Genzyme Struggles to Restore Order

On Wednesday, Genzyme Corp. (GENZ - Analyst Report) provided a mixed update on its supply schedule for Cerezyme and Fabrazyme. The two key contributors to the company’s top line are produced at its Allston plant. Last June, Genzyme had to temporarily shut down this unit due to contamination issues.

While we were pleased to hear that Cerezyme production is on track and new batches of the product will be available for shipment in the November-December timeframe, we were disappointed to hear that new lots of Fabrazyme will not be available for shipment till mid-December. Moreover, the volume of finished products of Fabrazyme will be lower than expected.

The company said that Fabrazyme bioreactors were restarted later than planned and output from the two bioreactors is expected to be lower. We believe the delay in resumption of normal supply for Fabrazyme could help Shire’s (SHPGY - Snapshot Report) Replagal gain additional share of the Fabry disease market for which Fabrazyme is approved.

Meanwhile, Cerezyme, which is approved for the treatment of Gaucher’s disease, could lose some share to Shire’s velaglucerase alfa and Protalix BioTherapeutics Inc.’s (PLX - Snapshot Report) prGCD. Although the products are yet to receive US Food and Drug Administration’s approval, both have got the agency’s permission to be supplied to patients.

Genzyme also revised its 2009 revenue guidance for Cerezyme and Fabrazyme. It now sees Cerezyme revenue of $800 million, while it had earlier forecast sales in the lower end of a $750 million to $1 billion range. Meanwhile, Fabrazyme sales are expected to be about $450 million, down from the previous guidance of $510 million to $520 million.

The company expects to meet estimated patient demand for the products in the first quarter of 2010. We believe investor focus will remain on the resumption of supply of the two key drugs and foresee the stock to be under pressure until the crisis is resolved. We currently have an Underperform rating on Genzyme.