Genzyme makes case for demanding higher Sanofi bid

By Reuters
Posted Oct. 22, 2010 at 5:18 p.m.

Genzyme Corp. made its case for why it is worth more than Sanofi-Aventis’s $18.5 billion offer, forecasting 2011 profit above Wall Street estimates and sales of $3 billion for its experimental multiple sclerosis drug.

Genzyme’s presentation in New York on Friday kicks off a series of meetings with investors over the next few weeks and shows how far apart the two companies are on a potential deal.

Genzyme executives said their earnings forecast implied a price as high as $89 per share, based on the multiple underlying Sanofi’s hostile $69 per share offer.

But they stressed that $89 was not a negotiating price, merely a benchmark based on Genzyme’s earnings forecast. A Sanofi spokesman called $89 per share “totally unrealistic.”

Shares in Genzyme rose 0.7 percent to $72.45 after the presentation, suggesting that investors believe it had raised the threshold on what Sanofi must ultimately pay. Genzyme investors and analysts polled by Reuters in August, on average, said a price close to $78 per share could seal a deal.

“Any time a company misses guidance so many times there is a tendency to be skeptical. But the detail behind the numbers today was greater than normal,” said Baker Burleson, an analyst from Fox Point Capital Management.

“They have some savvy people on the board with Ralph Whitworth and Carl Icahn, which makes me think the numbers would have been vetted more than they would have historically.” Genzyme officials have not been in contact with Sanofi since the French drugmaker launched its hostile bid on Oct 4. Sanofi, which will report its earnings next week, has had ongoing talks with the U.S. biotech company’s investors. For full coverage, see:

“We have been very clear that $69 did not create a starting point for serious discussions,” said Genzyme Chief Executive Henri Termeer. “We respect that it’s a serious offer, but it’s not an adequate offer.”

Genzyme said its board was united in rejecting the offer and in its strategy going forward.


Sanofi’s offer represents a multiple of just over 19 times analysts’ average 2011 earnings estimates of $3.57 per share.

Termeer, providing a 2011 outlook for the first time at the investor meeting in New York, said the company expects earnings of $4.30 to $4.60 a share. Applying the same multiple to that forecast, Sanofi would need to offer up to $89 a share.

Vivek Channamsetty, an analyst with One East Partners, said it was possible for Genzyme to meet its new forecasts, despite a recent track record of repeatedly cutting forecasts since a manufacturing crisis erupted at its Boston plant in 2008.

Last year, Genzyme was forced to close its manufacturing plant, causing shortages of two key drugs, Cerezyme, a treatment for Gaucher disease and Fabrazyme, a treatment for Fabry disease. Termeer said “tremendous progress has been made” in overcoming that crisis and that Sanofi’s offer does not reflect that.

“Sanofi is probably baking in too much risk and Genzyme may not be accounting for enough risk. The answer is probably somewhere in the middle,” Channamsetty said.

Genzyme also expects 2011 revenue of $5 billion to $5.1 billion. Over the five years from 2008 to 2013, the company expects revenue growth of 12 percent annually, to as much as $7.5 billion. It sees annual earnings growth, excluding one-time items, of 35 percent for the period.

Genzyme said it had begun discussions with other companies to better understand its value in the market. These talks could potentially lead to partnerships or other transactions.

“There are no limitations on these discussions,” Whitworth, a board member and head of Relational Investors, told reporters after the investor presentation.


Like most large drugmakers facing key patent expirations, Sanofi needs new products as it deals with generic competition for its blood thinner Lovenox and the looming patent loss of its biggest drug, the blood clot preventer Plavix.

Genzyme said its Campath multiple sclerosis drug could generate peak annual sales of close to $3 billion — more than four times the $700 million figure cited by Sanofi — and by some measures could approach $3.5 billion by 2017.

Independent market research group BioMedTracker has forecast Campath sales of about $1.6 billion in 2019, while some analysts see closer to $2 billion.

“This is a tremendous asset for our shareholders,” Termeer said. “This is what people in our field of discovery live for.”

Genzyme sees Campath becoming the new standard of care and expects the drug, known chemically as alemtuzumab, to be more successful than Tysabri, a still-growing MS drug sold by Biogen Idec Inc and Elan Corp that had second quarter sales of nearly $300 million.

Genzyme executives and directors stressed that they were not offering a deal price, and gave other parameters for valuing the company more highly.

Sanofi has said it would pay more for Genzyme given proof the company was worth more. Genzyme said the share price Sanofi used as a starting point was now irrelevant and took advantage of a time when its shares were depressed by a manufacturing crisis.

Genzyme also said Sanofi was not using similar deals in the biotech industry as a benchmark, such as Eli Lilly and Co’s purchase of ImClone and AstraZeneca’s buyout of MedImmune. Based on such deals, Genzyme estimates a median share price premium of 73 percent is a more appropriate level, compared with the 31 percent premium implied by Sanofi’s bid.

It dismissed concerns that its shares could drop back to their price prior to the offer if Sanofi walks away, particularly since the biotech sector as a whole has risen since Sanofi’s offer. The NYSE Arca Biotech Index is up about 15 percent since July 1, while the Nasdaq Biotech Index has gained nearly 17 percent.


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