FDA Stings Genzyme Earnings

So much for accurate guidance ... at least for Genzyme (Nasdaq: GENZ). The first-quarter results the drug developer released yesterday included lowered 2008 guidance, following a negative surprise from the FDA earlier in the week.

Genzyme's first-quarter numbers weren't bad at all, despite its dimmer outlook. Comparable year-over-year revenue rose 25%, and non-GAAP earnings per share gained a healthy 22%, at $0.95 for the quarter. But guidance took a hit from Monday's FDA rejection of Genzyme's marketing application to manufacture one of its lead drugs, enzyme replacement therapy Myozyme, at a second manufacturing plant.

It seems the FDA was worried that the version of Myozyme produced at the second, much larger manufacturing plant wouldn't be sufficiently similar to the one produced at the already-approved plant. According to Genzyme, this delayed approval will cost the company $0.10 a share in earnings for the year, because of Myzozme's unexpectedly crimped supply. The setback reduced Genzyme's 2008 non-GAAP earnings guidance to approximately $3.90 a share.

The FDA's refusal is obviously bad news for Genzyme, but it also stings potential biosimilar drug manufacturers like Momenta Pharmaceuticals (Nasdaq: MNTA) and Novartis (NYSE: NVS). If the FDA won't allow Genzyme to duplicate its own molecularly complex drug without further clinical studies in humans, why would the agency let other companies make generic/biosimilar versions of other biologics or complex drugs without a similar series of hurdles?

Genzyme hopes its second plant will get the FDA go-ahead by the end of the year. Meanwhile, the company reiterated its long-term goal to grow non-GAAP EPS by an average of 20% annually through 2011, with an ultimate goal of $7 per share. Genzyme generally does a good job of detailing all the assumptions behind its near-term annual financial guidance, but after its unexpected Myozyme stumble, let's hope its longer-term outlook becomes a bit more conservative.