The Sanofi-Aventis Acquisition of Genzyme: Contingent Value Rights Custom Case Solution & Analysis

1. Evidence Brief (Case Researcher)

Financial Metrics:

• Sanofi offer: $74.00 per share in cash, plus a Contingent Value Right (CVR) (Exhibit 1).
• Genzyme 2010 Revenue: $4.05 billion (Exhibit 2).
• Alemtuzumab sales projections: $600 million to $3.5 billion depending on regulatory milestones and market penetration (Exhibit 4).
• CVR payout structure: $1.00 per share for FDA approval of Lemtrada by March 31, 2014; $2.00 for reaching specific sales targets; $1.00 for reaching secondary sales targets.

Operational Facts:

• Genzyme core portfolio: Rare disease treatments (Cerezyme, Fabrazyme, Myozyme).
• Manufacturing crisis: 2009 viral contamination at Allston facility caused supply shortages and consent decree with FDA (Paragraph 12).
• Lemtrada (Alemtuzumab): High-risk, high-reward MS drug candidate (Paragraph 22).

Stakeholder Positions:

• Chris Viehbacher (Sanofi CEO): Seeking to transform Sanofi into a diversified healthcare leader; wants to reduce reliance on patent-cliff drugs (Paragraph 5).
• Henri Termeer (Genzyme CEO): Resisting low-ball offers; seeking to protect shareholder interests during a manufacturing recovery period (Paragraph 18).
• Shareholders: Concerned about the impact of the manufacturing consent decree on the valuation of the pipeline (Paragraph 25).

Information Gaps:

• Internal probability estimates for Lemtrada clinical success beyond public disclosures.
• Full cost-to-remediate manufacturing facilities beyond initial estimates.

2. Strategic Analysis (Strategic Analyst)

Core Strategic Question: How should Sanofi structure the Genzyme acquisition to bridge the valuation gap caused by uncertainty in Genzyme’s manufacturing recovery and the high-risk pipeline (Lemtrada)?

Structural Analysis:

• Uncertainty Assessment: The primary friction is the valuation of Lemtrada. Genzyme management views it as a blockbuster; Sanofi views it as a binary outcome risk.
• Value Chain: Genzyme provides specialized rare disease expertise and a proprietary product pipeline; Sanofi provides the commercial scale and manufacturing remediation capital.

Strategic Options:

• Option 1: All-Cash Fixed Price: Simplifies the transaction but requires Sanofi to bake the maximum potential of Lemtrada into the price. High risk of overpayment.
• Option 2: Contingent Value Rights (CVR): Links the final purchase price to actual clinical and sales performance of Lemtrada. Aligns incentives and hedges Sanofi downside.
• Option 3: Minority Stake/Joint Venture: Preserves capital but fails to achieve the strategic objective of diversifying Sanofi's revenue base.

Preliminary Recommendation: Option 2. The CVR is the only mechanism that allows the deal to proceed without forcing Sanofi to pay for speculative upside that may never materialize.

3. Implementation Roadmap (Implementation Specialist)

Critical Path:

• Phase 1: Secure FDA consent decree compliance to stabilize existing revenue (Months 1-6).
• Phase 2: Execute clinical trial milestones for Lemtrada (Months 6-24).
• Phase 3: Transition Genzyme sales force into Sanofi commercial infrastructure (Months 12-18).

Key Constraints:

• Regulatory Oversight: Any delay in FDA approval voids key CVR milestones.
• Manufacturing Recovery: Failure to fix the Allston plant will result in sustained revenue leakage from existing products.

Risk-Adjusted Implementation:

• Establish a dedicated integration committee to monitor manufacturing remediation weekly.
• Ring-fence Lemtrada development resources to ensure clinical milestones remain on track regardless of integration distractions.

4. Executive Review and BLUF (Executive Critic)

BLUF: Sanofi must proceed with the CVR structure. The valuation gap between the two firms is not a difference of opinion; it is a difference in risk appetite. The CVR serves as a synthetic bridge that enables the acquisition by transferring the binary risk of Lemtrada to the sellers while allowing Sanofi to capture the core rare disease franchise at a price anchored to current performance. Without the CVR, the deal collapses under the weight of the manufacturing consent decree and clinical uncertainty.

Dangerous Assumption: The analysis assumes that the Genzyme manufacturing crisis is purely an operational fixable issue. If the culture of compliance at Genzyme is fundamentally broken, no amount of capital will fix the supply issues within the CVR timeline.

Unaddressed Risks:

• Adverse Selection: If Genzyme management knows internal data suggests Lemtrada will fail, they will push for a higher cash component rather than accepting the CVR.
• Integration Friction: The cultural clash between a massive pharmaceutical firm and a nimble, specialized biotech company often results in the loss of key scientific talent.

Unconsidered Alternative: A tiered acquisition where Sanofi acquires the rare disease assets first, with an option to purchase the Lemtrada pipeline separately upon successful Phase III data.

Verdict: APPROVED FOR LEADERSHIP REVIEW.