Sanofi Hostile Bid for Genzyme Unlikely as Manufacturing Concerns Linger

Sanofi-Aventis SA is unlikely to make a hostile takeover bid for Genzyme Corp. because that wouldn’t allow a full review of manufacturing changes made after a plant contamination caused drug shortages, analysts said.

Genzyme said in a regulatory filing it may take as long as four years to finish fixes requested by U.S. regulators. “A potential deal is only possible after Sanofi has the opportunity for full due diligence,” said Michael Leuchten, an analyst with Barclays Capital in London, in a research report today.

Genzyme, the world’s largest maker of genetic-disease medicines, agreed in May to pay a $175 million penalty after the Food and Drug Administration found quality deficiencies at its Allston Landing facility. Closure for cleanup forced rationing of top genetic drugs, Cerezyme and Fabrazyme, which the FDA said will need to be bottled and shipped from a different facility.

“While these obstacles are not insurmountable, with a number of moving parts it is very unlikely that Sanofi would pursue a hostile approach, blindly assuming all the risk,” Leuchten said. “The company needs access to the books, manufacturing plants and correspondence with the FDA to do the appropriate due diligence.”

Sanofi, based in Paris, outlined an offer of $67 a share to $70 a share in a letter to Cambridge, Massachusetts-based Genzyme’s board, one person familiar with the buyout process said. Genzyme’s shareholders are looking for a bid of more than $80 per share, or $21.3 billion, two people said. They asked not to be named because talks are private.

Sanofi spokesman Jean-Marc Podvin and Genzyme spokesman John Lacey declined to comment.

Shares Fall

Genzyme fell $1.01, or 1.5 percent, to $66.82 at 4 p.m. in Nasdaq Stock Market composite trading. The shares have climbed 23 percent since July 22, the last day of trading before Sanofi’s buyout interest was reported. Sanofi declined 78 euro cents, or 1.7 percent, to 45.45 euros in Paris.

Any potential buyer would want to see how well Genzyme resolved production glitches, said Michael Yee, an analyst with RBC Capital Markets, in an Aug. 5 telephone interview.

“I assume Sanofi is sending in their own manufacturing experts to look at Allston and the FDA warning letter, particularly the issues the FDA has called out as problems,” Yee said. “To get even to the $70 to $80 range, you have to assume manufacturing gets fixed.”

Projected Timeline

Genzyme reported its estimated timeline to finish work requested by the Food and Drug Administration in an Aug. 9 filing. In May, the company projected fixes would take about two to three years. Any change in the timeline won’t have a material impact on drug supplies, Ron Branning, Genzyme’s senior vice president of global product quality, said yesterday in an interview.

“We are on track to do the things we’ve said we’re going to do,” Branning said. “This change in the timing doesn’t reflect anything other than a more thoughtful consideration of how we’re going to complete the remediation plan.”

Branning said Genzyme has until the end of the year to submit its manufacturing remediation plan to the FDA, and the agency generally responds within 30 days.

If changes take longer than outlined in an agreement with the FDA, Genzyme may be required to pay $15,000 a day for each drug involved in any violations, the company said in May. The fixes will be overseen by a third-party consultant, which will continue working with Genzyme for five years afterward.

Bottling and Shipping

Genzyme also said in May that the FDA asked it to move bottling and shipping processes out of the Allston facility. The company has until Nov. 28 to transfer work for U.S. supplies of Cerezyme, Fabrazyme and the thyroid cancer drug Thyrogen, and until Aug. 31, 2011, for products sold outside the U.S. Regulators can impose a penalty of 18.5 percent of revenue for those products if the deadlines aren’t met, Genzyme said.

The company has switched some operations to its facility in Waterford, Ireland, and signed an agreement with Hospira Worldwide Inc. to provide bottle-filling and finishing services for certain medicines, Genzyme said in a July 21 statement.

Any prospective buyer will “want to see if the move to the Waterford plant and Hospira fill-finish is proceeding, and be looking to make sure that stuff is appropriately in place to be done on time,” RBC’s Yee said.

Supplies of Gaucher disease treatment Cerezyme, Genzyme’s best seller with $793 million in sales in 2009, were sufficient to meet about 50 percent of patient demand as of May 24. Genzyme said July 21 that patients will be able to receive normal dosing in the fourth quarter.

Drug Shortages

Fabry disease drug Fabrazyme, with sales of $429.7 million last year, was shipping at 30 percent of demand as of May 24. Genzyme said in July that shipments would increase in the fourth quarter of this year, without specifying when full doses would be available.

Cerezyme costs about $260,000 a year in the U.S., while Fabrazyme’s annual tab is approximately $234,000, said Brian Abrahams, an analyst with Oppenheimer & Co. in New York, in an Aug. 5 interview. Both drugs treat rare diseases in which patients lack enzymes needed for critical bodily functions.

“I don’t think Sanofi is going to look at manufacturing and find anything,” said William Tanner, an analyst with Lazard Capital Markets in New York, in an Aug. 5 telephone interview. “They might have a year or two ago but now with the FDA involved that’s got to be less of a concern. The FDA has already done due diligence.”

To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net. Trista Kelley in London at tkelley2@bloomberg.net

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