Business Blog Posts

The acquisition -- which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme's Henri Termeer -- is expected to boost Sanofi's earnings from the first year after completion by giving it a new platform in rare diseases.

Sanofi will pay $74 a share in cash plus a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production volumes of two other medicines.

The deal, whose announcement confirmed what sources with knowledge of the talks had told Reuters on Tuesday, is the second-biggest in biotech history and will help Sanofi compensate for declining revenue from drugs that have lost, or are set to lose, patent protection.

Sanofi also predicted the deal, which is expected to close early in the second quarter, would lift its underlying, or "business," earnings by 0.75 to 1.0 euro per share by 2013.

The $20.1 billion cash sum is based on 272.5 million Genzyme shares on a diluted basis.

The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 in total, depending mainly on the success of Lemtrada.

In theory, that could add $3.8 billion to the price tag but the market value of the CVR is expected to be deeply discounted given the long time horizons and the fact many short-term investors and index funds are likely to move quickly to sell.

Market estimates that the CVR would trade at around $2-3 "may not be unrealistic," Viehbacher told reporters.

Shares in Sanofi rose 3.3 percent in early trade as investors welcomed the boost to earnings the deal would deliver. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast 12-16 percent uplift to 2013 earnings was above his expectation of 10 percent.

VALUE BRIDGE

The first $1 related to the CVR will be paid out if specified production levels are met in 2011 for Cerezyme and Fabrazyme -- two drugs for Gaucher and Fabry disease.

The bulk of the potential payments, however, are linked Lemtrada and will kick in if that drug wins approval in multiple sclerosis and exceeds various sales milestones, which run up to $2.8 billion.

"I think the CVR was an extremely important tool to bridge differences in value," Viehbacher said.

Genzyme was the first company to show that money could be made by making drugs for diseases with small patient populations. In 2009 it generated revenue of $4.5 billion, enough to replace roughly a third of the sales Sanofi is expected to lose through 2013 to generic competition.