UV6870

Oct. 22, 2014

THE SANOFI-AVENTIS ACQUISITION OF GENZYME:

CONTINGENT VALUE RIGHTS

At the end of January 2011, Henri Termeer, the CEO of Genzyme, and Chris Viehbacher,
the CEO of Sanofi-Aventis (Sanofi), were both attending the World Economic Forum, a gathering
of chief executives, heads of state, and other influential figures at the ski resort in Davos,
Switzerland. The advisers of the two firms had spent countless hours discussing merger deal
alternatives, and the private meeting between the CEOs was expected to close these negotiations.

Sanofi, a large French pharmaceutical company, had first expressed its interest in acquiring
Genzyme in the summer of 2010. Termeer had led Genzyme for more than 25 years, overseeing
its growth from an entrepreneurial venture to a top U.S. biotechnology firm. The main reasons
Sanofi was attracted to Genzyme were its lucrative drug business that focused on hard-to-copy
genetic diseases and its pipeline of drugs under development (Exhibit 1). Sanofi was fighting a
looming drop in its revenues due to the patent expirations of several of its blockbuster drugs. The
Genzyme acquisition would shift the focus of Sanofi’s portfolio toward biopharma, an area in
which the firm lagged behind its competitors.

The last two years had been tumultuous for Genzyme. In early 2009, it dealt with a
manufacturing crisis that affected its major products (Fabrazyme and Cerezyme) and created
dissatisfaction among patients, regulators, and investors. Genzyme’s stock was trading at its lowest
price in three years and opened the door for such activist investors as Relational Investors and Carl
Icahn (Exhibit 2). During the turmoil created by activists exerting their influence upon Genzyme,
Sanofi began its pursuit of the company.

On October 4, 2010, Sanofi took its $69-per-share tender offer directly to Genzyme
shareholders. This offer was 30% above Genzyme’s stock price in May 2010 before rumors of this
potential deal leaked to the public. But Termeer and Genzyme’s board thought the offer
understated the company’s intrinsic value. Genzyme’s board assessed that any offer less than $80-
per-share would be inadequate; however, Sanofi decided that it would not be able to pay a hard
$80-per-share for the business. Termeer said he did not expect a truly hostile process to unfold and

This public-sourced case was prepared by Dmitriy Aleyev (MBA ’14) and Chong Xu (MBA ’14) under the supervision
of Pedro Matos, Associate Professor of Business Administration. It was written as a basis for class discussion rather
than to illustrate effective or ineffective handling of an administrative situation. Copyright  2014 by the University
of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording,
or otherwise—without the permission of the Darden School Foundation.

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gave a high probability of a deal being consummated if Sanofi raised the price. “We need each
other too much in terms of future value,” Termeer said.1

There were two main issues involved in the M&A negotiations. The chief dispute was
about the market potential of a drug in Genzyme’s pipeline: alemtuzumab (Lemtrada).
Alemtuzumab had already been approved by the FDA for treating leukemia, and was in Phase III
trials for treating multiple sclerosis (MS). Genzyme management predicted that alemtuzumab
could be a blockbuster drug if approved for MS treatment and predicted peak revenues of more
than $3 billion in 2017 (Exhibit 3). Sanofi’s management disagreed with this optimism and
thought FDA approval was far from guaranteed—but if approved, management thought that the
drug’s base case revenues would be approximately $700 million per year (Exhibit 4) due to
increasing competition with other recent drug approvals in the MS market. (Exhibit 5). The second
issue clouding negotiations was that Genzyme expected to quickly resolve its manufacturing issues
following the FDA’s consent decree, while Sanofi claimed that it could take at least four years
(Exhibit 6), which would adversely affect the sales of Fabrazyme and Cerezyme.

