Genzyme's Big Bet on Cancer

If Genzyme succeeds in its Ilex acquisition, however, it will have to share Campath profits with Germany's Schering AG(SHR Quote), which has exclusive worldwide marketing and distribution rights, plus additional rights in Japan and other parts of Asia. In the U.S., Campath is marketed by Berlex Laboratories, a U.S. affiliate of Schering AG.

The Ilex deal also gives Genzyme access to several experimental drugs, including clofarabine, which is being tested for treating acute leukemia in adults and children as well as in advanced solid tumors. Another experimental drug is ILX-651, which is being tested in patients with the dangerous skin cancer melanoma and as a treatment for non-small cell lung cancer.

For Genzyme investors, the question remains: Is Genzyme a bargain at its depressed price, or did it pay too much for San Antonio, Texas-based Ilex?

Thomas Wei, of Piper Jaffray, says the Ilex deal is worthwhile because he believes Ilex's research pipeline will overcome the near-term dilution of Genzyme's stock. Wei, who has an outperform rating on Genzyme, said in a research report last month that Ilex's research offers Genzyme "multiple avenues for potential upside." (He doesn't own shares, but his firm is a market maker in shares of Ilex and Genzyme and it has had an investment banking relationship with Ilex.)

The key upcoming issues include how well Cerezyme, the company's lead product, can continue to perform. Last year, the drug for Gaucher's Disease, a metabolic disorder that increases a person's risk of anemia and lung disease, produced sales of $739 million, or 47% of revenue.

Last year, Cerezyme grew at a 19% rate. Analyst Meg Malloy of Goldman Sachs sees more modest growth this year ($790 million) and next year ($853 million), as the drug's contribution to total revenue drops to 40% and 38%, respectively.