By Toni Clarke
BOSTON, March 24 (Reuters) - Genzyme Corp said the U.S. government will take enforcement action and likely impose fees on the company to ensure that drugs made at its Allston Landing plant meet manufacturing standards, sending its shares down 5 percent.
Genzyme, which makes drugs for rare and chronic diseases, was forced to temporarily close the Boston plant last year due to a viral contamination.
The closure lead to shortages of Cerezyme, a treatment for Gaucher disease and Genzyme's biggest product, and Fabrazyme, its treatment for Fabry disease. It also fueled a 73 percent drop in the company's fourth-quarter earnings.
Genzyme, which also faces a proxy battle from activist investor Carl Icahn, said the U.S. Food and Drug Administration notified the company on Tuesday that its enforcement action will likely result in a consent decree.
A consent decree is a legal agreement that effectively puts a company's manufacturing operations under government control for an extended period of time. Under such an agreement, Genzyme would be required to make payments to the government and could incur other costs.
'The FDA may 'disgorge' companies of profits that came from selling products that were manufactured out of spec,' said Joshua Schimmer, an analyst at Leerink Swann. 'However, we have identified 34 consent decrees and note most are accompanied by no or minimal fines.'
Consent decrees typically contain an outline of remediation and deadlines that need to be met, Schimmer said, with penalties of roughly $10 a day for each deadline that is missed.
Other analysts, however, say the fines could be substantial.
'The financial impact of a consent decree is difficult to assess at this point,' said Brian Abrahams, an analyst at Oppenheimer. 'Consent decree agreements can often be essentially permanent, and fees can accumulate into the several hundred million dollar range.'
Genzyme shares were down $3.14, or 5.3 percent, to $55.96 in morning Nasdaq trade.
SEES CONTINUED CEREZYME, FABRAZYME SHIPMENTS
Genzyme, which has been racing to fix its problems, recently added Robert Bertolini, who was previously chief financial officer at drugmaker Schering-Plough Corp, to its board.
Bertolini was instrumental in turning Schering-Plough around after a manufacturing crisis led U.S. regulators in 2002 to place the company under a consent decree. Schering-Plough was fined a record $500 million.
Genzyme said that based on its initial communication with the FDA, it expects shipments of Cerezyme and Fabrazyme to continue uninterrupted during the enforcement period.
Gaucher and Fabry diseases are rare genetic disorders caused by enzyme deficiencies that can lead to critical organ damage and death.
Genzyme controls the world's Gaucher disease market with Cerezyme, but it now faces competition from UK drugmaker Shire Plc and Protalix BioTherapeutics Inc of Israel. Shire won U.S. approval in February for its Gaucher drug Vpriv. Approval of an experimental Protalix drug is expected by the end of the year.
Shire shares rose as much as 3.2 percent to an all-time high of 15.26 pounds following news of the FDA action against Genzyme. Shares of Protalix rose 1.9 percent to $7.09 on the American Stock Exchange.
Genzyme recently hired industry veteran Ron Branning to take charge of global quality control, and Scott Canute, the former head of manufacturing at drugmaker Eli Lilly & Co , to lead its global manufacturing and corporate operations.
'At least they don't have to go out and fire people and bring in new people to ensure they are compliant with the consent decree,' said Bill Tanner, an analyst at Lazard Capital Markets.
The company also finishes preparing Thyrogen, its Thyroid drug, at Allston, and it plans to discuss with the FDA its view that there is a patient need for uninterrupted supply of the product. The discussions are expected to come over the next several weeks.
(Reporting by Toni Clarke, editing by Dave Zimmerman and John Wallace)
((toni.clarke@thomsonreuters.com; 617-856-4340; reuters messaging: toni.clarke.reuters.com@reuters.net)) Keywords: GENZYME/ (Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
BOSTON, March 24 (Reuters) - Genzyme Corp said the U.S. government will take enforcement action and likely impose fees on the company to ensure that drugs made at its Allston Landing plant meet manufacturing standards, sending its shares down 5 percent.
Genzyme, which makes drugs for rare and chronic diseases, was forced to temporarily close the Boston plant last year due to a viral contamination.
The closure lead to shortages of Cerezyme, a treatment for Gaucher disease and Genzyme's biggest product, and Fabrazyme, its treatment for Fabry disease. It also fueled a 73 percent drop in the company's fourth-quarter earnings.
Genzyme, which also faces a proxy battle from activist investor Carl Icahn, said the U.S. Food and Drug Administration notified the company on Tuesday that its enforcement action will likely result in a consent decree.
A consent decree is a legal agreement that effectively puts a company's manufacturing operations under government control for an extended period of time. Under such an agreement, Genzyme would be required to make payments to the government and could incur other costs.
'The FDA may 'disgorge' companies of profits that came from selling products that were manufactured out of spec,' said Joshua Schimmer, an analyst at Leerink Swann. 'However, we have identified 34 consent decrees and note most are accompanied by no or minimal fines.'
Consent decrees typically contain an outline of remediation and deadlines that need to be met, Schimmer said, with penalties of roughly $10 a day for each deadline that is missed.
Other analysts, however, say the fines could be substantial.
'The financial impact of a consent decree is difficult to assess at this point,' said Brian Abrahams, an analyst at Oppenheimer. 'Consent decree agreements can often be essentially permanent, and fees can accumulate into the several hundred million dollar range.'
Genzyme shares were down $3.14, or 5.3 percent, to $55.96 in morning Nasdaq trade.
SEES CONTINUED CEREZYME, FABRAZYME SHIPMENTS
Genzyme, which has been racing to fix its problems, recently added Robert Bertolini, who was previously chief financial officer at drugmaker Schering-Plough Corp, to its board.
Bertolini was instrumental in turning Schering-Plough around after a manufacturing crisis led U.S. regulators in 2002 to place the company under a consent decree. Schering-Plough was fined a record $500 million.
Genzyme said that based on its initial communication with the FDA, it expects shipments of Cerezyme and Fabrazyme to continue uninterrupted during the enforcement period.
Gaucher and Fabry diseases are rare genetic disorders caused by enzyme deficiencies that can lead to critical organ damage and death.
Genzyme controls the world's Gaucher disease market with Cerezyme, but it now faces competition from UK drugmaker Shire Plc and Protalix BioTherapeutics Inc of Israel. Shire won U.S. approval in February for its Gaucher drug Vpriv. Approval of an experimental Protalix drug is expected by the end of the year.
Shire shares rose as much as 3.2 percent to an all-time high of 15.26 pounds following news of the FDA action against Genzyme. Shares of Protalix rose 1.9 percent to $7.09 on the American Stock Exchange.
Genzyme recently hired industry veteran Ron Branning to take charge of global quality control, and Scott Canute, the former head of manufacturing at drugmaker Eli Lilly & Co , to lead its global manufacturing and corporate operations.
'At least they don't have to go out and fire people and bring in new people to ensure they are compliant with the consent decree,' said Bill Tanner, an analyst at Lazard Capital Markets.
The company also finishes preparing Thyrogen, its Thyroid drug, at Allston, and it plans to discuss with the FDA its view that there is a patient need for uninterrupted supply of the product. The discussions are expected to come over the next several weeks.
(Reporting by Toni Clarke, editing by Dave Zimmerman and John Wallace)
((toni.clarke@thomsonreuters.com; 617-856-4340; reuters messaging: toni.clarke.reuters.com@reuters.net)) Keywords: GENZYME/ (Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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