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Factoring Sustainability in an M&A Scenario

Regarding Sanofi-Aventis and Genzyme: how do you construct a sustainable valuation of pharma? – Post 2

By Lavinia Weissman


Boston MA

original date of publication in CSRWireTalkback 08 December 2010

The Sanofi-Aventis and Genzyme merger and acquisition dance continues. As I continue to monitor the press, I built out my own research to find an answer to this question, “How do you factor sustainability into a biopharm merger and acquisition?”

On October 7, following my last post on the Sanofi and Genzyme merger dance, Genzyme’s board unanimously declined the SA bid of $69 per share, asserting that Genzyme was worth $89 per share. Sanofi views their offer as realistic and Genzyme views their valuation as what “the company is worth.”

How is #pharma stock valued?

Of the numerous articles cited on Twitter, I found an analysis by Jim Edwards. Edwards, a former Knight-Bagehot fellow at Columbia University’s business and journalism school and drug marketing journalist for BrandWeek, provided a news analysis questioning the validity of both valuations and the basis for the predicted EPS (earnings per share).

Edwards’s analysis assumed both companies are dancing around inaccurate information. Edwards, who is versed in #pharma investment valuation, identified a similar scenario that resulted in Goldman Sachs creating errors in the calculations related to the Roche acquisition of Genetech.

Is Investment Analysis Sustainable?

Last week, Genzyme’s auditor, Deloitte, released two articles on its website regarding the implications of sustainability in M&A scenarios and how sustainability relates to business today.

Deloitte pointed out sustainability is not about the usual due diligence performed during M&A. This assessment is based on the recognition that sustainability as an agenda has expanded beyond the focus of environmental issues.

Today’s sustainability agenda factors in regulation, finance, reputation and any “social impacts” from the point of view of all stakeholders. This goes beyond the assumptions used to calculate projected shareholder value.

What do we know currently?

Genzyme is hedging its bets, based primarily on a report that describes their improvements, further cost reductions and a plan to market the drug Campath (alemtuzumab) for multiple sclerosis.

Campath is already sold for the treatment of chronic lympocytic leukemia (CCL) cancer. With the completion of five years of clinical trials testing this drug as a replacement for Interferon, Genzyme is projecting a presales market for MS by 2011 that will bring $3.5 billion in annual sales as a basis for an EPS of $4.30 to $4.60. SA is projecting a peak of $700 million in annual sales.

There are seven other Wall Street analysts providing data on Campath peak annual sales ranging between $370 million – $1 billion.

Is there a #pharma business model that will project accurate sales projections?

Vertex Pharmaceuticals CEO, Matthew Emmens, perceives a future for biopharm that will focus on innovation, research and development of drugs that treat and sustain the chronically ill.

Emmens views treatment for the majority of ailments, e.g. acid reflux, has and will continue to grow over the counter. Hence, the future is about creating a biopharm industry that is responsive to challenging disease by addressing the 150 different types of cancer and growing number of systemic ailments.

Historically the challenge to this direction has been the excessive cost of innovation and research to discover these drugs for the treatment of complicated diseases. Is there a new method of innovation and research that can lessen the cost and reduce the amount of investment, or are there other options?

How do you construct a sustainable valuation of #pharma?

Given the range from $370 million – $1 billion by seven Wall Street analysts and the gap between Sanofi’s projection of $700 million with Genzyme’s $3.5 billion, how do you ascertain a business value based on sustainable assumptions?

Perhaps Sanofi has this question in mind: Sanofi asked Genzyme to convene a team to produce the analysis on the value of Campath.

Next in this series: How do you predict #pharma consumption patterns for presales, when the consumer is a patient? What variables have to be considered when the consumer is a patient and the sale is not an over-the-counter sale? Stay tuned!


Authors bio:

Lavinia Weissman is an sustainable market leadership coach, journalist, and publisher of As a speaker she describes the new emerging patterns of markets shaped by sustainable market leaders and the social networks they work with and employ.  As a coach, Lavinia works with all her clients to inspire professional development that assures a person the opportunity to embed sustainability as a leader into the network and culture of people they work with.


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