Tuesday, November 16, 2010

Genzyme: The Takeda Rare Disease Company ?!?

The Genzyme/Sanofi rumorville is awash yet again—but this time the rumors relate to the quality of sushi in Cambridge. The latest speculation Nov. 14 is that Genzyme had found a white knight bidder in Takeda, the largest Japanese pharma and a company with ambitions to be a bigger player on the world’s pharmaceutical stage.

It’s certainly true that Takeda, like Sanofi, is facing a pretty significant patent cliff as sales from Actos and Prevacid slide. It’s also true that its global ambitions mean Takeda might look to grow its U.S. presence via an acquisition. (As this IN VIVO feature from May spells out, Japanese pharma are one of the most promising buyers for US biotechs.)

And yes, we know the strength of the yen means Takeda can take advantage of the exchange rate, essentially paying a premium others might not be able to afford that still allows them to capture additional value even at an inflated price.

But taking a step back it’s hard to put a whole lot of faith in rumors that may, once again, be posturing. Oh, sure, the two drug makers probably talked. But talk is cheap. And since Genzyme began soliciting suitors several weeks ago, it’s entirely possible the biotech instigated the discussion. What IN VIVO blog wants to know is has a term sheet been submitted?

"I would be skeptical of one of the top Japanese pharmas emerging as a bidder," says George Montgomery, co-founder and managing director of the health care M&A advisory firm Marshall Healthcare Partners, who spoke to us before Takeda's name was officially linked to Genzyme’s in the blogosphere. “It would be their sole strategic initiative for the next few years, as opposed to being able to make multiple bets."

It’s important to remember this basic but highly relevant point: an acquisition the size of Genzyme – north of the $18.5 billion Sanofi has already offered – would be hard for any of the Japanese pharmas to swallow, even Takeda, which only has $9.7 billion in cash on-hand as of Sept. 30. Thus, Takeda would need to borrow significant cash to finance the deal, something its dividend-conscious shareholders may not support.

"Genzyme is a growth play at a time when Takeda is not, but the concern, of course, is that the ensuing weaker balance sheet would put Takeda's sizeable dividend at risk," said analyst Pelham Smithers of Pelham Smithers Associates said in a Nov. 15 research note. "The general thinking is that Takeda won't go for it, but it is an interesting opportunity nonetheless.

In addition, Takeda still needs to make good on its 2008 $8.8 billion purchase of Millennium Pharmaceuticals, for which the Japanese pharma paid a dear premium– 53 percent on the stock price and 16 times revenues.
"I just can't see how Takeda should be able to manage Genzyme and Millennium under the same umbrella," said Credit Suisse analyst Fumyoshi Sakai in an email exchange.

Genzyme's broad business portfolio, with an emphasis on drugs to treat rare diseases as well as a presence in areas like renal disease and biosurgery, seems afield of Takeda’s stated areas of focus: metabolic disease and oncology.

Sanofi has stated its intention to maintain Genzyme's business in Cambridge, MA as a center of excellence for rare diseases, even as it plans to consolidate other parts of the business and reduce SG&A expenses. It’s hard to see how Takeda could make the same decision, since its Millennium division already operates independently in Cambridge with the tagline, "The Takeda Oncology Company."

For such reasons, does "Genzyme: The Takeda Rare Disease Company" have the right ring?

by Jessica Merrill

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