If you believe all the rumors and leaks, French pharmaceutical group Sanofi-Aventis (SNY) and U.S. biotechnology company Genzyme (GENZ) should have reached a merger agreement by now. Instead, investors are left wondering what exactly is preventing the two from reaching a deal.

As expected, on Wednesday, Sanofi-Aventis reported results that showed the impact of generics already on its top and bottom line. While sales inched up 0.5%, thanks to favorable currency movements, revenue from key drugs, including blood thinner Lovenox, cancer drug Taxotere, and anti-blood clotting treatment Plavix, were hit by generic competition. Sanofi lost more than $2.5 billion in sales to generics.

Sanofi further said it expects generic competition to accelerate next year, and forecast an earnings-per-share decline this year of between 5% and 10%.

A Deal Within Days?


Genzyme repeatedly rejected Sanofi's initial and only offer of $69-per-share last year, but the two companies have recently resumed discussions. Leaks to the media suggested they were converging on a $74-per-share price and contingent value right based on the performance of Genzyme's potential multiple sclerosis treatment, which would initially be worth $2 to $3 and could eventually be valued at $5 to $6. A deal, these sources said, would be reached within days.

But in the earnings call with analysts, CEO Chris Viehbacher said: "There is a timeline that has been put out there by people who shouldn't be talking to the press, and we don't really know what they are talking about." He reiterated that Sanofi is not going to spend shareholder money "frivolously" or "rapidly," but "make sure that we do that correctly."

With Genzyme's presence in 80 countries and 14 manufacturing plants, "Due diligence is not something you take lightly," Viehbacher added. He called the deal "strategically sensible and financially attractive," with "some very interesting synergies." He added, "The underlying dynamics [of Sanofi's business] are not going to change without something like a Genzyme transaction in 2012."

The financial results also made it clear how important the deal is to the Paris-based drug company. What isn't clear is why Sanofi hasn't been able to seal the deal yet. Is the French drug company being too cheap -- or has it discovered something during the due diligence of Genzyme's operations that caused it to pause? For the moment, however, the leaks seem to have stopped.

Interestingly, Goldman Sachs (GS), which is acting as one of Genzyme's financial advisers in the deal talks, reported a 6.8% stake in the Cambridge, Mass. biotech, making it the biggest shareholder of the company.


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