Genzyme Manufacturing Fixes to Influence Sanofi Offer

Genzyme Corp. may take three to four years to complete changes requested by U.S. regulators after a plant contamination, a process critical to buyout talks with French drugmaker Sanofi-Aventis SA, analysts said.

Genzyme reported its estimated timeline to finish work requested by the Food and Drug Administration in a regulatory filing. In May, the Cambridge, Massachusetts-based biotechnology company projected fixes would take about two to three years. Any change in the timeline won’t have a material impact on drug supplies, Ron Branning, Genzyme’s senior vice president of global product quality, said today in an interview.

Genzyme, the world’s largest maker of genetic-disease medicines, agreed in May to pay a $175 million penalty after the FDA found quality deficiencies at its Allston Landing facility. Closure for cleanup reduced supplies of top genetic drugs Cerezyme for Gaucher disease, and Fabrazyme for Fabry disease. Any potential buyer would want to see how well Genzyme resolved production glitches, said Michael Yee, an analyst with RBC Capital Markets.

“I assume Sanofi is sending in their own manufacturing experts to look at Allston and the FDA warning letter, particularly the issues the FDA has called out as problems,” Yee said in an Aug. 5 telephone interview. “To get even to the $70 to $80 range, you have to assume manufacturing gets fixed.”

Sanofi Offer

Sanofi, based in Paris, outlined an offer of $67 a share to $70 a share in a letter to Genzyme’s board, one person familiar with the buyout process said. Genzyme’s shareholders are looking for a bid of more than $80 per share, or $21.3 billion, two people said. They asked not to be named because talks are private.

Sanofi spokesman Jean-Marc Podvin and Genzyme spokesman John Lacey declined to comment.

Genzyme rose 37 cents, or less than 1 percent, to $67.83 at 4 p.m. in Nasdaq Stock Market composite trading. The shares have climbed 25 percent since July 22, the last day of trading before Sanofi’s buyout interest was first reported.

“We are on track to do the things we’ve said we’re going to do,” Genzyme’s Branning said in a telephone interview. “This change in the timing doesn’t reflect anything other than a more thoughtful consideration of how we’re going to complete the remediation plan.”

Branning said Genzyme has until the end of the year to submit its manufacturing remediation plan to the FDA, and the agency generally responds within 30 days.

$15,000 Daily Penalties

If changes take longer than outlined in an agreement with the FDA, Genzyme may be required to pay $15,000 a day for each drug involved in any violations, the company said in May. The fixes will be overseen by a third-party consultant, which will continue working with Genzyme for five years afterward.

Genzyme also said in May that the FDA asked it to move bottling and shipping processes out of the Allston facility. The company has until Nov. 28 to transfer work for U.S. supplies of Cerezyme, Fabrazyme and the thyroid cancer drug Thyrogen, and until Aug. 31, 2011, for products sold outside the U.S. Regulators can impose a penalty of 18.5 percent of revenue for those products if those deadlines aren’t met, Genzyme said.

The company has switched some operations to its facility in Waterford, Ireland, and signed an agreement with Hospira Worldwide Inc. to provide bottle-filling and finishing services for certain medicines, Genzyme said in a July 21 statement.

‘Move Proceeding’

Any prospective buyer will “want to see if the move to the Waterford plant and Hospira fill-finish is proceeding, and be looking to make sure that stuff is appropriately in place to be done on time,” RBC’s Yee said.

“Manufacturing always gets solved,” said Sven Borho, a partner with OrbiMed Advisors in New York, which owns about 2.5 million Genzyme shares, in an Aug. 4 telephone interview. “I don’t want to get paid” a buyout price that’s “impaired by the manufacturing hiccup.”

Supplies of Cerezyme, Genzyme’s best seller with $793 million in sales in 2009, were sufficient to meet about 50 percent of patient demand as of May 24. Genzyme said July 21 that patients will be able to receive normal dosing in the fourth quarter.

About 10,000 people worldwide have Gaucher disease, in which they lack an enzyme needed to break down a type of fat that accumulates in organs and bones. The buildup causes liver and spleen enlargement, anemia, bruising and bone pain.

Fabrazyme Shipments

Fabrazyme, with sales of $429.7 million last year, was shipping at 30 percent of demand as of May 24. Genzyme said in July that shipments would increase in the fourth quarter of this year, without specifying when full doses would be available.

Approximately 5,000 to 10,000 have Fabry disease, which causes lipids to build up to harmful levels in the eyes, kidneys, nervous system, and cardiovascular system.

Cerezyme costs about $260,000 a year in the U.S., while Fabrazyme’s annual tab is approximately $234,000, said Brian Abrahams, an analyst with Oppenheimer & Co. in New York, in an Aug. 5 interview.

“I don’t think Sanofi is going to look at manufacturing and find anything,” said William Tanner, an analyst with Lazard Capital Markets in New York, in an Aug. 5 telephone interview. “They might have a year or two ago but now with the FDA involved that’s got to be less of a concern. The FDA has already done due diligence.”

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