Biotech drugmaker Genzyme General (NASDAQ:GENZ) is buying SangStat Medical (NASDAQ:SANG) for $600 million in cash. Genzyme will pay $22.50 a share, a 45% premium to the target's prior $15.48 close. SangStat shares jumped almost to the deal price in Monday trading.

Genzyme apparently can spare the change from its $1.3 billion in cash and equivalents to pay just shy of five times sales and 76 time earnings for a company with $128 million in trailing-12-month revenues and seven quarters of GAAP profits. SangStat sells the successful Thymoglobulin for kidney transplant rejection as well as a generic cyclosporine, which was the first successful product to counter immune system rejection of transplant tissue. Genzyme says its strategy will be to expand indications for Thymoglobulin and continue looking for partners for some of SangStat's current and potential drug candidates. The buyer expects the deal to add to earnings after 2004.

Genzyme was one of the first-generation biotech drug makers. It's a complicated company that financed years of biotech cash-burning drug development through selling shares of its more speculative cancer, biomaterials, and transgenic animal businesses as the tracking stocks Genzyme Molecular Oncology, Genzyme Biosurgery, and Genzyme Transgenics (spun off as GTR Biotherapeutics (NASDAQ:GTCB)). The company eliminated its tracking stock structure on July 1, so the businesses are now consolidated and the tracking stocks no longer trade.

Genzyme now produces substantial profits from its portfolio of drugs. Most are aimed at genetic diseases with small patient populations, such as Cerezyme for Gaucher's disease and Fabrazyme for Fabry's disease. Among its biotech drugmaking peers, its $10.3 billion market cap is third after Amgen (NASDAQ:AMGN) and Genentech (NYSE:DNA), and its $1.23 billion in trailing-12-month sales tied for fourth with Biogen (NASDAQ:BGEN) behind Chiron (NASDAQ:CHIR).

Recognizing Genzyme's increasing success, and joining the general biotech run up since March, the market has driven Genzyme stock from $17.92 last July to yesterday's $47.62 close. Expensive? Until we have a few quarters of results without the tracking stocks, we're forced to fall back on the company's EPS estimate for the year of $1.15-$1.20. That yields a P/E of 40. Not the nosebleed valuations of Amgen and Genentech, but requiring heady growth for the foreseeable future and leaving no room for error. Beware.

To learn more, you can't beat our Biotechnology discussion board and The Five Steps of Drug Development .

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