By early January 2011, the two sides were engaged in direct negotiations to bridge the gap
in their estimates of Genzyme’s value.2 Company advisers had suggested a $74-per-share up-front
cash payment and a contingent value right (CVR). The value of the CVR depended on the
performance of Genzyme’s alemtuzumab and whether Genzyme resolved its manufacturing issues.
The CVR holder would receive certain future payments if alemtuzumab hit certain regulatory and
sales thresholds or if certain production volumes of Cerezyme and Fabrazyme were achieved.
There had been other transactions between publicly traded companies over the past decade that
included CVRs, and a number of these were in the biotech and pharmaceutical industries (Exhibit
7). The terms of the Sanofi offer are outlined in Exhibit 8.

Walking down a hill in Davos together, Termeer and Viehbacher hoped that the rarefied
air of the Alps might help them reach a deal. As they reviewed the final terms of the CVR proposal,
they discussed whether Sanofi could gain access to begin due diligence. It was important for each
firm to assess the CVR’s valuation from its perspective, and they wondered if a CVR was the
magical solution to bridging the valuation gap or just a bridge too far.

Valuing a Biotech Company

Biotech companies were heavily dependent on the success of their research and
development programs for creating future cash flow. For these companies, a large part of their
asset value was in their drug pipelines (i.e., the drug candidates that were usually several years
away from reaching the market). Thus one common way to value a biotech firm was to apply the

1
Toni Clarke and Jessica Hall, “A Walk in the Alps Put the Genzyme Deal on Track,” Reuters, February 17,
2011, http://in.reuters.com/article/2011/02/16/dealtalk-genzyme-idINN1619306620110216 (accessed Oct. 1, 2014).
2
Phil Serafino, Jeffrey McCracken, and Jacqueline Simmons, “Sanofi Is Discussing Lemtrada Payments with
Genzyme,” Bloomberg, January 10, 2011, www.bloomberg.com/apps/news?pid=newsarchive (accessed Oct. 1,
2014).

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probability that a drug would reach market stage and then forecast the drug’s future sales to
estimate the cash flows derived from a particular drug or the entire pipeline.

Estimating the probability of a successful drug and the revenues associated with that
success were extremely difficult and, as a result, often led to widely different company valuations.
For a drug to obtain FDA approval to be sold in the market, it needed to go through multiple stages
of experiments and clinical trials that could take several years or even a decade. Exhibit 9 details
the typical drug R&D and FDA approval process. As a drug progressed through the different stages
of clinical trials, the likelihood of getting to the next stage increased. Most analysts estimated that
only 5% to 10% of the drug candidates entering a Phase I clinical trial successfully navigated the
entire process; however, a drug that reached Phase III had a 55% probability of success. Chemical
compositions, toxicity, and pharmacokinetic properties affected a drug’s efficacy and safety,
resulting in different clinical trial outcomes. All these factors made it difficult even for industry
veterans to accurately estimate a drug candidate’s probability of success.

In addition to assessing a drug candidate’s probability of success, the analyst must also
estimate the drug’s sales potential once it got to market. On top of the uncertainty regarding a
drug’s efficacy and safety profile, another factor was the effect of potential competition. Often
there were multiple drugs and drug candidates with large market potential under development for
one disease.

Alemtuzumab

Alemtuzumab was a biological antibody drug that was beneficial in treating diseases such
as MS.3 The cause of MS was not fully understood, and there was no cure available. Typically,
physicians used various treatments such as interferon beta products to reduce inflammation or
steroids to manage MS symptoms and slow the disease progression. But alemtuzumab belonged
to a new class of drug in which antibodies lowered the degree to which the immune system attacked
the MS patient’s body. Its predecessor, Tysabri (natalizumab), was approved in 2004 and was the
first antibody drug for MS to show remarkable effects, although it came with a number of side
effects. Costing several thousand dollars per monthly infusion per patient, Tysabri’s worldwide
annual sales topped $1 billion in 2009, and the overall MS market estimate was more than $14
billion in sales annually.

Alemtuzumab targeted lymphocytes, a type of immune cells. First approved in 2001 to

treat leukemia (and originally marketed as Campath), scientists eventually discovered that it was
effective in treating MS. In 2008, a Phase II clinical trial by Genzyme showed that it was much
more effective than conventional interferon drugs: more than 70% of MS patients were disease-
free after four years, compared to 35% taking a conventional drug. Genzyme was encouraged by
alemtuzumab’s success in the early stages, and the drug quickly advanced to a Phase III clinical
trial.

