Biotech company Genzyme Corp. (GENZ), faced yet another setback recently when the U.S. Food and Drug Administration (FDA) announced that vials of five drugs marketed by the company were found to be contaminated.

The affected drugs include Cerezyme, Myozyme, Fabrazyme, Aldurazyme and Thyrogen. All these drugs, excluding Thyrogen, are indicated for the treatment of rare disorders. The vials were found to be contaminated with stainless steel fragments, non-latex rubber from the vial stopper, and fiber-like material from the manufacturing process which could potentially harm patients.

As adverse events are yet to be reported and given the lack of alternative treatments for these drugs which treat rare disorders, the FDA did not issue a product recall. Instead, Genzyme has issued letters to U.S. healthcare providers reminding them to conduct a visual inspection of the vials and to filter them before using the products.

Genzyme has been battling with contamination issues at its Allston manufacturing plant since June when the company had to temporarily halt production due to contamination.

The temporary shutdown of the plant had a severe impact on the company’s financial results with sales of Genzyme’s lead product, Cerezyme, dropping 69.7% to $93.6 million in the third quarter of 2009. In addition to Cerezyme, Fabrazyme sales were also affected (down 8%).

Although Genzyme expects to resume supply of new lots of Cerezyme from late November, we fear that concerns regarding contamination may drive patients and physicians to use Shire plc’s (SHPGY) velaglucerase alfa and Protalix BioTherapeutics Inc.’s (PLX) Uplyso, both of which are currently available under the US Food and Drug Administration’s (FDA) expanded access program.

Another negative outcome of this latest contamination issue could be a delay in the company gaining approval for a new drug, Lumizyme. A response from the agency was due by Nov 14, 2009.

We currently have an Underperform rating on Genzyme. We expect near-term investor focus to remain on the outcome of the FDA’s inspection of the Allston facility, the approvability status of Lumizyme, and the resumption of supply of new lots of Cerezyme and Fabrazyme.

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