Toronto plant problems shoot holes in Sanofi earnings

Manufacturing problems at a Sanofi Pasteur vaccine plant that the FDA savaged in a warning letter last year created such serious supply issues in the third quarter that the company was short vaccines in the U.S.--and so short revenues in the latest quarter.

In its earnings report Wednesday, the French drugmaker ($SNY) said vaccine sales were off 7.2% to €1.3 billion ($1.8 billion). It tied the shortfall to an "anomaly" at the Toronto vaccine plant that caused shortages in the U.S. market of its Pertussis-containing vaccines, Pentacel, Adacel and Daptacel. The shortages lasted through mid-October. The company expects production to pick up through the fourth quarter in the U.S. It said year-to-date vaccines sales are off 0.2%.

A Sanofi spokesman said in a statement today that while the drugmaker is shipping the affected vaccines, "the initial supply will be limited. We are carefully monitoring the situation and will lift allocations as soon as possible, but we need to proceed with caution as we rebuild inventory through the remainder of this year."

He said the problem was unrelated to issues the FDA had noted last year in a warning letter but related to an anomaly found during routine testing. "We are unable to provide more detail as it is proprietary manufacturing information. All previous products released for distribution to the market passed all required tests, and there are no known safety issues with the products. It is important to note that no product was on the filling line when the anomaly occurred."

Many of the 24 observatios the FDA outlined with the Toronto plant more than a year ago centered on mold contamination following flooding at the facility. It said "there have been no less than 58 documented non-conformances relating to the isolation of mold within the BCG aseptic processing areas" since August 2010. The problems led to a shortage of BCG tuberculosis vaccine and some other products last year.

In a call with analysts, CEO Chris Viehbacher said the disruption delayed release of vaccines for three months. "So we ended up having the costs for three months but no sales of those particular products..."He said the problem had been resolved and that the company was again shipping vaccines and doesn't expect additional impact on vaccine sales. The company expects record flu vaccines sales in the northern hemisphere in the second half of the year.

On a more positive note for its vaccine manufacturing, the drugmaker said that in October, it received approval from Chinese authorities to commercially produce influenza vaccines at a new Shenzhen flu vaccines plant. On the other hand, inventory problems in Brazil that severely undermined the company's earnings last quarter continued to weigh on sales and earnings in Q3. The company said generic sales were off 5.4% because of that.

Earnings also were hurt by a slowdown in China, where a widespread investigation into bribery charges against a number of Western drugmakers, including Sanofi, has put a chill on business. Overall, the company reported net sales of €8.43 billion ($11.6 billion), down 6.7%, and net income of €1.79 billion ($2.5 billion), down nearly 19% from the same quarter a year ago.

- here's the earnings report (PDF)
- read the Reuters story
- read the transcript of the analyst call here (sub. req.)

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