Genzyme's `Theoretical Cure' for MS Draws Scrutiny, Spurs Sanofi Purchase

Genzyme Corp.’s experimental drug for multiple sclerosis, the treatment central to negotiations in Sanofi-Aventis SA’s $20.1 billion takeover, will profit investors only if its early promise proves true in later tests.

Genzyme says the drug, known as Lemtrada for MS and sold as Campath for leukemia, will reap peak annual sales of as much as $3.5 billion. While the medicine may meet that projection, indications of infections, thyroid complications and blood disorders may ultimately limit use, doctors say.

To hedge its bets, Sanofi carved out a contingent value right in the deal tied to Lemtrada’s future sales. That protects Sanofi against the potential failure of a high-profile drug acquired to buttress its product portfolio, a setback France’s largest drugmaker suffered Jan. 27 when a cancer drug from a 2009 acquisition didn’t work in a final-stage trial.

“The CVR trend is likely here to stay,” said Jason Kantor, an analyst with RBC Capital Markets in San Francisco, in an e-mail. “It makes M&A easier by bridging the valuation gap of buyers and sellers. Sellers want the ‘full value’ of their asset, and buyers don’t want to pay for future risk.”

Genzyme, the world’s largest maker of treatments for rare genetic diseases, said Lemtrada is likely to become its best- seller. Multiple sclerosis, which affects about 2.5 million people worldwide, is a chronic and incurable disease that destroys the nerves and robs patients of their ability to control their bodies. Many patients have trouble staying on current therapies because they’re difficult to use or cause side effects, according to the National Multiple Sclerosis Society.

No Relapses

Lemtrada is given once a year as an infusion. Patients get five doses over five days. More than 70 percent of patients with early disease given the drug in a study had no relapses or progression of disability for four years, compared with 35 percent of those given Merck KGaA’s Rebif.

Side effects included infections in 72 percent of patients, thyroid complications and cancers. Most infections were in the respiratory or urinary tracts and cleared with treatment.

“To say Campath is going to be a game changer and solve all the problems, I don’t know if that’s true,” said Howard Weiner, director of the Partners Multiple Sclerosis Center at Brigham & Women’s Hospital in Boston. “It’s a theoretical cure, but to know that you need to follow people for 10 years. It’s a very strong drug and has potential side effects.”

Lemtrada is in the third and final stage of tests generally needed for U.S. approval. Results from one of those tests, in patients without prior MS treatment, are expected mid-year, Genzyme said today in a statement. A second study of previously treated patients will be done by the end of 2011. Genzyme said it expects U.S. approval in the second half of next year.

Safety Data

Genzyme has been transparent with its safety data, John Lacey, a spokesman for the Cambridge, Massachusetts-based company, said in an e-mail.

“The analyses to date have consistently indicated unprecedented efficacy versus active treatment and adverse events that were detectable by standard blood tests and easily managed with standard treatments,” Lacey said. “Our Phase 3 program is continuing to progress well with the safety committee as recently as December indicating that no new concerns had been identified and that the trials should continue.”

Sanofi will pay Genzyme’s stockholders $74 a share for Genzyme, the Paris-based company said today in a statement. They will also receive so-called contingent value rights that entitle them to payments of as much as $14 a share depending on the performance of Lemtrada and production levels of two other medicines, Sanofi said.

Contingent Value Rights

Genzyme holders will receive one contingent value right per share. Sanofi will pay $1 per CVR if Genzyme meets production targets this year for two rare-disease drugs, Cerezyme and Fabrazyme, and another $1 if Lemtrada wins U.S. approval. CVR owners will also get $2 if Lemtrada sales exceed $400 million within specified periods in specific territories, $3 if sales exceed $1.8 billion, $4 if they surpass $2.3 billion and $3 if they top $2.8 billion.

The right, which will be publicly traded, will terminate on Dec. 31, 2020, or earlier if the sales goals have already been reached.

The contingent value right allowed Genzyme and Sanofi to overcome disagreements on whether Lemtrada will be a blockbuster drug, Viehbacher said on a conference call today. Sanofi first proposed the idea at a meeting in September, he said.

“The CVR was an extremely important tool to bridge differences in value,” he said. “Genzyme’s own forecasts for Lemtrada were very significant.”

Drug Failure

Sanofi received a recent reminder about the risks of experimental medicines, even after receiving promising results in clinical trials. The company’s breast cancer drug BSI-201, obtained with the June 2009 purchase of San Francisco-based BiPar Sciences Inc., failed to lengthen overall survival or slow disease in a final study released Jan. 27 in women with aggressive tumors. Sanofi acquired closely held BiPar for up to $500 million, based on BSI-201’s success in future trials.

The effectiveness of Lemtrada in second-phase studies was compelling, said Peter Calabresi, director of the Johns Hopkins Multiple Sclerosis Center in Baltimore.

“These early data may set a new bar for clinical outcomes in multiple sclerosis,” said Omar Khan, one of the drug’s researchers and a professor of neurology at Wayne State University School of Medicine, in an April 14 statement after the study results were released.

Boxed Warnings

Campath, the version of Lemtrada sold since 2001 in the U.S. to treat B-cell chronic lymphocytic leukemia, carries boxed warnings, the most stringent caution from the Food and Drug Administration, for weakening the immune system, triggering infections and causing injection site reactions.

“The biggest concern is the safety signal that’s out there already,” Calabresi said in a telephone interview.

While Lemtrada’s once-a-year treatment approach is convenient for doctors and patients, medical complications may go unnoticed and be difficult to treat. With daily pills, side effects may sometimes be eased by halting use. Genzyme’s medicine, by design, remains active in the body for a year.

“Because of the unique way in which it’s dosed, I think it will have niche in the MS market, especially for patients who aren’t compliant with their current medicine,” he said.

Current treatments for the condition include Bayer AG’s Betaseron, Biogen Idec Inc.’s Avonex, German drugmaker Merck’s Rebif, Teva Pharmaceutical Industries Ltd.’s Copaxone and Elan Corp. and Biogen’s Tysabri. Novartis AG’s Gilenya, the most recently approved drug, is the first pill to treat the condition. MS drugs generally must be taken throughout a patient’s life to reduce flare-ups and delay disability.

MS Competitors

Lemtrada may find its sales limited by competition from Gilenya and potential new treatments, said Michael Yee, an analyst at RBC Capital Markets in San Francisco. Yee predicted $1 billion in sales three to five years after approval.

“We think the side-effect profile is going to relegate Lemtrada to later lines of therapy,” said Phil Nadeau, an analyst with Cowen & Co. in New York, in a telephone interview. “We predict relatively modest peak sales estimates,” of $500 million to $1 billion five years after approval, he said.

Genzyme bought worldwide rights to Lemtrada in 2009 from German drugmaker Bayer. At the time, Genzyme agreed to pay Bayer as much as $1.25 billion depending on certain revenue targets if the drug succeeds in MS.

To contact the reporters on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net; Meg Tirrell in New York at mtirrell@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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