Transkaryotic Therapies

(TKTX)

is on track to grab two-thirds of the European market for a new treatment for Fabry disease, and this could spell trouble for rival

Genzyme General

(GENZ)

.

Both companies received European approval to sell their Fabry drugs on Aug. 3. Since then, doctors and patients seem to be heavily favoring Transkaryotic's drug, Replagal, because it has demonstrated superior efficacy and safety, and it is easier to administer, according to a survey conducted by SG Cowen.

Transkaryotic and Genzyme are locked in a neck-and-neck race to get their drugs approved in the U.S. European preferences are significant in that they offer a clue to how the drugs will perform financially once approval here is granted.

Fabry is a rare, painful and fatal genetic disorder that affects only about 5,000 people worldwide. But at an estimated treatment price of as much as $175,000 annually, Fabry represents an $875 million market.

SG Cowen quizzed doctors and Fabry referral centers in Europe and found sentiment leaning heavily in Replagal's favor, says analyst Eric Schmidt. Schmidt and his team believe that according to their findings, about 1,500 European patients will seek treatment for Fabry disease by 2005, with two-thirds using Replagal.

"We called everyone in Europe that matters on this, and the sentiment for Replagal was strong," says Schmidt, who on Monday raised his Transkaryotic rating to strong buy from buy. SG Cowen has performed underwriting work for the company.

Transkaryotic and Genzyme are free to sell their Fabry drugs in Europe, but this might not be the case in the United States. The Food and Drug Administration is supposed to render its decision under "orphan" drug status rules, which means that one drug will be given exclusive rights to the U.S. market for seven years. The FDA could, however, disregard the orphan drug laws if it finds both drugs approvable but one more effective than the other.

There are no clear answers as to how, or when, the FDA will make its decision. On Oct. 22, Genzyme acknowledged that it must submit additional information about its drug, Fabrazyme, before regulators will render a decision. This is the second time the FDA has asked for additional data about Fabrazyme, and this is typically an ominous sign.

But Morgan Stanley analyst Caroline Copithorne actually saw a silver lining for Genzyme in the FDA request. In a research note, she said the FDA response "clarifies the additional steps necessary for approval in the U.S. and eliminates this source of potential uncertainty."

Copithorne raised her Genzyme rating to strong buy from outperform, based partly on the FDA request and partly on strong Genzyme third-quarter results. Her firm hasn't done underwriting for Genzyme.

SG Cowen's Schmidt sees it differently, believing that the FDA twice requesting more data about Fabrazyme is a just a polite way of saying they don't like the drug.

"I don't think it's likely that Fabrazyme gets approval first," Schmidt says. (Bill Tanner, another SG Cowen analyst, does rate Genzyme strong buy, based on the company's existing drug portfolio. SG Cowen doesn't do underwriting for the company.)

Transkaryotic executives have been mostly mum about a timetable for an FDA decision on Replagal. Like Genzyme, Transkaryotic also has had to submit additional data on its drug, but neither the company nor the FDA has disclosed whether the responses were adequate or accepted.

In related news, Transkaryotic reported Monday a third-quarter net loss of $15.9 million, or 60 cents per share. Analysts polled by Thomson Financial/First Call were expecting a third-quarter loss of 77 cents per share.

Shares of Transkaryotic were up 19 cents to $38.03 in Monday trading. Genzyme shares fell $1.54, or 2.8%, to $52.78.