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SNY Starts Delivering from New Unit

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Sanofi’s (SNY) subsidiary, Genzyme, announced that it has begun shipping Fabrazyme (agalsidase beta) from its recently approved Framingham manufacturing facility. The Framingham unit was approved in January 2012 by the US Food and Drug Administration (:FDA) as well as the European Medicines Agency (:EMA) for the production of Fabrazyme.

All patients in the US will be able to receive full doses of the treatment by March 2012. While in Europe, full dose of Fabrazyme will be initially available only to the most severely affected patients from March, worldwide Fabrazyme supplies are expected to return to normal levels during the year.

Fabrazyme supply was constrained due to manufacturing issues that cropped up at Genzyme’s Allston Landing plant in the US in June 2009.

The Allston manufacturing facility used to produce Genzyme’s key products -- Cerezyme (Gaucher disease) and Fabrazyme (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.

Our Take

Fabrazyme was one of the leading products at Genzyme. However, due to manufacturing issues, Fabrazyme sales slipped significantly. This opportunity was well used by Shire plc. (SHPG), which projected its product, Replagal, as an alternative to Fabrazyme.

In March 2011, Shire presented data suggesting that it was safe for patients suffering from Fabry disease to switch to Replagal from Genzyme’s Fabrazyme. Currently, Replagal has established a solid position in the market and it will be challenging for Fabrazyme to recapture lost market share.

Our Recommendation

We currently have a Neutral recommendation on Sanofi. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We expect 2012 earnings to be hit by the loss of US exclusivity on Plavix and Avapro.

While new product launches should make significant revenue contributions in the long term, we expect Sanofi to continue to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products. We also expect the company to grow through partnering deals and acquisitions.

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