Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Beleaguered Biotech for Sale by Owner. Maybe.

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Is Genzyme (Nasdaq: GENZ  ) cheap enough to justify sanofi-aventis (NYSE: SNY  ) or GlaxoSmithKline (NYSE: GSK  ) buying the beleaguered biotech? Maybe.

On Friday, The Wall Street Journal reported that Sanofi and Genzyme are courting each other, trying to figure out whether a price can be agreed upon. That was good enough for investors, who sent the stock up 15% on Friday. Today the rumor spread to Glaxo, and Genzyme is up another 7% or so, despite the latest news that Genzyme rebuffed Sanofi's bid.

On the one hand, Genzyme is clearly cheap compared to its potential. The company is well off its 2008 highs and is valued at just 3.9 times its trailing-12-month sales even after Friday's run-up.

Genzyme would have been a nice fit for Sanofi. The French drug company has been diversifying over the past few years, buying Chattem with its over-the-counter products and Czech generic-drug maker Zentiva. It would fit well with Glaxo, too. It is already fairly well diversified and has moved into emerging markets recently; Genzyme's biologic drugs would round out either nicely.

On the other hand, the pharma giants would be buying a turnaround candidate, which comes with substantial risk. Genzyme has an FDA consent decree hanging over it, which could result in additional fines if milestones like moving production out of its manufacturing plant aren't completed in a timely manner. For the right price maybe the risk is worth the potential for a turnaround.

The question is whether the price would be acceptable to shareholders, specifically large shareholders Carl Icahn and Ralph Whitworth, who both control board seats. Icahn orchestrated the sale of MedImmune to AstraZeneca (NYSE: AZN  ) and ImClone Systems to Eli Lilly (NYSE: LLY  ) , both for substantial premiums. I doubt he'd be willing to take less this time.

I'm not one for buying the rumor. The Journal's report reads like a couple of schoolkids are passing notes back and forth to find out if they're interested in each other rather than a serious couple on their way to a union. If you buy Genzyme today and it doesn't get acquired, you're still getting the risk that it'll run into another roadblock, but you've already lost a chunk of the upside if management is actually able to turn Genzyme around.

Motley Fool Rule Breakers is always on the hunt for hot drug stocks and other cutting-edge picks. Click here to see all of our latest discoveries with a free 30-day trial subscription. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of GlaxoSmithKline and has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1246273, ~/Articles/ArticleHandler.aspx, 10/21/2016 1:03:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,109.52 -52.83 -0.29%
S&P 500 2,137.18 -4.16 -0.19%
NASD 5,249.24 7.40 0.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 12:47 PM
AZN $30.74 Down -0.26 -0.84%
AstraZeneca CAPS Rating: ****
GENZ.DL $76.25 Down +0.00 +0.00%
Genzyme Corp CAPS Rating: ****
GSK $41.13 Down -0.30 -0.73%
GlaxoSmithKline CAPS Rating: ***
LLY $78.46 Down -0.28 -0.36%
Eli Lilly and Co. CAPS Rating: ***
SNY $37.75 Down -0.32 -0.84%
Sanofi CAPS Rating: *****