Sanofi-aventis to Acquire Genzyme
Summary
After six months of sometimes lively pursuit, the French pharmaceutical group, Sanofi-aventis, has agreed a deal to pay $20.1bn in cash for U.S. biotech firm Genzyme Corp after Sanofi made an increased offer of $74 per share. Once completed, the deal will represent the biggest pharmaceutical takeover since 2009 and the largest acquisition by the group since its $50bn purchase of Aventis back in 2004. In view of excited predictions from Genzyme executives on potential sales of Lemtrada (alemtuzumab), each share will also be linked to tradable Contingent Value Rights (CVRs) worth up to $14 a share if all performance milestones are reached. While Genzyme predicts sales for Lemtrada approaching $3.5bn, Sanofi has been somewhat more reserved in its estimates. While payments mainly depend on the future approval of Lemtrada for multiple sclerosis (MS), 2011 production volumes for Cerezyme (imiglucerase) and Fabrazyme (agalsidase beta) will also play a role in determining future payouts.
In employing a conditional, performance-based mechanism already utilized by the likes of AstraZeneca and Fresenius in similar deals, the Parisian outfit has arguably struck an astute balance between optimism and prudence. Or as Sanofi Chief Executive Chris Viehbacher put it, the arrangement stands “as an important value bridge between our two companies". With now unanimous agreement from both boards — and regulatory approval in both the U.S. and Europe — the deal is set to meet its conclusion early on in the second quarter of 2011.
In a world of increasingly hollow pipelines and frequently vanishing patents, pharmaceutical companies increasingly depend on the flexibility and inventiveness of their strategy. In acquiring Genzyme, Sanofi will ensure considerable expansion into the high-margin market of rare diseases, at the same time as shoring up existing markets in Renal-Endocrinology, Hematology-Oncology and Biosurgery. While unquestionably seen as a gamble in some quarters — if only for the sheer magnitude of the deal — no one can doubt either the ambition or the potential of an agreement that most analysts see as markedly weighted in Sanofi’s favour. Indeed by including a CVR, the French firm are avoiding upfront payment for uncertainty while providing clear incentive for long-term success.
Indeed so far as initial reactions can be judged, analyst response to the merger has been decidedly positive. Following the announcement of the deal by both companies on Wednesday, trading ended with Sanofi shares up 3.5%, with many analysts proclaiming the merits of the deal. Marc Booty, a fund manager at Pictet described the deal as making “financial and strategic sense for Sanofi”, adding that it “removes a substantial overhang and gives a bridge over the patent cliff they face”. While John Shortmoor, an independent analyst at Datamonitor, heralded the agreement “as great deal for Sanofi, paying close to their original budget of $20 bn, with extra contingency payments only coming if Genzyme's multiple sclerosis drug Lemtrada exceeds Sanofi's expectations”.
Corporate reaction from inside both parties was also unsurprisingly positive, with Mr. Viehbacher asserting that the transaction "…will create a meaningful new growth platform for Sanofi-Aventis while expanding our footprint in biotechnology”. The former GlaxoSmithKline executive also praised the deal as providing “a meaningful new growth platform for Sanofi-aventis while expanding our footprint in biotechnology”. Genzyme chief executive and founder, Henri Termeer was equally approving, describing it as “a new beginning for Genzyme”, while adding that "We also share an exciting vision of the future, one in which Genzyme and Sanofi-aventis grow and innovate by developing breakthrough treatments that change the lives of people with serious diseases”.
