Sanofi/Genzyme: The End Is Nigh !?!

The blogosphere erupted Tuesday afternoon with the news that – finally! finally! – Sanofi Aventis and Genzyme appear to have reached rapprochement -- and it's only going to cost the French pharma $19.2 billion upfront.

“This is a happy end with a deal that is good for both companies,” Genzyme shareholder Lionel Melka, co-manager of Bernheim, Dreyfus and Co.’s Diva Synergy Fund, told IN VIVO Blog on February 15.

But just how good a deal is it for Sanofi shareholders at $74-a-share?

That’s just one of the many questions swirling ahead of any official disclosure of the acquisition, details of which are expected to be announced in concert with Genzyme’s quarterly earnings call February 16.

Oh, we know that Genzyme provides Sanofi with access to a basket of lucrative marketed products, but these assets are also mature and facing competition from upstarts who have capitalized on the big biotech’s manufacturing missteps. At this undeniably rich price tag, how easy will it be for Sanofi to extract full value from the deal? Given the months of bitter back-and-forth, can the French pharma integrate Genzyme and retain important people like COO David Meeker and Senior VP, Quality, Ron Branning, who are essential to helping Sanofi make the big biotech a successful US subsidiary?

There’s no question this is a good deal for Termeer, who saw his company’s share price slide from a high in August 2008 of $83.25 to around $48 in the wake of 2009 manufacturing difficulties that sent sales of top drugs Cerezyme and Fabrazyme tumbling and, ultimately, resulted in a consent decree. Were the deal not to transpire, it’s highly likely he would have been forced out by activist shareholders like Icahn Partners. Now he can face shareholders with a straight face and tell them he restored a good chunk of the stock's value as a result of this transaction, thereby justifying what’s likely to be a handsome exit package.

But Sanofi shareholders may not be so happy; reports in recent weeks indicate some were less than enthusiastic about the possibility of a sweetened offer, believing the initial $69-a-share tender provided fair value. Viehbacher seemed to be trying to allay their concerns as recently as a month ago when he addressed the biopharma community at the annual J.P. Morgan Healthcare conference. “We will only do a deal if both Genzyme shareholders and Sanofi shareholders feel there is value for both,” he said.

Interestingly, in that same address, Viehbacher also noted during that break-out session that M&A hasn’t generated value for big pharma shareholders, in part because in an era of “cheap debt” it’s not hard to make any deal look accretive to earnings. “We’ve tried to be much more disciplined and we start to evaluate these deals not just on the basis of accretion,” he said.

Those comments may or may not come back to haunt him. In the interim, the onus is on Viehbacher to provide in specific detail an answer to a question Sanofi shareholders are almost sure to ask: how will the nearly $20 billion acquisition of Genzyme position Sanofi, a company trying even now to scale a significant patent cliff, for future growth?

Undoubtedly, Genzyme’s expertise in rare diseases, an area that has become au courant for big pharma, will come up. “As somebody said to me this morning, actually, we’re all ultimately going to be in rare diseases,” Viehbacher told JPMers. “As we develop biomarkers and narrow the population and the price per patient goes up, this is probably a model that we are actually going to see outside of the classic orphan drug business.”

Far be it from IN VIVO Blog to argue with the estimable Viehbacher on that point. However, does expertise in rare disease require spending $20 billion? Can't a company as externally focused as Sanofi claims to be obtain the skills via some other route? Indeed, as GSK’s initiatives in the rare disease space show, another alternative to a costly and time consuming acquisition is an alliance-driven model, where partnerships provide access to products that are now in vogue in part because they are largely protected from health care reform and generic competition, and, as such, have high pricing power.

Let's assume it's better to acquire than ally. Aren't there potentially cheaper acquisition candidates for the plucking? (Alexion and BioMarin are just two possibilities that come to mind.) Viewed alongside the proposed take out of Genzyme, Shire's 2005 acquisition of Transkaryotic Therapies for $1.57 billion and a 31% premium looks like a veritable bargain. And maybe that's the rub; late to the rare disease party, Sanofi has little choice but to overpay to get access to these niche-y products.

