Analysis: Past deals provide little help in valuing Genzyme

BOSTON (Reuters) - For investors seeking to estimate the price at which biotechnology company Genzyme Corp GENZ.O might be acquired, relying on historical benchmarks might not be much help.

France's Sanofi-Aventis SA (SASY.PA) has decided to make a formal bid for Genzyme, but so far no price has been cited and other bidders could yet emerge.

Analysts see Genzyme fetching anywhere from $60 to $85 a share, depending on their view of the value of the company's experimental drugs, the risks associated with its recovery from a manufacturing crisis and the entry of other bidders.

But the figure could be higher and would be if past biotech deals are any guide.

In 2007, drugmaker AstraZeneca Plc (AZN.L) acquired MedImmune Inc for $15.6 billion, or about 10 times sales, and in 2008 Eli Lilly & Co (LLY.N) acquired ImClone Systems Inc for $6.5 billion, or about nine times sales.

Both deals were engineered by activist investor Carl Icahn whose representatives recently gained two seats on Genzyme's board. AstraZeneca, Lilly, Sanofi and most other big drugmakers are hoping to bolster their dwindling pipelines with products discovered by biotech companies.

Even though investors will make comparisons, they may not be meaningful, some analysts say.

Right now Genzyme is trading at nearly $68 per share or roughly 4 times sales based on a market value of nearly $18 billion. That is up 30 percent since Sanofi's interest emerged on Friday.

Mirroring the sales multiple paid for MedImmune and ImClone would mean Sanofi would have to pay close to $150 a share for Genzyme, the equivalent of "silly money," said Scott Harrison, an analyst at Argent Capital, which has about $850 million under management.

"It would be hard for a company like Sanofi to justify a number like that," he said.

MORE THAN MEETS THE EYE

Still, the company could fetch more than investors think.

An analysis earlier this year by Genzyme shareholder Relational Investors LLC suggested that, if Genzyme were to divest non-core businesses and make better use of capital, among other efforts, it could be worth as much as $93 a share.

Genzyme has since agreed to divest three units that are unrelated to its main business of selling specialist drugs for rare diseases. And it appears to be recovering from a manufacturing crisis that led to shortages of two top drugs.

Ralph Whitworth, principal at Relational and one of architects of the report, now sits on Genzyme's board and will presumably seek to realize that value. He declined to comment.

Evolution Securities estimates Sanofi could pay $96 per share without diluting its estimated 2011 earnings per share, but argues a fair value for Genzyme is more like $75 a share.

"We think paying below $70 per share could be seen as a 'reasonable' deal for Sanofi shareholders and a deal above $80 a share would be seen as overpaying," said Dominic Valder, an Evolution Securities analyst in a recent research report.

Genzyme's shares have been depressed by a manufacturing crisis that hurt earnings and placed the job of Henri Termeer, the company's chief executive, in jeopardy. The company has since appointed three activist investors to its board, including two nominated by Icahn, and appears to be emerging from its manufacturing problems.

In arguing for a higher price, Genzyme will point to that recovery and to its promising product pipeline, especially its multiple sclerosis drug. Sanofi, or some alternative acquirer, will point to the risk still associated with the recovery and the competitive market for multiple sclerosis drugs.

Adding to pressure on the downside, a relatively new shareholder base that bought into Genzyme in Icahn's wake may be more likely to accept a lower premium for their shares than the company's long-standing investors.

Andrew Weisenfeld, senior managing director at MTS Health Partners, a healthcare merchant bank, said the value and premiums paid for past deals cannot be used necessarily to value future deals.

"Everyone will look at historical benchmarks, but the valuation of any deal will be driven by the specifics of the situation," he said.

"Buyers are extremely disciplined. They will weigh price versus the strategic value of an asset and the scarcity of the asset. You can look at historical multiples, but every situation has its own unique dynamic."

(Reporting by Toni Clarke; editing by Michele Gershberg and Andre Grenon)