NEW YORK/BOSTON Sanofi-Aventis SA (SASY.PA) is sounding out biotech company Genzyme Corp GENZ.O as the French drugmaker hunts for a large acquisition, sources familiar with the matter said on Friday.
Genzyme, whose shares rose more than 15 percent on the news, is beginning to emerge from a manufacturing crisis that caused shortages of two of its biggest-selling drugs.
Sanofi, meanwhile, is facing patent expirations on some its top products. Late on Friday, the company lowered its view for 2010 earnings per share after U.S. regulators approved a generic form of the Lovenox blood thinner, its No. 2 product last year.
Sanofi, which was said to be considering deals in the $15 billion range in early July, approached Genzyme informally about two weeks ago and is still waiting for a formal response, according to one source. The two companies have so far had "low-level conversations," the source said.
A second source said talks are at an early stage and no deal is imminent. Issues such as price and management structure have not been discussed. Officials at Sanofi and Genzyme declined to comment.
Genzyme's market capitalization was close to $14 billion before the Sanofi approach was made public. Genzyme would be expected to argue for a significant premium to that based on its pipeline of experimental products, which include treatments for multiple sclerosis and high cholesterol.
"If you started to use the $20 billion number that has been discussed in the past, it puts Genzyme closer to $75 (a share)," said RBC Capital Markets analyst Michael Yee.
Genzyme shares closed up 15.4 percent at $62.52 on Friday. Sanofi's U.S.-listed shares (SNY.N) closed down 4.2 percent.
HOSTILE BID FOR GENZYME?
Sanofi's approach comes on the heels of a turbulent two years for Genzyme and its chief executive, Henri Termeer, who is expected to step down within the next year or two.
The company's manufacturing crisis also prompted changes to its board and led to a consent decree that placed its drugmaking operations under third-party control. Earlier this year, Termeer fought off a threatened proxy fight by reaching settlements with investors Carl Icahn, who now has two representatives on the company's board, and Ralph Whitworth of Relational Investors LLC, who also sits on the board.
But if Sanofi thinks it can pick up Genzyme on the cheap it is mistaken, said Morningstar analyst, Karen Andersen.
"I view this as an attempt to take advantage of Genzyme's manufacturing problems and could see the conversation turning hostile because Genzyme will be reluctant to look at offers unless a clear value is placed on the company beyond its poor performance in 2010," she said.
Before Friday, Genzyme shares had lost a third of their value since the U.S. Food and Drug Administration found problems at its Allston plant in Boston in September 2008.
RIVAL BIDDERS IN THE WINGS
Other drugmakers could step up and counterbid, Andersen said. One potential candidate could be biotechnology company Amgen Inc (AMGN.O), she said.
Big drugmakers, including Sanofi, are eager to acquire new products to offset the effect of generic competition to some of their biggest products. So-called orphan drugs -- those that treat small numbers of patients but command high prices, are much less amenable to generic competition than pills and are therefore attractive acquisition candidates.
Genzyme's biggest-selling drug is Cerezyme, a treatment for Gaucher disease, a rare genetic disorder. promising drugs in late stage development, include a treatment for multiple sclerosis.<ID: nN23169020>
"We have fully expected that big pharmaceutical companies will continue to gobble up assets in the biotech space and possibly in other areas as well, such as consumer health and generics," said Geoffrey Porges, an analyst at Sanford Bernstein. "Sanofi moving toward Genzyme fits this thesis."
The talks were first reported by The Wall Street Journal.
Genzyme is based in Cambridge, Massachusetts, and employs more than 12,000 people worldwide. It reported revenue in 2009 of $4.5 billion. It expects 2010 revenue of $4.4 billion to $4.5 billion. That is down from a previous estimate of $5.23 billion to $5.53 billion.
Reports in early July of Sanofi's acquisition interest buoyed shares of Genzyme and others, including Botox maker Allergan Inc (AGN.N).
On Friday, Allergan shares slipped 2.4 percent, while Biogen Idec Inc (BIIB.O), named as another possible Sanofi target in early July, slid nearly 5 percent.
(Reporting by Jessica Hall, Toni Clarke, Ransdell Pierson, Lewis Krauskopf and Debra Sherman; Writing by Michele Gershberg; Editing by Gerald E. McCormick, Richard Chang, Matthew Lewis and Sofina Mirza-Reid)