Sanofi-Aventis Earnings Beat Expectations, but No Word on Genzyme Bid

On Thursday, Sanofi-Aventis (SNY) reported its second-quarter business net income rose 7.6% to 2.48 billion euros ($3.22 billion) thanks to lower restructuring costs and favorable currency movements. But the French drugmaker warned that earnings may fall for the full year. Earnings beat average analysts' estimates of 2.32 billion euros, and earnings per share climbed 8% to 1.90 euros, topping estimates of 1.78 euros. And net income rose 61% to 1.71 billion euros.

Paris-based Sanofi said sales rose 4.6% to 7.78 billion euros, also above analysts' estimates of 7.51 billion euros, even as the company had to deal with generic competition for its anti-blood-clot drug Plavix. Sanofi managed to beat sales estimates because of favorable exchange rates. The company's diabetes drug Lantus led sales growth, up 11% at constant foreign exchange rates to 926 million euros. Excluding changes in structure and at constant exchange rates, sales fell 2.5% in the quarter.

Sanofi warned that its earnings for 2010 overall would be flat to minus 4% versus 2009, at constant exchange rates. This takes into account the recent approval of a generic version of blood-thinner Lovenox in the U.S., the company said, and incorporates the financial impact of U.S. health care reform and recent EU price cuts. Sanofi had previously forecast 2% to 5% annual growth.

"I'm pleased with the group's quarterly performance in an environment impacted by the U.S. health care reform, price cuts in Europe and continued competition from generics," said CEO Chris Viehbacher in a statement.

Preparing to Bid for Genzyme

But Sanofi-Aventis did not discuss what everybody most wanted to hear about -- its possible takeover of Genzyme (GENZ). According to Reuters, sources say Sanofi plans to make a formal offer of up to $18.7 billion for Genzyme after its informal feelers were ignored by the Cambridge, Mass.-based biotech.

The board of Sanofi met in Paris on Wednesday and authorized management to make a formal offer of up to $70 per share for Genzyme, sources told Reuters. At that price, Sanofi would be offering a premium of roughly 30% over Genzyme's stock value before the takeover reports emerged.

But according to the The Wall Street Journal, insiders have suggested that a $75 a share offer could be sufficient to win the support of Genzyme board. Analysts, meanwhile, have estimated Genzyme could fetch as much as $85 a share. Either way, to mount a successful bid, Sanofi will also have to deal with activist investors Carl Icahn and Ralph Whitworth.

While it's true that Genzyme is coming off a turbulent year which saw sales and profit slump, as well as proxy fights between major stakeholders, Sanofi may be in greater need of this marriage. Five of its eight best-selling drugs will lose patent protection and face generic competition by 2012. Genzyme could help it overcome its patent cliff problem and boost its weak biotech division.

Shares of Genzyme gained about 4% in early trading Thursday, and Sanofi shares were up nearly 1.5%.