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Sanofi Goes Public in Genzyme Bid

Sanofi-Aventis finally went public with its bid for Genzyme, and the biotech fired back with a press release noting its rejection of what it called an “opportunistic” bid that undervalues the company.

A little dateline to bring everyone who spent August laying on beaches up to speed on Sanofi’s courtship of Genzyme: Media reports of talks between Sanofi and Genzyme first surfaced on July 24. Sanofi’s CEO Chris Viehbacher sent over its “bear hug” offer (for those not in the financial world, a bear hug is a friendly bid that is well above the company’s recent share price) to Genzyme on July 29th. On August 11, Genzyme’s CEO Henri Termeer fired back a letter to Viehbacher rejecting the bid as “opportunistic.” Nevertheless, the companies’ financial advisors subsequently met on August 24, although Viehbacher said the meeting only reinforced Genzyme’s uncooperativeness. Yesterday, Sanofi put the pressure on by issuing a press release saying it had made its offer for Genzyme and this morning held a conference call with analysts to discuss the proposed transaction. Genzyme issued its own press release this morning calling the price tag “unrealistic” and undervaluing the company.

To review, Genzyme has been on a bit of a rollercoaster ride due to serious manufacturing issues at its Allston, Mass., plant. A viral contamination at the facility led to shortages of Cerezyme and Fabryzme, both treatments for rare diseases. Patients, many with nowhere else to turn for therapy, were infuriated by the protracted process of getting the plant back up and running. In March, the government finally issued a consent decree, under which a third party steps in to assess the plant’s operations. Genzyme was fined $175 million in the ordeal, and only last week said Cerezyme supply would soon be back to normal.

Needless to say, the manufacturing woes and drug shortages pushed down Genzyme’s stock price, making it an attractive acquisition target. Sanofi’s bid was a 38% premium on the biotech’s stock price on July 1, but Genzyme feels the company is being undervalued.

So far, Sanofi has refused to budge on price. When news of the potential acquisition first surfaced in July, many analysts said they expected Genzyme to garner closer to $75 per share.

On this morning’s call, analysts probed whether and by how much Sanofi would be willing to increase its bid if the biotech were to be in better shape than it appeared. After all, some of the manufacturing issues appear to be clearing. And Viehbacher said today that the meeting of the companies’ financial advisors only lasted an hour and a half, not really enough time to constitute due diligence on the business.

But Viehbacher appeared skeptical that Genzyme has any tricks up its sleeve, given the proxy fight this spring between Genzyme and activist investor Carl Icahn. “This is a company that had on its Sunday best during a proxy battle just a few short months ago,” during which any good news about the pipeline or manufacturing issues was out in the marketplace. He pointed out that Genzyme’s stock dropped rather than climbed after the biotech announced last week that levels of Cerezyme, one of the drugs affected by the manufacturing issues, would recover to 100% in the near future.

Viehbacher did provide some insight into what would happen with Genzyme once it was brought into the Sanofi fold. The rare diseases unit would continue as a stand alone, he said, whereas the other businesses—cardiovascular, oncology, hematology, and biosurgery—would benefit from being folded into a larger marketing infrastructure.

There was also some talk of the potential for synergies between Genzyme’s Campath, a monoclonal antibody approved for leukemia and in late-stage trials for multiple sclerosis, and Sanofi’s oral MS drug teriflunomide (conveniently, some positive Phase III data on teriflunomide was released today).

So what’s next? Most expect this negotiation process to be a long one, in no small part since Sanofi has spent over a month wooing Genzyme without upping its bid. In the face of management resistance, Sanofi is now going after shareholders, but can it get by without upping the ante?

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