3
“Alemtuzumab vs. Interferon Beta-1a in Early Multiple Sclerosis,” New England Journal of Medicine (October
23, 2008).

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The final results from the Phase III trial were due in 2011, and they would determine how
big alemtuzumab could become. If it could repeat the remarkable efficacy seen in the phase II trial,
it could possibly become the drug of choice for patients and potentially bring in billions of sales.
But alemtuzumab’s safety profile caused significant concern, because it worked by damaging
immune cells, so patients took risks such as developing extremely low platelet counts and severe
bacterial infections when they stayed on the drug for a long time. If any severe side effects were
found to be more common than expected, or if the efficacy was shown to be lower in the Phase III
trials, the risk-to-benefit balance would tilt, and alemtuzumab could become a “drug of last resort”
(i.e., to be used only after other current MS drugs had not worked for the patient). In the worst
situation, if severe problems occurred, the FSA would reject the drug after billions in research
dollars had been spent. Finally, competition was also an issue because several MS drugs were
under development by various biotech companies, such as Biogen Idec.4 All of these factors added
to alemtuzumab’s uncertain future in the lucrative MS drug market.

After talking to the chief scientists on Genzyme’s MS team, Termeer was confident that
alemtuzumab would enter the market and become a multibillion-dollar blockbuster drug soon after
its launch. His team believed that alemtuzumab could bring in close to $900 million in sales during
its first year on the market and $3.5 billion in peak sales by 2017 (Exhibit 3). But not even the
best MS experts could predict the Phase III outcome. Therefore, it was not surprising that
alemtuzumab approval forecasts and sales projections varied widely. At the time of Sanofi’s $69-
per-share merger proposal in October 2010, the consensus estimate for alemtuzumab’s peak sales
was around $700 million (Exhibit 4). There was particular concern about alemtuzumab’s sales
potential given the competition from a number of approved MS therapies as well as others in the
pipelines of major pharmaceutical companies (Exhibit 5).

Manufacturing Problems

Genzyme had just finished dealing with an unexpected contamination at its major
production plant in Allston, Massachusetts. On March 2, 2009, Genzyme had disclosed an FDA
warning letter that identified manufacturing deficiencies at the Allston plant. In June 2009,
Genzyme shut down the plant due to the virus contamination. The stoppage resulted in a shortage
of Cerezyme and Fabrazyme, two drugs that accounted for more than 40% of Genzyme’s revenue.
The shortage of these two lifesaving drugs forced doctors to ration them to patients, which, in turn,
caused numerous patient complaints. As a result of the shutdown, cleanup costs, and lost sales
associated with the contamination, Genzyme’s earnings suffered along with its stock price. Based
on prior FDA consent decrees, Sanofi thought these manufacturing issues could take up to four
years to get resolved (Exhibit 6), which would adversely affect sales of Fabrazyme and Cerezyme.

4
Biogen Idec SEC filing, 2009.

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The CVR Valuation

To bridge the wide valuation gap between the two companies, Genzyme’s bankers had
contacted Sanofi to explore a deal structure involving a CVR. A CVR was a financial option on
the future performance of the target firm for which certain triggers, such as Genzyme’s product
performance or revenue targets, resulted in cash (or stock) payouts to the shareholders of the
company. A CVR was considered a particular form of an earnout. It constituted a legally binding
arrangement under which a portion of the purchase price in an acquisition was contingent on the
achievement of financial or other performance targets after the deal closed.5 Unlike a more typical
call option (the right but not the obligation to buy shares of the underlying common shares at a
given strike price), for which the value increased linearly once it was “in the money,” a CVR had
an all-or-nothing structure for each trigger event. If the event occurs, the CVR holder would collect
a certain amount of payment, but if the milestone was not reached or was reached too late, the
holder received nothing.

