[Ip-health] Bloomberg: Sanofi's Viehbacher Secures Genzyme Growth With Hard Line Offer

Thiru Balasubramaniam thiru at keionline.org
Fri Mar 11 03:52:15 PST 2011


Sanofi's Viehbacher Secures Genzyme Growth With Hard Line Offer

By Albertina Torsoli and Michael Waldholz - Feb 17, 2011 12:01 AM GMT 
+0100 Wed Feb 16 23:01:50 GMT 2011

When Chris Viehbacher, the chief executive of Paris-based drugmaker  
Sanofi-Aventis SA, was trying to keep details of his unsolicited bid  
last year for Genzyme Corp. under wraps, he couldn’t resist drawing on  
his beloved Bordeaux.
“I really like French wines,” the 50-year-old German- Canadian said  
yesterday after sealing his sometimes rancorous nine-month pursuit of  
Cambridge, Massachusetts-based Genzyme, an acquisition valued at $20.1  

“We had to have a code name. It was largely around P for Paris and M  
for Massachusetts, so we said Petrus for us and Margaux for them,” he  
said in an interview. “The project was Grand Cru. I couldn’t find a  
good wine that started with a G.”

Buying the world’s largest maker of biotech drugs for inherited  
diseases marks the 29th and largest deal since Viehbacher joined  
Sanofi in December 2008. In little more than two years, he has added  
everything from Gold Bond medicated powder to Chinese cough remedies  
and an Indian vaccine maker as part of his plan to broaden the  
company’s revenue base. That’s critical as Sanofi’s best-selling  
pharmaceuticals, including its blockbuster blood thinner Plavix, face  
generic competition.

“Genzyme is a huge achievement for Chris Viehbacher,” said Lionel  
Melka, co-manager of Paris-based Bernheim, Dreyfus & Co.’s Diva  
Synergy Fund. “It turns the company from being a value stock into a  
growth stock.”

Shot in Arm?

The question remains whether the long list of businesses Sanofi has  
amassed will provide the shot in the arm Sanofi was looking for when  
it hired Viehbacher, who months earlier had lost out in a three-way  
competition for the top job at London- based GlaxoSmithKline Plc. His  
task now is to meld these disparate operations into a coherent whole  
to produce years of growth.

Viehbacher’s resume suggests he may be able to pull it off. At Glaxo,  
he played a critical role in the company’s successful integration with  
rival SmithKline. At the same time, all the skill he has brought to  
bear to acquire companies for Sanofi hasn’t always yielded pay dirt.  
Ten weeks into the job he personally oversaw the courtship of BiPar  
Sciences Inc., a fledgling biotech with an innovative approach to  
cancer. Yet, last month, BiPar’s flagship drug failed in a study to  
benefit patients.

“The toughest part has yet to begin for Viehbacher,” Frederic Aubel, a  
sales trader at Global Equities in Paris, said in a telephone  
interview. “He will have to deliver now and make sure that the $20  
billion he put on the table becomes profitable for Sanofi. It won’t  
happen overnight.”

Gold Bond
Sanofi has returned 32 percent including reinvested dividends since  
Viehbacher became CEO, outpacing the 28 percent return in the  
Bloomberg Europe Pharmaceutical Index. Sanofi’s consumer-health sales  
jumped 46 percent last year, most notably because of the $1.9 billion  
purchase of Chattem Inc., the maker of Gold Bond. The company’s  
generic-drug business has also risen 42 percent following the  
purchases of Medley SA and Zentiva NV in 2009.

Yet investors place a lower valuation on the French company than on  
almost any large drugmaker, reflecting skepticism that Viehbacher’s  
buying spree will pay off as advertised. Sanofi yesterday rose 1.75  
euros, or 3.5 percent, to 51.55 euros in Paris. The shares have  
climbed 19 percent since Viehbacher became CEO.

“Viehbacher must rebuild Sanofi but he also needs to help the company  
find once again the profile of a growth stock, like the Sanofi we knew  
in the past,” said Jerome Forneris, who helps manage $12 billion,  
including Sanofi shares, at Banque Martin Maurel in Marseille. “This  
is the challenge for Viehbacher, finding strong growth once again.”

Want a Dividend
Sanofi itself was created through the merger of more than five  
different companies, including the German chemical maker Hoechst AG.  
Viehbacher acknowledges that he will be measured by how well he can  
combine the new operations into a top-tier performer.

“People want a dividend at the end of the year, they want a higher  
share price, and employees want an increase in pay,” he said in an  
interview yesterday. “You can’t do that unless you have a company  
that’s growing. And it has to be sustained growth.”

Viehbacher took over a company that had failed to develop enough drugs  
to replace those losing patent protection. In 2007, U.S. regulators  
rejected Sanofi’s once-heralded obesity pill, Acomplia. When the  
Multaq heart medicine won the backing of the Food and Drug  
Administration in 2009, it was the company’s first major U.S. approval  
in seven years. The result of the drought: Sanofi’s sales and profit  
in 2013 and before before the Genzyme acquisition will be the same as  
they were in 2008, the company has forecast.

‘Cheap Debt’

Viehbacher began pursuing Genzyme last year. At the time, Sanofi had  
decided it was a good time to make a larger acquisition than it had  
completed until then because “debt was cheap,” Viehbacher said. In  
addition, Genzyme, which reached a high of $83.25 in August 2008, fell  
to $47.16 last June after manufacturing snags cut into sales of its  
biggest products following a 2009 virus contamination at a factory in  
Allston, Massachusetts.

