Genzyme has booked a $175 million hit to first quarter earnings in anticipation of an FDA fine it expects the agency to levy for manufacturing violations at a company plant near Boston. The penalty, a disgorgement of past profits, is likely to be mandated by a consent decree, a document formalizing voluntary measures Genzyme will take to avoid FDA legal action.

 

Genzyme said it could also end up paying an extra 18.5 percent of revenues from sales of products manufactured and distributed from the Allston, Massachusetts plant if operations aren't shut down there by a 2011 deadline, plus $15,000 per day should it fail to remediate manufacturing issues the FDA has identified.

 

Troubles at the plant, which included a closing in June because of viral contamination, have continued to exacerbate shortages of Genzyme's Gaucher disease treatment, Cerezyme, a company prize that generated $1.2 billion in 2009 revenue. That has created openings for competitors like Shire, which won approval of its own Gaucher disease treatment, Vpriv, in February and Protalix's experimental treatment for the disease, Taliglucerase Alfa.

 

Allston is a main supply hub for Cerezyme, as well as for Genzyme's treatments for Fabry disease, Pompe disease, and thyroid cancer treatments: Fabrazyme, Myozyme and Thyrogen respectively.

 

The drugs are still being manufactured in the plant because, with the exception of Thyrogen, the FDA has certified them as being medically necessary.

 

"I’m very clear that in the short term our most important value creating and important thing for us to be able to accomplish is to get our manufacturing operations, specifically Allston, into shape so that we can produce at high productivity in a reliable and predictive way," says Henri Termeer, Genzyme's CEO and president.

 

The $175 million charge took a hefty bite from Genzyme's earnings, leading it to report a loss of 43 cents per share in the first quarter of 2010, as compared to positive earnings of 70 cents per share in the first quarter of 2009.

 

Genzyme has hired The Quantic Group consultancy to help enact changes the FDA is seeking. After finalization of the consent decree, Genzyme says it will update investors on the situation, as well as sharing revised 2010 financial guidance.

 

For now, the company says it will continue to fill just half the demand from orders for Cerezyme until it gets a better handle on the impact of the FDA's pending consent decree and "a more accurate assessment of global demand."