Genzyme's "Remarkable Business'Strategy" and Contaminated Drugs

In June, 2009, an article in the Boston Globe described how the Boston area based biotechnology company Genzyme sold some astonishlingly expensive drugs, using

a remarkable business strategy: In countries from Colombia to Taiwan to Libya, the Cambridge firm has compiled an extraordinary track record of searching out patients like Tania, providing desperately needed treatment, and then successfully pressing their governments, even poor ones, to pay full price for the most expensive drugs in the world.

The article focused on how Genzyme marketed Cerezyme for Gaucher's disease.

When Genzyme Corp. first introduced a bioengineered drug for Gaucher (pronounced GO-shay) disease in the 1990s, the very idea seemed almost absurd to most people in the pharmaceutical industry. It was expensive to manufacture, there were vanishingly few known patients, and it wasn't clear how you could sell enough of it to recoup research costs, never mind make a profit.

Genzyme's solution, elegant in its way, was to set a price high enough to earn a substantial profit no matter how small its pool of patients. Then the company surprised the medical world - and its investors on Wall Street - by showing that American health insurers could be persuaded to pay the six-figure price tag. And with the only effective treatment for Gaucher disease, Genzyme never needed to lower the price, even as production efficiencies raised profit margins on the drug to as much as 90 percent.

The drug started to bring in tens of millions of dollars a year, then hundreds of millions. Today this one drug, prescribed for about 5,000 patients, has transformed Genzyme and its chief executive, Henri Termeer, into one of the great success stories of biotechnology, fueling its expansion into a $16 billion company with offices and factories worldwide.

By the early 2000s, Genzyme had reached most of the known Gaucher patients in the United States, so it had begun pushing outward to new markets. Genzyme created divisions within the company to find overseas patients; it hired experts to cajole balky governments into paying for the patients' Cerezyme doses. Some of the company's successes were extraordinary: hundreds of patients in Brazil. Patients in Taiwan, Kuwait, and Bulgaria. The government of Libya's Colonel Moammar Khadafy pays for Cerezyme for a handful of patients.

As it notched these successes, the company stayed largely under the radar of public health activists who were pushing drugmakers to discount AIDS drugs and other lifesaving medications whose retail prices were financially out of reach to many governments.

Biotechnology drugs like Genzyme's, though crushingly expensive for each patient, were so rarely prescribed that they did not attract the same attention, and Genzyme followed an extremely disciplined 'one price' strategy: find patients; donate the drug at first if necessary, but press constantly to be paid full retail price.

The "one price" for Cerezyme in Costa Rica was $160,000 per year of therapy.

I thought about posting about this story when it came out, focusing, of course, on the amazing price of Cerezyme. However, then I wondered: while the price of Cerezyme seemed extremely high, could anyone say that it was outrageously and unfairly high? After all, the drug was expensive to develop and produce, could not be sold in volume, and provided apparently very effective treatment for an otherwise untreatable disease. So I put the article in a file, and did not post about it.

Then a few days later, another story ran in the Globe, this time about problems in the Genzyme plant that produces Cerezyme:

n an unprecedented move for Genzyme Corp., the state’s largest biotechnology company has halted production of two drugs for rare genetic disorders after a virus was discovered in production equipment at its Allston plant.

The drugs are used by 8,000 people worldwide and cost about $200,000 per patient annually. While the virus has the ability to taint the drugs, it is not considered harmful to humans, officials said. The manufacturing plant will remain shut through July while it is decontaminated as a precaution.

Shipments of the drugs, Cerezyme and Fabrazyme, have been put on hold while the US Food and Drug Administration seeks assurance from the company that none of its inventory is compromised. Genzyme officials believe the inventory was not affected.

The current supply will need to be rationed, Genzyme said.

My first thought was that if Genzyme can charge so much for Cerezyme, at least it ought to be able to afford a pristine production process. On the other hand, I also realized that manufacturing processes in biotechnology are complex and difficult, perfection is not always possible, and the contamination in question did not appear harmful. So I put this article in the file too, and did not post about it either.

Four days ago, the Boston Globe published yet again about troubles in same manufacturing plant.

Genzyme Corp., the Cambridge biotechnology giant that has spent five months scrambling to regain its footing after detecting a virus at its Allston plant, is facing a new contamination problem: bits of steel, rubber, and fiber found in drugs made by the company and shipped from the same site.

Federal regulators yesterday warned doctors to look for foreign particles in five Genzyme drugs used to treat rare genetic disorders, including two - Cerezyme and Fabrazyme - that have been rationed because of the viral contamination detected in the Allston Landing plant last summer. The five drugs represent roughly half of Genzyme’s $4.6 billion in annual sales.

