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By Thomas Gryta
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Genzyme Corp. (GENZ) reported a worse-than-expected 87% drop in third-quarter profit and again cut its full-year forecast as it works to restore operations at its troubled Massachusetts production plant.
The Cambridge, Mass., biotech company has suffered since June from manufacturing issues at its Allston, Mass., facility, the sole source of its two top-selling drugs. The shipment delays have contributed to Genzyme slicing its 2009 earnings expectations in half and forced the company to invest in defending the drugs' market dominance.
On Wednesday, Genzyme sought to reassure investors by reiterating that the facility should begin shipping its Gaucher disease treatment Cerezyme in late-November and Fabry disease drug Fabrazyme in late-December, and that it still plans to meet full demand during the first quarter.
Genzyme shares, down 17% in 2009, fell another 5% Wednesday to $52.15.
"We have worked our way substantially through the trough that the shortage has created," Chief Executive Henri Termeer said on a conference call Wednesday, warning that the manufacturing issues will have a similar impact on the fourth quarter.
"In 2010, we will be very focused on recovering our position in this market place," he said.
But the issues will continue to loom over the company, Cowen & Co. analyst Phil Nadeau said, because Wall Street is now more concerned with Genzyme's performance in 2010.
"People have written off 2009 because of the capacity issue," he said. Nadeau added, though, it was reassuring that Genzyme didn't change its timeline.
Genzyme said the Food and Drug Administration is inspecting the Allston plant, which was shut down in June after the discovery of a virus in one of six bioreactor vats used to make drugs at the plant.
The company's manufacturing woes over the past year have wreaked havoc on its earnings expectations: It entered 2008 projecting $4.70 a share, excluding items, with Wall Street analysts projecting similar numbers. It now expects $2.26 a share, below a Street view of $2.46 a share, after drastically lowering estimates to $2.35 to $2.90 a share over the summer.
The continuing earnings adjustments and manufacturing issues have raised the question of whether the company has made all the right moves.
"There is a big question of credibility," Robert Baird & Co. analyst Christopher Raymond said.
In response, Genzyme has named a new site leader at the Allston plant, recruited additional executives to oversee manufacturing and quality control, and hired third-party quality assurance and compliance experts.
Genzyme has now successfully re-started all the bioreactors at Allston for Cerezyme and Fabrazyme, while shifting the production of Myozyme, which treats another rare genetic disorder called Pompe disease, to Belgium.
The company is awaiting FDA approval of a version of Myozyme, called Lumizyme, which it expects by Nov. 14. That approval is a big step in the company being able to produce Lumizyme - which would be used to treat the same diseases as Myozyme - in Belgium. Rejection could cause a further shortage of Myozyme, leading to more headaches for the company.
Myozyme sales rose 12% to $86 million, slightly below Street views of $89 million, according to MDRx Financial, a health-care market research firm. Cerezyme sales dropped 70% to $93.6 million, missing analyst expectations of $98.5 million, while Fabrazyme sales fell 8% to $115 million, in line with Street expectations.
Genzyme reiterated that it is spending more than $1 billion to expand capacity and, when complete, will have more than quadrupled its biologics manufacturing capacity since 2004. Genzyme plans to add a third bioreactor to its Belgium facility and is building a plant in Framingham, Mass., expected to be approved in 2011.
Until the Framingham plant is approved, Genzyme won't be able to build excess inventory of both drugs - it's aiming for six- to nine-months supply - although it is confident in supplying the market next year.
Building inventory would help prevent another shortage, which has exposed Genzyme to two Cerezyme competitors - Shire PLC (SHPGY) and Protalix Biotherapeutics Inc. (PLX) - which hope to enter the market by mid-2010. Both, though, have FDA permission to provide drugs to patients before approval.
In a surprise development Wednesday, Shire said it plans to file by year-end for FDA approval for Replagal, its enzyme replacement similar to Fabrazyme. Although Fabrazyme has market exclusivity until April, the FDA also approved the drug to be provided to patients before regulatory approval. Shire said it has enough Replagal to meet expected global demand.
For three months ended Sept. 30, Genzyme reported net income of $16 million, or 6 cents a share. Excluding items, earnings were 31 cents a share, well below Wall Street projections of 44 cents a share.
Revenue dropped 8.9% to $1.06 billion, also below Street views of $1.11 billion.
-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com