Of course there's another reason for Sanofi’s interest in Genzyme: accessing its biologics manufacturing facilities. Every big pharma is amassing greater biologics capabilities, lured by the specialty nature of the products. But building plants is not only expensive – it takes time. (Look how long Genzyme’s been building its Framingham site.) “By acquiring Genzyme, Sanofi gets the manufacturing capability right away,” says Salveen Richter, an analyst with Collins Stewart. “They probably believe they can use their fill/finish and manufacturing expertise to ameliorate the current manufacturing issues at Allston,” the Genzyme manufacturing site currently operating under a consent decree.

Based on Richter’s sum-of-the-parts analysis, which values Genzyme between $72 and $84 a share, she believes the sweetened offer is a fair deal for both sides. In all likelihood, it will be months before that assessment can be made -- and the answer will hinge mightily on how Sanofi manages the integration of Genzyme. Viehbacher and his team would do well to look at recent past history – AstraZeneca/MedImmune, Roche/Genentech, Takeda/Millennium Pharmaceuticals – for some pointers.

-- Ellen Licking and Joseph Haas

Image courtesy of flickrer jasongrahamhowell used with permission through a creative commons license.

A Deals Of The Week Valentine

The most anticipated deal of the week – Sanofi Aventis’ multi-billion take-out of Genzyme – has yet to come to fruition. That’s not to say the deal is a no go (wouldn't the aftermath of THAT be fun to watch). Indeed, public statements by the French pharma’s Viehbacher suggest Sanofi still desires the big biotech, but is being measured in its diligence.

The months long saga has been more “he said/he said” than SEC-leaked endearments; still for journos avidly covering the “news” the nothings have been sweet. In advance of Monday's Hallmark holiday, perhaps its time for Viehbacher to dial up the Canadian charm, and send a love letter (containing the desired contingent value rights to Campath/Lemtrada, of course) to Termeer and company. (If the deal goes through, does this makeTermeer Viehbacher's work spouse?)

IN VIVO Blog suggests borrowing a line or two from Robert Browning's famous missive to one lovely Elizabeth Barrett. You know, the one that spawned Sonnets From The Portuguese and the immortal question "How do I love thee?" Perhaps something like this..

I love your verses drugs with all my heart, dear Miss Barrett Henri, -- and this is no off-hand complimentary letter that I shall write, --whatever else, no prompt matter-of-course recognition of your genius and there a graceful and natural end of the thing: since the day last week summer when I first read your poems realized the worth of Cerezyme and Fabrazyme despite the manufacturing snafus, I quite laugh to remember how I have been turning again in my mind what I should be able to tell you of their effect upon me (especially after this recent earnings report) ... Perhaps even, as a loyal fellow-craftsman (and CEO honor-bound to return shareholder value) should, try and find fault and do you some little good to be proud of herafter!

Of course, said fault-finding comes with its own ulterior motives, but whether Sanofi's shareholders will be proud of the outcome depends on the deal's final price tag. In the spirit of reciprocity, we suggest Termeer start counting the ways he loves Sanofi, not least because of the exit package he stands to receive if the deal goes through.

In the interim, if you can't say it with contingent value rights, at least remember to say it with flowers. Oh, and make sure to read another edition of...


