September 2, 2010 / 11:08 AM / 10 years ago

Analysis: Genzyme units attract interest, what about Sanofi?

NEW YORK/BOSTON (Reuters) - Genzyme Corp GENZ.O is entertaining suitors for a small part of its business, even as it seeks a higher offer for the entire company from France’s Sanofi-Aventis SA (SASY.PA), which may want to keep them.

Genzyme, which specializes in extremely costly drugs for rare genetic diseases, is moving ahead with plans announced in May to sell off its reproductive and oncology genetic testing business, which generated 2009 sales of $371 million, and its diagnostics business, which had 2009 sales of $167 million.

“The processes are continuing and we expect transactions to close by year end,” Genzyme Chief Executive Henri Termeer told Reuters in a telephone interview on Tuesday. “We are stopping no development at this stage.”

While the units account for a relatively small portion of Genzyme’s annual sales of $4.5 billion, they could appeal to Sanofi, either as a complement to its business or a way to raise cash with their expected price tag of up to $1.5 billion.

“There’s a piece apparently in molecular diagnostics where Sanofi-Aventis is not present today, but that may be of interest to us,” Sanofi CEO Chris Viehbacher said this week after going public with an $18.5 billion, or $69 per share, offer for Genzyme that the U.S. biotech company promptly rejected.

If Sanofi is interested, it may have to move sooner rather than later.

“It’s an interesting area and something we would consider,” PerkinElmer Chief Executive Robert Friel told Reuters in a telephone interview when asked about the Genzyme units.

“Clearly the Sanofi thing complicates matters,” Friel said, but he added that, if it appears to be a good strategic fit, “the dollar amount would not be a deterrent for us.”

There is a wide range of potential bidders, analysts say, including medical testing companies such as Laboratory Corp of America Holdings (LH.N), scientific instrument makers such as PerkinElmer Inc (PKI.N) and large drug companies such as Abbott Laboratories (ABT.N).

Suitors from outside the industry but who have a hand in healthcare could also show interest, such as General Electric Co (GE.N), as well as private equity firms.

Genzyme spokesman Bo Piela said a steady stream of potential candidates have been coming into Genzyme’s offices to talk about the two businesses.

But some say Genzyme would be unlikely to sign on the dotted line if negotiations with Sanofi began in earnest.

“I would be very surprised to see Genzyme go off and sell that diagnostic testing business before they’ve teased out the Sanofi thing as far as they can go,” said Arthur Henderson, analyst at Jefferies & Co. “If they really wanted to disrupt the (Sanofi) discussions that might be a possibility.”


As neonatal testing and personalized medicine progress and more drugs are developed that target a specific gene or genetic mutation, companion diagnostics will play an increasingly important role in selecting appropriate patients.

“In these specialty areas they have much more pricing control and the growth is faster (than routine medical testing), so they generate a lot more cash flow and it is an area that is sought after,” said Henderson.

Pfizer Inc (PFE.N), for example, is developing a lung cancer drug that has shown effectiveness only in patients with a particular gene mutation. The world’s largest drugmaker is working with Abbott’s molecular diagnostics unit to come up with a test for the mutation it considers a critical part of the drug’s future approval.

Like Pfizer, Sanofi does not have a presence in genetic screening or diagnostics and may see the Genzyme businesses as a tempting entry into the space.

“I think Sanofi should go ahead and hold on to the diagnostics business,” said Jim Prutow, partner at management consulting firm PRTM. “It would give them an instant foothold in an area many big pharmaceuticals companies are in, or getting into.”

Morningstar analyst Karen Andersen said Sanofi should consider hanging onto those businesses “partly for diversification and there could be some nice overlap between more molecular diagnostics and their oncology drug portfolio.

“I don’t think Sanofi would want to see it sold before they can get their foot in the door,” she added.

But Geoffrey Porges, an analyst for Sanford Bernstein who follows Genzyme, said it does not make sense for Sanofi to keep the businesses should it acquire them.

“It’s more likely to be viewed by Sanofi as a source of financing than as an ongoing operating concern,” said Porges, who figures the Genzyme units could get $1.2 billion to $1.5 billion in a sale.

Drugmakers that already have a large diagnostics presence, such as Roche Holding AG ROG.VX and Abbott, have been mentioned as potential pharmaceutical suitors. Kemp Dolliver, an analyst with Avondale Partners, sees medical testing companies, such as Quest Diagnostics Inc (DGX.N) and LabCorp as more likely buyers in a move to expand their existing product and service offerings.

“LabCorp has been pretty open in expressing their interest,” Dolliver said. “They have the capacity for it. The question is whether they want to spend $1 billion for it.”

Jefferies analyst Henderson agreed.

“They (Quest and LabCorp) are doing a lot of low margin routine testing. Genzyme has a diagnostics testing business that has a high specialty component that would expand their business deeper into an area in which they have much more control over what they get paid for their services,” he said.

“I’ve also heard that Sonic Healthcare (SHL.AX) out of Australia is interested,” Henderson said.

PerkinElmer, which has a growing neonatal testing and genetic screening business, and larger rival Thermo Fisher Scientific Inc (TMO.N), also could take a run at the units.

Thermo is sitting on a large pile of cash after failing to acquire Millipore earlier this year. PerkinElmer typically makes much smaller purchases, but it expects nearly $500 million in cash by year end from selling its own non-core lighting business.

GE, which built its name in healthcare with big-ticket imaging equipment, such as CT-scan and MRI machines, has been boosting its presence in diagnostics in recent years.

“Biology is taking a much more prominent place on the healthcare stage, both from a diagnostic standpoint, with molecular diagnostics, and from a treatment standpoint,” John Dineen, CEO of the GE healthcare unit, told investors in June.

Despite Termeer’s insistence he was pushing ahead with the sale, Henderson believes he will hold off.

“If I were the CEO of Genzyme I would put that sale on ice until I figure out where this (Sanofi) bid is going to go,” he said.

Additional reporting by Caroline Jacobs in Paris, Scott Malone in Boston and Marilyn Gerlach in Frankfurt; editing by Michele Gershberg and Andre Grenon

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below