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Genzyme and sanofi continue on…and on…and

There is a good reason why professional arm wrestling isn’t a major television draw. For all the complaints of how boring baseball or golf is to watch, things do change and tides turn in dramatic fashion amid the slow portions. But watching two people with interlocked hands staring each other down while muscles bulge…until finally one opponent just loses the will or strength to continue?

No, not interesting to most people.

In many respects, the sanofi-aventis attempt to acquire Genzyme (whether by willing merger or takeover) is beginning to feel like arm wrestling. It’s only interesting if you’re one of the competitors. Or you have a bet placed.

So, in recent days, sanofi has once again invited Genzyme to come to the table and talk (see this story coming out of Boston, for example, or this one from the Wall Street Journal). Genzyme, in turn, has said “There’s not enough money on the table yet to convince us show up!” (I paraphrase wildly, of course). We’ve been held at a $69 per share offer so long, and the back-and-forth repetition from both sides as to why they won’t budge that…Zzzzzzz

Wha….! Huh?!!!!

Seriously, though, as repetitious as this is seeming, there are little gems of information and insight to be gleaned.

For one thing, despite inviting Genzyme to come back to the table after threatening to take them over, sanofi is still showing its assertive streak by warning the Cambridge, Mass.-based company not to turn to its state’s takeover protections and swallow the proverbial “poison pill” to fend off a hostile acquisition (see this Bloomberg story).

At one website where the latest overtures and refusals had been aired as news, a comment was posted that said, essentially: “Maybe it’s time for sanofi to walk away long enough for Genzyme’s shares to drop back into the 40s and then let Genzyme’s top brass explain the real value of their shares to the stockholders.”

I don’t know that I agree Genzyme isn’t worth more than $69 per share. Maybe it is, maybe it isn’t. But it is certain that the stock rose on the news of a sanofi merger (or takeover). The continued presence of sanofi as an eager suitor (or conqueror) doesn’t seem likely to drive down stock prices. One can only wonder whether with no rival suitors sanofi might be better off stepping away for a time. But then again, with the pressures Big Pharma is facing right now with patents expiring and pipelines being sluggish, perhaps sanofi can’t afford to do that.

It’s also worth putting the current situation into perspective relative to sanofi’s third-quarter earning report in late October. Commenting on those earnings, which were up 13 percent, analyst Simon King of Datamonitor wrote:

“Sanofi-Aventis’s increasing diversified business model is reaping rewards as growth across consumer, generic and vaccine divisions has helped to compensate for generic competition within the branded pharmaceutical segment. However, generic erosion continues to impact performance, driven in part by the somewhat unexpected approval of a generic Lovenox product. With Plavix sales also in decline due to loss of European patent exclusivity, Sanofi-Aventis’s anti-thrombotic empire is in collapse.

“These results occur against a backdrop of continued negotiation regarding Sanofi’s proposed acquisition of Genzyme. Sanofi has used its results announcement to launch its latest salvo towards Genzyme shareholders by suggesting that nothing has been said that will change its current offer. Genzyme though is now being very bullish in terms of sales forecasts – which will be heavily dependent on reversing the loss of sales to Shire in specialist markets and the success of Campath in multiple sclerosis.”

King notes that Genzyme’s stance could backfire, particularly if sanofi does decide to walk away and no other bidders emerge. However, he remains convinced that the Genzyme acquisition “fits the sanofi model.”

For now, it’s still an arm wrestling match. We’ll keep our eyes on it, and let you know who wins in the end…or if we get a draw.

(By the way, sanofi’s public announcement about the latest back and forth is here and Genzyme’s official take is here.)

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November 9, 2010 Posted by | Corporate, M&A activity | , , , , , , | 1 Comment

Storming Genzyme’s walls

I can’t help but hear in my head right now the parting words of Miracle Max and his wife to the heroes of the movie The Princess Bride, when they shout out, “Have fun storming the castle, boys!”

I don’t know that sanofi-aventis is having any fun yet as it looks to acquire Genzyme, but at least it seems unlikely that any reinforcements will be arriving for the target company as it digs its trenches and sanofi, in turn, begins the first stages of its assault.

