Genzyme Settles

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year.  We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product.  In a later post we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.

Now Genzyme has reached a settlement with the US Food and Drug Administration (FDA) on the matter.  As reported by the Boston Globe,

Genzyme Corp will remain under federal oversight for the next seven to eight years as it works to fix quality-control problems that have bedeviled its Allston Landing plant for 15 months.

The timetable was spelled out in a consent decree struck between Genzyme and the Food and Drug Administration.

Under its terms, Genzyme will pay a previously disclosed $175 million federal fine, the first in its 29-year history. The agreement, filed with the US District Court in Boston yesterday, is subject to court approval.

Although the company said last month that it expected to pay the $175 million fine, other terms of the consent decree were not known until yesterday. Among them, Genzyme agreed to move fill-finishing work for its domestic drug shipments out of the Allston site by November. The transfer of fill-finishing for overseas shipments will take place by Aug. 31, 2011.

Fill finishing is the process of pouring drugs into vials for shipments to hospitals and clinics, where they are administered to patients.

Late last year, inspectors found bits of steel, rubber, and fiber in some drugs during the fill-finishing process in Allston. The work will be moved to a Genzyme operation in Waterford, Ireland, and to subcontractors such as Hospira Inc., subject to approval by federal regulators.

The firm faces additional fines if it fails to meet FDA deadlines

In all, the Cambridge biotechnology giant will spend two to three years in remediation under the consent decree, and another five years under oversight by a third-party contractor, the Quantic Group, a Livingston, N.J., consulting firm focused on boosting manufacturing quality and safety.

Quantic will craft a remediation plan with Genzyme, and the company could be fined $15,000 a day for missing milestones.

So now Genzyme is marching in our parade of settlements.  While this settlement is of charges related to very fundamental violations, failure to manufacture pure and unadulterated drugs, in one important way its provisions seem similar to many other such settlements we have now seen.  The settlement fines the company as a whole, but results in no penalties for any individuals. 

As we have noted before, fines, even fines larger than this one, can be regarded just as a cost of doing business (especially when the business is very lucrative.  The company's 2010 proxy statement noted that even in 2009, when production was affected by the plant closure, "sales of Cerezyme were $793 million, compared with $1.2 billion in 2008. Sales of Fabrazyme were $431 million compared with $494 million in the previous year. So the company was fined $175 million for production problems with two drugs that brought in over $1.2 billion in revenue in 2009.) 

Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike.  It provides no negative incentives for those who authorized, directed, or implemented the behavior in question.  So it is not clear that settlements like this deter future wrong-doing.

Additionally, as we noted in the earlier post, the current CEO of Genzyme has gotten quite rich by virtue of his position.  While the 2010 Genzyme proxy statement indicates his compensation was affected by the financial impact of the production slowdown, even so he continued to get richer, albeit at a slightly slower pace than he did before.  That statement indicates that in 2009, CEO Henri Termeer's total compensation was a mere $9,507,403, down from $12,699,301 the previous year.  The main difference was that his non-equity incentive plan compensation dropped from $1,962,725 to 0.  While a $3 million plus salary decrement seems sizable, it is hard to conceive of an executive who makes nearly $10 million a year as suffering major financial consequences from the current debacle. 

As I have said before, endlessly, we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.