Genzyme: Shire Chomping at the Bit

by: Raymond Chung, CFA

Previously, I wrote about the significant headwinds Genzyme (GENZ) faces in the next several years (“The Odds Are Against Genzyme”). The JP Morgan Healthcare Conference offered further insight regarding the progress of Genzyme’s competition in treating Gaucher and Fabry disease. The most important information came from the Shire PLC (SHPGY) and Genzyme breakout sessions.

Below are key responses and statements from each company’s respective management teams.

Shire PLC

  • The breakout session should have been named “Genzyme Breakout Session, Part II”. Given the nature of the questions, more investors were concerned about Genzyme than Shire – the questions predominately covered Shire’s products that directly compete against Genzyme. Shire does have other growth prospects, such as newly launched INTUNIV for ADHD and FOSRENOL, a phosphate binder that recently received EU approval for pre-dialysis CKD. These products could have received more attention.
  • Looking forward to formal launch of velaglucerase alfa for Gaucher disease after February 28 PDUFA date.
  • Replagal, which previously had 45 percent market share in Europe, has been gaining share. Updated share data will be provided in the upcoming earnings call.
  • Physicians in the U.S. and Europe have been very comfortable using velaglucerase alfa and Replagal.
  • Patients taking velaglucerase alfa and Replagal have responded well. Shire expects that most of these patients will not switch back to Genzyme’s treatments, as the “if it ain’t broke, don’t fix it” mentality should prevail.
  • Velaglucerase alfa also doing well in Cerezyme non-responders.


  • Competitor’s products should be approved.
  • Increasing manufacturing capacity for Cerezyme and Fabrazyme by 50 and 100 percent, respectively.
  • Assessing the Gaucher and Fabry market dynamics and will give guidance on the February earnings call.
  • Greater than 80 percent of U.S. Cerezyme patients that forewent treatment because of the shortage are now restarting.
  • Plan to hire new Head of Operations by end of 1st half 2010.
  • GENZ – 112638, oral Gaucher treatment, Phase 2 two year data to be presented In February at WORLD.
  • Genzyme’s late stage pipeline is well noted: Lumizyme PDUFA date to be set by February 2010, two Phase 3 results for Mipomersen expected in 2010, and Alemtuzumab Phase 3 results expected in 2011.

Amicus Therapeutics (NASDAQ:FOLD)

  • Phase 3 data for Amigal, which would be first oral option for Fabry disease, not expected until mid 2011.


  1. Shire’s management team looked confident in their therapies and ability to compete against Genzyme. Shire asserted that they will use their past experience of competing against Genzyme to their advantage. While Genzyme did mention their success in keeping many U.S. Cerezyme patients, it is noteworthy that Genzyme made no strong comments regarding non-U.S. patients. In short it appears that Shire is probably more competitive in the U.S. and non-U.S. Fabry and non-U.S Gaucher disease markets.
  2. Could Genzyme be “late to the game” in increasing manufacturing capacity? These drugs are losing share. Incurring additional capital expenditures will lead to higher fixed costs, or higher costs of goods sold. In combination with lower sales, gross margins will be challenged to reach past levels. Henri Termeer, CEO of Genzyme, remarked that having this extra expense is justified because not having redundancies is clearly more costly, and having extra capacity is a common practice among biologic companies. If so, then why was Genzyme negligent in this regard? The consolation prize for investors though, is that Genzyme plans to hire a new Head of Operations by 1st half 2010.
  3. In the long run the Fabry disease market could have three competitors. Isn’t this a bit too many for an orphan disease? The presence of Shire is already more than Genzyme would like. Pricing power and sales growth rates would definitely be limited in the future.
  4. Investors are aware of Genzyme’s late stage pipeline potential. However, the most important question remains unanswered: “How quickly can Genzyme realize sales from new drugs in order to compensate for future revenue losses?” This is the big unknown and is the key factor in placing a proper valuation on Genzyme. At today’s stock price it does appear that investors are optimistic about Genzyme’s ability to execute on its pipeline. This may be premature, since favorable Phase 3 data, FDA decisions and future trajectory of patient uptakes are never guaranteed.


Genzyme is not used to having others encroach on its territory. Thus, the company is discovering it must evolve to fit the new landscape. Can Genzyme adapt? Weakness is already showing in its Renagel/Renvela franchise as competition has increased. Will the Cerezyme and Fabrazyme businesses face similar fates? Shire is a formidable rival with proven worldwide successes and came to the rescue when physicians and patients were in dire need. This will not be forgotten. Expect an intense battle here.

Moreover, the next few years will be a strong test for Genzyme’s management team from an operations and sales and marketing perspective. Genzyme now has to execute with “chinks in its armor” in addition to lost revenue and potentially unrecoverable gross margins. Genzyme will have to rebuild its reputation and face a stronger eye from the FDA. The latter is critical as multiple FDA approvals should be needed in order to achieve a double digit sales CAGR in the next several years.

Investors positively inclined towards Genzyme are advised to wait for a lower stock price or more pivotal data before buying shares.

Disclosure: Author is long Genzyme February $55 puts with a tight stop loss. He plans to opportunistically buy more puts in the future.