Wednesday, November 18, 2009

Genzyme: Contents Under Pressure

Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.

The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel. (Note this is the second time the Big Biotech has been dinged by regulators in the span of months. In September, FDA also shot down plans to expand the indicated use of pediatric leukemia drug Clolar to adults.)

The sad thing is the situation is entirely of Genzyme's own making. Don't think so? Let's review.

The origin of the problem goes back three years, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. Genzyme underestimated the demand for the drug, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.

And that decision has proved problematic. The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting "the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there."

Too bad that realization didn't happen one year ago. That's when regulators started sending warning letters outlining concerns related to what sound like bread-and-butter manufacturing issues: microbial monitoring, equipment maintenance, and process controls.

What's most amazing is that problems are ongoing. Recall that six-week interlude this summer when the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.

On the company's Nov. 16 call to investors, management confirmed that the latest 483 letter relates not to a new problem created by Genzyme's decontamination efforts but arising because of "an older piece of equipment". As Genzyme's EVP of Therapeutics, Biosurgery, and Corporate Operations said during a Q&A session with analysts, "There was a number of issues there that they [regulators] highlighted and many of which we were very aware of and working to address."

Management's solution? Take the plant off line again for a few weeks to, as Meeker puts it, "allow us to move more quickly to address those issues." Does everyone feel better now?

In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level. True, the most recent news has changed little for the company near-term. The complete response on Lumizyme was widely expected by analysts and, amazingly, the particulate contamination didn't provoke a demand from regulators that Genzyme recall the product.

But regulators' hands were likely tied, in part because of the life-saving nature of Genzyme's medicines and the current lack of approved therapies that could substitute for Cerezyme and Fabrazyme. By the middle of next year that won't be the case. Shire is clearly gunning to steal market share from Fabrazyme with its Replagel product, which has been approved in Europe since 2001. In October, Shire announced plans to submit a BLA for its medicine in the US before year's end.

And the potential competitive threat to Cerezyme is even greater. The FDA has already authorized the use of competing products from both Shire and Protalix despite lack of formal regulatory approval. To date, the headaches required to negotiate the administrative hurdles of the emergency access programs have limited the erosion to Cerezyme's market. But note that Shire filed its NDA for its Vela product in September; if the agency grants the drug a priority review, it could be on the market by March 2010.

That's only four months from now. Can Genzyme get its act together in the meantime? The firm is increasingly vulnerable; it can't afford another announcement like Friday's. The summer shut down already created an opening for competing products to cannibalize on one of Genzyme's main money makers. Another "Dear Health Care Practitioner" or Form 483 letter and the current rumblings of dissent will move from the fringe as patients and investors rightly demand to know: who's minding the store, and why didn't Genzyme execs ensure supply of its most important drug by building up reserves when they had a chance?

Moreover, the company's share price is under pressure, hovering perilously close to its 52-week low and Genzyme has cut its earnings forecast four times this year alone. According to Adam Feuerstein over at The, adjusted earnings are now expected to fall 43%, from $4.01 a share in 2008 to $2.27 a share this year.

Much as we were ridiculed for discussing a potential sale of the company three months ago, its impossible to deny that Big Pharma's love affair with hyper-specialist products continues unabated. Any doubts, look at the recent deal between GlaxoSmithKline and Prosensa in Duchenne muscular dystrophy.

Oh, and did we mention that Carl Icahn, who has a reputation for homing in on troubled biotechs and turning them around in time to sell them, disclosed a stake in the Big Biotech on Monday night? Coincidence, you say? (We have 1.45 million reasons to say that's not likely.)

Would GSK or that other convert to ultra-niche, Novartis, pony up the money to buy Genzyme before the biotech cleans its own house? It's unclear. But one thing seems obvious: if Termeer can't clean up the mess that's been brewing in Allston, someone else--either Icahn or another shareholder activist--will.

Image courtesy of flickrer massdistraction via creative commons license.


Steve said...

...and their kidney drug failed this morning! When it rains, it pours.

Degenerative Arthritis said...

I rarely post, but I wanted to say thanks for sharing this information.

Anonymous said...

A 483 is not a letter; it is a form given by an FDA inspector at the "exit interview" conducted at the end of an inspection.

Also, "SSE" is not an acronym, it's an abbreviation. When are journalists, let alone the rest of the world, going to learn what an acronym is?