CVRs had been used occasionally in biotech transactions, given the uncertainty in
forecasting the performance of a certain drug and the regulatory hurdles in bringing drugs to
market (Exhibit 7). The success of a new drug could greatly enhance the value of the target. For
example, Celgene’s $3 billion cash purchase of Abraxis BioScience, which closed in October
2010, included a CVR; its potential payoff was more than $650 million to shareholders of the
target corporation if the FDA approved the drug Abraxane for various therapeutic uses.6 But some
investors might view CVRs unfavorably. In fact, CVRs could trade at a discount to their intrinsic
value if there was a lack of transparency on the sales results of alemtuzumab or confusion over the
payment mechanics. Additionally, CVRs could be thinly traded and become illiquid securities.

Genzyme and Sanofi’s financial advisors had proposed a cash price of $74 per share and
an event-driven CVR with the following features: (1) up to $13-per-share payments tied to
milestones on FDA approval of alemtuzumab to treat MS and achievement of certain sales
thresholds; and (2) an additional $1-per-share payment linked to 2011 production milestones on
Genzyme’s core drugs (Cerezyme and Fabrazyme). Exhibit 8 provides the terms of the offer.

Termeer was interested in valuing the CVR for Genzyme shareholders. The $74-per-share
cash payment implied a total of $20.1 billion, and, if all targets were met, the $14-per-share from
the CVR would add an additional $3.8 billion in value. But the maximum payment of $14-per-
share would not be reached unless all the milestones were achieved. The CVR’s intrinsic value
should be determined as the probability-weighted value and expected timing of each payment, all
discounted to the present. Scenario 1 in Exhibit 10 illustrates the CVR value under management’s
assessments of the probability and timing for achieving alemtuzumab approval and product sales

5
Legally, a CVR was a contractual right embedded in a takeover document or a potentially transferable security
that gave a right to receive further consideration either via a single contingency CVR (a one-off payment depending
on whether or not the contingency was met) or a tracker CVR (where a series of payments was made to holders over
a period of time).
6
Igor Kirman and Victor Goldfeld, “Contingent Value Rights,” Practical Law Company, 2011,
http://us.practicallaw.com/5-504-8080 (accessed Oct. 1, 2014).

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milestones. For the value of the $1-per-share production milestone there was a consensus
probability of 70%. The total probability-adjusted intrinsic value of the CVR was estimated as
$4.48 per share when the expected cash flows were discounted by a rate of 20%.7 Would this leave
Genzyme shareholders closer to the $80-per-share target that its board considered to be a fair
valuation for the company?

Sanofi was less optimistic about alemtuzumab, and the forecasts of Wall Street analysts
offered a dismal picture. See alternative scenarios 2 through 8 in Exhibit 10. By changing the
scenario number in the spreadsheet model, the CVR’s expected value can be recalculated. For
simplification, assume that there was no disagreement on the probability of 70% that the $1-per-
share production milestone would be met.

Termeer and Viehbacher reviewed the final terms of the CVR proposal. It was important
for both of them to get a sense of the CVR valuation from their perspectives. The two companies
had different views on the upside potential for alemtuzumab. Naturally, none of them could foresee
the future, and what the CVR could potentially bring the two firms in terms of value. Was the CVR
a win-win solution for the two companies?

7
This discount rate of 20% was typically used in the industry for biotech projects. Note that this was higher than
the company’s weighted average cost of capital of about 7.5% to 9.5% used at the time for the valuation of the
company’s mature business.

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Exhibit 1
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Genzyme’s Drug Portfolio and Selected Late-Stage Pipeline Products as of 2010 Year End

Marketed Drugs
Name Main Indication 2009 Sales Main % of
(in thousands Patent Total
of dollars) Expiration* Sales
Cerezyme Gaucher’s disease $793,024 2019 19.5%
Fabrazyme Fabry disease $429,690 2015 10.5%
Myozyme Pompe disease $324,545 2023 8.0%
Aldurazyme MPS I $155,065 2020 3.8%
Renagel/Renvela High SP levels in CKD patients $706,589 2014 17.3%
Hectorol Hyperparathyroidism $130,757 2016 3.2%
Thyrogen Diagnostic in thyroid cancer $170,644 2015 4.2%
Synvisc/Synvisc-One Osteoarthritis pain $328,533 2012 8.1%
Sepra Healing after surgeries $148,538 2013 3.6%
* Dates shown are for main patents (both United States and international).

