSanofi’s acquisition efforts due to these or eventual outcome, investigationsother factors may undermine our business and litigation can result in:
stock price may decline.
• | economic problems that disrupt foreign healthcare payment systems; | |
• | the imposition of governmental controls, including foreign exchange and currency restrictions; | |
• | less favorable intellectual property or other applicable laws; |
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• | the inability to obtain any necessary foreign regulatory or pricing approvals of products in a timely manner; | |
• | the inability to obtain third-party reimbursement support for products; | |
• | product counterfeiting and intellectual property piracy; | |
• | parallel imports; | |
• | anti-competitive trade practices; | |
• | import and export license requirements; | |
• | political or economic instability; | |
• | terrorist activities, armed conflict, or a pandemic; | |
• | restrictions on direct investments by foreign entities and trade restrictions; | |
• | changes in tax laws and tariffs; | |
• | difficulties in staffing and managing international operations; and | |
• | longer payment cycles. |
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Some of our products will likely face competition from lower cost generic or follow-on products.
Some of our drug products, including Renagel, Renvela, Hectorol, Clolar, Fludara and Mozobil are approved under the provisions of the United States Food, Drug and Cosmetic Act, or FDCA, that render them susceptible to potential competition from generic manufacturers via the ANDA procedure. Generic manufacturers pursuing ANDA approval are not required to conduct costly and time-consuming clinical trials to establish the safety and efficacy of their products; rather, they are permitted to rely on the innovator's data regarding safety and efficacy. Thus, generic manufacturers can sell their products at prices much lower than those charged by the innovative pharmaceutical or biotechnology companies who have incurred substantial expenses associated with the research and development of the drug product.
The ANDA procedure includes provisions allowing generic manufacturers to challenge the innovator's patent protection by submitting "Paragraph IV" certifications to the FDA in which the generic manufacturer claims that the innovator's patent is invalid or will not be infringed by the manufacture, use, or sale of the generic product. A patent owner who receives a Paragraph IV certification may choose to sue the generic applicant for patent infringement. If such patent infringement lawsuit is brought within a statutory 45-day period, then a 30-month stay of FDA approval for the ANDA is triggered. In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge the applicability of patents listed in the FDA's Approved Drug Products List with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, on a wide array of innovative therapeutic products. We expect this trend to continue and to implicate drug products with even relatively modest revenues.
Renagel/Renvela and Hectorol are subjects of ANDAs containing Paragraph IV certifications. Renagel is the subject of ANDAs containing Paragraph IV certifications submitted by five companies. Our Renvela tablet product is the subject of ANDAs containing Paragraph IV certifications submitted by four companies. Our Renvela powder product is the subject of ANDAs containing Paragraph IV certifications submitted by three companies. We have initiated patent litigation against four of the five ANDA applicants with respect to Renagel and against all four of the ANDA applicants with respect to the Renvela tablet. With respect to our Renvela powder product, we have commenced patent litigation against two of the three ANDA applicants. At issue in these lawsuits is U.S. Patent No. 5,667,775, which expires in 2014 (the " '775 Patent"). See "Legal Proceedings" in Part I., Item 3. of our 2009 Form 10-K. If we are unsuccessful in these lawsuits, a generic manufacturer may launch its generic product prior to the expiration of the '775 Patent, but not before the expiration in 2013 of our other Orange Book-listed patents covering Renagel and Renvela. Regarding the cases where we have not brought suit, we are currently evaluating the Paragraph IV notice received from the ANDA applicants.
