Friday, December 02, 2011

2011 M&A of the Year Nominee: Sanofi/Genzyme

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Sanofi’s drawn-out and complicated acquisition of Genzyme was the story that had it all – a hostile takeover attempt (which eventually morphed into friendly merger talks); more than a year’s news flow with well-timed leaks and opportunities to interpret cryptic “he said, he said” commentary from the two companies’ principals – Chris Viehbacher and Henri Termeer (neither a shrinking violet); a huge price tag ($20.1 billion); a relatively novel deal add-on in the form of a contingent value right pegged to sales performance of Lemtrada and manufacturing of Cerezyme and Fabrazyme; and, oh yes, regulatory controversy.

When Sanofi began “kicking the tires” of the Boston big biotech, Genzyme was digging out from a summer 2009 plant shutdown due to viral contamination in a bioreactor, a six-week interruption in production that plagues the availability of top-selling enzyme replacement therapies Cerezyme and Fabrazyme to this day. By the time Viehbacher and Co. completed their quest for diversification into biologics and ultra-rare diseases, Genzyme was operating under an FDA consent decree and constantly fielding complaints from patient advocacy groups about rationing of Cerezyme and Fabrazyme.

But Sanofi had good reason to go ahead with the acquisition – it was facing near-term loss of patent exclusivity for blockbusters like Plavix, Lovenox and Taxotere. Despite its manufacturing woes, Genzyme could add $4.05 billion in product sales to Sanofi’s top line and $422 million in profits to the bottom line. In addition, Genzyme’s portfolio of drugs for rare diseases offered Sanofi another growth platform, like the consumer health products and expertise it gained in its 2009 purchase of Chattem.

Ultimately, the French pharma closed the deal in February 2011, buying out Genzyme for $74 a share, a decent premium and a bit up from its initial bid of $69 a share, but not in the range of the $87 a share or so that Termeer lobbied for in the press and behind the scenes. The uncertain future of Cerezyme and Fabrazyme, complicated by competition from new drugs from Shire and Pfizer partner Protalix, hamstrung Genzyme’s bargaining power, and ultimately one of the most-celebrated U.S. biotech success stories ended up just a subsidiary to a multinational Big Pharma.

The CVR continues to intrigue nearly a year after the deal closed – it brought shareholders the potential for up $14 per each Genzyme share tendered to Sanofi. Of that, $13 will be tied to future sales performance of Lemtrada, a pipeline candidate for multiple sclerosis. It’s anyone’s guess at this point how much, if any, of that return will be realized – Lemtrada remains in clinical development, but Genzyme announced promising data from the Phase III CARE-MS II trial in mid-November. The remainder, dependent on Genzyme meeting 2011 guidance for production of Cerezyme and Fabrazyme, already is a lost cause, as Fabrazyme in particular has met one production snag after another since the 2009 shutdown.

Other DOTY candidates in the M&A category may beg for votes – the oft-delayed Sanofi/Genzyme marriage simply does not need to. It was the story of the year in biopharmaceutical M&A.—Joseph Haas

image from flickr user f-oxymoron used under creative commons license

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