Sanofi raises Genzyme bid; deal expected
Sanofi-Aventis SA has raised its $18.5 billion bid for Cambridge’s Genzyme Corp., and a deal for the French drug giant to buy the state’s largest biotechnology company could be sealed by next week, according to two people briefed on the negotiations.
The unspecified boost in Sanofi’s cash offer yesterday prompted Genzyme to agree to open its books to Sanofi, a significant breakthrough in bargaining sessions that began six months ago.
A sale would put a pillar of Massachusetts’ life sciences industry under the control of a Paris-based pharmaceutical company that until recently had a higher profile in the developing world than the United States.
Yesterday’s moves were part of an agreement in principle on the structure of the buyout. In addition to more cash, general terms of the deal include milestone payments to Genzyme investors if an experimental multiple sclerosis drug meets financial targets, according to the people with knowledge of the talks. They spoke on the condition of anonymity because discussions are secret.
With some of its best-selling drugs having lost patent protection in recent years, Sanofi is looking to Genzyme’s treatments for rare genetic disorders to help revitalize its product line.
Genzyme shares climbed 3.1 percent yesterday, evidence that many investors believe a sale is near. The stock price of $73.35 on the Nasdaq stock exchange was close to a 52-week high.
“They’re moving toward consummating the deal,’’ said biotechnology analyst Phil Nadeau, managing director at investment bank Cowen & Co. in New York.
After months of refusing to give Sanofi access to its financial data and other private documents, Genzyme yesterday said it has signed a confidentiality pact allowing the would-be buyer to conduct “due diligence,’’ a critical step in negotiating a sale.
“This absolutely moves the ball forward,’’ said Jonathan P. Gertler, senior partner at Boston consulting firm Back Bay Life Science Advisors.
Sanofi has formally offered $69 a share, or about $18.5 billion, which Genzyme almost immediately rejected as inadequate. In recent weeks, the parties have been trying to narrow their differences by negotiating a mechanism — called a contingent value right — that would give Genzyme investors additional compensation if Lemtrada, an experimental drug to treat multiple sclerosis, meets sales milestones later.
The chief executives of the two drug makers, Genzyme’s Henri A. Termeer and Sanofi’s Christopher A. Viehbacher, both attended the World Economic Forum in Davos, Switzerland, last week. Spokesmen for the companies said they couldn’t confirm whether a meeting between the two took place.
But even before Davos, Termeer had insisted that Sanofi would have to offer more money.
Analysts said the agreement on the deal structure was consistent with the scenario they see unfolding. “I personally don’t believe the Genzyme board would go for an agreement at $69 a share,’’ said Mark Schoenebaum, senior biotechnology analyst for ISI Group in New York. He projected that Genzyme would fetch about $74 a share, in addition to the contingent value right for Lemtrada.
In regulatory filings yesterday, Genzyme and Sanofi said they had signed a nondisclosure agreement under which Sanofi would be allowed to inspect nonpublic data as part of due diligence. Company representatives declined to specify what data Genzyme was providing.
Typically, businesses considering acquisitions want to examine everything from customer lists and profit margins to market projections and regulatory data. In the case of Genzyme, Sanofi is likely to scrutinize documents involving production problems in recent years at Genzyme’s Allston Landing plant, which was temporarily shut down in the summer of 2009 after workers discovered a viral contamination. Two key drugs — Cerezyme and Fabrayzme — are made at the plant.
In particular, Sanofi is thought to be eager to get a clearer understanding of a consent decree struck last year between Genzyme and the Food and Drug Administration. That document stipulated that the manufacturing plant will remain under federal oversight for seven to eight years because of quality control problems. Genzyme paid a $175 million federal fine because of the contamination. Sanofi also wants to make sure that a new Genzyme plant in Framingham will be open before 2012.
Sanofi first approached Genzyme about a deal last summer, when its share price had dropped as a result of Allston Landing supply disruptions. Genzyme this year plans to resume full shipments of the drugs made in Allston.
Though the company has said it would be open to a sale at the right price, talks between the companies’ advisers have dragged on.
In an effort to keep up the pressure on Genzyme management, Sanofi late last year made a $69-a-share tender offer directly to Genzyme’s shareholders. But with only a small number of shares being turned over, Sanofi has had to extend the tender offer twice — including last week.
Nadeau said the recent involvement of top-ranking executives from both companies in the discussions is a sign of progress. Investment advisers hired by both sides typically don’t want to bring in executives until they have reached a general understanding, he said, for fear that personality squabbles could trip up the deal.
One point of contention is likely to be the final sales price, Nadeau said, noting that Genzyme executives have said repeatedly that Lemtrada milestone payments alone won’t suffice.
Genzyme can make a strong case for a richer offer, he said. “The markets have rallied significantly since Sanofi made its offer. And Genzyme has made significant progress in resolving its manufacturing issues.’’
Robert Weisman can be reached at firstname.lastname@example.org.