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VIDEOIs Genzyme Worthy of a Sanofi Takeover?
Beyond all of Genzyme's baggage there still may be a solid biotech.
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It’s clear that Sanofi has plenty of problems -- the French drugmaker has been tacking on quite a few small companies over the last few years. But those tiny acquisitions (the largest was just about $4 billion) haven't been able to fill the void that's expected when it begins to lose billions in revenue to generic competition.
The problems with generic competition have already begun: A generic for one of its top-selling drugs, Lovenox, a heparin-based drug, has already been approved by the FDA. Last week, the FDA gave the okay, but Sanofi isn’t taking this lightly. It's filed suit to block the generic from reaching the market, saying the agency neglected to properly compare the drugs and that minor differences in manufacturing could result in significant safety concerns. Lovenox, the French drug maker’s second best selling drug, raked in $2.7 billion in sales last year.
Beyond its patent-expiration problems, Sanofi’s pipeline is sorely lacking. Miller Tabak’s Les Funtleyder considers Sanofi’s pipeline to be less than stellar. He believes that companies like Merck (MRK), Bristol-Myers Squibb (BMY), and Novartis (NVS), would be on the better end of the spectrum, while Pfizer (PFE) and Eli Lilly (LLY) occupy the losing end.
So, it’s obvious why Sanofi is in the market for a medium-sized biotech acquisition, but Genzyme doesn’t strike many people as the best choice.
If Sanofi were to buy Genzyme, it would be inheriting a Consent Decree from the FDA. The biotech received the punishment and hefty fines for problems within its manufacturing facilities. The problems have caused two of its major drug candidates to have significant shipping delays and lose market share to competition. Analysts believe the company could regain some of its former glory and return to being a top-tier biotech if it can manage to fix these manufacturing problems.
The company announced earlier this year that shipments of its Fabry disease treatment, Fabrazyme, and the Gaucher’s drug, Cerezyme, might be delayed due to manufacturing problems that developed in 2009. Supply levels of the drug continue to be low and no end seems to be in sight for the shortages. While Genzyme did have the corner on this market, it's since lost market share to Pfizer and Shire Pharmaceuticals (SHPGY).
(For more on Genzyme’s manufacturing woes, see Is Shire the Next Genzyme, Minus the Headaches?
Yet, beyond all of Genzyme’s baggage there once was a solid biotech. “Genzyme’s biggest asset is its Personalized Genetic Health division which includes all of the enzyme replacement therapies such as Cerezyme and Fabrazyme,” wrote Leerink Swann analyst, Josh Schimmer, in a note to investors. “Genzyme has biomanufacturing capacity in multiple worldwide locations to produce its enzyme replacement therapy drugs. It has been selling its key drugs Cerezyme and Fabrazyme for many years on its own. An acquirer would therefore be obtaining a global sales organization with activity in about 100 countries which could help them extend their geographic reach and reduce reliance upon a specific geography.”
Added to Genzyme’s list of positives is it management -- Chief Executive Henri Termeer. Termeer has been harshly criticized for the problems that have cropped up for the biotech in the last couple of years, including a public fight with activist billionaire investor Carl Icahn. It wouldn’t be a stretch to speculate that Termeer might want to leave the company on a high note, specifically a well-priced buyout.
Analysts are now estimating that Genzyme could be worth $75 per share, or about $20 billion (the price that Sanofi is rumored to be willing to pay). This would be a 40% premium to its stock price at the end of June, before any of the acquisition rumors began. Leerink Swann’s Schimmer notes that this is in line with the valuations of past biotech deals. Yet, the market is speculating that Genzyme won't accept a price below $80 per share.
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