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Sanofi Sales Helped by Genzyme

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But production woes means CVR investors won't receive a milestone payment. Isis Pharmaceuticals cheers EU drug filing.

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Sanofi's (SNY) earnings announcement today is a mixed bag of news. And you don't have to be a Sanofi investor to be on the receiving end.

First, former Genzyme investors who held on to a tracking stock issued at the time of Sanofi's $20 billion takeover earlier this year are hurting. The stock (GCVRZ) -- a so-called contingent value right (CVR) -- plunged 43% to $1.15 after Sanofi said fixing Genzyme's production problems will take longer than expected.

The stock was created primarily to track progress of an experimental multiple sclerosis drug. Sanofi agreed to pay milestones to holders of the CVR based on the development of the drug. (See Sanofi Tracking Stock Drops on Genzyme MS Drug.) But the first milestone payment of $1 a share was tied to another goal: fixing manufacturing issues for the rare disease drugs Fabrazyme and Cerezyme. CVR investors expected the $1 payment this year but it ain't going to happen.

"Based upon actual production trends to date and lead times to release products for the market, Sanofi does not expect that the 2011 contingent value right production milestone will be met," the French drug maker said in a statement.

Sanofi's own shareholders had a little more to cheer about. Despite the production problems, Genzyme drugs added more than $1 billion in sales in the quarter led by Cerezyme, a drug for the ultra rare condition Gaucher disease. Sanofi says it's on track to cut $700 million in costs from Genzyme by 2013. Genzyme is particularly important to Sanofi as generic competitors are severely eating into sales of drugs like Taxotere for cancer.

"Genzyme's overall business came in ahead of our expectations despite continuing supply constraints," Leerink Swann analyst Seamus Fernandez says.

Sanofi's American shares rose almost 2% to $38.88 in morning trading Thursday. The stock is up more than 20% this year.

Finally, investors in Isis Pharmaceuticals (ISIS) got some good news this morning as Sanofi announced it submitted its application to sell the companies' mipomersen heart drug in Europe. Isis was developing the drug with Genzyme, a partnership that Sanofi is continuing. (See Isis Heart Drug Making Healthy Progress.)

Shares of Isis rose 1% to $8.56 Thursday morning. The shares are down 15% this year.

Under the Sanofi partnership agreement, Isis won't receive any milestone payments for an EU filing. But it will get a $25 million payment from Sanofi when a US application is filed, an event that Isis CEO Stanley Crooke says will occur later this year.

The drug treats an inherited form of high cholesterol that can lead to heart disease at a young age. The condition is called familial hypercholesterolemia and Crooke says there's a very significant unmet need in treating this disease as there are no effective treatments.

Crooke says his drug has shown to be safe and effective and he predicts a US approval "fairly rapidly over a period of months and not years."

"There's a very significant unmet need and we've proven efficacy in spades," Crooke says. "I think we have a tremendous wind in our sails. It's the right drug at the right time for the right people."

Follow Brett Chase on Twitter @brettchase.
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No positions in stocks mentioned.
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