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Sanofi Said to Value Genzyme at $76 to $77 a Share

Sanofi Said to Value Genzyme at $20 Billion
A bottle of Genzyme Corp.'s chronic kidney disease treatment Hecterol is arranged for a photo at New London Pharmacy in New York. Photographer: JB Reed/Bloomberg

Sanofi-Aventis SA’s talks with Genzyme Corp. may value the biotechnology company at about $76 to $77 a share, including payments tied to sales of an experimental multiple sclerosis drug, three people with knowledge of the discussions said.

Sanofi, based in Paris, may increase its initial $69-a-share offer by about $2 in cash, an amount that may rise or fall based on due diligence, said one person, who declined to be named because talks are private. The final deal may also include so-called contingent value right payments likely to be worth about $5 to $6 a share, depending on revenue from the MS drug Lemtrada, said two of the people. The value and the terms of the CVR are still fluid, one person said.

Genzyme is seeking a higher cash payment up front and a smaller CVR, said one person. The cash value could reach $74 to $75 with a CVR of about $2, another person said.

A deal may happen within a week, the people said. Negotiations are ongoing and final terms may change. The companies said Jan. 31 they started due diligence. That review will focus on Genzyme’s manufacturing after contamination at a plant in Allston, Massachusetts, three people said.

Contingent value rights for Lemtrada may initially be set at as much as $6 a share and ultimately pay out more if the medicine exceeds sales targets, or smaller amounts if the sales are lower, one person said. If Genzyme fails to win regulatory clearance to sell the drug for MS, the value right would pay out nothing, the person said. Investors would be able to trade the CVR, two people said.

Bo Piela, a spokesman for Genzyme, based in Cambridge, Massachusetts, declined to comment. Sanofi spokesman Jean-Marc Podvin also declined to comment.

Shares Fall

Genzyme shares rose 23 cents, or less than 1 percent, to $73.58 at 4 p.m. New York time in Nasdaq Stock Market trading. Sanofi increased 1.6 percent to 50.69 euros in Paris trading.

“Genzyme shareholders would like to see a higher cash offer and a lower CVR value,” Michael Yee, an analyst with RBC Capital Markets, said today in a telephone interview. “A CVR is an equity interest in the future potential of Campath over a multiyear time frame. That requires the holder to have to hold it for many years, or the asset may be relatively illiquid and trade at a discount in the open market.”

Campath is the name Genzyme uses for Lemtrada in its approved use for blood cancer.

“Due diligence could increase comfort that the manufacturing at Allston, as well as communications with the FDA, are on track,” said Yee, who recommends holding Genzyme shares and doesn’t own any. “That offer may not be the final offer.”

Generic Competition

Acquiring Genzyme, the world’s largest maker of medicines for rare genetic disorders, would help Sanofi Chief Executive Officer Chris Viehbacher offset revenue losses as some of his biggest-selling products, including the blood thinner Plavix and the cancer medicine Taxotere, face competition from generic medicines. Sanofi would gain treatments for Fabry, Gaucher and Pompe diseases as well as the MS drug in development.

Genzyme would be Viehbacher’s 29th acquisition since he took over the company in December 2008, according to Bloomberg data. He has been hunting outside Sanofi’s own laboratories for products that will help the company replenish its pipeline of new drugs.

The acquisition would be the biggest drug industry takeover since Merck & Co. bought rival Schering-Plough Corp. for about $47 billion in November 2009, according to Bloomberg research.

Biotech Premiums

There have been 516 acquisitions of U.S. biotechnology companies announced in the last five years, according to Bloomberg data. The average disclosed size was $492.9 million, and the average premium was 56 percent.

Sanofi went directly to Genzyme shareholders with its $69-a-share bid for the U.S. biotechnology company in October, after Genzyme Chief Executive Officer Henri Termeer spurned the bid as too low and refused to negotiate. Termeer said at the time that the offer, made public Aug. 29, was “inadequate and opportunistic.”

Unlike the pills produced by traditional drug companies, Genzyme’s medicines are made using biological processes and can’t be readily copied by generic-drug makers. Genzyme garners premium prices from insurers and government payers because the therapies provide life-saving benefits.

Sanofi’s takeover approach came while Genzyme was focused on fixing manufacturing defects that cut into sales of its biggest products after a virus contamination at its Allston Landing factory in Boston. Drug shortages caused by the manufacturing problems sent Genzyme’s shares down as much as 43 percent from a 2008 high, and resulted in fines and increased scrutiny from U.S. regulators.

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