Sanofi also wanted to avoid getting into a bidding war. As Sanofi’s  
competitors appeared to be “tied up with other things,” Viehbacher  
said, “we weren’t surprised when no other bidder showed up.”

Genzyme was also appealing because it would bootstrap Sanofi into  
biotechnology, an area in which the French company was weak, as well  
as provide a research presence in the U.S. to attract scientists  
there. Viehbacher said that by early last year the company had five  
targets on its list and that, finally, “Genzyme kind of came up at the  

Approached Termeer

In a May 23 conversation, according to a Sanofi filing last year with  
the U.S. Securities and Exchange Commission, Viehbacher approached  
Henri Termeer, Genzyme’s 64-year-old chief executive, about a bid.  
Termeer, who built Genzyme beginning in 1983 by developing treatments  
for rare diseases other companies ignored, rebuffed Viehbacher’s  
unsolicited offer for months. In a regulatory filing, he described the  
$69 offer as “an opportunistic proposal with an unrealistic starting  
price that dramatically undervalues” the company.

Still, Termeer had few bargaining options, and Viehbacher refused to  
raise the offer. When no other buyers surfaced, Viehbacher waited as  
pressure from Genzyme shareholders built.

“Viehbacher played better poker than Termeer,” said Erik Gordon, who  
teaches at the University of Michigan’s Ross School of Business in Ann  

Cell Phone Calls
It wouldn’t be the first time Viehbacher would need to use his  
personal skills. A year earlier, Viehbacher phoned Hoyoung Huh, the  
CEO of BiPar, the South San Francisco-based cancer biotech company.  
Viehbacher asked Huh, who was getting on a flight to Geneva, to drop  
by for a chat, lunch and some “good French wine,” Huh recalled in an  
interview. Viehbacher explained he was trying to transform Sanofi and  
persuaded Huh to consider the French drugmaker as a potential buyer,  
as there were other suitors.

“He called on my cell phone on a weekly basis” over the next few  
months, Huh said. “He would call as he was walking his dog and I was  
at soccer with my kids, just to make sure our teams weren’t getting  
bogged down in the deal mechanics.”

It took until Sept. 20 to get the Dutch-born Termeer to sit down and  
discuss the offer. The tension between the two parties is apparent  
from U.S. Securities and Exchange Commission filings that detail  
conflicting accounts of the talks.

In its filing, Genzyme says that Viehbacher indicated the company  
might be willing to raise the bid to as much as $80 if Termeer named a  
price at which bargaining could begin. Termeer refused, according to  
the document, even though Viehbacher said doing so might cause him to  
make a hostile tender offer.

Tender Offer
After the filing was made public in October, Sanofi spokesman Jean- 
Marc Podvin said no such price was mentioned and that Sanofi “strongly  
disagreed with Genzyme’s characterization of the meeting.”

Two weeks later after beginning the tender offer, Viehbacher said in a  
Bloomberg Television interview, “I’m not going to bid against myself”  
to explain his unwillingness to raise the bid. Viehbacher also told  
advisers he wouldn’t budge until he was able to look over Genzyme’s  
books, according to two people familiar with the discussion.

By last month it was clear that Viehbacher had convinced Genzyme  
holders and that even Termeer was resigned to the deal. Both men  
attended the J.P. Morgan Healthcare Conference in San Francisco, where  
it was clear a resolution was being worked out.

‘Not a War’
“This is not a war,” Termeer said in a Jan. 11 interview at the  
conference. At the beginning, “it was a little bit tense. But it never  
deteriorated; it actually improved. We found a way to talk.”

The previous day both companies said their financial advisers and  
other representatives from both firms had met to discuss a contingent  
value right plan, or CVR, related to milestones for Genzyme’s multiple  
sclerosis drug.

The men met when they were both attending the World Economic Forum in  
Davos, Switzerland, the last week of January. At the meeting, they  
discussed a way to raise the offer. All along Termeer argued that  
Sanofi’s bid didn’t account for the potential of Genzyme’s most  
promising product, the multiple sclerosis drug called Lemtrada.

To value the drug, while also hedging his bet, Viehbacher suggested  
attaching a contingent value right, or CVR, to the offer that would  
rise in value if the drug reached certain milestones. At a  
mountainside hotel at the Swiss ski resort the CEOs discussed the CVR  
over a glass of scotch.

Favorite Wine
The final agreement, which came together in the past few days, will  
give Genzyme holders one contingent value right per share that may  
ultimately be worth $14 if Lemtrada reaches $2.8 billion in sales.

The solution let Viehbacher win Genzyme, without having to pay up  
unless the drug’s promise is proved. Viehbacher says he will gladly  
pay if that happens.

“I told Henri that if we have to pay the last milestone, I’ll bring  
him the check personally and with his favorite wine to accompany  
that,” Viehbacher told analysts yesterday.

To contact the reporters on this story: Albertina Torsoli in Paris at atorsoli at bloomberg.net 
  Michael Waldholz in New York at mwaldholz at bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino at bloomberg.net


Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru at keionline.org

Tel: +41 22 791 6727
Mobile: +41 76 508 0997

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