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Executive Summary

Genzyme dropped 7-1/2 to 30-3/4 in June, erasing a gain of 6 in May that had carried the stock to a 1991 month-ending high of 38-1/4. Genzyme's June decline parallels that for the "F-D-C" O-T- C Index overall as the market fell and biotech investors pulled back. Genzyme's movement this year exemplifies the distance of the market from the fundamentals of a company's performance. The basic figures look good for Genzyme. Since the April 5 approval of Ceredase, Genzyme CEO Henri Termeer has said he is comfortable with first-year sales projections of $ 40-$ 50 mil. for the drug. Reimbursement for Ceredase, which could cost a Gaucher's Disease patient $ 20,000-$ 60,000 per year of treatment, also seems to have found quick acceptance among insurers. The company has a substantial amount of capital following the completion on March 22 of a $ 124 mil. secondary public offering. But the general milieu is less positive. A spate of articles has appeared in recent weeks in such publications as The Washington Post and The New York Times, discussing the high costs of some new biotech treatments. Ceredase has been prominently mentioned. Although the publicity has not been negative per se, the underlying message sent to the public has been one of skepticism about the true costs of R&D for those drugs, about how their pricing is set and about their potentially negative effect on the financial health of the patients for whom they were developed. Genzyme's performance reflects that of biotechs as a whole, which slipped on the "F-D-C" Index overall in June and are down for the second quarter. The broader DJIA and S&P indicators fell during June as well, down 1% and fractionally, but still outperformed the "F-D-C" selected NASDAQ drug sector. The pharmaceutical component of the "F-D-C" Index plunged 7.2% and the Index as a whole fell nearly 6%. Both the numbers for the drug sector and the overall Index in June pale in comparison to a very strong first quarter that saw double-digit percentage gains in each of the three months. Joining Genzyme with significant drops during the month were a good number of biotechs that soared with this year's biotech rally and experienced a reversal of fortune in June. The declining issues included Amgen (down 3-3/8 to 117-7/8); Biogen (which fell 6-1/4 to 27); Chiron (off 6 at 51-3/4); Immunex (down 4-1/4 to 43); Repligen (off 1-1/4 to 12-1/4); Xoma (down 6-1/2 to 24-1/2) and Centocor (off 2 to 31-3/4). Thirty-one of the 38 pharmaceutical stocks closed down for June. Among the few gainers of the month was Dow B. Hickam, which climbed 8-1/8 to 18-3/8. The firm acquired Sterling's Winthrop wound healing business and then struck a deal to merge into Mylan on June 27 in a transaction valued at about $ 50 mil. Chart omitted

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