Sanofi to Genzyme: Game On; Biotech Earnings, Trials Boost Stocks

July 30, 2010
Michael Fitzhugh

Genzyme's shares leaped after Sanofi's board authorized its chief executive to bid up to $70 per share for the drug maker, though Genzyme may hold out for as much as $75 per share. A slew of biotechs reported earnings, and upbeat clinical trial data boosted some stocks.

Portions of this article published with permission from The Burrill Report.

Sanofi-Aventis SA's board has authorized CEO Chris Viehbacher to bid up to $70 per share for Genzyme Corp. (NASADQ: GENZ). Genzyme may hold out for as much as $75 per share.

Sanofi (NYSE: SNY), France's largest pharmaceutical, is expected to make a formal bid of as much as $18.7 billion for the U.S. biotech giant Genzyme (GENZ) and its portfolio of rare-disease therapeutics, which could help staunch its losses as low-priced generic competition erodes its sales.

Sanofi's board has authorized CEO Chris Viehbacher to bid up to $70 per share for Genzyme, according to reports, although some analysts suggest Genzyme may hold out for as much as $75 per share. Anticipation of the deal, which first surfaced earlier in July when reports suggested Sanofi had lined up a $20 billion takeover fund, has already boosted the value of Genzyme's shares. They traded for near $70 per share Thursday.

One investor likely pleased by Sanofi's approach is Carl Icahn. The billionaire investor, who controls two seats on Genzyme's board, has publicly pushed the company to seek out potential suitors ever since a manufacturing snafu hobbled its ability to produce two lucrative drugs, Cerezyme and Fabrazyme.

Viehbacher, Sanofi's CEO, has yet to speak publicly about the offer, but has spoken in general terms about what such an acquisition might represent for his company. Sanofi is “all around trying to build these platforms of sustainable growth,” he told investors during a conference call about it first quarter 2010 earnings. “We know that over the next two years we’re going to lose a number of products, Eloxatin and Taxotere and Plavix, first in Europe and then in the U.S. And one day Ambien. Can’t do much about that,” he said.

Facing such certain losses, Viehbacher has been clear in other forums that he considers acquisitions to be a viable growth strategy, but has told analysts he doesn't feel pressured to pursue a deal.

Though a small part of the bigger picture, the necessity of Sanofi diversifying its portfolio became all the more clear Wednesday as a U.S. Food and Drug Administration panel voted to recommend that the agency approve AstraZeneca PLC's (NYSE: AZN) Brilinta, a blood thinner that will create yet more competition for one of Sanofi's long-time bestsellers, Plavix.

In early trading Friday, Genzyme shares were at $69.76, whle Sanofi shares were at $29. AstraZeneca's shares were at $50.85.

In other market moving news:Merck & Co. (NYSE: MRK), which, like Sanofi, is also dealing with the loss of patent protection for a number of its blockbuster drugs -- said its second-quarter earnings fell 52 percent on merger and restructuring costs. Merck also said it estimates full-year earnings of between $3.29 and $3.39 a share, excluding certain items. Merck acquired Schering-Plough in November 2009 in a deal valued at nearly $50 billion. The drug giant most recently lost patent protection for its hypertension drugs Cozaar and Hyzaar, which resulted in a 46 percent decline in sales for the quarter. Merck’s shares were at $34.22.

Celgene Corp. (Nasdaq: CELG) posted better-than expected second-quarter earnings on strong sales of its cancer drug Revlimid. Earnings beat analysts estimated by three cents a share on a 36 percent increase in revenue in the quarter. Global Revlimid sales jumped 48 percent to $587.1 million from the same period a year earlier. Its shares were at $53.73.

Shares of Dendreon Corp. (NASDAQ: DNDN) were dented after an editorial in the New England Journal of Medicine called the fact that Dendreon’s Provenge prostate cancer drug prolonged survival rates among patients without having any measurable effect on the tumors “surprising.” Researcher Dan Longo wrote: “This lack of tumor effect raises concern that the results could have been influenced by an unmeasured prognostic variable that was accidentally imbalanced in study-group assignments.” The FDA approved Provenge in April 2010. Dendreon shares were at $32.87.

Alcon Inc. (NYSE: ACL) shares rose after the maker of eyecare drugs and products reported a 15 percent increase in its second-quarter earnings and boosted its full-year earnings outlook. The company said it expects 2010 earnings of between $7.45 to $7.62 a share, with a sales growth percentage in the high-single digits. Alcon is currently embroiled in a takeover battle with Novartis AG, which will own three-quarters of the company following its acquisition of Nestle SA. On Thursday, Wells Fargo analysts lowered their investment rating on the company to “market perform” from “outperform.” Alcon shares were trading at $155.30 early Friday.

Orexigen Therapeutics (NASDAQ: OREX) shares climbed after the drug developer reported promising results from a late-stage clinical trial of its Contrave obesity drug. The company said patients taking the drug for more than a year lost an average of 6.1 percent of their body weight, compared to those taking a placebo. The FDA is scheduled to review Contrave on Dec. 7. Its shares were at $5.25.

Athersys Inc. (ATHX) shares soared after the drug developer reported positive early-stage clinical trial results of Multistem treatment, which the company said was well-tolerated by patients at all dose levels and also suggest improvement in heart function. Enrolled patients received MultiStem delivered via a catheter into the damaged region of the heart two to five days following percutaneous coronary intervention, a standard treatment for heart attack. Angiotech Pharmaceuticals Inc. (NASDAQ: ANPI), its Canadian collaborator, also rallied. Athersys shares were at $3.04, while Angiotech shares were at 66 cents.

And shares of Biogen Idec Inc. (NASDAQ: BIIB) slumped on continued investor disappointment that the drug company was passed over by Sanofi for Genzyme. On Friday, Sanford Bernstein downgraded its investment rating on Biogen to “underperform.” Biogen shares were at $54.92.

Additional reporting by staff of Physician’s Money Digest staff.

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