We are initiating coverage on Genzyme (GENZ) with an Underperform rating and a price target of $45. The company faced a major setback recently when its Allston, Massachusetts, manufacturing facility had to be shut down temporarily due to contamination issues. While the closure of the plant led to a loss of $13 million in second quarter revenues, we believe the major impact of the shutdown will be felt in the second
half of the year.
Production of three key products, Cerezyme, Fabrazyme and Myozyme, will be affected by the plant shutdown. Sales of Cerezyme, which is a major contributor to the top-line, were already down in the second quarter of 2009 and we expect sales to be further impacted in the coming quarters. In fact, management slashed their guidance for Cerezyme to $750 million – $1 billion (previous guidance: $1.250 billion – $1.275 billion). Genzyme also reduced its guidance for Fabrazyme and Myozyme.
We were also disappointed to hear that there will be a significant delay in the company’s commercialization of Lumizyme due to manufacturing issues. Genzyme is currently seeking FDA approval for Lumizyme – a decision is expected by November 14, 2009. Even if Lumizyme is approved at
that time, we anticipate a further delay in the commercialization of the product as Genzyme is planning to shift production of Myozyme/Lumizyme to its 4000L Belgium plant which is yet to receive FDA approval.We believe that FDA approval for the 4000L plant in Belgium is not likely to come before late March.
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