Selected Pipeline Drugs Under Development

Name Main Indication Clinical Trial Potential
Phase Approval**
Alemtuzumab Multiple sclerosis III 2011
Mipomersen Hypercholesterolemia III 2011
Ataluren Cystic fibrosis III 2011
Eliglustat Gaucher’s disease III 2013
Clolar Leukemia, MDS Different stages 2010 to 2016
Mozobil Tumor sensitization I 2016
**Genzyme estimation.

Data sources: Genzyme Corporation SEC 10-K filings, 2008 and 2009; Sanofi-Aventis tender offer, Genzyme
shareholder presentation, SEC website, October 4, 2010, http://www.sec.gov/Archives/edgar/data/732485/
000119312510223033/dex99a5c.htm (accessed Sept. 30, 2014).

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Exhibit 2
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Genzyme Daily Closing Stock Price (GENZ) and Timeline of Events,
January 1, 2008–January 31, 2011

GENZ

1 Sept.–Oct. 2 Feb. 27, 2009: 3 Nov. 16, 2009: 4 Jun. 9, 2010: Genzyme settles proxy contest with Carl Icahn
2008: Relational FDA delivers Activist investor
Investors begins warning letter to Carl Icahn 5 Jul. 2, 2010: Rumors that Sanofi-Aventis is considering a
buying shares of Genzyme discloses $20 billion biotech acquisition
Genzyme ownership stake
in Genzyme 6 Aug. 29, 2010: Sanofi-Aventis announces nonbinding $69-
per-share cash offer

7 Oct. 4, 2010: Sanofi-Aventis launches $69-per-share tender

offer

8 Oct. 7, 2010: Genzyme board rejects offer

$90

$80 1

7 8
6
$70
$73.35
2
Jan. 31, 2011
$60 5
4
3

$50

$40
2-Jan-2008

2-Jan-2009

2-Jan-2010

2-Jan-2011
2-Jul-2008

2-Jul-2009

2-Jul-2010
2-Apr-2008

2-Apr-2009

2-Apr-2010
2-Oct-2008

2-Oct-2009

2-Oct-2010

Data source: Capital IQ and case writers.

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Exhibit 3
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Investor Presentation by Genzyme (October 22, 2010):
Management Forecasts of Alemtuzumab MS sales

Data source: “Sanofi-Aventis Tender Offer to Acquire Genzyme,” SEC website, October 4, 2010,
http://www.sec.gov/Archives/edgar/data/732485/000119312510223033/dex99a5c.htm (accessed Sept. 30, 2014).

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Exhibit 4
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Sanofi’s Tender Offer to Acquire Genzyme (October 4, 2010):
Forecasts of Alemtuzumab MS sales

Data source: “Sanofi-Aventis Tender Offer to Acquire Genzyme,” SEC website, October 4, 2010,
http://www.sec.gov/Archives/edgar/data/732485/000119312510223033/dex99a5c.htm (accessed Sept. 30, 2014).

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Exhibit 5
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Sanofi’s Tender Offer to Acquire Genzyme (October 4, 2010): MS Market

Data source: “Sanofi-Aventis Tender Offer to Acquire Genzyme,” SEC website, October 4, 2010,
http://www.sec.gov/Archives/edgar/data/732485/000119312510223033/dex99a5c.htm (accessed Sept. 30, 2014).

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Exhibit 6
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Sanofi’s Tender Offer to Acquire Genzyme (October 4, 2010): Manufacturing Issues

Data source: “Sanofi-Aventis Tender Offer to Acquire Genzyme,” SEC website, October 4, 2010,
http://www.sec.gov/Archives/edgar/data/732485/000119312510223033/dex99a5c.htm (accessed Sept. 30, 2014).

