Genzyme's board responded with obvious scorn as Sanofi-aventis ended press speculation and confirmed yesterday that it had made a nonbinding offer to acquire the firm for $18.5 billion in cash. Genzyme chairman and CEO Henri Termeer says his firm will not even consider the $69 per share proposal, which sanofi-aventis points out represents a 31% premium on Genzyme’s stock price prior to July 22. This was the day before rumors of a takeover bid first hit the headlines.
"The Genzyme board is not prepared to engage in merger negotiations with Sanofi based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company," Termeer states in today's letter to sanofi-aventis' CEO Christopher Viehbacher.
Sanofi-aventis maintains it was forced to make its offer public because attempts to engage Genzyme’s management in merger discussions had previously failed. The $69 per share offer was first batted to Genzyme chiefs on July 29, but the latter's shareholders have essentially been kept in the dark, Viehbacher suggested in his letter sent to Termeer yesterday. “We are committed to a transaction with Genzyme, and, therefore, we feel we are left with no choice but to take our compelling proposal directly to your shareholders by making its terms public .... Your continued refusal to enter into constructive discussions will serve only to further delay the ability of your shareholders to receive the substantial value represented by our all-cash offer.”
Sanofi-aventis believes Genzyme has “underperformed its peers for a number of years”. In stressing that the latter “continues to face several significant and well-documented challenges” that will take three to four years to resolve, Viehbacher’s letter is undoubtedly referring to the continuing and well-documented financial backlash of last year’s contamination at Genzyme’s Allston Landing manufacturing plant for Cerezyme and Fabrazyme. “An acquisition by sanofi-aventis would not only position Genzyme to overcome these challenges quickly and successfully by applying sanofi-aventis’ global resources and expertise to help realize Genzyme’s business strategy, but also deliver near-term compelling value to Genzyme’s shareholders that takes into account the company’s future upside potential,” Viehbacher maintains.
In response, Genzyme claims progress with respect to getting Cerezyme and Fabrazyme manufacturing back on track has been encouraging. On reporting its second quarter 2010 results in July, the firm confirmed that production of Cerezyme had reached its historical average, and the Allston Landing facility had returned to full operation. Shipments of Cerezyme were therefore due to start increasing in August, which would allow patients to start upping their doses in September and return to normal dosing during the fourth quarter. Genzyme, in parallel, confirmed receipt of both FDA and EMA approval to use the new working cell bank for Fabrazyme production, although shipments of the drug were not expected to increase until the fourth quarter 2010. Two bioreactors at the new Framingham manufacturing facility are also now operational, and Fabrazyme engineering runs are planned for September. Genzyme said it expects the facility to achieve approval during late 2011.
The rapid dismissal of sanofi-aventis' second attempt to initiate acquisition talks "should come as no surprise," Termeer stresses. "Without exception, each member of the Genzyme board believes this is not the right time to sell the company, because your opportunistic takeover proposal does not begin to recognize the significant progress under way to rectify our manufacturing challenges or the potential for our new-product pipeline."
In May Genzyme confirmed it would have to forfeit $175 million in profits under a consent decree to correct manufacturing quality violations at the Allston Landing manufacturing facility. The same month the company announced plans to effect a $2 billion stock buyback and in addition sell, spin-out, or facilitate a management buy-out of its genetic testing, diagnostic products, and pharmaceutical intermediates businesses.
Reporting its second quarter 2010 results in July the company confirmed that during the period shipments of Cerezyme could still only meet 50% of demand for the drug, while shipments of Fabrazyme reached only 30% of demand. As a result, Cerezyme sales were $138.7 million in the second quarter of 2010, down from $298.1 in the equivalent 2009 quarter. Sales of Fabrazyme were $39.5 million in the 2010 quarter, down from $134.3 million during the same three months of 2009.
When the results were released, Termeer admitted the period was “difficult”. However, he stressed, “We expect that increasing sales of these products combined with reductions in our operating costs will produce an increase in earnings during the second half of the year.”
Sanofi-aventis has a market capitalization of some $75 billion, with annual revenues of about $38 billion and annual EBITDA of $16 billion. Sanofi-aventis’ share price on the Euronext Paris exchange has remained relatively stable today, oscillating 1.5% around its price at close yesterday. The firm’s stock dipped within the first 15 minutes of the Euronext Paris market opening this morning, before climbing up 1.2% at lunchtime in France.