Genzyme in “Tough Spot” with Icahn Proxy Challenge—CEO Termeer Courting Key Shareholders

5/13/10

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$793 million last year. The incident also hurt sales of the company’s No. 2 seller, agalsidase beta (Fabrazyme), for Fabry disease.

In November, not long after Genzyme finished sanitizing the Allston plant, the FDA warned doctors that bits of potentially dangerous stainless steel, non-latex rubber, and a fiber-like material were found in drug vials from the facility. The agency proposed initial fines of $175 million in March for violations at the plant, and the company faces more expensive penalties if it does not remedy the problems by yet-to-be-set deadlines.

The firm’s production woes aren’t limited to Allston, either. An explosion and fire hit the company’s Haverhill, England, plant in December, destroying equipment used to make the majority of ingredients for its kidney disease drugs, and costing the biotech $7.5 million so far to cover damage there.

Piela says the company has taken steps to improve its manufacturing. Genzyme has hired new heads of manufacturing and quality control, and it moved an employee who led the launch of its Belgium drug plant to take over management of the Allston facility. It’s planning to move operations for filling drug vials—the cause of the steel, rubber, and other foreign particles found in drug supplies from Allston—to a contract manufacturer and one of its own plants, in Waterford, Ireland. There’s also a search for a new company director with manufacturing expertise.

Still, concerns linger about Genzyme’s inability to meet full demand for its Gaucher’s and Fabry drugs, and the company could end up paying an additional $315 million to the FDA in 2011 because of manufacturing violations, according to an April 22 note to investors from analysts at Jeffries & Company.

The drug shortages and violations have played into Icahn’s argument that Genzyme’s manufacturing system is “broken,” as he wrote last week in a letter to shareholders. He and three of his associates are challenging for four of 10 seats on the company’s board of directors that are up for reelection. Further, he’s telling fellow investors not to reelect … Next Page »

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