In a filing with the Securities and Exchange Commission (SEC), Genzyme Corp.(GENZ: 52.96 +0.81 +1.55%) announced that it has expanded its supply agreement with Hospira (HSP: 58.32 -0.50 -0.85%). Under the expanded agreement, Hospira will perform fill/finish activities for several products in Genzyme’s portfolio including Cerezyme, Fabrazyme, Myozyme, Lumizyme, Thyrogen, Thymoglobulin, Campath, and select pipeline candidates.The new agreement replaces an earlier agreement signed by the companies in Dec 2009 which covered only four products - Cerezyme, Fabrazyme, Myozyme and Thyrogen.
Genzyme has been under a lot of pressure over the past few quarters following the temporary shutdown of its Allston manufacturing facility due to contamination issues. The temporary suspension of production hampered the company’s supply schedule for lead product Cerezyme as well as Fabrazyme.
Since then, Genzyme has been working on resuming normal supply of its products and the agreement with Hospira is part of Genzyme’s attempts to fix its manufacturing issues.
In addition to the Hospira agreement, a consent decree will be implemented by the US Food and Drug Administration (FDA) for Genzyme’s Allston Landing manufacturing plant. The FDA decided to implement the decree so as to ensure that the products manufactured at the facility are made in compliance with good manufacturing practice regulations.
The consent decree will not only be in force for an extended period, it will also require Genzyme to make payments to the government and incur other costs. Genzyme will also have to shift its fill/finish operations for Cerezyme, Fabrazyme and Thyrogen sold in the US to another plant by Nov 28, 2010. For products sold outside the US, the deadline for shifting operations is Aug 31, 2011.
Moreover, Genzyme needs to submit a remediation plan to the FDA which has to be drafted with Quantic, the company’s third party consultant. Genzyme took a $175 million charge in the first quarter related to the decree and will have to make additional payments if it is unable to meet specified deadlines.
We currently have a Neutral recommendation on Genzyme. Although Genzyme will take some time to emerge fully from its manufacturing issues, we view the recent approval of Lumizyme as a major positive and are pleased to see that the company is working on expanding its product portfolio and pipeline so as to reduce its dependence on a handful of products for growth.
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