Cephalon/Alba Therapeutics: Hours before reporting full-year results on Feb. 10, Cephalon said it signed an option agreement for Alba's treatment of the autoimmune disorder celiac disease. Cephalon will pay $7 million upfront and extend a credit line to Alba to fund a Phase IIb trial of the drug, larazotide acetate. After completion of the study, the Frazier, Pa.-based Cephalon will review results with the option to purchase assets related to the drug for $15 million. Beyond the $22 million in upfront and option fees, Alba is eligible to receive unspecified regulatory and sales milestones should Cephalon bring the drug to market. Celiac disease, also known as sprue, is caused by an autoimmune reaction to the ingestion of gluten, found in certain grain-based products such as bread and pasta. It affects more than 2 million people in the US. Cephalon said on a conference call that is sees significant revenue opportunities for larazotide. The deal is Cephalon's first since founder and CEO Frank Baldino passed away late last year after a four-month medical leave of absence. New CEO Kevin Buchi was previously Cephalon CFO and COO and a longtime colleague of Baldino. -- Lisa LaMotta

Salix/Progenics: Progenics Pharmaceuticals this week found a new development partner in specialty player Salix Pharmaceuticals for its subcutaneous injection to treat opioid-induced constipation, Relistor, one of the casualties of the Pfizer/Wyeth deal. Recall that Wyeth, which initially licensed the compound in 2005, paid Progenics a $10 million break-up fee in 2009 to take back product rights. During an extended transition period, the world’s biggest pharma has continued to sell Relistor via a 1700-member sales force, but 2010 worldwide sales were an anemic $16 million. Thus, the entrance of new suitor Salix via a sweetheart of a deal is undeniably good news for Progenics. As part of the alliance announced February 7, Salix pays $60 million upfront plus milestones for worldwide rights (excluding Japan) to Relistor, and will assume all development, registration, and commercialization costs for the drug. Salix, which only intends to market the drug state side, will also pay Progenics 60% of the revenue earned by contractors on ex-US sales. Salix is confident its GI-focused sales force can fully monetize Relistor’s value, thanks in part to an oral product formulation currently in Phase III development. CEO Carolyn Logan told investors February 7, "Relistor just [did] not receive all the attention it would receive in an organization like ours." – Joseph Haas & Ellen Licking

Pfizer/Ferrosan: From Russia and Norway and Eastern Europe with love? Pfizer’s acquisition February 7 of Danish firm Ferrosan’s consumer health care unit shows diversification is alive and well within the world’s biggest pharma, even as the company pulls back on R&D. Exact financial terms of the deal weren’t disclosed, but sister publication "The Tan Sheet" reports executives from Ferrosan's owner, Altor Equity Partners, said the deal was larger than €100 million ($136 million according to same-day conversion rates); analysts with UBS Investment Research, meanwhile, assume a price around $600 million based on Ferrosan's recent yearly sales figures. The deal gives Pfizer some key brands -- including Multi-tabs multivitamins, Bifiform probiotics and the Imedeen skin care supplement line – in Nordic countries as well as the rapidly growing market of Russia. More importantly, it expands Pfizer’s global footprint, allowing for the expanded distribution of its own nutritional brands, such as Centrum multivitamins and Caltrate calcium and vitamin D supplements. – Elizabeth Crawford

Danaher/Beckman Coulter: The big deal of the week was diversified med-tech play Danaher’s $6.8 billion acquisition of Beckman Coulter, which has struggled to get its testing business back on track after an FDA-triggered withdrawal of its cardiac troponin test last spring. The sale isn’t unexpected; following the resignation of Beckman CEO Scott Garrett in September 2010 and ongoing quality issues, speculation about a possible deal has been rampant since December, when it was widely repored the firm had retained Goldman Sachs. Nor is it surprising that Danaher is the ultimate buyer; Beckman is not known as a particularly innovative company and has been very slow to move into the molecular diagnostics space. It therefore makes sense that its assets, heavily centered on consumables and services in clinical chemistry, would be of greater interest to a company like Danaher, a noted acquirer of established instrumentation plays. In addition to pushing forward with ongoing clinical trials supporting two 510(ks) required for the market reentry of Beckman’s AccuTn1 troponin test, Danaher’s other main priority as the testing firm’s new owner will be completing quality control fixes and cutting $250 million in costs. – Jon Dobson

