Booster dose

Paris, Feb. 16 (Reuters): French drug maker Sanofi-aventis SA agreed to buy Genzyme Corp with a sweetened $20.1 billion cash offer plus payments tied to the success of the US biotech group’s drugs, the companies said today.

The acquisition, which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme’s Henri Termeer, is expected to boost Sanofi’s earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash and offer a tradable contingent value right (CVR), whose value will depend on Genzyme’s experimental multiple sclerosis drug Lemtrada and production of two other medicines.

The deal is the second biggest in biotech history and will help Sanofi offset declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by about 0.75-1.0 euro per share by 2013.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 per share in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag, but the market value of the CVR is expected to be deeply discounted given uncertainties about future Lemtrada sales, the long time horizon and the fact many investors will not want to hold such an instrument.

Value boost

Shares in Sanofi rose 3.3 per cent by 1035 GMT as investors welcomed the boost to earnings.

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme — two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked to Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

“I think the CVR was an extremely important tool to bridge differences in value,” Viehbacher said.

His decision to buy Genzyme underscores large drug makers’ growing reliance on biotech to reinvigorate their pipelines. It follows AstraZeneca’s acquisition of MedImmmune in 2007, Eli Lilly buying Imclone in 2008 and Roche’s record buy of the rest of Genentech in 2009.

Wednesday’s deal follows a lengthy stand-off between Viehbacher and Termeer.

Termeer was reluctant to sell the company but a manufacturing crisis caused a shortage of key Genzyme drugs and by May last year the company’s shares had fallen 46 per cent from a high of close to $84 in July 2008.