UPDATE 3-Genzyme 3rd-qtr profit falls more than expected

* Genzyme 3rd-qtr Non-GAAP 31 cents/shr

* Analysts had expected non-GAAP of 44 cents/shr

* Company lowers 2009 outlook to $2.26/shr

* Shares fall as much as 5 percent
(Recasts first sentence, adds analyst, company comments,
updates share movement)

By Toni Clarke

BOSTON, Oct 21 (Reuters) - Genzyme Corp GENZ.O reported
lower-than-expected quarterly earnings and cut its 2009 outlook
on Wednesday after a viral contamination at a production plant
in Boston led to shortages of two key drugs.

Genzyme said the plant is now up and running and it is on
track to ship new batches of Cerezyme, its treatment for
Gaucher disease, and Fabrazyme, its treatment for Fabry
disease, by the end of the year.

But investors remain skeptical that the company's
manufacturing problems are over, and the company's shares fell
as much as 5 percent on the Nasdaq.

"It is evident that the impact of the manufacturing
meltdown has much farther ranging effects than previously
thought," said Geoffrey Meacham, an analyst at J.P. Morgan, in
a research report.

Company executives told analysts on a conference call that
Genzyme is moving to reduce its risk of future viral
contamination, including possibly irradiating its raw materials
or applying UV light. But it is not considering high heat
treatments, as some of its rivals are. [ID:nN20449453]

"These processes will lower the risk from where we are
today," said Executive Vice President David Meeker.

Cambridge, Massachusetts-based Genzyme said third-quarter
net profit fell to $16 million, or 6 cents a share, from $119.6
million, or 42 cents a share, a year ago.

Excluding one-time items, the company reported earnings of
31 cents a share. Analysts on average expected earnings of 44
cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell to $1.06 billion from $1.16 billion, hurt by
interruptions to the supply of its drugs Cerezyme and
Fabrazyme. Both drugs treat rare genetic disorders.

Sales of Cerezyme, Genzyme's biggest-selling product, fell
to $93.6 million in the quarter from $309.3 million a year ago,
while sales of Fabrazyme fell to $115.2 from $125.6 million.

Genzyme said it expects to begin shipping new batches of
Cerezyme by the end of November and Fabrazyme by late
December.

However, it lowered its 2009 earnings outlook to $2.26 a
share, excluding one-time items. Previously it said it would
earn between $2.35 and $2.90 a share. It said previously that
it expected 2009 revenue of between $4.6 billion and $5
billion.

The lower outlook reflects the company's decision to scrap
unfinished batches of Cerezyme and the cost of sanitizing the
plant.

The third-quarter revenue decline was offset to some extent
by strong sales of the company's osteoarthritis product
Synvisc-One, whose sales rose 30 percent to $87.5 million.
Sales of the drug Myozyme, to treat Pompe disease, rose to $86
million from $76.7 million.

Revenue from the company's cancer business rose to $88
million from $34.1 million.

Genzyme shares were down $2.37 or 4.2 percent at $52.48 on
the Nasdaq in early afternoon, off an earlier low at $52.06.
(Reporting by Toni Clarke, editing by Maureen Bavdek, Dave
Zimmerman and Matthew Lewis)