Optimer/Astellas: Promising new Phase III data surrounding its antibiotic candidate fidaxomicin has Optimer Pharmaceuticals preparing for a possible summertime launch of the drug, pending approval and a PDUFA date of May 30. While Optimer intends to keep the drug in-house in the US, the San Diego biotech has partnered with Astellas to advance and commercialize the drug in Europe, selected Middle Eastern and African nations, and the Commonwealth of Independent States. (In addition to US rights, the biotech has for now also retained Asian rights, although it may partner those territories soon.) Astellas paid $68 million up-front for the rights to fidaxomicin, with a further $156 million in milestone payments and tiered sales royalties that range above 20%. Optimer is positioning fidaxomicin as a first-line treatment for patients at risk of recurrence of C. difficile infections, which cause severe diarrhea often in hospitalized patients and those who have received other antibiotic treatments that have disrupted the balance of flora living in the gut. Robert W. Baird analyst Thomas Russo pegged the market for the drug at nearly $250 million annually by 2018. – Paul Bonanos

Needy Candy Hearts image courtesy of flickrer piratejohnny

Genzyme: The Takeda Rare Disease Company ?!?

The Genzyme/Sanofi rumorville is awash yet again—but this time the rumors relate to the quality of sushi in Cambridge. The latest speculation Nov. 14 is that Genzyme had found a white knight bidder in Takeda, the largest Japanese pharma and a company with ambitions to be a bigger player on the world’s pharmaceutical stage.

It’s certainly true that Takeda, like Sanofi, is facing a pretty significant patent cliff as sales from Actos and Prevacid slide. It’s also true that its global ambitions mean Takeda might look to grow its U.S. presence via an acquisition. (As this IN VIVO feature from May spells out, Japanese pharma are one of the most promising buyers for US biotechs.)

And yes, we know the strength of the yen means Takeda can take advantage of the exchange rate, essentially paying a premium others might not be able to afford that still allows them to capture additional value even at an inflated price.

But taking a step back it’s hard to put a whole lot of faith in rumors that may, once again, be posturing. Oh, sure, the two drug makers probably talked. But talk is cheap. And since Genzyme began soliciting suitors several weeks ago, it’s entirely possible the biotech instigated the discussion. What IN VIVO blog wants to know is has a term sheet been submitted?

"I would be skeptical of one of the top Japanese pharmas emerging as a bidder," says George Montgomery, co-founder and managing director of the health care M&A advisory firm Marshall Healthcare Partners, who spoke to us before Takeda's name was officially linked to Genzyme’s in the blogosphere. “It would be their sole strategic initiative for the next few years, as opposed to being able to make multiple bets."

It’s important to remember this basic but highly relevant point: an acquisition the size of Genzyme – north of the $18.5 billion Sanofi has already offered – would be hard for any of the Japanese pharmas to swallow, even Takeda, which only has $9.7 billion in cash on-hand as of Sept. 30. Thus, Takeda would need to borrow significant cash to finance the deal, something its dividend-conscious shareholders may not support.

"Genzyme is a growth play at a time when Takeda is not, but the concern, of course, is that the ensuing weaker balance sheet would put Takeda's sizeable dividend at risk," said analyst Pelham Smithers of Pelham Smithers Associates said in a Nov. 15 research note. "The general thinking is that Takeda won't go for it, but it is an interesting opportunity nonetheless.

In addition, Takeda still needs to make good on its 2008 $8.8 billion purchase of Millennium Pharmaceuticals, for which the Japanese pharma paid a dear premium– 53 percent on the stock price and 16 times revenues.
"I just can't see how Takeda should be able to manage Genzyme and Millennium under the same umbrella," said Credit Suisse analyst Fumyoshi Sakai in an email exchange.

Genzyme's broad business portfolio, with an emphasis on drugs to treat rare diseases as well as a presence in areas like renal disease and biosurgery, seems afield of Takeda’s stated areas of focus: metabolic disease and oncology.

Sanofi has stated its intention to maintain Genzyme's business in Cambridge, MA as a center of excellence for rare diseases, even as it plans to consolidate other parts of the business and reduce SG&A expenses. It’s hard to see how Takeda could make the same decision, since its Millennium division already operates independently in Cambridge with the tagline, "The Takeda Oncology Company."

