April 21, 2010 / 2:18 PM / 10 years ago

CORRECTED - UPDATE 3-Genzyme sees $175 mln payment over plant sanctions

(corrects that Genzyme had a net loss, not profit, of $114 mln)

* Genzyme receives draft consent decree from FDA

* Expects to disgorge $175 million on past profits

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

* Shares rise 2.6 pct

(Adds details, background, updates share price)

By Toni Clarke

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

The company also said it expects a further delay in fully supplying its biggest-selling drug, Cerezyme, to patients with Gaucher disease, a rare hereditary disorder, after the plant’s closure last year led to shortages of the drug.

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 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.

Still, Genzyme’s shares rose 2.6 percent in morning trading, amid relief that the terms of the consent decree were not more onerous.

A consent decree essentially places a plant under third-party control. 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.

The plant, in the Allston neighborhood of Boston, was temporarily closed last June following a viral contamination. The closing led to shortages of Cerezyme and Fabrazyme, a treatment for Fabry disease, another rare disorder that causes organ damage.

Genzyme 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 did not meet broader remediation goals by 2011 and 2012, it would be required to pay $15,000 per violation for each day it remained out of compliance.

The company said it is currently negotiating with the FDA when the deadlines should be, 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.

Genzyme has been trying to rebuild inventory of Cerezyme and Fabrazyme and said it achieved its goal of building a small inventory buffer of Cerezyme in the first quarter.

However, a citywide power outage affecting the water system at the plant further disrupted production. As a result, the company will still only be able to supply 50 percent of the required amount of Cerezyme to meet demand for another two to three months.

Previously the company had said it expected to be meeting 100 percent of demand by now.

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.

Reporting by Toni Clarke

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