Genzyme General (GENZ) said Monday that it must submit additional information to U.S. drug regulators before they will approve the biotech firm's experimental drug to treat Fabry disease.

The disappointing news from the Food and Drug Administration is a setback for Genzyme, which is engaged in a neck-and-neck race with

Transkaryotic Therapies

(TKTX)

to get their respective Fabry disease drugs approved in the U.S. first.

And being first to gain approval could be the only thing that matters in the U.S. The FDA is rendering its decision under "orphan" drug status rules, which means that one drug will be given exclusive rights to the U.S. market. The loser will have to sit on the sideline for seven years, content with sharing the European market. The FDA could, however, disregard the orphan drug laws if it finds both drugs approvable but one more effective than the other.

Fabry is a rare, painful and fatal genetic disorder. Only about 5,000 people worldwide suffer from the disease, but at an estimated treatment price of $175,000 per year, Fabry represents an $875 million market.

Somewhat surprisingly, shares of Genzyme were trading higher Monday by $1.52, or 3.3%, to $48.11. But Transkaryotic shares were even higher, up $2.34, or 7.5%, to $33.34.

Genzyme's Fabry drug is called Fabrazyme. On Friday, the FDA sent the company a "complete response letter," which asked for additional data and information before the agency decides to approve or reject the drug. Genzyme said that none of the FDA's requests raised new issues with the drug, but it didn't say how long it would take to respond.

This is the second time the FDA has asked Genzyme for more information about Fabrazyme. The company submitted its original application for the drug in June 2000.

Many biotech observers have long believed that Transkaryotic's Fabry drug, called Replagal, is more effective and easier to use than Fabrazyme. While the drugs have never been tested head to head, each drug is already approved in Europe, where Replagal's label is stronger.

For instance, Replagal is given to patients via a 40-minute intravenous injection, while Fabrazyme takes anywhere from 2 hours to 5 hours to administer. Replagal is also able to make broader and stronger clinical claims than Fabrazyme, including measurable reduction in pain and improvement of kidney and heart function.

"Given the lack of clinical efficacy measures for Fabrazyme thus far, and ongoing concerns regarding hypersensitivity, irrespective of Genzyme's ability to successfully alleviate FDA concerns, we do not believe Fabrazyme will fare competitively in the marketplace," said SG Cowen analyst Bill Tanner in a Monday morning research note. Tanner does, however, rate Genzyme a strong buy based on growth in the company's existing drug portfolio. (His firm has no banking relationship with Genzyme.)

But the big unanswered question is what the FDA is doing with Replagal. Transkaryotic executives have been mostly mum about a timetable for an FDA decision on the drug. Like Genzyme, Transkaryotic has also had to submit additional data on its drug, but neither the company nor the FDA has ever disclosed if the responses were adequate or accepted.

Salomon Smith Barney analyst Elise Wang believes Genzyme has an edge over Transkaryotic. Monday's response from the FDA likely will delay Fabrazyme's approval by six to nine months, but the drug still stands a good chance of gaining orphan drug status in the U.S. because its clinical studies enrolled more patients across multiple sites. Wang rates Genzyme a buy and her firm has done no underwriting for the company. She has no rating on Transkaryotic.

But a medical consultant with no position in either company says the FDA is just wasting everyone's time by making both companies wait for a final decision.

"Patients aren't really being hurt by the delays because they can get access to the drugs through clinical trials or compassionate use programs. If the FDA believes either drug doesn't work, then just say so and get it over with. If the drugs work, then approve both and let the companies generate some revenue already."