August 11, 2010 / 6:29 AM / 9 years ago

RPT-UPDATE 2-Genzyme discards drugs due to one-time problems

* Discarded Cerezyme, Fabrazyme, Thyrogen, Cholestagel

* Drugs thrown out after routine quality checks

* Latest batches unrelated to earlier discarded ones

* Manufacturing issues seen as risk for bidder Sanofi

(Adds analyst comment, information on discarded drugs)

By Ransdell Pierson

NEW YORK, Aug 10 (Reuters) - Genzyme Corp GENZ.O said on Tuesday that its newly disclosed disposal of batches of drugs stemmed from one-time quality control issues, and was not related to deeper manufacturing problems weighing on the biotech company since last summer.

The maker of drugs for rare genetic disorders said in a regulatory filing on Monday it was taking a second-quarter write-off of $6.5 million for the medicines that failed quality standards, resulting in a loss for the period. [ID:nN09107153] But the filing did not identify the drugs, or the reasons they were tossed.

Company spokesman Bo Piela on Tuesday identified them as its Cerezyme treatment for Gaucher disease, Fabrazyme for Fabry disease, thyroid medicine Thyrogen and its Cholestagel cholesterol fighter.

Genzyme, which French drugmaker Sanofi-Aventis (SASY.PA) is trying to buy, has been recovering from a manufacturing crisis after finding a viral contamination that forced the shutdown of its main manufacturing facility in Boston and led to severe shortages of its costly medicines.

Analysts have said that Genzyme’s manufacturing problems could deter Sanofi from paying top-dollar for the smaller company.

Sources familiar with the situation told Reuters last week that Sanofi had offered $69 per share for the company, or about $18.4 billion, but Genzyme investors are seeking a price in the mid-$70s to $80 range.

“We estimate it will take 3 or 4 years to complete all the work in our remediation plan” for the manufacturing problems, Piela said. He noted Genzyme aims to submit the plan to U.S. regulators by the end of the year.

NO DETERRENT FOR SANOFI

Piela said Genzyme threw out the Cerezyme and Fabrazyme for reasons different than the disrupted water supply at a Boston factory that forced it to discard larger amounts of the two medicines earlier this year. It took a $21.9 million write-off largely for those batches when it reported second-quarter results last month.

The discarded Thyrogen and Cholestagel involved “discrete one-time issues” that do not reflect on the company’s manufacturing process, Piela said.

“We conduct tests to ensure products meet our quality standards, and if we discover at any point in the process that we deviated from standard procedures, or that that product doesn’t meet final specifications, we write them off.”

Piela said the discarded Thyrogen was valued at $2.9 million, followed by Cerezyme at $1.5 million, Fabrazyme at $1.3 million and Cholestagel at $900,000.

“There are always issues with biologics manufacturing, and I don’t think this is anything to worry about,” Hapoalim Securities analyst Jon LeCroy said, referring to the rejected batches.

The contamination of Genzyme’s Boston plant in June 2009 forced Genzyme to pay a hefty fine and agree to a consent decree, placing manufacturing under third-party control.

Genzyme’s manufacturing problems have not deterred Sanofi-Aventis from pursuing the Cambridge, Massachusetts-based company and its unique group of products.

“It seems like the deal is going to get done,” LeCroy said, despite the manufacturing problems. “Those issues will take years to resolve, and are pretty much priced in” to Genzyme shares.

LeCroy said Sanofi-Aventis, which badly needs new products to offset generic competition for its own biggest medicines, could sweeten the pot.

“We’ve seen that European companies are fairly aggressive with their acquisitions,” he said. “They can justify whatever they want.”

Genzyme had reported a second-quarter net profit of $23,000, or nil per share. With the new write-off, it revised the quarterly results to reflect a net loss of $3.8 million, or 1 cent per share.

Genzyme shares closed up 0.6 percent to $67.83 on the Nasdaq. (Reporting by Ransdell Pierson. Editing by Robert MacMillan and Carol Bishopric)

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