Our Hectorol (doxercalciferol) products (vial and capsule) are collectively the subject of ANDAs containing Paragraph IV certifications submitted by seven companies. We have initiated patent litigation against five of these ANDA applicants. See "Legal Proceedings" in Part I., Item 3. of our 2009 Form 10-K. In all five cases we are pursuing claims with respect to our U.S. Patent No. 5,602,116 related to the use of Hectorol to treat hyperparathyroidism secondary to ESRD, which expires in 2014 (the " '116 Patent"). In two of the five cases, we are also pursuing claims with respect to our U.S. Patent No. 7,148,211 related to the formulation of our Hectorol vial product, which expires in 2023 (the " '211 Patent"). Our Hectorol capsule product is labeled for the treatment of secondary hyperparathyroidism in patients with CKD on dialysis and for those patients not on dialysis. In one of the four cases relating to our Hectorol capsule products, the ANDA filer is seeking approval of its generic 0.5µg capsule only for the treatment of patients with CKD who are not on dialysis, thereby attempting to avoid our '116 Patent. If we are unsuccessful in the patent infringement lawsuits that we have chosen to pursue against the ANDA filers, a generic manufacturer may launch its generic product prior to the expiration of our Orange-Book listed patents covering our Hectorol products.
As for the two Hectorol ANDA applicants against whom litigation was not initiated, they submitted Paragraph IV certifications with respect to only the '211 Patent. Because we did not initiate litigation, the FDA could approve the applicants' generic products upon the later of expiration or invalidation of the '116 Patent or expiration of the 180-day exclusivity, if any, accorded to the first ANDA filer.
We also have two biologic products approved under the FDCA, Cerezyme and Thyrogen. This renders them susceptible to potential competition from follow-on or biosimilar manufacturers via the "505(b)2" pathway of the FDCA. As with an ANDA, the sponsor of a 505(b)2 application is permitted to rely, at least in part, on the safety and efficacy data of the innovator. For that reason, 505(b)(2) applicants may have a shorter time to approval than an applicant filing an NDA.
Other of our products, including Fabrazyme, Aldurazyme, Myozyme, Campath and Leukine (so-called "biotech drugs") were approved in the United States under the Public Health Service Act, or PHSA. The PHSA was amended by the March 2010 enactment of healthcare reform legislation, which, among other things, establishes an abbreviated approval pathway for "biosimilar" products. This approval process differs from the ANDA approval process in a number of significant ways. In particular, a biosimilar product could not be approved based on the safety and efficacy data of one of our products until 12 years after initial approval of our product. Biosimilar legislation has also been adopted in the European Union.
If an ANDA filer or any biosimilar manufacturer were to receive approval to sell a generic or biosimilar version of one of our products, that product would become subject to increased competition and our revenue for that product would be adversely affected.
Our operating results and financial position may be negatively impacted when we attempt to grow through business combination transactions.
We may encounter problems assimilating operations acquired in business combination transactions. These transactions often entail the assumption of unknown liabilities, the loss of key employees, and the diversion of management attention. Furthermore, in any business combination there is a substantial risk that we will fail to realize the benefits we anticipate when we decide to undertake the transaction. We have in the past taken significant charges for impaired goodwill and for impaired assets acquired in business combination transactions. We may be required to take similar charges in the future. We enter into most such transactions with an expectation that the acquired assets will enhance the long-term strength of our business. These transactions, however, often depress our earnings and our returns on capital in the near-term and the expected long-term benefits may never be realized. Business combination transactions also either deplete cash resources, require us to issue substantial equity, or require us to incur significant debt.
Legislative or regulatory changes may adversely impact our business.
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terms, or at all. If we fail to obtain a required license or are unable to alter the design of our technology to fall outside the scope of a third-party patent, we may be unable to market some of our products, and services, which would limit our profitability.
