The Faber Report

Update: Sanofi Waits For Genzyme's Response

Sanofi-Aventis, the large French pharmaceutical company, sent a private letter outlining its desire to buy Genzyme. So far the US-based biotech company has yet to respond, according to people familiar with the matter.

Source: Genzyme

If Genzyme is amenable to what the letter sets out, serious negotiations may soon follow and the contents of that letter more than likely won't be made public.

On the other hand, if things go in a different direction, everything could get a bit more nasty.

If Sanofi moves ahead with an unsolicited offer for Genzyme, there will be plenty of biotech investors and investment bankers shaking their heads in wonderment, particularly if it is at a price well above Genzyme’s current level.

That’s because of the manufacturing problems that have plagued Genzyme’s yields on its key drugs (Cerezyme and Fabryzyme) and because the FDA continues to closely monitor Genzyme’s progress in solving its issues.

Even if Sanofi were able to do significant due diligence, (which it won’t if it launches an unsolicited bid) sources who have dealt with manufacturing issues in the production of drugs tell me it is still very difficult to assess whether those issues have been fully resolved.

Genzyme has begun to lose market share to competitors given its limited supply of drugs. But there is also another potential danger from the lack of supply—that doctors will find a smaller dosage of the drugs as effective as the usual dose.

Even if Genzyme were to get its supply up sharply and regain market share, if doctors find their patients get the same benefit from a lower dosage, it could cost Genzyme revenues.

Of course, this is all supposition. But if you’re the new CEO of a giant French drug company considering doing a hostile acquisition that might force you to pay a big multiple of Genzyme’s peak earnings ($4.00 a share) you are certainly taking a bold, but risky step

We'll keep you updated as more information becomes available.

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