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Sanofi chief hints Mass. may lose some Genzyme jobs

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By Robert Weisman
Globe Staff / February 17, 2011

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CAMBRIDGE — Hours after finalizing an agreement to buy Genzyme Corp. for $20.1 billion plus potential additional payments, Sanofi-Aventis SA’s top executive yesterday pledged to preserve the Genzyme brand, but wouldn’t guarantee to keep all of the company’s 4,500 Massachusetts jobs.

“The Genzyme name that’s on the top of this building is going to be there tomorrow, a year from now, and 10 years from now,’’ Sanofi chief executive Christopher A. Viehbacher said at Genzyme’s Kendall Square headquarters shortly after being introduced to employees by his Genzyme counterpart, Henri A. Termeer.

Viehbacher insisted the French drug maker isn’t focused on making cuts at Genzyme, the largest Massachusetts biotechnology company, but sees it as key to Sanofi’s efforts to expand its presence in the United States and in personalized medicine. Toward that end, Genzyme will become the center for Sanofi’s business producing drugs that treat rare diseases. The Cambridge biotechnology company’s success has been built on its expensive treatments for genetic diseases that affect a relatively small number of people worldwide.

But in a later interview, Viehbacher said changes are coming to Genzyme as a result of the merger. “It wouldn’t be credible to say there aren’t going to be some cost savings along the way,’’ he said. “But you want to be careful in terms of risk of disruption. It may be that we reduce in some areas, but that we invest in other areas.’’

In addition to its glass-faced global headquarters, Genzyme Center, the company has an office in Cambridge, major manufacturing sites in Allston and Framingham, a smaller Cambridge production site, research and development operations in Waltham and Framingham, and a distribution center in Northborough.

So far, relatively few Genzyme employees — wary of what the long-rumored sale would mean for them — have flooded biotechnology recruiters with resumes, said Marty Caney, president of EnDevor Recruiting Inc. in Boston. Caney said Genzyme has been hiring new executives and managers in recent months even as it eliminates other jobs as part of a worldwide effort to reduce costs. Overall, the company has about 10,000 employees.

It may be too soon to assess the impact of the Sanofi purchase on Genzyme’s workforce, Caney said. “Sanofi has said Genzyme is going to be the global hub for its rare disease business. So many employees there are confident it will be business as usual.’’

Termeer and Viehbacher acknowledged they encountered a range of emotions, from curiosity to anxiety, at a “town hall’’ meeting with employees at Genzyme headquarters yesterday morning. Among many employees, there is regret over the company’s loss of independence after three decades as an anchor of a thriving life sciences industry in Massachusetts.

“It’s always bittersweet when you have a transaction of this nature,’’ conceded Termeer, 64, who plans to retire from Genzyme once the deal is completed but will advise Sanofi on the transition.

At the same time, Termeer said, Paris-based Sanofi, the world’s fourth-largest pharmaceutical company, can afford to bankroll Genzyme’s drug development programs, including Lemtrada, an experimental drug for multiple sclerosis.

Viehbacher echoed that view, saying Genzyme’s growth will be key to Sanofi replacing sales it lost in recent years when several of the company’s blockbuster drugs lost patent protection, opening them to competition from low-cost generic versions.

“We don’t have financing difficulties,’’ he said, “but we have difficulties finding the right ideas to finance. To me, $20 billion is a lot of money. You don’t spend that unless you see value.’’

Some analysts were skeptical that Sanofi, which has little experience making and selling biotechnology drugs, will be able to capitalize on Genzyme’s assets. “I don’t know what Sanofi is going to bring to the party,’’ said Christopher J. Raymond, managing director at Chicago financial firm Robert W. Baird & Co. “Genzyme invented the business.’’

The two chief executives, who haggled over the sales price for months, praised each other extravagantly during their joint press conference yesterday morning. In the afternoon, they began planning for the integration of the companies. The sale, approved by both companies’ boards Tuesday, is expected to close in the second quarter of the year.

“Chris and I got to know each other very well’’ during nearly nine months of on-and-off bargaining, Termeer said. “And most important, we got to know the value of Genzyme in that context. . . . This was a value question. The strategic question wasn’t that complex.’’

Under the deal’s financial terms, Sanofi has agreed to pay Genzyme stockowners $74 a share up front, a total of $20.1 billion. The buyer sweetened its bid this month after Genzyme’s board and investors rebuffed its initial $69-a-share offer.

To bridge the difference between the $69 and the $80 price Genzyme wanted, the parties agreed to a little-known financial mechanism that gives investors a tradeable security — called a contingent value right — for each Genzyme share they own. The securities give Genzyme shareholders the right to additional payments in the future if the company meets certain sales thresholds for Lemtrada or production targets for its two best-selling enzyme replacement drugs, Cerezyme and Fabrazyme.

The securities are expected to initially trade between $2 and $5 a share. If Genzyme were to meet all the milestones outlined in the deal — a scenario few analysts expect to play out — they could rise up to $14 a share.

For example, if the Food and Drug Administration approved Lemtrada for MS, holders of the security would get an additional $1. And if its global sales eventually top $1.8 billion, they would get another $3.

Contingent value rights, a milestone payment that began cropping up in biotechnology deals only within the past decade, remain relatively rare, said Jim Prutow, partner at Waltham’s PRTM management consulting firm. Prutow said the Sanofi purchase of Genzyme is likely to accelerate their use in future takeover deals.

“Sanofi-Genzyme is going to lead to many more of these because this is the first time a big pharmaceutical company has done a CVR,’’ he said. “A lot of big pharmas feel they overpaid for acquisitions in recent years, and this is a way for them to create a balance.’’

Robert Weisman can be reached at weisman@globe.com.