Sanofi Comes Out With Genzyme Bid

Sanofi-Aventis has finally gone public with its much-rumored bid to acquire Genzyme. After failing in private correspondence to convince the biotech firm’s management of the merits of a deal, the French pharmaceutical giant is now taking its $69.00-per-share offer directly to Genzyme shareholders. Meanwhile, Genzyme has made its own stance public, rejecting what it calls an “opportunistic” offer.

Indeed, Sanofi is offering to buy Genzyme during a challenging time for the biotech firm. Although Genzyme has a strong stable of drugs for rare diseases, chronic manufacturing problems at its Allston, Mass., site have limited its product sales. Worse, the problems led the U.S. government to fine Genzyme $175 million according to a consent decree that continues to hang over the firm.

Speculation about Sanofi’s bid has circulated in the media since late July, but Aug. 29 marked the first time that either firm publicly acknowledged the discussions. On that day, Sanofi disclosed that on July 29 it sent Genzyme CEO Henri A. Termeer a letter with a nonbinding offer for the company. Sanofi says it made repeated attempts before and after the letter to engage the biotech company in discussions.

In a letter to Sanofi dated Aug. 11 and released later, Genzyme’s CEO made the company’s position on the acquisition clear: “Your opportunistic takeover proposal does not begin to recognize the significant progress underway to rectify our manufacturing challenges or the potential for our new-product pipeline.”

The companies’ financial advisers finally held a brief meeting on Aug. 24, but it only “reinforced our belief they remain uninterested in engaging in constructive discussion,” Sanofi’s CEO, Christopher Viehbacher, said last week in a conference call with investors. “Given the benefits of the transaction, we believe we have no choice but to make our offer public to shareholders.”

Most analysts expect Sanofi will have to raise its bid, now worth about $18.5 billion, by at least $5.00 per share to capture the biotech firm. And although Genzyme has been cool to negotiations, RBC Capital Markets stock analyst Michael Yee points out that the company may want to secure a deal before the November deadline for fulfilling its obligations under the consent decree. If Genzyme fails to move its fill-and-finish operations out of the Allston facility, it faces paying an 18.5% royalty to the U.S. government on sales of products made at the site.

With discussions now in the open, Viehbacher provided some insight into the rationale behind the proposed deal: It would catapult Sanofi into the rare-diseases sector, creating a new platform for growth. Furthermore, the purchase would increase Sanofi’s U.S. presence, diversify its mix of businesses, and expand its pipeline of drugs in Phase I and II development.

After a merger, Viehbacher said, Genzyme’s rare-disease segment would continue to operate as a stand-alone unit, and the remainder of Genzyme’s businesses—cardiology, biosurgery, hematology, and oncology—would be integrated into Sanofi’s larger and more experienced marketing infrastructure.