Sanofi’s $20 billion Genzyme buy could fuel a big pharma-biotechnology acquisition trend
Tuesday, February 22, 2011
Could last Wednesday’s $20 billion Sanofi-aventis acquisition of Genzyme signal the beginning of an industry trend in which big pharmaceutical companies stop buying each other and start buying robust biotechnology firms?
Some industry observers think so.
“Instead of discovering new compounds internally and moving them through the pipeline, it looks like many pharmaceutical companies are shrinking their internal discovery capabilities and turning more to the innovative shops of the biotech companies to be their discovery engine and improve the productivity of R&D,” said John Kreger, a financial analyst with William Blair.
“We think that now pharma will increasingly start looking to biotech to in-license or acquire,” added Blair, who has been closely watching the clinical research outsourcing space for almost 20 years.
The recent mergers among big pharma (i.e. Merck–Schering-Plough, Pfizer–Wyeth) have resulted in neither huge profits nor blockbuster drugs. Instead, many have resulted in massive layoffs and disruption.
“It’s getting harder and harder to justify those mergers given the lack of success these companies have had,” said Kreger.
The largest purchase of a biotech by a big pharma company was Swiss-based Roche’s acquisition of California-based Genentech for $44 billion, completed in March 2009. With the Sanofi-Genzyme buy, Kreger said he expects such deals to pick up speed.
Paris-based Sanofi-aventis, the world’s fourth-largest drug maker, scooped up Genzyme in a $20.1 billion cash deal, announced Feb. 16. In addition to the $74 per share it’s paying, Sanofi has agreed to make additional cash payments to Genzyme shareholders contingent on the success of several of the company’s drugs. Genzyme says it expects three new product approvals by the end of 2013.
The two had been in negotiations for almost nine months, after Sanofi attempted a hostile takeover of the Cambridge, Mass.-based biotech but was rebuffed.
The deal fills Sanofi’s pipeline with potentially lucrative drugs to treat rare genetic disorders. Additionally, Genzyme gives Sanofi an increased presence in the U.S. Genzyme’s recently released fourth-quarter results show GAAP net income climbed to $471.9 million, or $1.76 per share, from $23.2 million, or 9 cents per share, a year ago. GAAP revenue climbed 23%, to $1.15 billion, from $938.3 million in the year-ago quarter.
Typically, when two equally-sized companies merge, chaos results due to the duplication of operations, the inevitability of layoffs and cancellations, and ambiguity about who is in charge. That likely won’t be the case with this deal, said Kreger. Genzyme is smaller than Sanofi, with a different focus, and the deal has a clear buyer and seller. “In this case, Sanofi is in charge, so there won’t be any disruption over who’s calling the shots,” he said.
While that might make the internal transition run more smoothly, it might not help Genzyme’s various vendors. “Those CROs that Sanofi was working with probably won’t be negatively impacted, and they may even be helped,” said Kreger. “But those plugged in closely with Genzyme are on thinner ice with regard to any new work the company might have awarded, since Genzyme is no longer the decision maker.”
The deal is expected to close early in the second quarter.