Genzyme agrees to $20.1b sale to drug giant
Far-reaching deal for Mass. biotech
Genzyme Corp., the largest biotechnology company in Massachusetts and one of the industry’s historic pioneers, has struck a definitive agreement to be bought by French pharmaceutical giant Sanofi-Aventis SA, in a deal valued at about $20.1 billion.
The buyout, which the parties unveiled this morning, is the biggest corporate acquisition worldwide so far this year and the second-largest in the history of the biotechnology industry.
Locally, it will change the face of a sector that government and business leaders view as a key driver of the state’s economy. Genzyme traces its roots to the early days of the Boston area’s biotechnology boom and has long been an anchor of the life sciences cluster that has helped define the region as an innovation hub.
Sanofi, the world’s fourth-largest drug maker — best known for the blood thinner Plavix and the anticlotting treatment Lovenox — is hoping Genzyme will give it a foothold in the US market and help it replenish a portfolio of drugs hurt by low-cost generic competition.
Genzyme, founded in 1981, has been a leader in developing drugs for rare genetic disorders such as Gaucher and Fabry diseases, treatments that can cost up to $300,000 a year per patient.
Among the issues still to be clarified is the fate of Genzyme’s 4,500 employees in Massachusetts. Typically, such megamergers result in overlapping jobs being cut at the acquired company. But the parties this morning said Genzyme will become Sanofi’s global center for rare diseases and keep “a sizeable presence in the Greater Boston area.’’
Under terms of the deal, approved by both companies’ boards yesterday, Sanofi would pay $74 a share upfront for the Cambridge company. In addition, it would issue Genzyme investors a tradeable security, called a contingent value right. Its ultimate price would depend on whether Genzyme’s experimental multiple sclerosis drug, Lemtrada, is approved by regulators and meets certain sales targets in coming years.
Sanofi first approached Genzyme about a possible acquisition in May, according to regulatory filings. Financial advisers to both companies have conducted on-and-off talks for the past six months, but executives began serious negotiations early last month. The talks intensified in recent weeks after Sanofi signaled it would raise its initial $69-a-share offer, a key demand made by Genzyme, which then agreed to open its books and manufacturing plants to Sanofi.
Announcement of an acquisition was widely anticipated early last week, but Sanofi’s due diligence continued and the bargaining between the two companies wasn’t completed until yesterday.
Shares of Genzyme rose $2.53 to $74.30 yesterday on the Nasdaq. Sanofi’s shares climbed 65 cents to $34.49 on the New York Stock Exchange.
“Genzyme played a good game to keep Sanofi-Aventis at the bargaining table and keep upward pressure on the price,’’ said Boston University law professor Kevin Outterson, director of the school’s health law program. “Their board did exactly what a board is expected to do. They have a duty to the shareholders not to accept the first offer.’’
Genzyme’s high-profile president and chief executive, Henri A. Termeer, who has run the company for 28 years, will resign following the close of the transaction. But he will advise Sanofi on integrating the two companies. Termeer built the company into a global operation with 10,000 employees worldwide and a business model that has been the envy of the biotechnology industry. He turns 65 on Feb. 28.
Termeer, though fiercely proud of Genzyme’s independence, stands to make more than $23 million when the sale is completed, according to a “change of control’’ clause in his employment contract. In addition, as a major Genzyme shareholder, he would be in a position to cash out shares that last year were worth more than $275 million.
In recent years, large drug companies based in the United States and abroad have been snapping up Massachusetts biotechnology firms. Genzyme’s sale to Paris-based Sanofi accelerates that trend. New York-based Pfizer, Ireland’s Shire, and Japan’s Takeda Pharmaceutical Co. and Dainippon Sumitomo Pharma have followed similar paths, all seeking to tap into the constellation of academic and medical research laboratories and entrepreneurial start-ups in the Boston area.
The largest purchase of a biotechnology company by a big pharmaceutical buyer was Swiss-based Roche Holding AG’s acquisition of California’s Genentech Inc. for $44 billion in 2009.
Sanofi’s chief executive, Christopher A. Viehbacher, has said Genzyme will help it expand in the biotechnology sector, and even before this deal Sanofi has been adding hundreds of jobs at its research and cancer operations in Cambridge. But at the same time, Sanofi, like many major drug makers — and Genzyme itself — has been cutting jobs at other operations around the world to boost profits and market value. Sanofi will likely have to make more cuts at Genzyme because of the buyout, said Harry Glorikian, managing partner at Scientia Advisors, a life sciences consulting firm in Cambridge.
“If they’re going to pay a premium, they’re going to have to rationalize in the human resources department and the accounting department,’’ he said. “But they’ll keep the cutting-edge research and core capabilities they’re acquiring.’’
Gregory Bialecki, the state’s economic development secretary, said Massachusetts officials are monitoring the trend of big pharmas buying local biotech. For now, he said, they are confident the buyers will use their financial resources to expand in the area.
“People feel more comfortable when you have a Genzyme that’s an independent, Massachusetts-owned company,’’ Bialecki said. “I can absolutely understand it’s a legitimate concern when they get taken over. But the track record has been when a company like [Cambridge drug maker] Millennium gets acquired [by Takeda], the new owner is respectful of the fact that the company is in the middle of the life science ecosystem here. You can’t pull a company like that out from its roots and expect it to have the same innovative impact.’’
While Sanofi has pursued Genzyme since last spring and has twice extended its $69-a-share offer, the string of events that made Genzyme vulnerable to a takeover began in the summer of 2009 when workers discovered viral contamination at Genzyme’s Allston Landing plant overlooking the Charles River.
Genzyme was forced to temporarily shut down and clean up the plant and ration shipments of its best-selling Cerezyme and Fabrazyme drugs, both of which treat enzyme deficiencies. The events created an opening for competitors such as Shire and Israel’s Protalix Biotherapeutics and sent Genzyme’s stock tumbling on the Nasdaq.
The dip in Genzyme’s share price drew activist investors, including Carl C. Icahn of New York and Ralph Whitworth of San Diego, who accumulated shares they hoped to sell at a rich premium. They pressured management to take steps to boost shareholder value, including a stock buyout and the elimination of 1,000 jobs worldwide.
Ultimately, the company gave Whitworth a seat on its board, and, after Icahn threatened to unseat Genzyme directors in a proxy battle, it granted two seats to his associates.
In many ways, industry watchers said, an acquisition became inevitable once Genzyme stumbled at its Allston plant.
“That put them on the radar, and people started running the numbers,’’ said BU’s Outterson. “These deals are part of the ecology of this area. The big pharmaceutical companies are just dying for new sources of revenue, and biotechs are beautiful in that regard.’’
Robert Weisman can be reached at firstname.lastname@example.org.