Genzyme argues Campath value in Sanofi fight

NEW YORK Mon Dec 20, 2010 6:42pm EST

A sign marks the headquarters of Genzyme in Cambridge, Massachusetts in this August 3, 2010 file photo. REUTERS/Brian Snyder

A sign marks the headquarters of Genzyme in Cambridge, Massachusetts in this August 3, 2010 file photo.

Credit: Reuters/Brian Snyder

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NEW YORK (Reuters) - Genzyme Corp GENZ.O held its second investor meeting in two months to argue that its most promising experimental drug will capture five times the sales that Sanofi-Aventis (SASY.PA) has assumed in a hostile $18.5 billion takeover bid.

Genzyme seeks a significantly higher price than the $69 per share that France's Sanofi has offered the U.S. biotech's shareholders. The tender expires on January 21.

At the heart of Genzyme's argument is its estimate that the Campath drug for multiple sclerosis could generate peak annual sales of $3.5 billion, compared with a figure of $700 million underpinning Sanofi's offer.

But the company is finding it a tough sell to investors and its share price, which had risen as high as $73.23 in October, is now trading close to the Sanofi offer after losing 0.2 percent on Monday.

"This is a unique therapy. It is not a pill from a shelf," Genzyme Chief Executive Henri Termeer told investors at a special meeting in New York on Monday.

He said the drug, known chemically as alemtuzumab, has the potential to become the most efficacious, cost-effective and the easiest for patient compliance of any MS treatment. "The market is very large, a $14 billion market when we get there (in 2013)," Termeer said.

Genzyme cited an independent market research analysis completed in September, which found the drug could grab a 5 percent share of the MS market in its first year, 10 percent in its second and third years, and rise to an 18 to 20 percent share in year five and beyond.

Genzyme and Sanofi have been discussing a way to bridge that gap through a deal structure that would include contingent value rights (CVR), offering shareholders an additional payout based on Campath meeting certain revenue targets.

"I don't think anything said specifically today changed anyone's view because there is still a lot of uncertainty in the market," said RBC Capital Markets analyst Michael Yee, calling the $3 billion forecast "quite lofty."

Yee said Campath clearly has advantages over current treatments, but that there could be a lot more competition from new MS drugs in the next three to four years.

"A CVR at this point may be the best idea" to bring the two sides together, he said.

A LITTLE EXTRA

Investors and analysts had said a deal could be reached at $75 to $80 per share. But a deal involving CVR would be complex and shareholders may not accept it unless Sanofi also increased its $69 cash offer to the low $70-range, some say.

"They have to sweeten the underlying price," said Sanford Bernstein analyst Geoffrey Porges. "If they sweeten the current price, a CVR could be a little extra to get a deal over the line."

Termeer told reporters after the meeting that shareholders he has spoken to have been "very supportive" of the CVR idea. He called it a useful way to bridge the gap when two sides cannot come to an agreement on value.

Genzyme previously convened investors to argue for a higher sale price two months ago, when it forecast 2011 earnings of $4.30 to $4.60 a share and suggested that Sanofi's offer based on the new forecast should be more like $89 per share.

Sanofi dismissed the figure as "totally unrealistic" at the time, and company officials declined to comment on Genzyme's latest Campath market projections.

Many of the claims for Campath superiority over other current MS treatments, including the potential to reverse disease disability, must be borne out by data from large late-stage studies expected to become available next year.

Few analysts believe that Campath, which is already sold as a leukemia treatment, will generate the kind of sales projected by Genzyme. Independent market research group BioMedTracker has forecast Campath sales of about $1.6 billion in 2019.

Genzyme said that physicians consulted on Campath's prospects strongly associate the drug "with best-in-class efficacy" and believe it will be safer than Biogen Idec's (BIIB.O) Tysabri. Genzyme said the proposed brand name for alemtuzumab in MS is Lemtrada.

(Reporting by Toni Clarke and Bill Berkrot, editing by Michele Gershberg and Matthew Lewis)

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