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Exhibit 7
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
M&A Transactions Using Event-Driven CVRs

Event Year M&A Deals

FDA approval 2010 Celgene/Abraxis
2009 Endo Pharmaceuticals/Indevus Pharmaceuticals
2008 ViroPharma/Lev Pharmaceuticals
2005 Boston Scientific/Rubicon
Product sales revenues 2011 Forest Laboratories/Clinical Data
2010 Celgene/Abraxis
2009 Endo Pharmaceuticals/Indevus Pharmaceuticals
2008 ViroPharma/Lev Pharmaceuticals
2005 Boston Scientific/Rubicon
Operating performance 2008 Fresenius/APP Pharmaceuticals
2008 Onstream Media/Narrowstep
Sale of assets 2008 NYSE Euronext/American Stock Exchange
2005 Petters Group/Polaroid
Litigation collections 2003 Vision Technologies Kinetics/Miltope Group
Accounts receivable collections 2002 Psychiatric Solutions/PMR Corp
Tax refunds 2009 Cambium Learning Group/Voyager Learning Company

Source: Watchtell, Lipton, Rosen, and Katz, “Contingent Value Rights,” 2011.

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Exhibit 8
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Sanofi’s Offer to Acquire Genzyme

$74.00 per share in cash (total of $20.1 billion)1

Contingent Value Right (CVR) for each share entitling the holder to receive additional cash payments if specified
milestones related to alemtuzumab MS (Lemtrada) are achieved over time or a milestone related to production
volumes in 2011 for Cerezyme and Fabrazyme is achieved. On each milestone payment date, Sanofi-Aventis shall
make the appropriate payment to the Trustee of the CVR. Payments to CVR holders are only made when the
specified milestones are achieved. If no milestones are achieved, CVR holders will not receive any payments. The
CVR will remain outstanding until the earlier of (i) the payment date for Product Sales Milestone # 4 and (ii)
December 31, 2020.

Sanofi-Aventis will periodically file annual reports on Form 20-F and furnish semiannual reports on Form 6-K and
other documents, reports, and statements with the Securities and Exchange Commission that would be available to
view to all CVR holders. In addition, Sanofi-Aventis will file within 50 days after the end of each calendar quarter
a product sales statement for alemtuzumab containing information relating to sales of alemtuzumab for the prior
four calendar quarters (and, during 2011, information on production totals for Cerezyme and Fabrazyme). Sanofi-
Aventis will also file a notice setting forth the occurrence of the Approval Milestone Payment within four business
days after the occurrence of the Approval Milestone.

Maximum Total $14.00/share nominal value of CVR (potential total of $3.8 billion)
Payment:
Alemtuzumab $1.00 for receipt of U.S. FDA approval of alemtuzumab for treatment of multiple sclerosis on
Approval or before March 31, 2014
Milestone:
Alemtuzumab Milestone #1: $2.00 upon achieving sales of $400 million within 12 months from product
Product Sales launch
Milestones: Milestone #2: $3.00 upon achieving sales of $1.8 billion within four consecutive quarters
Milestone #3: $4.00 upon achieving sales of $2.3 billion within four consecutive quarters
Milestone #4: $3.00 upon achieving sales of $2.8 billion within four consecutive quarters

Production $1.00 if the company achieves both of the following in the year 2011:
Milestone: - production of 734,600 quality released unlabeled 400 Unit Vial Equivalents of
Cerezyme from an approved facility
- production of 79,000 quality released unlabeled 35-milligram Vial Equivalents of
Fabrazyme from an approved facility

Source: SEC EDGAR, Genzyme Merger Schedule 14D-9, February 9, 2011.