Yes, the deal has finally gone into hostile takeover mode.

Ever since sanofi made it clear this summer that it wants to acquire Genzyme for $69 per share, many analysts have been equally clear in their opinion that no white knight is likely to show up and complicate the issue for sanofi. Some have dropped names like GlaxoSmithKline, Johnson & Johnson and Pfizer, but none have yet surfaced, and at least one executive at GlaxoSmithKline has said openly that the cost of Genzyme would be too high for his company.

So, with no other champion to vie for the hand of Genzyme, sanofi decided on Oct. 7 to go ahead with an assault on the castle, launching the hostile takeover effort and telling shareholders this is a good deal, since it represents a 38 percent premium over where Genzyme’s share price was sitting before acquisition speculations surfaced in July.

Points for persistence go to both sides. Genzyme insists it is being undervalued, and sanofi is still sticking to its offer of $69 per share. However, it is unclear how realistic that price tag is or how attractive it will be to shareholders, given that Genzyme has traded above that mark consistently since the acquisition news first hit the streets.

So, one prediction still seems to be holding out: That no one seems motivated to challenge sanofi and start a bidding war. What remains to be seen is whether sanofi will continue to hold fast on $69 per share as it picks at Genzyme’s defenses, or whether it will end up conceding to the opinion of many analysts and market watchers that a figure closer to $80 than to $70 will be needed to move either the leaders of Genzyme…or its stockholders.

Of course, there’s always the possibility that sanofi will simply move on to another castle, as Datamonitor  suggested in the article we ran in late August on this acquisition tale.

(By the way, with these latest developments, it might be a good time to cast a vote in our poll here if you haven’t already done so)

October 7, 2010 Posted by | Corporate, M&A activity | , , , , , | Leave a comment

Genzyme vs. sanofi-aventis: Who’s asking for too much?

We’ve run several stories on the developments around sanofi-aventis’ bid for Genzyme, from the intial overture and refusal to a potential suitor backing off to some interesting cuts and sales by Genzyme in the midst of all this.

All in all, it’s been quite a ride, and it gave the entire ddn staff flop sweats as we went to press with the September issue wondering just what might happen last-minute to nullify our coverage up to that point. Thank goodness for our online presence to keep up, eh?

In any case, with all that’s happened thus far, we thought we’d ask all of you what you think of the value of Genzyme in this potential merger or perhaps even hostile takeover.

September 13, 2010 Posted by | Corporate, M&A activity | , , , | Leave a comment

The French connection

Aug. 30 finally saw the end of widespread speculation that French pharmaceutical giant sanofi-aventis was in the early stages of a large U.S. acquisition for somewhere in the neighborhood of $20 billion when it made a non-binding offer to buy Genzyme Corp. for about $18.5 billion in cash.

The scuttlebut since early July had been that Genzyme was the target, with more recently stories in mid-August reporting that Genzyme said “No.”

Apparently, the rumors were true, as sanofi finally offered $69 a share in a letter to Genzyme CEO Henri A. Termeer and decided to go public with its bid after “several unsuccessful attempts to engage Genzyme’s management in discussions.” The French pharma added that it is prepared to “consider all alternatives” to complete an acquisition.

However, hardly a day passed before Genzyme announced that its board unanimously rejected the offer, stating that the biotech is “not prepared to engage in merger negotiations with [sanofi-aventis] based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company.”

In early July, unnamed sources close to the matter said sanofi had offered a price just under $20 billion for Genzyme. They also said that Chris Viehbacher, CEO of sanofi, briefed his company’s board of directors the week of June 28 that there were plans for a major acquisition in the United States.

But July 26 brought news from Bloomberg, and from two sources close to the matter—presumably the same people quoted in earlier Bloomberg stories—that Genzyme officially turned sanofi-aventis down. Analysts were saying at that point that Genzyme could command at least $22 billion, or $80 a share, because of the potential for a revenue surge once Genzyme resolves manufacturing defects that have been keeping sales down for its existing products and slowing its introduction of new medicines into the market.

