Bear Stearns cut Genzyme (GENZ) to peer perform from outperform, citing Medicare's plans to dramatically cut reimbursement for the company's product Synvisc in 2006.
Analyst Mark Schoenebaum says that under the new medicare "J-code" all hyaluronic acid derivatives will be reimbursed at $7.20 per milogram. Accordingly, 2006 reimbursement rates for Synvisc will fall by 42%, while competitors' rates will rise. He estimates that Genzyme's earnings per share could be reduced by 6 cents to 16 cents in 2006 because of the falling Synvisc reimbursement rate. While he believes the earnings per share impact of the declining reimbursement will likely be incremental rather than catastrophic, he says the increased uncertainty warrants a downgrade.