Trial Setback Is Welcome News for Genzyme, But Don't Get Too Excited

Amicus Therapeutics (FOLD) announced that its Gaucher disease drug candidate Plicera failed to demonstrate clinically meaningful improvements in key measures of disease in 17 of 18 patients who completed the open-label Phase II study. On a somewhat positive note, the drug did increase the target enzyme glucocerebrosidase, which is known to be defective in patients with Gaucher disease. Regardless, the company indicated that Plicera will not likely be advanced into Phase III development with partner Shire PLC (SHPGY). Further details of this announcement can be found in the company's press release dated October 5, 2009.

While this news is certainly negative for Amicus, I believe it should be viewed positively for Genzyme (GENZ), which has been dogged by negative press surrounding the Allston manufacturing facility that produces its blockbuster Gaucher disease drug Cerezyme and its Fabry disease drug Fabrazyme. The company's manufacturing struggles have led to the early availability of competitor drugs velaglucerase alfa and prGCD, developed by Shire and Protalix BioTherapeutics (PLX), respectively.

In my opinion, Plicera has a significant advantage over Cerezyme in that it is administered orally; Cerezyme is administered through injection. Consequently, success in the clinic with Plicera would have likely placed additional unwanted pressure on the commercial viability of Cerezyme. However, as indicated above, this clinical setback with Plicera likely means that the drug will not enter Phase III testing, and, as a result, will not likely be commercialized.

Although I believe this is welcome news for Genzyme, I do note that Genzyme is developing its own small molecule drug candidate, Genz-112638, for the treatment of Gaucher disease. Following positive Phase II results earlier this year, Genzyme advanced its drug into Phase III testing, placing it a good year or two closer to commercialization compared to Amicus' Plicera. As a result, I never really believed that Plicera would have had much of an impact on Genzyme's Gaucher disease franchise.

Overall, I view this news to be incrementally positive for Genzyme, and believe that it supports my long-term buy recommendation for Genzyme. However, despite this news and my positive longer-term view, I still recommend that investors stay on the sidelines with Genzyme until the dust settles on the company's third quarter financial results, which are expected to be announced later this month.

In short, this quarter will represent the first full quarter to take into account the temporary halt in production of Cerezyme and Fabrazyme. I believe that third-quarter sales of these two drugs could potentially disappoint the already dampened expectations, and investors should brace themselves for the potential for new charges and write-offs related to the manufacturing shutdown at the company's Allston plant. As a result, I continue to recommend Genzyme as a near-term sell with a target price of approximately $45.00 per share.

Disclosure: The author does not own, nor is he short shares of Genzyme, Amicus Therapeutics, Shire PLC or Protalix BioTherapeutics.

Comments

[Mark Mitchell:]

Author correction: the Amicus press release was October 2, not October 5.

Oct 06 09:44 AM

[OverloadedMama:]

One thing that always seems to be overlooked by everyone in the media is that Plicera and Genz-112638, in theory, have the possibility of crossing the blood-brain barrier, which means for children like my daughter who have the neuronopathic fatal form of Gaucher's disease, well, we may have a chance at a treatment to give them a longer life expectancy. The failure of Plicera is a devastation to those of parents to children with the neuronpathic form of this disease.

Oct 06 12:14 PM

[dasexiestman:]

Good job on the earnings call. It's a good thing your followers are not aware that you are a Habs fan as that would completely discredit all of your research and sexual orientation.

Oct 21 01:04 PM