| NEW YORK/LONDON
NEW YORK/LONDON Unlocking the potential of Genzyme's GENZ.O experimental multiple sclerosis drug Campath could be key to prying a higher price for the U.S. biotech from Sanofi-Aventis (SASY.PA).
Campath accounts for a chunk of Genzyme's market value already, but Wall Street sales projections vary widely.
Its role in Sanofi's $18.5 billion hostile bid for Genzyme came to the fore this week, when the French drugmaker gave its own estimate for Campath sales and left the door open to a higher deal price if given proof of the treatment's value.
"We identified this as one of the areas where we potentially had a valuation metric difference and this one would be a good area where we could do a little deeper dive," Sanofi Chief Executive Chris Viehbacher said after launching the hostile offer on Monday.
Viehbacher expects Campath will be approved for multiple sclerosis (MS), but its "tricky" side effect profile and a competitive market could cap sales below the blockbuster level. He is penciling in peak annual sales of $700 million, a figure he said was in line with market expectations, based on forecasts from seven brokerages.
Some analysts, however, are far more bullish.
Karen Andersen, an analyst with Morningstar, projects sales of about $1.8 billion by the end of the decade. Her fair value price for Genzyme shares is $78, against the $69 being offered by Sanofi, and $13 of that is attributed to Campath.
"If Sanofi is thinking somewhere around $700 million peak, it sounds like that could be where the discrepancy is in terms of the way that Genzyme shareholders and management are looking at the valuation of the firm," Andersen said.
Genzyme shares closed at $71.52 on Tuesday.
Independent market research group BioMedTracker also sees sales more than double the Sanofi number, at a peak $1.6 billion in 2019, with all but $100 million accounted for by MS. Campath is already on the market for cancer, with minimal sales.
The drug, which is also known as alemtuzumab, has been around the block a few times and has a checkered history.
Originally the fruit of research at Cambridge University, England -- the name is derived from Cambridge Pathology -- it was on the books at drugmaker Wellcome in the 1990s when Viehbacher worked at the company.
Its development was halted for some time due to serious side effects, including blood disorders, infusion reactions and opportunistic infections.
But Genzyme is convinced it has winner on its hands in using Campath to treat MS, a serious neurological condition where a degree of side effect risk is par for the course.
"We believe that MS drug is likely to be transformative in terms of how MS is managed and will represent huge value going forward," Genzyme COO David Meeker told Reuters in an interview late last month.
Some data on the drug is likely at the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) congress in Gothenburg, Sweden, from October 13 to 16. Late-stage Phase III results will only come in mid-2011.
Few analysts doubt the efficacy of Campath, an infusion given annually.
Data presented in April showed that after four years, 71 percent of patients taking Campath had no relapse or worsening of disability. That compared with 35 percent for patients taking Rebif, a rival drug made by EMD Serono, an affiliate of Germany's Merck KGaA (MRCG.DE) and Pfizer Inc (PFE.N).
But judging its commercial potential in MS also hinges on its safety -- an area where Genzyme has an inside view.
"Obviously, we have insight into the safety because although it's a blinded trial, safety is reported, so if there was huge new safety signals we would know that," Meeker said.
Viehbacher would dearly love to share that insight on Campath, one of two main issues, along with manufacturing, he wants to discuss more closely with Genzyme management.
Viehbacher said he would be prepared to sweeten his bid if Genzyme CEO Henri Termeer sat down and "helped us understand where there is more value".
In seeking to learn more about the drug, Sanofi may want confidential information about the design of the late-stage trial or insight into studies not previously made public, said Collins Stewart analyst Salveen Richter.
Yet some analysts are skeptical that Viehbacher would raise his Campath numbers enough to make a substantive difference to the current $69 a share Genzyme offer.
"At first sight the efficacy looks tempting, but a second look reveals that the compound carries a number of pitfalls to judge it properly -- pricing, patent issue and the safety profile," said Oliver Kaemmerer, an analyst at WestLB.
Cowen & Co analyst Phil Nadeau pegs peak annual sales at only around $500 million. "We think more along the lines of Sanofi than Genzyme," he said.
"Genzyme looks at the efficacy here and sees a very potent drug, and therefore hopes that this can move into very early lines of therapy," Nadeau said. "When we talked to our multiple sclerosis physician consultants, they acknowledge the efficacy, but they are a bit more concerned about the safety profile."
The MS field is also growing more competitive. Just last month, Novartis AG NOVN.VX won U.S. approval for its Gilenya, the first oral treatment cleared for MS in the country.
"This is an extremely important marketplace," Viehbacher said, "but with Gilenya's recent approval, this is going to be clearly a more crowded marketplace."
(Additional reporting by Bill Berkrot in New York and Caroline Jacobs in Paris; Editing by Michele Gershberg)