Genzyme should ultimately outperform Gilead, Merrill report says

By Jennifer Chiou

New York, July 15 - Genzyme Corp. should begin to outdistance Gilead Sciences Inc. based on higher and more diversified revenues, stronger future development and higher three-year earnings per share growth, according to a company update from Merrill Lynch & Co. biotechnology research analysts Eric J. Ende, Thomas J. McGahren and David W. Munno.

Though Gilead has outstripped Genzyme by 30% during the past six months due to strong near-term growth expectations and earnings per share upside generated from its HIV franchise, the analysts said they expect Genzyme to benefit in the long term from diversified revenues, adding that the company's 2008 revenues should reach $3.4 billion based on the growth of existing products that represent no more than 30% of current revenues.

Ende, McGahren and Munno said they project Gilead's 2008 revenues to be $2.6 billion, primarily thanks to growth of its existing HIV drugs. They noted that the company will remain dependent on Truvada, which will account for 60% of its revenues.

Merrill did state that Gilead's market capitalization is 33% higher than Genzyme's, though the analysts estimate both should generate $1 billion of income in 2008.

The bank said research and development spending at Genzyme is estimated to be more than $600 million by 2008, which should help generate solid sales growth from its pipeline, as opposed to $400 million for Gilead because of a weak pipeline.

The analysts added that Genzyme should have more consistent and higher earnings per share growth, with annual growth for 2005 to 2008 to average 17.5% for Genzyme, but only 10% for Gilead during the same time period.

The analysts also noted that Genzyme is trading at 23.4 times their 2006 earnings per share estimate while Gilead is trading at 26.7 times their 2006 earnings per share estimate.

Gilead is a biopharmaceutical company based in Foster City, Calif. and its stock closed down $0.41 at $45.47 on Friday.

Genzyme, also a biopharmaceutical company, has headquarters in Cambridge, Mass. and its stock closed up $5.01 at $70.31 on Friday.

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