1
Based on 272.5 million Genzyme shares on a diluted basis.

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Exhibit 9
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Drug R&D and FDA Approval Process

Stage Goal Test In* Time Needed* Probability

of Success*
Preclinical Gather information on drug Animals A few years N/A
behavior in physiological setting
IND Application submitted to the FDA Several months N/A
for approval to conduct clinical trial
Phase I Gather preliminary drug efficacy Healthy volunteers One to a few years 63%
and safety, determine safe dosage, (between 20 and 80).
identify side effects
Phase II Evaluate drug efficacy against A few dozen to a few One to a few years 33%
placebo or other treatments, observe hundred patients
drug safety, especially short-term
side effects
Phase III Observe drug efficacy and safety in A few hundreds to a few A couple to several 55%
larger population, look for long- thousand patients years
term safety and rare side effects
NDA Application submitted to the FDA Several months 80%
for final market approval
*May vary significantly in different diseases and scenarios.

Data sources: “The FDA’s Drug Review Process: Ensuring Drugs are Safe and Effective,” FDA website,
http://www.fda.gov/drugs/resourcesforyou/consumers/ucm143534.htm (accessed Sept. 30, 2014); Michael Hay, Jesse
Rosenthal, David Thomas, and John Craighead, “BIO/BioMedTracker Clinical Trial Success Rates Study,” February
15, 2011.

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to Mar 2024.
 -16- UV6870

Exhibit 10
THE SANOFI-AVENTIS ACQUISITION OF GENZYME:
CONTINGENT VALUE RIGHTS
Valuation of Contingent Value Rights

1: Alemtuzumab MS Milestones

FDA Approval Probability 55%

Projected Global Revenues ($ millions)

Launch Year: 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Scenario 1: Management 2011 $ - $ 49 $ 897 $ 2,063 $ 2,784 $ 3,258 $ 3,495 $ 3,179 $ 2,522 $ 1,866
Scenario 2; Barclays 2013 $ - $ - $ - $ 450 $ 550 $ 700 $ 800 $ 900 $ 970 $ 1,037
Scenario 3: Credit Suisse 2013 $ - $ - $ - $ 450 $ 500 $ 625 $ 725 $ 800 $ 875 $ 932
Scenario 4: Deutsche Bank 2013 $ - $ - $ - $ 450 $ 500 $ 600 $ 700 $ 800 $ 700 $ 600
Scenario 5: BofA/ML 2012 $ - $ - $ 450 $ 550 $ 700 $ 650 $ 600 $ 550 $ 500 $ 500
Scenario 6: Bernstein 2011 $ - $ 250 $ 350 $ 450 $ 550 $ 675 $ 650 $ 600 $ 550 $ 450
Scenario 7: Citi 2013 $ - $ - $ - $ 200 $ 450 $ 500 $ 550 $ 604 $ 550 $ 400
Scenario 8: Jefferies 2012 $ - $ - $ 100 $ 250 $ 370 $ 350 $ 325 $ 300 $ 250 $ 225

to Mar 2024.
Scenario 9: [*TO INPUT*] 2012 ? ? ? ? ? ? ? ? ? ?

CHOOSE SCENARIO # Scenario: 1 1 2 3 4 5 6

Launch Year: 2011 2012 2013 2014 2015 2016 2017
Sales: $ 49 $ 897 $ 2,063 $ 2,784 $ 3,258 $ 3,495
Payment Target
Approval Milestone $1.00 2014 $ 1.00
Sales Milestone #1 $2.00 400 $ 2.00
Sales Milestone #2 $3.00 1800 $ - $ 3.00 $ - $ - $ -
Sales Milestone #3 $4.00 2300 $ - $ - $ 4.00 $ - $ -
Sales Milestone #4 $3.00 2800 $ - $ - $ - $ 3.00 $ -
Probability-Adjusted PV $ 0.46 $ 0.76 $ 0.95 $ 1.06 $ 0.66 $ -

2: Production Milestone

Probability of Resolving Manufacturing Issues 70%

Probability-Adjusted PV $ 0.58

1 + 2 = Total Probability-Adjusted PV $ 4.48

Source: Created by case writers; present value calculated assuming discount rate of 20%.

This document is authorized for use only in Mousumi Bhattacharya 's Mergers, Acquisitions, and Corporate Restructurings PGP22 at Indian Institute of Management - Shillong from Sep 2023