Genzyme's Problems Continue as FDA Takes Control of Plant

Genzyme (GENZ) shares are declining over 5% in mid-day trading after the company said Wednesday the U.S. Food and Drug Administration will take enforcement action to ensure that products manufactured at its Allston plant in Boston comply with regulations.

The biotechnology company has had a series of manufacturing problems dating back to 2008, which caused delays in production and shortages of some of its key drugs, specifically Cerezyme for the treatment of Gaucher disease, and Fabrazyme for the treatment of Fabry disease.

Last June, the company had to shut down its Allston plant for three months because of a viral contamination. As production of these two blockbusters slowed, Genzyme's sales and profits plunged. To make matters worse, in November, the FDA cautioned doctors to inspect vials of three other drugs made by Genzyme at the factory for contamination by tiny foreign particles, including steel, rubber and fiber.

Genzyme's model is to go after rare diseases. While this often offers hope and treatment options not otherwise available, the dependence on Genzyme's drugs means shortages for some patients if production is disrupted. To alleviate supply concerns, the FDA has allowed patients to use drugs from Shire and Protalix (PLX), even though these products have not yet received formal regulatory approval, further hurting Genzyme.

Now, the biotech giant says the FDA will likely require that a third party inspect and review the plant's operation for an extended period and certify compliance with FDA regulations. Genzyme will also be required to make payments to the government. Legally, Reuters explains, this means the company's manufacturing operations will be under government control for an extended period of time.

Production of Blockbuster Drugs Expected to Remain on Schedule

Despite this, Genzyme expects shipments of Cerezyme and Fabrazyme to continue uninterrupted during the enforcement action. Similarly, shipments of Myozyme, a treatment for Pompe disease, should also continue as planned. And Genzyme intends to discuss manufacturing plans for its cancer drug Thyrogen with the FDA.

Since the beginning of this year, Genzyme has taken steps to improve and restructure its manufacturing operations, including naming a new president of global manufacturing and corporate operations, along with a senior vice president of global product quality.

To top it all off, activist investor Carl Icahn has been attempting to gain control of the company's board of directors, seeking a seat for himself and three associates on the board of Genzyme.