IHS Global Insight Perspective | |
Significance | The deal will see Sanofi-Aventis disburse an up-front payment worth US$20.1 billion, and potential additional cash payments if specified milestones related to Lemtrada, Cerezyme, and Fabrazyme are achieved. |
Implications | With the takeover of Genzyme, Sanofi-Aventis forays into the rare-disease market, promising to render it less dependent on patent expiry and generic competition. The deal ends months of intense pursuit on the part of Sanofi, which failed to convince Genzyme's shareholders with its initial US$18.5-billion offer. |
Outlook | This is a victory for Sanofi-Aventis and its chief executive officer Chris Viehbacher, who clearly took advantage of Genzyme's manufacturing problems. The challenge going forward will be to raise production levels of Cerezyme and Fabrazyme, and to bring Genzyme's multiple sclerosis drug candidate Lemtrada to the market successfully. |
French pharma giant Sanofi-Aventis and United States biotech Genzyme have entered into a definitive agreement under which Sanofi is to acquire its target for US$74.00 per share in cash, thus a total of approximately US$20.1 billion. In addition to this US$20.1-billion up-front payment, Genzyme shareholders will receive a Contingent Value Right (CVR) for each share they own. This CVR will entitle them to receive additional cash payments upon achievement of specified milestones relating to the multiple sclerosis drug candidate Lemtrada (alemtuzumab), and if a specified milestone relating to production volumes for Cerezyme (imiglucerase) and Fabrazyme (agalsidase beta) is achieved in 2011. The takeover, which was approved by the Boards of Directors of both companies, is expected to be completed early in the second quarter of 2011. Sanofi-Aventis's acquisition of Genzyme has already been cleared by anti-trust authorities in the EU and US.
CVR Agreement
The CVR agreement is an integral part of the deal, and terminates on 31 December 2020, or earlier if the fourth product sales milestone for Genzyme's MS drug candidate Lemtrada has been achieved. The one-time milestones and payments are summarised below:
- US$1.00 per CVR if specified Cerezyme/Fabrazyme production levels are met in 2011
- US$1.00 per CVR upon final US FDA approval of Lemtrada for MS indication
- US$2.00 per CVR if net sales post-launch exceed an aggregate of US$400 million within specified periods per territory
- US$3.00 per CVR if global net sales exceed US$1.8 billion
- US$4.00 per CVR if global net sales exceed US$2.3 billion
- US$3.00 per CVR if global net sales exceed US$2.8 billion
Lemtrada
The MS drug candidate Lemtrada has interestingly been put under the spotlight as part of the valuation of Genzyme, which projects peak sales of US$3.5 billion for the drug (source: Bloomberg), while Sanofi estimates that sales could reach a lower US$700 million. Disagreements on the commercial potential of Lemtrada were solved thanks to the CVR agreement, whose structure "rewards both Genzyme and Sanofi-Aventis shareholders, particularly if Lemtrada outperforms the market's current expectations", said Sanofi chief executive officer Chris Viehbacher. The compound is currently in Phase III clinical trials, and has secured fast-track status from the FDA in the US. Bayer Healthcare (Germany) granted global Campath (alemtuzumab) rights to Genzyme in April 2009, giving the latter rights to develop and commercialise it in the multiple sclerosis market.
Outlook and Implications
The agreement ends several months of intense pursuit on the part of Sanofi-Aventis, which approached Genzyme early last year (see France: 30 August 2010: Sanofi-Aventis Makes Public Genzyme Offer of US$18.5 Bil. and United States: 6 December 2010: Sanofi-Aventis and Genzyme Continue to Dispute Takeover Price). Disagreements on the value of Genzyme delayed Sanofi's ambition to bag the rare-diseases specialist, which—failing to find another potential bidder—finally agreed to enter into talks with the French firm (see France: 11 January 2011: Sanofi in Talks with Genzyme over Key MS Drug and France: 1 February 2011: Sanofi-Aventis and Genzyme Talks Progress to Due Diligence in M&A Deal). This is the biggest takeover deal that has been inked since the purchase of Schering-Plough (US) by Merck & Co. (US) in November 2009 (for US$41.1 billion), and it brings promising prospects to Sanofi, which adds a new growth platform to its structure. The news is extremely positive, as Sanofi expands into a sector in which it has until now been absent. Biotech and rare-disease drugs will become one of the company's main strategic pillars in the years to come, as patent expiry on its lead drugs will increasingly affect its revenues until 2013, a pivotal year for the French firm, which is aiming to be well established in the diabetes and oncology markets by then. Its new footprint on the biotech market will certainly contribute to the operation of a smooth transition, and render Sanofi less dependent on its traditional products and on generic competition before 2013. The deal comes as the year 2010 was synonymous with intense pressure on the generics front for Sanofi, especially for its key drugs Lovenox (enoxaparin), Plavix (clopidogrel), and Taxotere (docetaxel, see France: 9 February 2011: Sanofi Posts Sales Decline in 2010, Provides Disappointing Outlook amid Generic Competition).
Supply constraints on its lead products Cerezyme and Fabrazyme have largely affected Genzyme's earnings during 2010, and played in favour of Sanofi-Aventis in its quest to take over the promising firm (see United States: 17 June 2009: Genzyme Temporarily Shuts Key Facility and United States: 26 June 2009: Genzyme Resumes Cerezyme Shipments). Cerezyme and Fabrazyme achieved respective sales of US$138.7 million and US$39.5 million during the second quarter of 2010, a 53% and 71% drop, respectively. Cerezyme, which garnered blockbuster sales before the contamination issues, began to return to full supply in the third quarter of 2010. But sales of Fabrazyme only reached US$33.9 million, compared with US$115.2 million in the third quarter of 2009, reflecting continued supply constraints. However, Genzyme's future looks bright; especially as binding the two companies' capabilities will boost its potential in the next few years. In the mean time, returning to full supply will remain the main priority for the new Sanofi unit.