The facility, based in Oceanside, California, only completed construction in December 2004 and was intended to supply the market with Tysabri, which was withdrawn from the market in February after it was linked to cases of a rare brain infection called progressive multifocal leukoencephalopathy. With a fifth case of the viral infection reported with Tysabri just last this week, the chances of a return to the market for this drug, which is partnered with Ireland's Elan, now look slim.
Biogen Idec said it was selling the plant to Genentech for approximately $408 million in cash, all but laying to rest speculation of a merger between the two companies. There have been concerns about Genentech's manufacturing capacity for some time, mainly because demand for its marketed products is rising fast on the back of strong clinical data, while it has promising pipeline drugs nearing the market. The new facility, with 90,000 litres of bioreactor capacity, boosts its capabilities by 30 per cent.
Genentech's gain, Lonza's loss?
Genentech said it will use the plant to manufacture its blockbuster colorectal cancer drug Avastin (bevacizumab), a comment which had repercussions on the share price of Swiss contract manufacturer Lonza late last week.
Lonza already has a lucrative relationship with Genentech for the manufacture of its cancer drug Rituxan (rituximab), and it had been hoped that the burgeoning success of Avastin - along with Genentech's capacity constraints - would yield a similar agreement for the new drug. And Lonza needs big contracts to fulfil its expansion plans at its biologics manufacturing facility in Portsmouth, New Hampshire, US. This plant is pivotal to the growth expectations at the Swiss company.
Bernd Pomrehn, an analyst at Sarasin, said: "That Lonza won't get a large scale contract for the production of Avastin makes a further expansion at Lonza's Portsmouth plant less likely."
In 2004, Lonza's biopharmaceuticals business was hit by customer project delays and a lack of funding in the biotechnology sector, which particularly affected its mid-size reactors, although the firm said demand for its large-sized reactors was increasing. The company decided to install a fourth 20,000l mammalian cell bioreactor that should go on-stream in mid-2006.
Meanwhile, Biogen Idec's line is that it still has faith in Tysabri, and can meet manufacturing requirements for the drug - should it return to market - from another plant because it has developed a more efficient production process.
The plant employs around 430 people, and it is through that at least 330 of them will be retained by Genentech. Overall, Biogen Idec says that the sale will save it $80 to $100 million a year in expenses, although it will take an after-tax charge of $50 to $57 million as a result.