Hospira Inks Deal with Genzyme

Genzyme Corp. (GENZ) has entered into a contract manufacturing agreement with Hospira (HSP - Analyst Report) for its key drugs, including Cerezyme and Fabrazyme. We believe this move has been taken to reduce the impact of the company’s manufacturing plant-related issues on the supply of its products.

Any financial detail of the deal, which is set to expire in 2015, has not been disclosed. The deal has yet to receive regulatory approval for the manufacturing of these drugs.

Genzyme has been under significant pressure following the shutdown of its Allston manufacturing facility in June 2009. The shutdown is a major setback as three drugs, including Cerezyme, were being manufactured at the facility. The closure of the plant has affected Genzyme’s financial performance significantly with third quarter revenues declining 9% to $1.06 billion.

Last month, Genzyme announced that it has resumed production of Cerezyme, which treats a rare disorder called Gaucher's disease. Although supply will be low initially due to lower productivity at the manufacturing plant, Genzyme believes that it will be able to meet worldwide demand for the drug in the first quarter of 2010.

In addition, Genzyme also provided an update on the resumption of supply of Fabrazyme, indicated for Fabry disease, which was also affected by the temporary shutdown of the manufacturing facility. Genzyme intends to ship 30% of Fabrazyme demand during the first quarter of 2010 and will start shipping 70-100% of demand in the second quarter. Further details regarding Fabrazyme supply will be available in Feb 2010.

We believe the manufacturing deal with Hospira will be beneficial for Genzyme since the presence of several players in this field has made the situation quite tough. Unavailability of the key drugs may force patients to switch to other options such as Shire Plc’s (SHPGY - Snapshot Report) velaglucerase alfa and Protalix BioTherapeutics Inc.’s (PLX - Snapshot Report) Uplyso, both of which are currently available under the US Food and Drug Administration’s (FDA) expanded access program.

Competition for Cerezyme will heat up given Protalix’ agreement with pharmaceutical giant Pfizer, Inc. (PFE - Analyst Report), which recently acquired worldwide rights to Ulypso for approximately $115 million ($60 million in an upfront payment and $55 million in regulatory milestones). With Pfizer’s marketing muscle behind it, Ulypso could prove to be a formidable competitor for Cerezyme.

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