Sanofi says Genzyme takeover talks progressing

"As we announced about 10 days ago, we have signed a confidentiality agreement with GENZYME (GENZ.NQ)" Chief Executive Chris Viehbacher said in a media conference call.

"We continue to review non-public information. Talks are progressing and we'll keep you updated," he added.

The forecast drop in business earnings per share (EPS), at constant exchange rates did not include any benefit from the possible acquisition of Genzyme, Sanofi said, nor the damaging effects of a return of generic copies to cancer drug Eloxatin.

Sanofi and Genzyme, which specializes in medications for rare diseases, are hammering out the details of a roughly $20 billion deal, sources have told Reuters.

Sanofi is expected to raise its offer for Genzyme from its original $18.5 billion cash bid while adding a fee tied to the performance of Lemtrada, a key drug Genzyme is developing in multiple sclerosis.

Sanofi has been branching out its business to offset a loss in sales from patent expiries or challenges on its blockbuster drugs, such as bloodthinners Lovenox and Plavix, that open up the possibility for cheaper copies to enter the market.

"2010 was the first year in which the patent cliff really became visible with generic competition for several of our products, notably Lovenox in the U.S.," Viehbacher said.

Sanofi's fourth-quarter earnings exceeded analyst expectations, helped by cost cuts which it expects will achieve 2 billion euros this year instead of in 2013 as it had previously targeted.

Business earning per share, excluding items like amortization and litigation costs, were flat at 1.41 euros in the fourth quarter of 2010, while the average outcome of a Reuters poll was for 1.35 euros.

For the full year and at constant exchange rates, business EPS grew 2.6 percent, better than Sanofi's own forecast for growth of zero to 2 percent compared with 2009.

Quarterly sales, however, undershot expectations, edging up to 7.395 billion euros compared with a Reuters consensus for 7.501 billion. The company posted a business operating income of 2.515 billion against a consensus for 2.474 billion.

Sanofi proposed to increase its annual dividend to 2.50 euros a share from 2.40 euros.

U.S. and European drugmakers, such as Novartis , AstraZeneca and Sanofi's U.S. partner Bristol-Myers Squibb have given cautious outlooks for 2011 as higher costs from U.S. healthcare reform will hurt a sector grappling with patent expirations and pressure to curb prices.

(Reporting by Caroline Jacobs, Noelle Mennella, Editing by Tim Hepher)