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GEN News Highlights : Mar 31, 2009

Genzyme Acquires MS and CLL Therapy as well as Two More Oncology Products from Bayer

Bayer stands to earn up to $1.9 billion dependent on approval and sales achievements.

Genzyme is taking over worldwide rights from Bayer HealthCare covering Campath® (alemtuzumab), which is approved for B-cell chronic lymphocytic leukemia (CLL) and in late-stage development for multiple sclerosis (MS). The agreement also adds two more approved oncology products to Genzyme’s portfolio: Fludara for CLL and Leukine for infections in acute myelogenous leukemia following chemotherapy.

Bayer could earn up to $1.9 billion, but much of it banks on the MS therapy gaining approval and being successfully launched. There are no up-front fees for this transaction, which is structured as an earn-out arrangement.

If alemtuzumab is sanctioned for MS, Bayer could receive up to $1.25 billion over 10 years contingent on annual revenue. Further milestones will be earned as a percentage of worldwide sales beginning in 2021 if Genzyme does not exercise a buyout option in 2020 for up to $900 million.

For the oncology drugs Fludara, Leukine, and Campath, Bayer will receive payments contingent on annual revenue, capped at $500 million or eight years. The company could also obtain $150 million beginning in 2011 if certain annual revenues are met across a three-year time period.

Genzyme believes that the addition of the three oncology products will more than double revenues earned from this segment during 2009. The transaction will provide approximately $185 million this year and up to $700 million over the next three years, according to the firm. Its oncology segment revenues in 2008 were $117 million. Today’s announcement supports the goal of 20% compound average non-GAAP earnings growth from 2006 to 2011, the company adds.

In terms of development and commercialization responsibility under this deal, Genzyme now has primary responsibility for the development and commercialization of alemtuzumab in MS. Bayer, which currently markets Betaseron® (interferon beta-1b) for MS,  will continue to fund a portion of development and retains the co-promotion option. Data from the two ongoing Phase III trials is expected in 2011, and approval is anticipated in 2012.

For Campath in CLL, Genzyme will assume sole responsibility for worldwide sales and marketing. It is indicated for use as a single agent in first-line treatment and previously treated patients. Bayer retains the right to develop and commercialize alemtuzumab in solid organ transplant indications.

To support production, Genzyme will acquire a facility in the Seattle area for Leukine for $75 to $100 million and hire the plant’s operating personnel following FDA plant approval, which is expected in 2010. The firm also has the opportunity to integrate employees members of Bayer’s commercial team for all three oncology drugs.

Prior to this agreement, Genzyme received two-thirds of Campath net profits on U.S. sales and a further royalty on foreign sales from Bayer. Genzyme acquired Campath in its 2004 acquisition of Ilex Oncology, while Bayer obtained the marketing and distribution rights to Campath in its 2006 acquisition of Schering, which had been the exclusive distributor of Campath for Ilex. As a precondition to FTC clearance of the Ilex acquisition, Genzyme agreed to divest to Schering AG the right to develop and commercialize alemtuzumab in solid organ transplant. Bayer will retain such rights under this agreement.