PARIS/LONDON Sanofi-Aventis shares fell 2 percent on Monday after the French drugmaker said it was in direct talks with bid target Genzyme but that significant differences remained over the price of its offer.
Sanofi said late on Sunday that representatives from both companies had entered discussions about ways to value key Genzyme drug Campath, which the U.S. biotech hopes to market as a multiple sclerosis (MS) treatment under brand name Lemtrada.
Genzyme has rejected Sanofi's takeover offer price of $69 a share as too low, but the two sides are now talking about a way to bridge the valuation gap by focusing on prospects for Campath via a deal structure known as a contingent value right (CVR).
A CVR would offer Genzyme shareholders an additional payout based on the medicine being approved in multiple sclerosis and meeting certain revenue targets.
"A CVR would appear to be the best possible solution for the two parties that would enable them to bring these talks to a satisfactory conclusion," CM-CIC Securities analyst Arsene Guekam said in a note.
The two stumbling blocks in terms of the value of the deal remain differing views on how long it will take to resolve production problems at Genzyme and the commercial potential of Lemtrada, Guekam added.
Genzyme estimates its new MS drug could generate peak annual sales of $3.5 billion, compared with a figure of around $700 million underpinning Sanofi's offer.
Sanofi said in a statement on Sunday that there were still "significant differences on the terms and conditions of the potential CVR and the value of our offer" and that there was no guarantee they would reach an agreement.
The CVR would yield an additional $5-8 per share, depending on Campath's market approval and meeting certain sales targets, Sarasin analyst David Kaegi wrote.
"Once the parties agree on this issue, Sanofi may get finally access to Genzyme's books by raising its offer by an additional $1-2 per share," Kaegi said. "It seems quite probable that a deal will be finally reached because no white knight has stepped up for Genzyme so far."
One source familiar with the situation has told Reuters Sanofi would be willing to raise its cash offer by a nominal amount and include a CVR in a final deal, though it would be unlikely to strike a deal worth as much as $80 a share.
Genzyme shares closed on Friday in the U.S. at $71.39 and advanced in after-hours trading to $74.35 after sources familiar with the situation said the two companies were moving closer to a deal. The stock jumped 4 percent in Frankfurt to 57.58 euros ($74.33) on Monday.
Genzyme's shareholders have until January 21 to tender their shares to Sanofi, which has already extended its $69 a share offer once after an initial closing last month garnered less than 1 percent of Genzyme shares.
Industry analysts see no chance of Sanofi's current offer prevailing by the new deadline but see it as a tactic to buy time to get Genzyme head Henri Termeer to the negotiating table.
Sanofi Chief Executive Chris Viehbacher could yet extend the offer again if he needs more time.
Buying Genzyme would give Sanofi a new area for growth, the high-margin business of rare diseases, as it seeks to diversify to make up for patent losses that will take out roughly a third of its 2008 sales base through to 2013.
"Sanofi-Aventis will certainly need this new blood in terms of results," Natixis analysts said in a note, adding that this year and next looked difficult, with the loss of Lovenox, Taxotere, Ambien CR and Eloxatine.
"In the end, the group will have to compensate for the disappearance of about 12 percent of its 2009 net result base," the analysts said.
Viehbacher and Genzyme CEO Henri Termeer are both scheduled to give back-to-back presentations on January 11 at the annual JPMorgan Healthcare Conference in San Francisco.
(Editing by Greg Mahlich and Louise Heavens)