For such reasons, does "Genzyme: The Takeda Rare Disease Company" have the right ring?

by Jessica Merrill

DotW: Hard Truths

The feverish networking associated with BIO is but a distant memory this week as biopharma’s deal makers got back to work forging alliances or acquisitions that will provide the necessary substrate for future growth.

That this growth won’t come easily is a given. And the week’s news flow only reinforced the notion, illustrating hard truths about the commercial and regulatory complexities at work in the biopharma industry.

Who among us got bitten by reality? For starters, Takeda’s decision to cut nearly 1600 jobs illustrates the problem many Japanese pharma will be facing as their primary care drugs go generic in the coming years. Investors meanwhile pummelled NicOx, after an FDA advisory committee gave its osteoarthritis medicine naproxinod a thumb’s down. The company is pushing ahead as it awaits an official regulatory decision (the drug’s PDUFA date is July 24). Still it’s hard to believe a partner for the medicine will come anytime soon.

And Merck's quietly announced decision to call off development of MK-2578, its follow-on to Amgen’s erythropoietin stimulating agent Aranesp, showcases how difficult it can be to predict the potential market of a biosimilar. The ESA market has been under considerable pressure for some time as regulators have raised safety concerns about the products, first in the oncology setting, and now more recently in end stage renal disease. (See the May issue of The RPM Report for a Q&A with FDA’s Center for Drug Evaluation and Research Bob Temple for more on the subject.)

It’s a sure bet use of ESAs will go down, not only because of the emerging cardiovascular risks, but also because of the shift toward capitated care in end-stage renal disease that kicks in early next year. Under the new bundling guidelines, there’s pressure on physicians to use ESAs more judiciously, bolstering patients’ anemia via other mechanisms including intravenous iron use. With the commercial viability of ESAs a question, Merck must have run the numbers and determined the amount it would recoup from an Aranesp follow-on (which is expected to be priced at a slight discount to the innovator ESAs but still expensive) didn’t justify the expensive clinical trials it would have to conduct to demonstrate the medicine’s safety.

That big pharmas are wising up to such commercial hurdles ever earlier is a good thing; better to kill a product before you’ve sunk hundreds of millions of dollars into the expensive Phase III. That’s probably cold comfort to the Merck Bioventures group, which has ambitious launch goals for a spate of follow-on products by 2015.

As you contemplate other hard truths (a widening oil spill, the Greek debt crisis, the odds of Great Britain’s coalition government succeeding, the Cavs loss to that Boston team), take a brief respite into transactions land. (Reality may still bite the hand that feeds, but DotW is on its best behavior--for once.) It’s time for another edition of…

Genentech/Evotec: Evotec signed a broad multi-year discovery deal this week with Genentech to identify novel small molecule therapeutics. Further important details, including the financials as well as the therapeutic focus of the alliance, were lacking. Given Genentech’s focus on oncology, and increasingly Alzheimer’s disease and other CNS diseases, presumably Evotec’s technology will be used to develop small molecules in these arenas. Despite the dearth of specifics, the alliance is worth noting for a couple of reasons. First, Evotec’s business model seems to run counter to the collective belief that a biotech’s value is driven not by its technology but from the products derived from its platform. Indeed, as Evotec’s recent deals suggest—in addition to Genentech its signed discovery alliances with Vifor Pharma, Cubist Pharmaceuticals, Active Biotech, and Biogen Idec—management is clearly betting there is more near-term value to be gained from discovering drugs for other companies than in investing in its own pipeline. Second, how the deal proceeds will provide a window into dealmaking at Genentech, which only recently brought on a new head of business development, James Sabry, and continues to forge alliances independent of its Swiss parent. It’s interesting to note that Roche proper is well known to Evotec. The two companies have been collaborating in CNS since 2006, and Evotec is now conducting Phase II trials of EVT101 for treatment resistant depression, with Roche picking up the development costs.—Ellen Foster Licking