Genzyme’s revenue, which was $4.5 billion last year, could rise by 47 percent to around $6.6 billion by 2013, says Geoff Porges, an analyst with Sanford C. Bernstein & Co.

Analysts were also noting that if additional companies were to enter into negotiations with Genzyme for a deal, an $80-per-share price could be reached and perhaps exceeded quite quickly.

“If sanofi goes hostile, I don’t believe a price under $75 [per share] will get it done,” said Mark Schoenebaum, an analyst with ISI Group in news reports August 30. “The majority of shareholders probably will hold out until sanofi offers something closer to $80 than $70.”

An acquisition of Genzyme would help sanofi expand in the biotech arena, market watchers have noted since the rumors first started flying, but the Genzyme story wasn’t the only speculation around, and one could argue that other U.S. targets for acquisition exist if Genzyme proves too pricey. In fact, as people were speculating over the past month or two what company was sanofi’s target, business analysis and opinion firm Datamonitor offered some other thoughts as to others that might have been the target—or who perhaps might become a target if Genzyme proves to be a non-starter.

Giles Somers, a senior healthcare analyst at Datamonitor, had said in July that “based on current market capitalizations and strategic fits,” Biogen Idec, Allergan or Genzyme were all likely candidates for a sanofi acquisition. “Currently capitalized at $13.3 billion, allowing for a premium, an acquisition of Genzyme would likely end up somewhere in the region of $20 billion. Similarly, Biogen Idec has a market capitalization of $12.5 billion, while at $17.9 billion, Allergan would potentially require somewhat more than $20 billion,” he also pointed out.

sanofi-aventis has completed numerous acquisitions as part of a diversification strategy implemented since Viehbacher took the reins of sanofi in September 2008, Somers noted, adding, “To date, the majority of these acquisitions have taken place in the generics, consumer healthcare and vaccine sectors as the company looks to expand its presence in areas that both benefit from high-growth potential but are also insulated from the competitive threat of patent expiration and generic competition.

“If suggestions of an imminent $20 billion acquisition are true, however, this would signal a notable statement of intent by the company as it looks to reshape the focus of its core prescription pharmaceuticals business, building on the major overhaul of the company’s internal R&D pipeline last year,” Somers added.

Looking at the potential fits with sanofi, Datamonitor notes these facts about the three companies:

First, Allergan represents a fit with sanofi’s recent activity in the ophthalmology space, following the acquisition of Fovea and gene therapy deal with Oxford Biomedica. However, Datamonitor believes that the motivation behind these deals was the high unmet needs addressed by these companies’ treatments rather than a desire to build a wider presence in ophthalmology, per se.

Second, Biogen Idec would bring sanofi-aventis Avonex and Tysabri, leading treatments for multiple sclerosis. Sanofi co-promotes competing product Copaxone in the European Union until 2012 when Teva will regain full rights. (U.S. rights were returned to Teva in 2008.). Biogen Idec would also provide biologic capabilities, particularly in monoclonal antibodies.

Third, Genzyme’s business is focused on specialized, niche disorders. The company’s share price has been knocked over the past year by manufacturing issues and as such providing an opportunity to acquire the company at a less demanding price. Datamonitor forecasts strong revenue growth for Genzyme at 11.1 percent CAGR from 2009 to 2015, compared to 3.5 percent for Allergan and a slight decline for Biogen Idec over that period. Genzyme, like Biogen Idec, offers a platform for further expansion into the biologics sector. Therefore, combining a good strategic fit with strong growth prospects and a depressed stock price, Genzyme can in some ways be seen as the most attractive target for sanofi of the three companies discussed, price allowing.

Amy Reilly, a spokeswoman for Cambridge, Mass.-based Biogen, and Caroline Van Hove, a spokeswoman for Irvine, Calif.-based Allergan have both said—like the Genzyme spokeperson has—that they don’t comment on market rumors.

Viehbacher has indicated in the past the he is counting on acquisitions to help replace revenue that sanofi is losing as its medicines face competition from lower-priced generic drugs, and the company already has spent about $17 billion on 25 acquisitions since 2008, according to data compiled by Bloomberg.

August 30, 2010 Posted by | Corporate, M&A activity | , , , | Leave a comment