Genzyme, Sanofi Mum On Merger Negotiations At JPM Conference

Genzyme depicts itself as the picture of health with enzyme replacement therapy business returning to normal after manufacturing woes.

Attendees at the J.P. Morgan Healthcare Conference in San Francisco packed Genzyme and Sanofi-Aventis' separate presentations Jan. 11, eager for updates on merger talks - but came away with little news.

Both companies issued terse press releases earlier in the week confirming that they are in talks about a transaction that could include contingent value rights - earn-outs based on regulatory and sales targets. Neither, however, used its presentation time at the meeting to elaborate on the negotiations.

Genzyme Chairman and CEO Henri Termeer depicted his company as returning to full financial health after manufacturing woes in the past 18 months had resulted in reduced supply and sales revenues from top-selling enzyme replacement therapies Cerezyme (imiglucerase) and Fabrazyme (agalsidase beta).

Asked during a question-and-answer session about appropriate valuation for the sale of Genzyme and the possibility of a deal structured to include a CVR, Termeer declined to comment, saying doing so would not be "helpful to the process." Last fall, he suggested that Genzyme would consider a potential deal involving CVRs based on regulatory and sales performance by Phase III multiple sclerosis candidate alemtuzumab.

At the Sanofi-Aventis investor presentation, CEO Christopher Viehbacher touched briefly on the negotiations but stayed away from any discussion of possible deal terms or other specifics.

"The companies are talking together," he said. "We don't know how far we are going to get. I still continue to believe that this transaction will create value for Genzyme shareholders, as well as Sanofi shareholders."

Viehbacher added that Sanofi's efforts to acquire Genzyme stem from not only an interest in creating a new biotechnology platform, but also a desire for entree into the rare diseases space. He predicted all big pharma companies are headed in that direction eventually.

"We are all ultimately going to be in rare diseases 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 drug business," he said.

Cerezyme Back To Full Supply But Fabrazyme Lagging

Termeer's primary focus seemed to be an effort to show Genzyme returning to normal after its manufacturing difficulties, which resulted in an FDA consent decree at the Allston Landing manufacturing plant where Cerezyme and Fabrazyme are made. In a release issued during Termeer's presentation, the company stated that "supply of Cerezyme is [now] stable and there are no restrictions on dose or infusion therapy. We can now provide Cerezyme as prescribed for all patients currently receiving therapy and we have started to add new patients on Cerezyme therapy."

Fabrazyme, on the other hand, "is not quite there," Termeer said, conceding that Genzyme has experienced further setbacks in trying to restore full supply of the drug for Fabry disease patients. Approval of a new production facility in Framingham, Mass., is crucial to resuming full supply, and the company is predicting that both will occur in the second half of 2011.

The first of three validation runs at Framingham is to ensue this month, putting the plant about two months ahead of schedule, Termeer said. If the plant is approved, product made during the validation runs would be eligible for sale, he added.

Overall, Genzyme reported that fourth-quarter revenue increased 23% over the previous year to $1.15 billion. Annual revenue was up from $4.0 billion to $4.1 billion. The Personalized Genetic Health business, encompassing Cerezyme and Fabrazyme, saw revenue increase 46% over fourth-quarter 2009 and 26% over third-quarter 2010.

"We achieved record revenue in the fourth quarter and approximately doubled our earnings from the third quarter, returning to pre-disruption levels experienced in the first half of 2009," Termeer said.

While demonstrating that its ERT business is healthy, Genzyme is equally motivated to show that alemtuzumab, currently approved and marketed for B-cell chronic lymphocytic leukemia as Campath, will be a major seller in the multiple sclerosis market. Data from a pair of Phase III trials are expected later this year and the drug is to be marketed for MS as Lemtrada.

Genzyme and Sanofi have disagreed nearly as widely on the market potential of alemtuzumab as they have about Genzyme's aggregate value. The French pharma made a $69-a-share offer for Genzyme in August, took its bid hostile in October, and extended its tender deadline from Dec. 10 to Jan. 21, all while refusing to increase a bid that Termeer insisted badly undervalue his company (Also see "Sanofi Extends $69-Per-Share Tender Offer For Genzyme To Jan. 21" - Pink Sheet, 13 Dec, 2010.).

Last month, Genzyme convened an investor meeting at which it asserted that alemtuzumab could bring in sales of between $3 billion and $3.5 billion in the MS setting by 2017 (Also see "Where Does Genzyme See Alemtuzumab For MS? After Gilenya, Before Tysabri" - Pink Sheet, 21 Dec, 2010.). Sanofi has projected the drug's earnings will top out around $700 million annually.

Although neither firm is talking publicly, media reports have said the recent negotiations have centered on using a CVR pegged to alemtuzumab milestones to bring the overall valuation of Genzyme up to about $80 per share. In addition, Sanofi reportedly is willing to increase its current offer by a small amount - $1 or $2 per share - to get access to Genzyme's books and begin doing due diligence on alemtuzumab.

-Joseph Haas ([email protected])