Rethinking Healthcare

What happens when big pharma buys a lithe biotech?

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France's biggest drug marker, sanofi-aventis, acquires Genzyme for $20.1 billion, ending its 30-year history as an independent drug developer, best known for its treatments for rare diseases.

In the industry’s biggest deal in two years, French drug maker sanofi-aventis acquired American biotech Genzyme for $74 in cash per share plus additional future payments to shareholders… or about $20.1 billion up front.

Genzyme opened for business in 1981 in Cambridge, Massachusetts (sharing a building with a discount women’s clothing store). Thirty years later, it has 10,000 employees, a towering glass edifice for its headquarters (pictured), 12 manufacturing facilities worldwide, and over $4 billion in annual sales as the world’s largest maker of drugs for rare diseases.

But in 2009, the company made some manufacturing glitches, had a virus contamination, and has been striving to return certain stocks to normal.

And for sanofi, Genzyme is expected to help plug the patent-cliff sales gap – when sales are expected to drop as blockbuster drugs lose protection from generics. Genzyme’s $4.5 billion in 2009 is about one-third the revenue sanofi stands to lose to generic competition through 2013 [Telegraph].

Sanofi gains treatments for, among others, Fabry (with Fabrazyme) and Pompe diseases (with Myozyme and Lumizyme). Unlike the pills produced by traditional drug companies, Genzyme’s medicines are made using biological processes and can’t be readily copied by generic-drug makers [Bloomberg].

Nature reports:

Genzyme proved that designing therapies for rare diseases can be profitable. Early on, Genzyme scientists developed Ceredase, an enzyme obtained from human placentas to treat Gaucher's disease, an enzyme-deficiency disorder, and later followed it up with Cerezyme, a similar enzyme grown in mammalian cell cultures. It is Genzyme's expertise with therapeutic enzymes and experience with rare diseases that attracted sanofi.

The pattern has become a familiar one in recent years: a pharmaceutical giant acquires a smaller biotech company as a way of stocking up on new drug candidates. The risk is that the culture clash between a larger, mature firm and its smaller, leaner acquisition can chase away the talent that the acquiring company was hoping to tap…

"No matter what big pharma does, it is different from biotech, and different people are drawn to these two different cultures," says Alison Taunton-Rigby, a former senior vice-president at Genzyme.

For example, when Swiss pharma Roche fully acquired Genentech in 2009, a mass exodus of talent ensued. Despite Roche's assurances that its new acquisition would remain largely independent, many of Genentech's top executives left soon after the purchase was announced – peppering the west coast with biotech start-ups [Nature].

But acquisitions by pharma don’t always sound the death knell for innovation at biotechnology firms, Nature explains:

Some say that Millennium Pharmaceuticals, another Cambridge biotechnology firm, may benefit from its acquisition by Japanese drug maker Takeda in 2008. Millennium had assembled a talented team of scientists, but its approach – to use genomics to fuel drug discovery – had foundered. In this case, the acquisition by Takeda could provide a turnaround by changing the focus or management of the company…

Both companies’ boards are unanimously optimistic.

"This transaction will create a meaningful new growth platform for sanofi-aventis while expanding our footprint in biotechnology,” says Christopher Viehbacher, CEO of sanofi-aventis.

Genzyme’s Henri Termeer adds: “We also share an exciting vision of the future, one in which Genzyme and sanofi-aventis grow and innovate by developing breakthrough treatments that change the lives of people with serious diseases.”

According to Bloomberg, the 9-month pursuit began with a $18.5 billion bid and ended with a purchase valuing Genzyme at 4.7 times sales – compared with a median multiple of 4.3 for US drug and biotech companies in the past 5 years.

Image: Genzyme headquarters via MultiVu

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Janet Fang

Contributing Editor

Janet Fang has written for Nature, Discover and the Point Reyes Light. She is currently a lab technician at Lamont-Doherty Earth Observatory. She holds degrees from the University of California, Berkeley and Columbia University. She is based in New York. Follow her on Twitter. Disclosure