The US-based biotech company, Genzyme Corporation, which has become a takeover target by Sanofi-Aventis, has rejected the French drug maker's $18.5-billion all-cash offer, citing that the opportunistic takeover proposal does not reflect the true worth of the company.

In a letter written yesterday by Henri Termeer, the chairman and CEO of Genzyme to Christopher Viehbacher, CEO of Sanofi, Termeer says that there is no reason for Genzyme to engage in discussions with Sanofi.

He said that the Genzyme board, which includes representatives of some of its major shareholders, ''Believes this is not the right time to sell the company, because your opportunistic takeover proposal does not begin to recognise the significant progress underway to rectify our manufacturing challenges or the potential for our new-product pipeline.''

Last month, Sanofi-Aventis made an informal acquisition approach to Genzyme, (See: Sanofi-Aventis targets troubled Genzyme Corp for takeover) and subsequently, submitted a non-binding offer on 29 July 2010, which was rejected by Genzyme.

Yesterday, Sanofi went public with its $18.5-billion all-cash offer in a bid to force Genzyme to the negotiating table and even offered to raise the bid if the board of the Cambridge, Massachusetts-based Genzyme is open for talks.

After being rejected again, the Paris-based Sanofi said that it was not prepared to go to any length to buy Genzyme, especially when there were no rival bidders.

But Termeer's letter says, ''You and your advisors claim you are willing to pay more but that you are unwilling to ''bid against yourself. The Genzyme board is not prepared to engage in merger negotiations with Sanofi based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company.''

In a conference call with analysts, Viehbacher said that the company would ''consider all alternatives'' to complete a deal and even hinted that it may go hostile.

According to analysts, Sanofi is showing a tight fist with the Genzyme acquisition since prior to the biotech company's manufacturing problems, Genzyme's shares were trading at almost $84 in 2008. The lowest was $45.39 in May 2010 and was trading at $70.13 yesterday – a 4 per cent increase after Sanofi went public with its offer.

Sanofi's offer is $69 per share in cash, representing a 38-per cent premium over Genzyme's share price of $49.86 on 1 July 2010.

Analysts surmise that Sanofi would have to make an offer of $76-$83 per share if it wants to close the deal.

Genzyme's manufacturing problems
Genzyme is just about recovering from a series of problems related to manufacturing that had dragged its revenues and stock price down and helped its rivals gain market share at its expense. (See: Genzyme Corp shuts key facility to clean plant contamination)

Genzyme had to shut down its Allston Landing plant in Boston, a key production facility, to clean viral contamination, which reduced production of two of its key drugs, Cerezyme and Fabrazyme - used in the treatment of rare genetic disorders, and cost the company millions in revenue.

Due to supply constraints, Cerezyme was shipped at 50 per cent of demand and Fabrazyme at 30 per cent for the entire second quarter last year, which allowed rivals to corner a substantial share in the market for these two drugs.

Initial efforts to clean up the plant's problems ended in more US Food and Drug Administration (FDA) citations and in November, the FDA found tiny particles of trash including steel, rubber and fibre in drugs made by the company.

After repeated manufacturing problems, the company agreed in May 2010 to pay a $175 million fine to the FDA and operate under agency supervision for an expected seven or eight years.

Genzyme has until the end of the year to submit to the FDA its remedial plan related to its manufacturing unit.

But Genzyme has since been improving its manufacturing related problems, and has begun to increase the supply of Cerezyme for patients with Gaucher disease to near-normal levels, and hopes to increase the supplies of Fabrazyme for patients with Fabry disease beginning in the fourth quarter.

Genzyme's strength
Since its launch in 1981, Genzyme has grown from a small start-up to a diversified company with more than 12,000 employees in locations spanning the globe. In 2010, the company was named in the Fortune 500 list.

Its market capitalisation is around $14 billion and had sales of $4.5 billion in 2009. It's 2010 second-quarter revenue was $1.08 billion, compared with $1.23 billion in the same period last year.

The company's drugs are focused on rare inherited disorders, kidney disease, orthopaedics, cancer, transplant, and immune diseases. It also has a strong late-stage pipeline that is expected to help drive long-term growth.

Genzyme' experimental multiple sclerosis (MS) drug Campath, which is scheduled to hit the market in 2012, is expected to generate annual sales of over $3 billion from an estimated $13 billion global MS drug market, according to Genzyme.

But according to Deutsche Bank estimates, Campath will generate sales of about $800 million in 2018, while Sanford Bernstein, a US-based financial research firm, projects Campath global sales at  $675 million in 2015.

Genzyme also has a cholesterol lowering treatment, mipomersen, which is in late-stage clinical trials.

Most of Genzyme's drugs are made from living cells and are harder to copy than traditional pills made from chemical compounds and hence are less likely to face competition from generic drug makers, according to a Bloomberg report.

The therapies are designated as orphan drugs by the FDA because they are for diseases without other treatment options, which give them added patent protection.

Sanofi-Aventis is looking at Genzyme because it needs to add more drugs to its portfolio since most of its patents will expire by 2013.

It has already made acquisitions worth nearly $3 billion this year including the $1.9 billion acquisition of US consumer healthcare products group Chattem Inc in order to strengthen its presence in over-the-counter (OTC) healthcare products in the US. (See: Sanofi-Aventis concludes Chattem acquisition)

Sanofi-Aventis, which had 2009 revenues of €29.31 billion in 2009 and a net debt of around $5 billion, has spent about $17 billion on 25 acquisitions since Viehbacher took over the reins of the company in 2008, according to Bloomberg data.

But to succeed in its bid to acquire Genzyme, Sanofi, the world's fourth-largest pharmaceutical company by prescription sales, will have to deal with key activist shareholders, Relational Investors and Carl Icahn, holding 3.8 per cent and 4.9 per cent respectively.

Both of them had acquired their stakes for $61 and $54 respectively in the 70s and Icahn had recently wrested two board seats in Genzyme.

Both these investors have backed the Genzyme board in rejecting Sanofi's offer.