When executives of Genzyme ( GENZ) report first-quarter earnings Thursday morning, they'll probably face a lot of questions about the pending acquisition of Ilex Oncology ( ILXO).

Even though Genzyme's stock is up about 30% over the last 12 months, it has faded ever since the company said it would pay $1 billion, or about $26 a share, for Ilex in a stock swap deal announced in late February.

Genzyme's stock reached a plateau in the mid-$50 range during late January and much of February. On Feb. 26, Genzyme's stock closed at $53.28; and just after the markets closed, it announced the Ilex deal. Genzyme's stock fell to $50.45 the next day. By early afternoon Wednesday, it was at $46.84.

The transaction, expected to close by midyear, is based on a sliding exchange ratio pegged to Genzyme's stock. Right now, Ilex shareholders can expect a high exchange ratio due to Genzyme's slumping shares. Genzyme said the Ilex acquisition would dilute earnings in 2004 and 2005, but add to earnings in 2006.

Cambridge, Mass.-based Genzyme touted the deal as a way to fast-forward its cancer drug development activities. Ilex provides Campath, a treatment for B-cell chronic lymphocytic leukemia, and is also testing the drug as a possible treatment for non-Hodgkin's lymphoma and multiple sclerosis.

As for the company's first quarter, a consensus of analysts polled by Thomson First Call look for earnings of $77.9 million, or 37 cents a share, on revenue of $472.5 million.

Comparisons with the same period last year are difficult because Genzyme was still reporting results from three different tracking stocks. By mid-2003, it consolidated all of its reporting under one financial roof. Some shareholders of one tracking stock, Genzyme Biosurgery, are suing the company, seeking damages related to the elimination of the tracking stock.

If Genzyme succeeds in its Ilex acquisition, however, it will have to share Campath profits with Germany's Schering AG ( SHR), 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.

That's not so bad, Malloy said in a research report last month, because it shows Genzyme is diversifying its product offerings. She has an in-line rating on the stock. (She doesn't own shares, but her firm is a market maker in the stock and has had an investment banking relationship with the company.)

One big challenge, Malloy added, is the growth potential of Renagel, a drug for patients with end-stage kidney disease undergoing hemodialysis. Malloy said Renagel's sales could come under pressure from new drugs as well as from proposed changes in Medicare reimbursement policies due to take effect in 2006. She is looking for full-year sales of $330 million, at the low end of Genzyme's guidance for $325 million to $345 million.

In another complication, Genzyme four weeks ago said it was restating 2003 results because of an adverse ruling by a British government agency involving a company drug.

As a result, Genzyme revised its fourth-quarter GAAP net income to $57.3 million, or 25 cents a share, compared to the first-reported net income of $66.7 million, or 29 cents a share. Fourth-quarter revenue was revised to $476.1 million from $481.2 million.

The company also said full-year 2003 income was reduced to $94.3 million, or 42 cents a share, compared to $103.7 million, or 46 cents a share, as previously announced. Total revenue was revised downward to $1.574 billion from $1.579 billion.