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May 25, 2010

Genzyme to Give Up $175M in Profits under Consent Decree to Rectify Issues at Production Plant

Genzyme to Give Up $175M in Profits under Consent Decree to Rectify Issues at Production Plant

Firm will have to pay further fees if it fails to meet deadlines. [© Andrei Merkulov - Fotolia.com]

  • Genzyme signed a consent decree agreeing to correct manufacturing quality violations at its Allston Landing, MA, manufacturing facility. Genzyme will have to turn over to the federal government $175 million in unlawful profits from the sale of products that were made at the plant, FDA reports. The company will have to adhere to a strict timetable to bring the plant in line with FDA’s regulatory requirements.

    In June 2009, Genzyme reported that it had identified a virus in one of six bioreactors at its Allston Landing plant. It thus stopped production at the facility, which affected four products: Cerezyme for Gaucher disease, Fabrazyme for Fabry disease, Thyrogen for the diagnosis of thyroid cancer, and Myozyme for Pompe disease. Drug shortages were further impacted when FDA officials, during an inspection of the Allston plant from October 8, 2009, to November 13, 2009, found that the company's systems for ensuring manufacturing quality were inadequate resulting in production delays, critical shortages of medically necessary products to consumers, and drugs contaminated with metal, fiber, rubber, and glass particles.

    The consent decree is subject to approval by the United States District Court for the District of Massachusetts. Genzyme has agreed to begin facility improvements by selecting, within 10 days of entry of the decree by the court, an independent expert who will inspect the plant and issue recommendations. Genzyme will use the expert’s recommendations to create a work plan, subject to FDA approval, that requires specific steps for bringing its Allston plant into compliance within given dates. If Genzyme fails to complete any step specified in the work plan, the company will have to pay a substantial fine, according to the FDA.

    In addition, the consent decree provides a deadline for Genzyme to transfer its operations for filling drug vials from its Allston facility to other manufacturing sites or else it will have to disgorge further profits from the sales of drugs filled at Allston after that specific date.

    The company will continue to ship Cerezyme and Fabrazyme, which are manufactured, filled, and finished in Allston, as well as Thyrogen, which is filled and finished at the plant. The consent decree requires Genzyme to move fill/finish operations out of the Allston plant for Cerezyme, Fabrazyme, and Thyrogen sold within the U.S. by November 28 and for products sold outside of the country, by August 31, 2011. Should Genzyme not be able to meet these deadlines, FDA can require the company to disgorge 18.5% of revenue for these products.

    In the U.S., distribution of Thyrogen will be based on medical necessity until the product is filled and finished at another facility. The FDA has developed a Dear Healthcare Provider letter describing the patients for whom the agency considers Thyrogen to be medically necessary. This letter will be included in shipments of Thyrogen that are filled and finished in Allston.

    Genzyme reports that it has begun to utilize excess capacity at its facility in Waterford, Ireland, where it currently fills 80% of Cerezyme. Last week the company received regulatory approval to fill and finish Myozyme produced at the 160 L scale at the facility in Waterford and will no longer be conducting fill/finish operations for Myozyme in Allston. Additionally, Genzyme says that it has begun the process of transferring all remaining filling activities from Allston to an existing contract manufacturer.

    Last year Genzyme began implementation of a remediation plan to improve quality and compliance at the Allston facility. This plan was submitted to the FDA in October 2009. Under the terms of the consent decree, a plan to complete the remediation will be drafted by Genzyme with the assistance of its current third-party consultant, Quantic. The draft will be submitted to the FDA for approval and will include ongoing oversight from Quantic.

    Genzyme expects that the remediation plan will require approximately 2–3 years to complete, with milestones throughout this period. If remediation actions are not complete by these milestones, FDA can require Genzyme to pay $15,000 per day, per affected drug, until these compliance milestones are met. Once the remediation plan is fully completed, FDA will require five years of oversight and annual reports submitted by Quantic.

    “We continue to make significant progress both to improve manufacturing and quality systems in Allston and transfer fill/finish activities to other locations, working as expeditiously as possible through the regulatory pathways globally,” says Genzyme’s chairman and CEO, Henri A. Termeer.

    Genzyme is currently shipping Cerezyme at approximately 50% of demand and Fabrazyme at approximately 30% of demand. Genzyme plans to provide a more detailed assessment of supply for both Fabrazyme and Cerezyme in June, which will factor in the impact, if any, of the consent decree on product release times.

    Genzyme is also assessing the impact of several factors on its total financial guidance for 2010, including the company’s decision to pursue strategic alternatives for three of its businesses, ongoing expense reduction measures, the $2 billion share buyback, the impact of foreign exchange rates, and the supply of Cerezyme and Fabrazyme. Genzyme continues to expect to exit the fourth quarter at a non-GAAP EPS rate of $1.00 per share.

    Earlier this month, Genzyme said that it is looking to sell, spin-out, or facilitate a management buy-out of its genetic testing, diagnostic products, and pharmaceutical intermediates businesses. Besides bolstering the firms growth, the decision was also likely made to stall Carl Icahn’s recent proxy challenge.

    The virus strain that was found in one of the bioreactors, Vesivirus 2117, has not been shown to cause human infection, according to Genzyme. It is known to interfere with the growth of CHO cells, and the firm believes that it was introduced through a nutrient used in the production process. Genzyme notes that it was the cause of declines in cell productivity at its Allston and Geel, Belgium, facilities during 2008. The 185,000-sq-ft facility at Allston has a manufacturing capacity of 12,000 liters.


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