Gene Marcial's Inside Wall StreetNow that biotech giant Genzyme (GENZ) is essentially in play, expect the fireworks to begin.

The buzz that Genzyme is being pursued by Sanofi-Aventis (SNY), France's leading drugmaker, wasn't unexpected to some investment bankers close to Big Pharma. A number of Wall Street dealmakers who recently made the rounds of the major pharmaceutical companies in Europe, purposely to confer with their top executives about acquisitions and licensing deals, came back feeling buoyant they would be in the thick of potential deals this year.

"They told us in no uncertain terms that they needed to make acquisitions in the U.S. to reenergize their pipelines," says one experienced Wall Street banker, who requested not to be identified. "I can't tell you the names of the companies we conferred with, but they certainly are in a buying mode, so the speculation on a Genzyme-Sanofi deal comes as no surprise to me."

Rumors are that Sanofi has broached a proposal to buy Genzyme for $70 a share. Genzyme focuses on developing drugs for rare diseases. Both companies declined to comment on the speculation. But Sanofi isn't the only one interested in Genzyme. Analysts believe the likes of Pfizer (PFE), the world's largest drugmaker, and the U.K. 's GlaxoSmithKline (GSK) have expressed an interest, as well.

Two Scenarios

It's likely that Genzyme would reject a Sanofi offer, considering the stock has already jumped to nearly $70 on July 30, from $54 a share on July 22, when the rumors started swirling. Shares of Sanofi, whose American Depositary shares trade on the New York Stock Exchange, have sagged from $31 a share on July 15 to $29 on July 30. Some analysts place Genzyme's value at $80 to $85 a share.

There are two strong possibilities in the Genzyme story: Either Sanofi offers a much higher bid than Genzyme's current stock price, or another bidder comes in with an offer that would be more to the liking of Genzyme's board.

And then there's the pivotal Carl Icahn, who has accumulated about 4% of the stock and is represented on Genzyme's board by two directors. Icahn declined to comment on whether Genzyme will seek a price higher than $70 a share. But it's quite likely that the crafty activist investor -- based on his strategic moves in similar situations in the past -- will try to wangle a better offer.

Promising Pipeline

What's Genzyme's appeal to Sanofi, the world's fourth-largest and Europe's No. 1 drugmaker?

Analyst Steven Silver of Standard & Poor's, who rates Genzyme a buy, believes it's the company's cache of important products. The biopharmaceutical outfit develops and makes therapeutic drugs for serious and rare diseases, such as its chief product, Cerezyme. That's an enzyme replacement therapy for Gaucher disease, a debilitating genetic disorder that causes fatigue, anemia and bone erosion. Its patent expires in 2013, however. But its potential successor -- orally dosed eliglustat tartrate -- is already in Phase 3 clinical trials.

Equally impressive is Genzyme's diversified and promising long-term drug pipeline. Silver says the roster is led by Campath, which is in Phase 3 clinical trials for multiple sclerosis, and mipomersen, a cholesterol-lowering drug that's also in Phase 3 clinical studies. Campath is already approved as a first-line treatment for B-cell chronic leukemia.

Itching for a Deal?

Even before Sanofi-Aventis came into being, it already had an interesting history of mergers and acquisitions. Sanofi was founded by Elf-Aquitaine in 1973. Thereafter, it acquired Sterling Winthrop, a pharmaceutical affiliate of Eastman Kodak, and then bought European drugmaker Synthelabo and later changed its name to Sanofi-Synthelabo. Then in 2004, the company acquired Aventis, which had been created by the merger of Rhone Poulenc and Hoechst. The company then renamed itself Sanofi-Aventis.

Some analysts, including S&P's Silver, are betting that Genzyme will ultimately reach an agreement with Sanofi because they expect some big Genzyme stakeholders are itching for a deal to happen, given recent manufacturing issues that could result in a regulatory oversight of some of its production facilities.

How much of a stand Icahn and Genzyme's board will take to get a higher bid would depend on whether a new suitor will intervene. The betting on Wall Street is that others industry player have been weighing their options about making a run for Genzyme. All this activity is making Icahn's phone busy of late.

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