Genzyme Corp. (GENZ) restated its financial results for the second quarter of 2009 after taking an $8.4 million charge related to the scrapping of about 80% of work-in-process material used to make its Gaucher disease drug, Cerezyme.
Based on the restatement, the company’s net income for the second quarter is now $226.6 million or 82 cents per share, down from the previously reported net income of $232.5 million or 85 cents per share.
Although Genzyme has commenced manufacturing activities at the Allston, Boston manufacturing facility, new batches of Cerezyme and Fabrazyme, which are major contributors to Genzyme’s top-line, will not be available until November-December. As a reminder, the Allston facility had been shut down temporarily in June 2009 due to contamination issues.
The temporary shutdown of the Allston facility is a major setback for the company — we believe the impact of the shutdown will drag down the company’s performance in the second half of 2009. In fact, Genzyme announced that it now expects to post earnings towards the lower end of its previously issued guidance of $2.35 to $2.90 per share on revenues of $4.6 billion to $5 billion. Revenues are also expected to come in towards the lower end of the guidance range.
Genzyme could take an additional charge of $2.7 million if it decides to discard the remaining 20% of work-in-process material for Cerezyme. An additional $3.1 million could be written off if the regulatory authorities do not allow the company to release two lots of Cerezyme that were finished before the plant was shut down.
Meanwhile, a potential competitor, Shire plc (SHPGY) announced that the FDA has accepted its treatment protocol for velaglucerase alfa, which means that the drug will be available for the treatment of Gaucher patients prior to its commercialization.
Shire will initially provide the treatment free of cost to patients. We believe the availability of velaglucerase alfa could lead to some erosion in Cerezyme’s patient base.
We expect investor focus to remain on the resolution of the manufacturing issues at Allston and the resumption of supply of key products, Cerezyme and Fabrazyme. We believe the stock will remain under pressure until the resolution of these issues. We currently have an Underperform rating on Genzyme.
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