With Sanofi Buyout of Genzyme, Rare Disease Execs Upbeat About Interest in Their Niche

3/3/11

Speculation raged for months about the potential impacts of a Sanofi-Aventis (NYSE: SNY) takeover of Genzyme (NASDAQ: GENZ). Yet now that the French drug giant and Cambridge, MA-based biotech company have agreed to terms of a $20.1 billion buyout, local players in the market for rare disease drugs are contemplating what Sanofi’s huge move into their field means for them.

Paris-based Sanofi is expected to close of the acquisition of Genzyme, the world’s largest maker of rare disease drugs, early in the second quarter of 2011. The buyout clearly trumps the smaller moves into this field by other large drugmakers such as Pfizer, GlaxoSmithKline, and Novartis. And  some of the Boston area’s top executives at biotechs focused on rare diseases say that the field might benefit from the increased interest in it among pharmaceutical players.

“For me, every sign here that more people are getting involved in rare diseases and gene therapy is a great thing,” says Nick Leschly, president and CEO of Bluebird Bio, a biotech firm focused on gene therapies for rare diseases such as beta thalassemia and childhood cerebral andrenoleukodystrophy. Genzyme Ventures, the investment arm of Genzyme, is one of the Cambridge, MA-based firm’s backers.

Leschly’s biotech firm considers Genzyme Ventures a strategic investor because of Genzyme’s interest in gene therapy and rare diseases. Yet Genzyme has no rights to the biotech’s intellectual property, and Bluebird (formerly Genetix Pharmaceuticals) has retained full commercial rights to its experimental treatments. Yet Leschly placed Genzyme on a list of potential partners that also included both large pharmas and biotech groups.

Genzyme’s franchise of drugs for rare inherited illness such as Fabry disease and Gaucher’s was a prime motivation for Sanofi’s takeover, which was agreed upon in February after the two companies wrangled over the value of Genzyme and its pipeline for many months. Genzyme gives Sanofi a bigger foothold in the business of providing biological drugs, which are produced with living cells and are viewed as more difficult to copy than small molecules, adding a layer of protection from generic competitors.

Sanofi said it plans to make Genzyme its global center of excellence in rare diseases. More broadly, Sanofi CEO Chris Viehbacher says that part of his company’s growth strategy is to build more ties with outside academics and drug developers to bolster his firm’s pipeline. So it’s reasonable to think that Sanofi is going to seek more partnerships with players in the rare diseases field after it buys Genzyme. (In fact, Genzyme’s own deal-making activities have slowed some over the past year as it has put its focus on improving its manufacturing, keeping investors happy, and dealing with Sanofi’s takeover.)

Sylvie Gregoire, president of Shire Human Genetic Therapies, a Lexington, MA-based rare disease drug unit of Irish pharmaceutical firm Shire, says that the field could benefit from increased investment. “I think that the whole sector of rare diseases has gained more attention, not just from companies but from the FDA and the NIH,” she says. “In a way, that’s good for the science in terms of investment.”

Yet for Shire HGT, one of the largest providers of rare disease drugs, Genzyme is a rival in some key markets such as treatments for Fabry disease. After viral contamination at Genzyme’s Allston, MA, facility in June 2009 temporarily delayed production of prime Genzyme drugs such as agalsidase beta (Fabrazyme) for Fabry patients, Shire was able to gain the FDA’s permission to provide its own Fabry drug agalsidase alfa (Replagal) to patients in need of the enzyme-replacement treatment. Shire overtook Genzyme as the world’s No. 1 provider of Fabry treatments last year, Gregoire says.

Now it appears that Shire HGT will have to compete with a Genzyme unit owned by one of the world’s largest drug companies. That might mean that Shire HGT, which had 2010 sales of more than $900 million, will have to maneuver against Sanofi for deals with smaller biotechs who are seeking investments to commercialize their rare disease products.

Gregoire says that her company has a lot of experience in developing rare disease drugs and bringing the medicines to market. Also, she claims that Shire HGT (formerly Transkaryotic Therapies) has a track record of forging alliances with smaller companies that provide attractive terms for both sides.

“Sometimes these small companies don’t want to be bought,” Gregoire says. “They want to see if they can build themselves into a company of their own. You’ll see that we’ve done all kinds of deal structures that try to accommodate them rather than just try to just force any deal structure that we mandate.”

“This is something that sometimes in larger pharmaceutical companies they don’t want to bother with, or they are not as flexible as we would be or not as quick, frankly, at looking at an asset or judging an asset,” she says.

Large drug companies have made moves to expand their research expertise in the rare diseases market. New York-based drug giant Pfizer (NYSE: PFE), for example, has made a series of moves over the past year or so in this arena with its buyout of Cambridge, MA-based FoldRx Pharmaceuticals, and its announcement of plans to establish a rare disease research group in Cambridge.

For Leschly’s part, pharma’s interest in rare diseases was part of his thesis for investing in Bluebird when he was a partner at Third Rock Ventures in Boston. He took over as CEO after the venture firm led a $35 million Series B round of financing for the company in March 2010.

“Whether it’s Sanofi, Genzyme, or one of these other companies, I’m a big fan of more interest,” Leschly says. “Drug development is very expensive and very long. So we need a sustained commitment. Those are serious dollars and serious commitments.”

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