The French connection

PARIS—Aug. 30 finally saw the end of widespread speculation that French pharmaceutical giant sanofi-aventis was in the early stages of a large U.S. acquisition for somewhere in the neighborhood of $20 billion when it made a non-binding offer to buy Genzyme Corp. for about $18.5 billion in cash.  

The scuttlebut since early July had been that Genzyme was the target, with more recently stories in mid-August reporting that Genzyme said "No."

Apparently, the rumors were true, as sanofi finally offered $69 a share in a letter to Genzyme CEO Henri A. Termeer and decided to go public with its bid after "several unsuccessful attempts to engage Genzyme's management in discussions." The French pharma added that it is prepared to "consider all alternatives" to complete an acquisition.

However, hardly a day passed before Genzyme announced that its board unanimously rejected the offer, stating that the biotech is "not prepared to engage in merger negotiations with [sanofi-aventis] based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company."

In early July, unnamed sources close to the matter said sanofi had offered a price just under $20 billion for Genzyme. They also said that Chris Viehbacher, CEO of sanofi, briefed his company's board of directors the week of June 28 that there were plans for a major acquisition in the United States.

But July 26 brought news from Bloomberg, and from two sources close to the matter—presumably the same people quoted in earlier Bloomberg stories—that Genzyme officially turned sanofi-aventis down. Analysts were saying at that point that Genzyme could command at least $22 billion, or $80 a share, because of the potential for a revenue surge once Genzyme resolves manufacturing defects that have been keeping sales down for its existing products and slowing its introduction of new medicines into the market.

Genzyme's revenue, which was $4.5 billion last year, could rise by 47 percent to around $6.6 billion by 2013, says Geoff Porges, an analyst with Sanford C. Bernstein & Co.
Analysts were also noting that if additional companies were to enter into negotiations with Genzyme for a deal, an $80-per-share price could be reached and perhaps exceeded quite quickly.

"If sanofi goes hostile, I don't believe a price under $75 [per share] will get it done," said Mark Schoenebaum, an analyst with ISI Group in news reports August 30. "The majority of shareholders probably will hold out until sanofi offers something closer to $80 than $70."

An acquisition of Genzyme would help sanofi expand in the biotech arena, market watchers have noted since the rumors first started flying, but the Genzyme story wasn't the only speculation around, and one could argue that other U.S. targets for acquisition exist if Genzyme proves too pricey. In fact, as people were speculating over the past month or two what company was sanofi's target, business analysis and opinion firm Datamonitor offered some other thoughts as to others that might have been the target—or who perhaps might become a target if Genzyme proves to be a non-starter.

Giles Somers, a senior healthcare analyst at Datamonitor, had said in July that "based on current market capitalizations and strategic fits," Biogen Idec, Allergan or Genzyme were all likely candidates for a sanofi acquisition. "Currently capitalized at $13.3 billion, allowing for a premium, an acquisition of Genzyme would likely end up somewhere in the region of $20 billion. Similarly, Biogen Idec has a market capitalization of $12.5 billion, while at $17.9 billion, Allergan would potentially require somewhat more than $20 billion," he also pointed out.

sanofi-aventis has completed numerous acquisitions as part of a diversification strategy implemented since Viehbacher took the reins of sanofi in September 2008, Somers noted, adding, "To date, the majority of these acquisitions have taken place in the generics, consumer healthcare and vaccine sectors as the company looks to expand its presence in areas that both benefit from high-growth potential but are also insulated from the competitive threat of patent expiration and generic competition.

"If suggestions of an imminent $20 billion acquisition are true, however, this would signal a notable statement of intent by the company as it looks to reshape the focus of its core prescription pharmaceuticals business, building on the major overhaul of the company's internal R&D pipeline last year," Somers added.  

Looking at the potential fits with sanofi, Datamonitor notes these facts about the three companies:

First, Allergan represents a fit with sanofi's recent activity in the ophthalmology space, following the acquisition of Fovea and gene therapy deal with Oxford Biomedica. However, Datamonitor believes that the motivation behind these deals was the high unmet needs addressed by these companies' treatments rather than a desire to build a wider presence in ophthalmology, per se.

Second, Biogen Idec would bring sanofi-aventis Avonex and Tysabri, leading treatments for multiple sclerosis. Sanofi co-promotes competing product Copaxone in the European Union until 2012 when Teva will regain full rights. (U.S. rights were returned to Teva in 2008.). Biogen Idec would also provide biologic capabilities, particularly in monoclonal antibodies.

Third, Genzyme's business is focused on specialized, niche disorders. The company's share price has been knocked over the past year by manufacturing issues and as such providing an opportunity to acquire the company at a less demanding price. Datamonitor forecasts strong revenue growth for Genzyme at 11.1 percent CAGR from 2009 to 2015, compared to 3.5 percent for Allergan and a slight decline for Biogen Idec over that period. Genzyme, like Biogen Idec, offers a platform for further expansion into the biologics sector. Therefore, combining a good strategic fit with strong growth prospects and a depressed stock price, Genzyme can in some ways be seen as the most attractive target for sanofi of the three companies discussed, price allowing.

Amy Reilly, a spokeswoman for Cambridge, Mass.-based Biogen, and Caroline Van Hove, a spokeswoman for Irvine, Calif.-based Allergan have both said—like the Genzyme spokeperson has—that they don't comment on market rumors.

Viehbacher has indicated in the past the he is counting on acquisitions to help replace revenue that sanofi is losing as its medicines face competition from lower-priced generic drugs, and the company already has spent about $17 billion on 25 acquisitions since 2008, according to data compiled by Bloomberg.

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