Sanofi-Aventis ($SNY) and Genzyme ($GENZ) found their deal behind Door No. 2. The two companies have finally agreed to a price--$74 per share, plus contingent value rights--that amounts to $20.1 billion in cash up front. At least one analyst called it a win-win deal. And if that's the case, it's because of the CVR approach, which "was an extremely important tool to bridge differences in value," Sanofi chief Chris Viehbacher (photo) said on a conference call.
The CVRs could be worth as much as $14 each, provided Genzyme and its experimental multiple sclerosis drug meet every target. Genzyme shareholders are due $1 per CVR if the company meets certain production targets for its rare disease drugs, which ran short after manufacturing troubles shuttered a key plant.
According to Bloomberg, the remaining CVR payouts are these: $1 if the MS hopeful Lemtrada wins FDA approval; $2 if Lemtrada sales surpass $400 million by certain deadlines; $3 if sales top $1.8 billion; $4 for $2.3 billion-plus; and $3 for more than $2.8 billion. To put the goals in perspective, Sanofi last fall pegged peak Lemtrada sales at $700 million, while Genzyme predicted $3.5 billion.
That's the deal for Genzyme shareholders. For Sanofi, Genzyme is expected to add to earnings beginning in 2012 and will boost EPS by 75 cents to €1 by 2013, the French drugmaker said. Plus, Genzyme's sales will help plug the patent-cliff sales gap. In 2009, Genzyme brought in $4.5 billion, about one-third the revenue Sanofi stands to lose to generic competition through 2013, the Telegraph points out.
In assessing the price, Bloomberg pointed out that it values Genzyme at 4.7 times earnings, compared with a median of 4.3 times in other biotech deals. But Marc Booty of Pictet Asset Management told the New York Times that, based on realistic assumptions, the cash-plus-CVR-payout will end up being $78 per share. "Sanofi investors were comfortable sub $80," he said.
"We see everyone as a winner," Deutsche Bank said in a note on the deal (as quoted by the Wall Street Journal). "[It's] a positive outcome for Sanofi shareholders in our view and likely to result in relief that management has remained diligent in its view of the appropriate valuation." In other words, "Let's Make A Deal" paid off.