Sanofi-Aventis reportedly made a bid for Genzyme Aug. 2, offering between $67 to $70 per share for the big biotech. Industry observers think that price, about on par with where Genzyme's stock was trading the day of the offer, will increase as negotiations proceed.

The media rumor mill had been churning in recent days with speculation that Sanofi would make an offer through a public "bear hug" letter, but the French pharma apparently has chosen to pursue Genzyme behind the scenes.

Sanofi has not confirmed the company's pursuit of Genzyme. However, during Sanofi's second-quarter earnings call July 29, CEO Christopher Viehbacher did admit the company is "looking at external growth opportunities," which he said could include companies with a market capitalization of up to $20 billion, about exactly the market cap of Genzyme (Also see "Sanofi Stays Mum On Genzyme But Near-Term M&A Appears Likely" - Pink Sheet, 2 August, 2010.).

Genzyme's stock price has taken a hard hit in the last year, with the biotech plagued by manufacturing woes that have caused sales - and the stock price - to slide and opening it up to a potential takeover. Shares hit a high of around $84 in 2008, about one year before viral contamination in a bioreactor at the Allston Landing, Mass., manufacturing facility led to a six-week shutdown for remediation. In early June, the biotech's shares slid to around $47, but with buyout speculation brewing, the share price recently has rebounded to around $70. The stock closed trading at $70.20 on Aug. 3, down less than 1 percent from the day before.

Sanofi is stepping in as a motivated buyer. With its blood thinner Lovenox (enoxaparin) suddenly facing generic competition for the first time and five of its top-sellers facing patent expiration before the end of 2012, Sanofi needs an acquisition to stem the flow of lost revenues. But how high Sanofi is willing to bid for Genzyme is unclear. Genzyme posted net sales of about $4.5 billion in 2009, and a sale at $70 per share would cost Sanofi roughly $18.7 billion, about four times sales. Some industry analysts argue that Genzyme is worth more, but others think the biotech should be cautious about rebuffing an attractive offer.

Lazard Capital analyst William Tanner, in an Aug. 3 note, reported that Sanofi's board of directors has authorized the company to pay up to $70 per share for Genzyme. Fair valuation for the Cambridge, Mass., biotech would place the acquisition price in the $75 per share range, he estimated.

"The relative underperformance of Genzyme shares [since 2008] is warranted, we believe, by the well-documented, chronic manufacturing issues that have irreversibly damaged the Cerezyme and Fabrazyme franchises," he wrote. "Unless other bidders are waiting in the wings and, knowing Genzyme shares could easily trade back into the $50s if Sanofi-Aventis walks away, we wonder how aggressive Genzyme company management and the board of directors will be in negotiations."

Production of Cerezyme and Fabrazyme, Genzyme's two biggest sellers, was halted during the Allston shutdown and still has not returned to full capacity. In the meantime, a competitor to Cerezyme has been approved and launched, while a competitor to Fabrazyme is available in Europe and under review by FDA.

Motivated Buyer, Motivated Seller Or Both?

Genzyme recently added activist shareholders representing Icahn Partners and Relational Investors to its board. But Rodman & Renshaw biotechnology analyst Simos Simeonidis suggested that Sanofi may be prepared to up the ante given the patent onslaught ahead. With Lovenox's roughly $3 billion in annual U.S. sales now challenged by a rival product from Momenta and Sandoz, Sanofi will be eager to add Genzyme's annual revenues to its books, he said in an interview.

"I think a deal in the $80 to $85 per share range would be the most appropriate," he said "That would not be a bad premium for Genzyme holders, especially when the stock was in the $47 range back in the beginning of June. So if they get sold for $85, that's an 80 percent premium, which is good but not unprecedented in deals of this size."

Completing such a deal, however, could take three to six months, he speculated.

With each $10 per share representing about $2.6 billion in total deal value, Simeonidis does not think a valuation into the $80s would be a deal-breaker. "If you look at the revenues Genzyme would bring, about $4.5 billion, that would be a good way not only to fill the revenue gap left by patent expirations and the challenge to Lovenox, but also getting into biotech through a very special company," he said.

Other Big Pharmas, Other Bidders?

If one or more alternative bidders were get in the game that would certainly raise the stakes. Among the big pharmas that might be interested, GlaxoSmithKline seems the most obvious strategic fit. The company recently unveiled an orphan drug strategy to focus on rare diseases, and hasn't ruled out getting involved in biosimilars, where Genzyme's biotech expertise could be beneficial (Also see "Orphaned No Longer: Big Pharma Embraces Drugs for Niche Markets" - In Vivo, 1 February, 2010.).

Pfizer and Merck seem unlikely candidates since they are still absorbing their own mega-mergers, Wyeth and Schering-Plough, respectively. In fact, when pressed by analysts during Pfizer's second-quarter earnings call Aug. 3, CFO Frank D'Amelio all but ruled it out. He said the company was focused on "bolt-on" acquisitions up to "several billion" dollars (Also see "Pfizer's Focus Is On "Bolt-On" Acquisitions After Wyeth Merger" - Pink Sheet, 3 August, 2010.).

-Joseph Haas (j.haas@elsevier.com)

Sanofi-Aventis Offer To Buy Genzyme Seen As Starting Point For Long Negotiation

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