UPDATE 4-Genzyme sees $175 mln payment over plant sanctions

* Genzyme receives draft consent decree from FDA

* Expects to disgorge $175 million on past profits

* Q1 EPS ex-items 37 cents vs 33 cent estimate

* Shares rise 1.6 percent

(Recasts, adds analyst comment, updates share price)

By Toni Clarke

BOSTON, April 21 (Reuters) - Genzyme Corp GENZ.O said on Wednesday it received a draft consent decree from U.S. regulators under which it would be required to pay the government $175 million in profits from past sales of drugs made at its troubled manufacturing plant in Boston.

The penalty, levied due to repeated quality control failures, was less than some investors feared, and helped lift the company's shares 1.6 percent.

"While these terms remain in draft form and the duration and scope of the consent decree remain to be determined, thus far the parameters appear to be relatively lenient," said Raghuram Selvaraju, an analyst at Hapoalim Securities.

A consent decree essentially places a plant under third-party control. Genzyme's plant in the Allston neighborhood of Boston was temporarily closed last June following a viral contamination.

The closure led to shortages of Cerezyme, the company's treatment for Gaucher disease, and Fabrazyme, its treatment for Fabry disease. Both are rare disorders caused by an enzyme deficiency that can lead to organ damage and death.

The company had hoped by now to be in a position to meet demand for Cerezyme, its biggest-selling product. But it said that goal has been delayed.

A citywide power outage affecting the water system at the plant further disrupted production during the latest quarter. As a result, the company will be able to supply just 50 percent of required amounts of Cerezyme for another two to three months.

Genzyme, which is the target of a proxy battle by activist investor Carl Icahn, announced the news along with its first-quarter earnings. The company posted a net loss of $114 million, or 43 cents a share, compared with net income of $195.5 million, or 70 cents a share, a year earlier. The company booked the expected profit disgorgement as a one-time charge.

Earnings excluding one-time items were 37 cents a share, topping the average estimate of 33 cents a share from analysts polled by Thomson Reuters I/B/E/S.

Revenue fell to $1.07 billion from $1.15 billion, falling below the average analyst estimate of $1.14 billion as supply constraints continued to curb sales.

"We are encouraged by an essentially in-line quarter and visibility into the terms of the FDA consent decree," Christopher Raymond, an analyst at Robert W. Baird, said in a research note. "However, with disclosures of yet additional Allston manufacturing interruptions, Genzyme continues to walk a fine line."

The proposed terms of the decree would also require Genzyme to pay fines and royalties if it failed to meet deadlines for bringing the plant into compliance with good manufacturing standards.

Genzyme, which is based in Cambridge, Massachusetts, would have to pay 18.5 percent of sales of the products if it failed to move the vial-filling and finishing process out of the plant by a set deadline.

In November, the company announced that stainless steel fragments, rubber and fiber-like materials had been found in some of its drugs due to aging machinery in the fill/finish area. The finding prompted the company to move some of those processes to its facility in Ireland and to outsource some to Hospira Inc (HSP.N).

The FDA proposes to set deadlines by which time the company must complete that task and also bring other aspects of the plant into manufacturing compliance. If the company does not meet broader remediation goals by 2011 and 2012, it will be required to pay $15,000 per violation for each day it remains out of compliance.

The company said it is currently negotiating when the deadlines should be with the FDA and expects the negotiations to be completed in the second quarter. The company will update its 2010 financial forecasts after the consent decree has been finalized.

Geoff Meacham, an analyst at J.P. Morgan, said in a research note the company will likely face additional supply disruptions as it moves to expand capacity and build inventory.

"The likelihood of supply disruptions imply that financial guidance could go lower," he said.

Genzyme said it achieved its goal of building a small inventory buffer of Cerezyme in the first quarter. But it is not enough to protect it against a serious disruption.

The company said it will also maintain its current supply allocation of 30 percent of demand for Fabrazyme a little longer. The company is using a new working cell bank to increase supplies of the drug. While growth has increased by 30 percent, it needs to increase 60 percent to meet demand.

The manufacturing problems have raised concerns that there could be a delay to the approval of Lumizyme, the U.S. version of the company's Pompe disease drug Myozyme. The FDA is scheduled to rule on whether to approve the drug by June 17th.

Genzyme's shares rose 1.6 percent to close at $54.45. Earlier in the day they rose as high as $55.37. (Reporting by Toni Clarke; editing by Andre Grenon)