Three months after Sanofi-Aventis SA took its $18.5 billion Genzyme Corp. bid hostile, the chief executives of both companies say talks are progressing, with a potential special payment tied to the success of a new drug.
“This is not a war,” Genzyme Chairman and Chief Executive Officer Henri Termeer said in an interview yesterday at the J.P. Morgan Healthcare Conference in San Francisco. At the beginning, “it was a little bit tense. But it never deteriorated; it actually improved. We found a way to talk.”
As recently as October, the two chiefs were combative in their descriptions of talks. Sanofi said Termeer had “blocked at every turn” efforts to negotiate, in an Oct. 4 statement after the Paris-based drugmaker announced the offer. Genzyme that month called the offer “inadequate and opportunistic.” Now, talks are more cordial, focusing on a so-called contingent value right, or supplemental fee, if Genzyme can market its cancer drug alemtuzumab for a new use in multiple sclerosis.
“It’s pretty encouraging,” Lionel Melka, co-manager of Paris-based Bernheim, Dreyfus & Co.’s Diva Synergy Fund, an event-driven fund focused on acquisition targets and an owner of Genzyme shares, said in a telephone interview today. “Genzyme is resigned; they don’t really have other options. Sanofi has the financing in place. The discussions are going in the good direction.”
Termeer, in yesterday’s interview, said that there is value for both sides to do a deal “in a negotiated manner.” A proxy battle, in which Sanofi would aim to replace Genzyme’s board of directors, “is unattractive to everybody,” he said.
Genzyme was unchanged at $72.34 at 4 p.m. New York time in Nasdaq Stock Market trading today. The shares have traded above Sanofi’s $69-a-share offer since Sanofi made its bid public in August, and have gained 34 percent since July 22, the last day of trading before the buyout interest was first reported.
Sanofi rose 1.81 euros, or 3.7 percent, to 51.25 euros in Paris, the biggest gain since May 10.
Sanofi, France’s largest drugmaker, has made 37 acquisitions in the last five years with an average size of $1.6 billion, according to Bloomberg data. The company is seeking ways to replace revenue it will lose as some of its biggest- selling products, such as the blood thinner Plavix and the cancer drug Taxotere, face competition from generic medicines.
Genzyme’s drugs are less likely to face generic competitors because they’re made from living cells and are harder to copy than pills made from chemicals. The U.S. Food and Drug Administration designated the therapies as orphan drugs because they’re for diseases without other treatment options, giving them more patent protection.
Termeer said yesterday that a special payment plan based on the value of alemtuzumab needs to be negotiated before a sale price is struck with Sanofi, and that $69 a share even with the potential for added payments isn’t enough.
“We’ve been very clear that $69 is not a starting point, and that’s still the same today,” Termeer said. The $69-a-share bid, even with an added CVR, is “not a starting point” for further discussions, he said. “There is a wish on both sides to understand it -- then we can talk about the broader context.”
Sanofi went directly to shareholders of the Cambridge, Massachusetts-based biotech with its $69-a-share bid in October after Genzyme rejected the offer as too low. The companies said Jan. 10 that their financial advisers and other representatives from both firms had met to discuss a so-called contingent value right plan, or CVR, related to milestones for Genzyme’s MS drug.
European Union antitrust regulators today approved the proposed deal. The acquisition wouldn’t harm competition in the 27-nation region, the European Commission said in an e-mailed statement.
A ‘Deal in the U.S.’
Sanofi CEO Chris Viehbacher said yesterday at the same conference that expanding in the U.S. is critical.
“Everyone’s busy talking about India and China, but you can’t write off the United States,” Viehbacher said. “It’s become important for us to do a deal in the U.S. and also to balance out the geographies a bit.”
Genzyme has projected peak sales of $3.5 billion for alemtuzumab, known as Campath in the blood cancer indication and which would be sold as Lemtrada if approved for multiple sclerosis. Sanofi has cited analysts’ estimates of about $700 million.
“We’re very focused in discussions around the CVR,” Termeer said in the interview. “So there is progress in that regard.” He said he hasn’t met with Viehbacher specifically about the bid over the past several weeks, though they have discussed other matters.
During his presentation at the conference, Viehbacher said that he doesn’t know “how far we’ll get” with the takeover attempt. The deal must make sense for shareholders of both companies, he said.
In the Audience
Termeer was in the audience for Viehbacher’s presentation, and afterward said in an interview that he believed there could be a fit between the companies.
“He has a health-care conglomerate, and that’s one way when you are in this business to be able to afford to be an innovator, because he earns money,” Termeer said. “Those earnings can be dedicated to doing truly remarkable things from a health-care contribution point of view, including doing the things that we do.
“I don’t see a conflict in being a diverse enterprise that earns profits that they can invest in important medical contributions,” he said.
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