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Update on Sanofi's Fabrazyme Manufacturing

Zacks Equity Research

While the Genzyme acquisition has allowed Sanofi (SNY) to increase its presence in the biopharmaceutical market, we note that Genzyme is currently operating under a consent decree imposed by the U.S. Food and Drug Administration (:FDA). Sanofi is working on resuming normal supply of the products that were affected by manufacturing issues. Non-compliance with the terms of the consent decree could result in the company incurring additional costs.

Meanwhile, Sanofi is focusing on its manufacturing site in Framingham, Mass. for Fabrazyme, which is marketed for the treatment of Fabry disease. Sanofi plans to invest $80 million on the Framingham facility to expand Fabrazyme’s manufacturing capacity.

Our Take

Expansion of the Framingham unit will enable Sanofi to meet the worldwide growing demand for Fabrazyme. In the second quarter of 2013, Fabrazyme sales were €91 million, up 28.4% year over year. Sales benefited from patients switching to Fabrazyme from Shire’s (SHPG) Replagal in the Western European market.

.The Allston manufacturing facility was used to produce Genzyme’s key products – Cerezyme for patients suffering from Gaucher disease and Fabrazyme for patients suffering from Fabry disease. The production issues led to an acute shortage of Fabrazyme and Cerezyme, which in turn affected Genzyme’s top-line and overall financial performance. In Apr 2011, the company submitted a remediation plan to the FDA. According to the plan, the remediation of the Allston plant is expected to continue till 2015.

The use of the Framingham manufacturing facility for the production of Fabrazyme has helped the company to increase Fabrazyme production and boost sales.

Sanofi carries a Zacks Rank #4 (Sell). We are concerned about generic erosion confronting most of Sanofi’s key drugs including Lovenox, Aprovel, Taxotere, Eloxatin and Xatral. Generic competition affected sales in the second quarter 2013 by €481 million. Additionally, the company is facing increased genericization in Japan due to new policies. Generic competition will continue to have a negative impact on revenues in the coming quarters. Meanwhile, emerging markets, which accounted for 32% of Sanofi’s revenues, have been underperforming since the last four quarters.

Additionally, pipeline failures (oncology candidate -  iniparib and anticoagulant - otamixaban) have put immense pressure on Sanofi’s pipeline.

Currently, companies like Roche (RHHBY) and Actelion Ltd. (ALIOF) look more attractive with a Zacks Rank #1 (Strong Buy).

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