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• | expanding and maintaining existing and constructing new manufacturing operations, including investing significant funds to expand our Allston, Massachusetts, Geel, Belgium and Waterford, Ireland facilities and constructing a new manufacturing facility in Framingham, Massachusetts with capacity for Cerezyme and Fabrazyme; | |
• | implementing process improvements and system updates for our biologics manufacturing operations; | |
• | product development and marketing; | |
• | strategic business initiatives; | |
• | upgrading our information technology systems, including installation and implementation of a new enterprise resource planning system worldwide; | |
• | contingent payments under business combinations, license and other agreements, including a milestone payment to Synpac if net sales of Myozyme/Lumizyme reach $400.0 million, as well as payments related to our license of mipomersen from Isis, ataluren from PTC, and Prochymal and Chondrogen from Osiris, as well as contingent consideration obligations related to our acquisition of the worldwide rights to the oncology products Campath, Fludara, Leukine and alemtuzumab for MS from Bayer; | |
• | consulting and other fees related to our compliance with the consent decree; | |
• | working capital and satisfaction of our obligations under capital and operating leases; and | |
• | repayment of our 2015 Notes and our 2020 Notes. |
In May 2010, we announceddirectors authorized a $2.0 billion stockshare repurchase program.plan. In June 2010, we executed an accelerated share repurchase agreement with Goldman Sachs for the repurchase of $1.0 billion of our common stock, which we financed with the net proceeds of our $1.0 billion senior note offering. On October 18, 2010, we completed the first half of the planned share repurchase, repurchasing 15.7 million shares at an average price of $63.79 per share. We plan to repurchase the additionalremaining $1.0 billion of shares authorized under the plan before June 2011.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
change in interest rates of 100 basis points across the yield curve. On this basis, we estimate the potential loss in fair value to be $83.0$86.0 million as of JuneSeptember 30, 2010, as compared to $6.5 million as of December 31, 2009. The change is due to the impact of the interest rate sensitivity analysis on our $1.0 billion in senior unsecured notes which were issued in June 2010. We had no comparable debt in December 2009.
ITEM 4. | CONTROLS AND PROCEDURES |
— As of JuneSeptember 30, 2010, we evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief
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ITEM 1. | LEGAL PROCEEDINGS |
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compliance with GMP and our processes and decisions related to manufacturing at our Allston facility. Several of the letters also assert that certain of our executive officers and directors took advantage of their knowledge of material non-public information about Genzyme to illegally sell stock they personally held in Genzyme. Our board of directors has designated a special committee of three independent directors to oversee the investigation of the allegations made in the demand letters and to recommend to the independent directors of theour board whether any action should be instituted on our behalf of Genzyme Corporation against any officer or director. The committee has retained independent legal counsel. If the independent members of our board of directors were to make a determination that it was in our best interest to institute an action against any officers or directors, any monetary recovery would be to the benefit of Genzyme Corporation.our benefit. The special committee'scommittee’s investigation is ongoing.
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Other Matters
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We also are subject to other legal proceedings and claims arising in connection with our business. Although we cannot predict the outcome of these proceedings and claims, we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our consolidated financial position or results of operations.
ITEM 1A. | RISK FACTORS |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about our repurchases of our equity securities during the quarter ended June 30, 2010:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 1, 2010-April 30, 2010 | — | $ | — | — | $ | 711,797,363 | ||||||||
May 1, 2010-May 31, 2010 | — | $ | — | — | $ | 711,797,363 | (1) | |||||||
June 1, 2010-June 30, 2010 | 15,555,123 | $ | 51.43 | 15,555,123 | $ | 1,000,000,000 | (2) | |||||||
Total | 15,555,123 | $ | 51.43 | 15,555,123 | ||||||||||
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 6. | EXHIBITS |
common stock. Shares purchased under this agreement will be deemed authorized shares that are no longer outstanding
By: | ||||
/s/ MICHAEL S. WYZGA |
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Exhibit No. | Description | |||
*2 | .1 | Asset Purchase Agreement, dated September 13, 2010, between Genzyme Corporation and Laboratory Corporation of America Holdings. Filed as Exhibit 2.1 to Genzyme’sForm 8-K filed on September 19, 2010. | ||
*3 | .1 | Restated Articles of Organization of Genzyme Corporation, as amended. Filed as Exhibit 3.1 to Genzyme’sForm 8-K filed on June 22, 2010. | ||
*3 | .2 | By-laws of Genzyme Corporation, as amended. Filed as Exhibit 3.2 to Genzyme’sForm 8-K filed on June 22, 2010. | ||
31 | .1 | Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | ||
31 | .2 | Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | ||
32 | .1 | Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. | ||
32 | .2 | Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. | ||
101 | The following materials from Genzyme Corporation’sForm 10-Q for the quarter ended September 30, 2010, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Unaudited, Consolidated Financial Statements. |
* | |||
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