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Sanofi to buy Genzyme for over $20 billion

By Nina Sovich and Noelle Mennella

PARIS (Reuters) - French drugmaker Sanofi-Aventis SA agreed to buy GENZYME (GENZ.NQ)Corp with a sweetened $20.1 billion cash offer, plus payments tied to the success of the U.S. biotech group's drugs, the companies said on Wednesday.

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash and offer a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production of two other medicines.

The deal's announcement, which confirmed what sources with knowledge of the talks had told Reuters on Tuesday, marks the second-biggest acquisition in biotech history and will help Sanofi offset declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by between 0.75 and 1.0 euro per share by 2013.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 per share in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag, but the market value of the CVR is expected to be deeply discounted given uncertainties about future Lemtrada sales, the long time horizon and the fact many investors will not want to hold such an instrument.

Tim Anderson, an analyst at Sanford Bernstein, said Sanofi would probably end up making payouts of no more than $4 per CVR, or around $1.1 billion, while Viehbacher told reporters that market estimates the CVR would trade at between $2 and $3 "may not be unrealistic." The CVR will be listed on Nasdaq.

"What we anticipate is that there will be a lot of sellers of that CVR, which is going to trade like an option," said Jean-Francois Comte, portfolio manager at Paris-based hedge fund Lutetia Capital. "So there might be another arbitrage opportunity on the CVR in the next few days."

VALUE BRIDGE

Shares in Sanofi rose 3.6 percent by 1525 GMT as investors welcomed the boost to earnings. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast of a 12 to 16 percent uplift to 2013 earnings was above his expectation of 10 percent, although the drugmaker gave no breakdown on synergies.

Genzyme was 1.5 percent higher at $75.46 in early trade.

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked to Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

Sanofi thinks that number is unlikely to be hit but, if it were, it would be good news for shareholders in both companies.

"I told Henri, if we have to pay the last milestone I'll bring him the check personally and with his favorite wine to accompany that," Viehbacher said.

"I think the CVR was an extremely important tool to bridge differences in value."

The decision to buy Genzyme underscores large drugmakers' growing reliance on biotech to reinvigorate their pipelines. It follows AstraZeneca's acquisition of MedImmmune in 2007, Eli Lilly buying Imclone in 2008 and Roche's record buy of the rest of Genentech for $46.8 billion in 2009.

Genzyme, which posted a quarterly profit on Wednesday within its forecast range, said it would have to pay Sanofi a fee of $575 million if the deal was terminated.

Genzyme was the first company to show that money could be made by making drugs for diseases with small patient populations. In 2009 it generated revenue of $4.5 billion, enough to replace roughly a third of the sales Sanofi is expected to lose through 2013 to generic competition.

Viehbacher said rare diseases represented a huge unmet need, with around 6,000 to 7,000 such disorders in the world for which there are treatments for only about 10 percent. "It is a huge area of opportunity," he said.

Competition in the space is increasing but Viehbacher said Genzyme's position was extremely strong. "Genzyme is really the gold standard in patient-centric care and we believe the Genzyme brand will be able to protect that franchise," he said.

Wednesday's deal follows a lengthy stand-off between Viehbacher and Termeer, a Dutchman who has led the company for more than 25 years. He will resign and chairman and CEO of Genzyme when the transaction is completed.

Termeer was reluctant to sell the company that had come to define him, but a manufacturing crisis caused a shortage of key Genzyme drugs and by May last year the company's shares had fallen 46 percent from a high of close to $84 in July 2008.

Sanofi made its first formal offer of $69 a share in August.

Credit Suisse and Goldman Sachs advised Genzyme. Evercore Partners and JPMorgan were Sanofi's lead advisers.

(Additional reporting by Tim Hepher, with Ben Hirschler and Chris Vellacott in London; Editing by Hans Peters and Louise Heavens)

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