GCVRZ

Genzyme Corp. is likely to miss a key contingent value right (CVR) production milestone payment related to its Cerezyme and Fabrazyme products, parent and French drug maker Sanofi SA said today on its product supply update website.

“Based upon actual production trends to date and lead times to release products for the market, Sanofi does not expect that the 2011 contingent value right (Nasdaq: GCVRZ) production milestone will be met,” the company said. The CVR was trading at $1.17 per share at 11:24am, down 42 percent.

When Sanofi and Genzyme announced their $20.1 billion deal this February, they noted that each Genzyme shareholder would receive one CVR for each company share they own. This would entitle the holder to receive additional cash payments if specified milestones related to Genzyme’s multiple sclerosis drug Lemtrada are achieved over time or a milestone related to production volumes in 2011 for Cerezyme and Fabrazyme is achieved.

Since the last R&D update on April 28, Sanofi said significant progress was made with positive Phase 3 data for Lemtrada, which is expected to undergo additional Phase 3 studies by the end of the year and to be filed for approval in the United States and European Union in the first quarter of 2012 for relapsing remitting multiple sclerosis. The product has been granted fast track designation by the U.S. Food and Drug Administration (FDA).

Sanofi said that since the beginning of the year, Genzyme has been able to supply Cerezyme, for Gaucher disease, to patients globally at normal dosing levels, and it has maintained a consistent supply of Fabrazyme, for the rare genetic disorder Fabry disease, to current patients, but at a reduced dose.

In March, the company had production problems with Fabrazyme at its Allston plant. Fabrazyme has been in short supply since the Allston plant was contaminated and subsequently shut down temporarily in June 2009. Genzyme voluntarily recalled 21 lots of the drug, which translated into 18,295 vials of 5 mg Fabrazyme for intravenous infusion, after receiving a warning letter from the FDA. The company was fined $175 million last April by the FDA, which also slapped it with a consent decree.

Sanofi said Genzyme is on track with the consent decree’s requirements. The company will no longer perform full/finish operations in Allston, which is ahead of the August 31 consent decree deadline for products sold outside the United States.

To return to normal Fabrazyme supply levels for existing and new patients, Genzyme will need to use the capacity of its new factory in Framingham, which it expects to be able to do in the first quarter of 2012, Sanofi said.

The CVR could have added a milestone payment if Genzyme hit the target of 79,000 vials of Fabrazyme this year.

In a separate announcement today of its second quarter financial performance, Sanofi said total sales, excluding Genzyme, were down 4 percent, but with Genzyme sales grew 6.9 percent to 8.35 billion euro (1 euro = $1.44). Genzyme’s sales were 796 million euro, up 16 percent. Sanofi said cost synergies from the Genzyme acquisition are expected to reach $700 million by the end of 2013. Net sales of Cerezyme were 166 million euro in the second quarter, up 58.3 percent over the second quarter of 2010, and overall market share for the quarter remained stable from the first quarter of 2011. Net sales of Fabrazyme in the second quarter were 30 million euro, up 3.5 percent compared to last year’s same quarter and reflecting continued supply constraints.