Genzyme Says it is Worth More than sanofi Bid

Genzyme has outlined why it believes sanofi-aventis’s tender offer of $69 per share “dramatically undervalues the company” and why a price of $89 per share would be more reflective of the company’s true value.

At the end of last week, Genzyme released an outlook for strong near-term growth. “For 2011, the company expects to generate non-GAAP earnings of $4.30–4.60 per share, compared with guidance of $1.85–1.90 per share for 2010,” said a press statement. “Revenue is expected to increase to $5 billion–5.1 billion in 2011 from an expected $4.1 billion for 2010.” In particular, the company is expecting strong growth in its rare-diseases business, gross margin improvements, and cost reductions stemming from a value-improvement program. 

“Sanofi aventis has stated that the $69-per-share tender offer price represents a multiple of 20 times consensus earnings estimates,” Genzyme added. “Applying this multiple to the midpoint of Genzyme’s 2011 guidance would yield an offer price of $89 per share.”

Sanofi has been circling Genzyme since August, but initiated a hostile takeover attempt at the beginning of October. Genzyme’s board of directors has rejected the offer and urged shareholders not to tender their shares.

“Our board is unanimous in its view that the sanofi aventis offer does not approach the real value of the company, nor does it reflect our financial recovery, the achievement of manufacturing and product-supply milestones, and the increasingly recognized commercial potential for alemtuzumab,” Henri A. Termeer, Genzyme’s board chairman and chief executive officer, explained in the statement.

According to Genzyme, sanofi aventis based its tender offer on a July 1, 2010, stock price and the timing will deprive Genzyme shareholders of the opportunity to fully benefit from the company’s manufacturing recovery; manufacturing violations at the company had caused a shortage of Cerezyme and Fabrazyme and a subsequent drop in sales. However, Genzyme now expects Cerezyme patients worldwide to return to normal dosing levels during the fourth quarter. The company has also begun doubling allocations of Fabrazyme, starting in the US, and expects to be able to fully supply the global market during the first half of 2011.

“The offer fails to adequately recognize Genzyme’s rapidly improving financial performance, including its outlook for double-digit growth in revenue, earnings and cash flow; its unique portfolio of 12 market-leading products with durable revenue streams; and its valuable pipeline that includes three significant late-stage drugs scheduled for launch by 2013,” said Genzyme.

The tender offer will expire on Dec. 10, 2010.