Particles are believed to have been found in less than 1 percent of the Genzyme drugs based on product lots examined, according to a statement from the Food and Drug Administration. The FDA warned physicians, however, to carefully examine vials of the products and filter them before they are given to patients - steps that are considered standard procedure within the industry. If they find particles, the FDA asked for the vials to be returned to the manufacturer. The agency warned that ingesting the particles could have effects that include allergic reactions and blood clotting.

FDA inspectors arrived at the Allston plant last month to begin an investigation into Genzyme’s production operations.

In addition, a New York Times article noted:

'Biological manufacturing is extremely complex and prone to problems,' including contamination, said Jean-Jacques Bienaime, chief executive of BioMarin Pharmaceuticals, a biotech company that also makes drugs for rare diseases, including one it co-developed with Genzyme. Mr. Bienaime said his company always maintained at least a year’s worth of inventory in case of a production outage.

But Genzyme did not have such an inventory of Cerezyme and Fabrazyme.

Finally, today the In Vivo blog posted a discussion of Genzyme's production woes which suggested that the two different types of contamination at the plant, and the failure of the company to reliably ship pure, unadulterated drug to patients were not simply the results of bad luck or failure to attain unattainable perfection.

Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.

The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel.

The origin of the problem goes back three years, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. Genzyme underestimated the demand for the drug, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.

And that decision has proved problematic. The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting '"the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there.'

Too bad that realization didn't happen one year ago. That's when regulators started sending warning letters outlining concerns related to what sound like bread-and-butter manufacturing issues: microbial monitoring, equipment maintenance, and process controls.

What's most amazing is that problems are ongoing. Recall that six-week interlude this summer when the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.

On the company's Nov. 16 call to investors, management confirmed that the latest 483 letter relates not to a new problem created by Genzyme's decontamination efforts but arising because of 'an older piece of equipment'. As Genzyme's EVP of Therapeutics, Biosurgery, and Corporate Operations said during a Q&Asession with analysts, '"There was a number of issues there that they [regulators] highlighted and many of which we were very aware of and working to address.'

Management's solution? Take the plant off line again for a few weeks to, as Meeker puts it, 'allow us to move more quickly to address those issues.' Does everyone feel better now?

In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level.

So now it is time to discuss Genzyme's production woes on Health Care Renewal.  For $160,000 a year, it seems reasonable to expect that patients could expect a reasonably well-thought out, conservatively planned production process that would be able to reliably produce sufficient quantities of pure, unadulterated drug.  Instead, Genzyme's "remarkable business strategy" did not seem to include adequate maintenance of production facilities with adequate capacities, or even keeping an adequate reserve supply of product in anticipation that over-working a single aging facility with aging equipment might lead to something breaking down. 

By the way, for overseeing this "remarkable business strategy," Genzyme paid its CEO, Henri A Termeer, $13,773,782 in total compensation last year (per the 2009 proxy statement).  Presumably mainly from the stock and option awards he has accumulated over the year, Mr Termeer now owns 4,080,387 shares of Genzyme stock, 1.5% of total outstanding shares.  For that money, patients, share-holders, and line employees ought to expect "remarkable business strategies" that include attention to such basics as good maintenance of production facilities. 

Maybe the company's well compensated (more than $400,000 a year) directors should have been more vigilant about overseeing the management's "remarkable business strategy."  The board  included Gail K Boudreaux, an Executive Vice President of UnitedHealth Group, Charles L Cooney PhD, the Haslam Professor of Chemical and Biochemical Engineering at the Massachusetts Institute of Technology, and Dr Victor J Dzau, Chancellor of Health Affairs at Duke University and CEO of Duke University Health Systems, who seemingly have some relevant expertise, although the board also included Richard F Syron PhD, the former CEO of the Federal Home Loan Mortgage Corporation, (Freddie Mac), who resigned in 2008 after the failure of the company which was later bailed out by the US government.   

So once again we see how leaders of health care organizations, in this case perhaps blinded by the prodigious amounts of money they were making, failed to exercise rigorous oversight over how their company produced its product.  The actual production part of biotechnology may seem far less glamorous than other aspects of the company.  Yet, if a drug company cannot reliably produce pure, unadulterated drugs, all its advanced research, cutting edge finance, and glitzy marketing may be for nought. 

This case is another argument for finding health care corporate leaders who remember that long term success comes from putting patients, not dollars, not glitz,  first.