The US biotechnology company Genzyme, which specialises in ultra-expensive treatments for unusual diseases, firmly rebuffed an $18.5bn (£12bn) takeover approach from France's Sanofi-Aventis today, paving the way for a potentially contentious transatlantic bid battle.
Genzyme, which has a promising treatment for multiple sclerosis, said its 13-strong board had unanimously concluded that Sanofi's $69-a-share proposal was "opportunistic". The Boston-based firm characterised it as an attempt to take advantage of recent manufacturing problems that caused a shortage of several key drugs, depressing Genzyme's share price.
"The Genzyme board is not prepared to engage in merger negotiations with Sanofi based on an opportunistic proposal with an unrealistic starting price, that dramatically undervalues our company," Genzyme said.
A fight between the companies broke into the open after several months of behind-the-scenes machinations as Sanofi tried to get Genzyme involved in friendly takeover talks.
Yesterday, Sanofi went public with its all-cash offer, in a move dubbed a "bear hug" that ratchets up pressure on Genzyme to negotiate.
In common with other big pharmaceuticals companies, Sanofi faces the prospect of an earnings gap as a number of the industry's blockbuster drugs lose patent protection over the next few years, leaving them open to cheap, generic competition. Sanofi has gone to court to try to gain longer protection for Lovenox, a blood thinner that accounts for 10% of its global revenue, while Plavix, a joint venture with Bristol-Myers Squibb, is set to lose US exclusivity in two years.
"Not just Sanofi but a lot of big pharmaceuticals companies are facing this patent cliff over the 2012 to 2014 timeframe," said Karen Anderson, a drugs analyst at research firm Morningstar in Chicago.
Genzyme is appealing because of its multiple sclerosis drug Campath, which could reach the market in 2012, plus a cholesterol lowering treatment, mipomersen, which is in late-stage clinical trials. Anderson said that assuming these products bear fruit, Genzyme is worth $92 per share: "If Sanofi is serious about Genzyme, they are going to have to offer more."
Multinational drugs makers have been on a buying spree recently. Pfizer bought US rival Wyeth for $68bn last year, while Merck has merged with a competitor, Schering Plough.
Genzyme has carved a niche in highly specialised therapeutic areas. It has drugs for two rare genetic enzyme deficiency diseases – Gaucher's and Fabry's. Because of the small market for these medicines, Genzyme charges as much as $300,000 a year for treatment, although supply was disrupted last year when output from a factory in Massachusetts was contaminated, first with traces of a virus and later with particles of steel and rubber.
A billionaire shareholder activist, Carl Icahn, tried to unseat Genzyme's veteran chief executive, Henri Termeer, following the company's supply problems. Although Icahn and Genzyme struck a peace pact in June, some investors remain uneasy.
Genzyme's shares climbed 3.6% to $70.06 during early trading on Wall Street today. Steven Silver, an equity analyst at Standard & Poor's in New York, set a target price of $72 and predicted a takeover: "Although Genzyme has rejected the [Sanofi] offer as inadequate, we believe a deal is likely to materialise at a sweetened price."
