According to Bloomberg this morning, Genzyme expects that its fixes to the Allston manufacturing facility will now take longer than originally estimated - going from 2-3 years to more than 4 yrs in latest guess. This is not particularly good news for Genzyme shareholders or patients.
The Allston plant is the main source (though not sole) of Genzyme manufacturing problems and is the plant that supplies bulk of Genzyme's two top sellers -- Cerezyme and Fabrazyme. The plant was hit with a $175 M consent decree in May and may face additional fines up to $130 M if it fails to meet FDA deadlines under that decree.
Given this, and a conspicuous lack of competitive bidders for Sanofi in its attempt to acquire Genzyme, there is no obvious driver to allow Genzyme to lever its asking price up from the purported Sanofi offer of $67-70/share to Genzyme's desired greater than $80/share offer. Many analysts are predicting that Sanofi can hold out for the lower price with no bidder in sight, and the prospect if they walk that Genzyme stock will tumble back below $50/share. Ouch! It's been characterized as a game of chicken. That's why top execs get the big bucks afterall.
Says Pictet Asset's investment manager Marc Booty, "No one wants to be the one holding Genzyme stock when it was down near $50, reaches near $70 and then goes down to $50 again, which would happen if Sanofi walked away."
Counterpoint from Sven Borho, a partner with OrbiMed Advisors -- with 2.5 million Genzyme shares, "Genzyme is not in a weakened state, where they have to sell and they have no choice. It's just the other way around." Whistling in the dark or prophetic? Time will tell.
Posted by Bruce Lehr August 12th 2010.