Abbott/Zydus Cadila: Abbott’s deal this week with India’s Zydus Cadila is a gift of DotW’s favoring buzz words, including branded generics, established products (a more diplomatic term for generic products), and emerging markets. The news is proof yet again that many big pharmas are following the lead of Sanofi-Aventis and GlaxoSmithKline, which have been the most aggressive in building a commercial presence in “pharmergent” economies such as Brazil, Russia, India and China via branded generics. As part of the recently announced alliance, Abbott will sell 24 Zydus drugs for pain, cancer, cardiovascular disease, respiratory ailments and neurological disorders in 15 emerging markets. Many, though not all, of the licensed drugs will be in complementary therapeutic areas to Abbott's existing branded generics portfolio, which came to the diversified health care giant via its Solvay and Knoll acquisitions. Specific financial terms of the deal were not disclosed, but should the collaboration be a success, Abbott has the option to license more than 40 additional products. In conjunction with the deal, Abbott also announced the creation of a stand-alone established products division with $5 billion in current pharmaceutical sales. The business unit will be led by Michael Warmuth, the former head of Abbott’s diagnostics division. Two years ago, Pfizer set up a similar stand-alone unit as a strategy to cope with flagging US drug sales, especially come 2011 when its cholesterol-lowering medicine Lipitor goes off patent. And that group was also a force at the dealmaking table this week, strengthening its ongoing collaboration with India-based Strides Arcolab (announced earlier this year) via the signing of two licensing and supply agreements. In part one, Strides has agreed to license and supply 38 generic oncology meds to Pfizer in various markets, including the EU, Canada, and Australia. Part two gives Pfizer access to niche sterile injectables for the US market.—Jessica Merrill and EFL

Pfizer/Ergonex: It’s not all about extending the life cycle of established products at Pfizer these days. This week the biggest big pharma’s specialty care business unit inked a deal with Ergonex Pharma for the biotech’s Phase II product terguride, which is in development as a treatment for pulmonary arterial hypertension (PAH). The agreement gives Pfizer world-wide rights (excluding Japan) to the product; in exchange Pfizer will support the ongoing mid-stage clinical trial, taking full control of the compound at the study’s completion. While Pfizer isn’t sharing specific financial details, it will pay Ergonex undisclosed milestones and sales royalties. Terguride, which has an orphan drug designation in the US and the EU, is an oral antagonist antagonist of the 5-HT2B and 5-HT2A serotonin receptors, shutting down signals triggering fibrosis and the narrowing of pulmonary arterial walls that over time results in PAH. The medicine is already approved in Japan for the treatment of hyperprolactinemia.—EFL

Genzyme/Tianjin International Joint Academy of Biotechnology and Medicine (TJAB): Another week, another biopharma looks to ink a discovery deal in China. This week it’s Genzyme’s turn to trumpet a strategic partnership with TJAB, which has an impressive list of co-founders, including China’s Ministry of Science and Technology, its Ministry of Commerce, its Ministry of Health, and the State Food and Drug Administration (China’s equivalent of the US FDA). The partnership was apparently celebrated with the requisite pomp and circumstance, including an official signing ceremony attended by top Chinese officials and senior R&D types from Genzyme. This isn’t the first time Genzyme has traveled east to ink a collaboration. Back in 2007 the biotech signed a deal with Sunway Biotech to develop and commercialize Genzyme’s most advanced gene therapy candidate, Ad2/HIF-1a, which is being tested as a treatment for various forms of peripheral arterial disease. The big biotech is also in the process of building a $100 million R&D center in Beijing, with construction scheduled for completion in 2011. In a small way, the agreement offers the beleaguered Cambridge-based Genzyme an opportunity to shift the news cycle away from the forthcoming annual shareholder meeting and Termeer’s ability to withstand pressures from activist shareholder Carl Icahn who is pushing for his removal.--EFL