Genzyme's recent reacquisition of marketing rights to the Synvisc knee osteoarthritis treatment will help the firm realize a hefty gross margins increase in 2005.

The Cambridge, Mass. biotech firm anticipates gross margins to jump from 74% in 2004 to 77%-78% this year. The addition of Synvisc (Hylan G-F 20) will contribute 1-1.5 percentage points of the increase, CEO Henri Termeer said during a Feb. 17 year-end earnings call.

Genzyme bought back the sales and marketing rights to the hyaluronic acid-based viscosupplementation therapy from Wyeth in January.

Under the deal, which covers marketing in the U.S. and five European countries (Germany, Poland, Greece, Portugal and the Czech Republic), Genzyme agreed to pay Wyeth $99 mil. upfront, an additional $22 mil. in the first quarter, and milestone payments that could amount to $294 mil.

Termeer explained that prior to repurchasing the rights, Genzyme was responsible for manufacturing Synvisc. However, the firm "sold the product for about one-third of the end-user sales to Wyeth."

"We now capture the total end-user sales in the top line with very little to no incremental manufacturing costs associated with these factors," he stated.

Since January, the firm has been focusing on "setting up this organization, doing training and sending them back into the field," Termeer reported. As part of the deal, Genzyme hired Wyeth's 105-person team of U.S. Synvisc sales reps and district managers, adding them to its group of 36 reps dedicated to OA products.

Termeer acknowledged an inventory drop-off in the fourth quarter due to Wyeth's anticipated decision to not replenish its Synvisc stock once the buy-back deal was reached, but assured analysts that it would not be a problem going forward.

"We think very highly of the opportunity with Synvisc, and I think we will be able to show some of that impact during the year," the CEO averred.

When asked how the ongoing COX-2 inhibitor debate will affect growth within the injectables market, Termeer stated: "It's a little early to see that impact, but it's clearly promising."

COX-2 inhibitors such as Pfizer's Celebrex / Bextra and Merck's Vioxx , which have been under fire since the emergence of evidence suggesting increased risk of cardiovascular events and stroke, have been first-line options for arthritis pain. Alternative therapies such as Synvisc could stand to significantly benefit from the negative publicity surrounding COX-2 inhibitors and other nonsteroidal anti-inflammatory drugs.

As a result of the buy-back deal, Genzyme anticipates Synvisc sales of $215 mil.-$225 mil. in 2005 - well over double the $88.3 mil. recorded by the firm last year.

Looking ahead, Genzyme aims to extend Synvisc indications beyond the knee.

Patient recruitment is "more than half completed" in a U.S. clinical trial exploring use of the product for osteoarthritis-associated hip pain - an indication already cleared in Europe and Canada, the company reported. Enrollment also is underway in studies testing Synvisc for the ankle and shoulder.

In addition, "two new product formulations that could enhance patient convenience by reducing the number of injections are being evaluated," Genzyme noted. Synvisc currently is injected directly into a patient's knee joint three times over a 15-day period.

Also within the biosurgery area, Seprafilm adhesion barrier devices generated sales of $61.6 mil. in 2004 and are expected to grow to $70 mil.-$75 mil. this year. Total biosurgery revenue will reach $335 mil.-$360 mil. in 2005, Genzyme predicted.

The firm predicts a roughly 10% increase in its diagnostic/genetics business in the coming year, estimating 2005 sales of $305 mil.-$315 mil., compared with 2004 revenue totaling $279.1 mil.

Diagnostic testing accounts for $210 mil.-$218 mil. of the 2005 estimate, reflecting the recent addition of oncology tests and physician services acquired from Impath in early 2004. The $215 mil. deal, which closed in May, added Impath's Physician Services and Analytical Services units to Genzyme's existing cancer tests.

[Editors' note: This story originally appeared in the Feb. 28, 2005 issue of "The Gray Sheet."]

- Karl Uhlendorf

Genzyme Synvisc OA Therapy Boosts Margins, Holds Promise For New Claims

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