Just when Genzyme Corp. (GENZ) was slowly making some progress in addressing its manufacturing issues, the company announced that the US Food and Drug Administration (FDA) intends to take enforcement action related to the company’s manufacturing facility at Allston Landing.
The FDA has decided to adopt this course so as to ensure that the products manufactured at the Allston Landing manufacturing facility are made in compliance with good manufacturing practice regulations.
It is quite likely that the agency will enforce a consent decree which means that a third party will be appointed to inspect and review the plant’s operations, and confirm compliance with FDA regulations.
The consent decree will not only be in force for an extended period of time, it would also require Genzyme to make payments to the government and incur other costs. Genzyme’s shares were down more than 6% on the news.
On the positive side, Genzyme said that the FDA’s action will not affect the shipments of lead product Cerezyme (Gaucher disease), Fabrazyme (Fabry’s disease), and Myozyme (Pompe disease). This is mainly due to the need for uninterrupted supply of these products, which treat rare diseases.
However, we note that Cerezyme will face increased competition from players like Shire (SHPGY) and Protalix BioTherapeutics (PLX). While Shire’s Vpriv gained FDA approval in Feb 2010, Protalix’ product could receive approval later this year.
Meanwhile, supply of Thyrogen, an adjunctive diagnostic agent used in the follow-up of patients with well-differentiated thyroid cancer, could be affected even though Genzyme intends to discuss with the FDA the need for continued supply of the product.
Genzyme’s financial results in 2009 were severely impacted by the temporary shutdown of its Allston landing facility. Over the past few months, Genzyme has tried to deal with its manufacturing issues by taking steps like hiring a new head of quality control, and entering into a manufacturing contract with Hospira, Inc. (HSP) for the filling and packaging of vials of key products.
The implementation of a consent decree will most likely result in the company incurring higher expenses. More information regarding the time period and costs involved with the FDA’s action will be available in the coming weeks following Genzyme’s discussions with the agency. We currently have a Neutral recommendation on the stock.
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