Sanofi, Genzyme Come To Terms

Ending a nine-month standoff, French drugmaker Sanofi-Aventis has agreed to pay $20.1 billion for Genzyme, the U.S. biopharmaceutical pioneer. Sanofi will pay $74.00 per share in cash. The company has also agreed to contingent value right (CVR) payments of up to $14.00 per share based mostly on the success of Genzyme’s Lemtrada, a multiple sclerosis drug in Phase III clinical trials.

The deal is the latest in a string of big drug acquisitions since 2008 and the largest biologics deal since Roche’s $46.8 billion purchase of the rest of Genentech in 2009. Genzyme will give Sanofi a sizable biopharmaceutical business plus a leg up in developing therapies for rare diseases.

The U.S. firm became vulnerable to a takeover after it encountered manufacturing problems in 2009 at its Allston, Mass., plant. The problems resulted in shortages of its Gaucher disease drug Cerezyme and a $175 million fine by the U.S. government.

Genzyme accepted the offer with CVR payments after rejecting Sanofi’s original bid of $69.00 per share, saying it was inadequate.

“This transaction will create a meaningful new growth platform for Sanofi-Aventis while expanding our footprint in biotechnology,” says CEO Christopher A. Viehbacher. “The CVR structure, which served as an important value bridge between our two companies, rewards both Genzyme and Sanofi-Aventis shareholders, particularly if Lemtrada outperforms the market’s current expectations.”

Andrew Badrot, head of the consulting firm CMS Pharma, sees Sanofi following the lead of Pfizer, AstraZeneca, and Eli Lilly & Co., all of which built biotech businesses through major acquisitions. He notes that the French firm is facing the loss of patent exclusivity on one of its only biologic drugs, the diabetes treatment Lantus, in 2014.

Still, Badrot questions whether the deal will ultimately benefit Sanofi. He notes that Sanofi is buying Genzyme for nearly five times the biotech company’s annual sales, whereas the industry average for acquisitions in 2010 was 3.5 times sales. “If Lemtrada kicks in, that could be $2 billion to $3 billion in additional sales each year over the next five to 10 years,” he says. “If that product doesn’t go through, they will be in trouble.”