Speculative Sanofi Play

Sanofi LogoMoneyTurtle reported on a neat speculative play on a Modified Dutch Auction Tender Offer by Sanofi (SNY) to purchase 30% of its outstanding Contingent Value Rights (CVRs). Unfortunately, the Dutch Tender expired on Friday, but the CVRs (70% that will be left) still trade on the open market under the symbol GCVRZ.

CVR Details

The CVRs were issued as part of the Sanofi acquisition of Genzyme. They are based on the success of the multiple sclerosis drug Lemtrada™. The CVRs trade at $1.70 and if Lemtrada is a huge success, it can pay as much as $13. Here are the details from the sec filings:

“A holder of a CVR is entitled to cash payments upon the achievement of certain milestones, based on production levels of Cerezyme® and Fabrazyme®, U.S. regulatory approval of Lemtrada™ (alemtuzumab for treatment of multiple sclerosis), and on achievement of certain aggregate net sales thresholds, pursuant to the terms of a Contingent Value Rights Agreement to be entered into between sanofi-aventis and a trustee mutually agreed upon between the parties (the “CVR Agreement”), as follows:

  • Cerezyme/Fabrazyme Production Milestone Payment. $1 per CVR, if both Cerezyme production meets or exceeds 734,600 400 Unit Vial Equivalents and Fabrazyme production meets or exceeds 79,000 35-milligram Vial Equivalents (each such measurement is defined at “Description of the CVRs—Selected Definitions Related to the CVR Agreement”) during calendar year 2011 (the “Production Milestone”).
  • Approval Milestone Payment. $1 per CVR upon receipt by Genzyme or any of its affiliates, on or before March 31, 2014, of the approval by the U.S. Food and Drug Administration of Lemtrada for treatment of multiple sclerosis (the “Approval Milestone”). 
  • Product Sales Milestone #1 Payment. $2 per CVR if Lemtrada net sales post launch exceed an aggregate of $400 million within specified periods per territory (“Product Sales Milestone #1”).
  • Product Sales Milestone #2 Payment. $3 per CVR upon the first instance in which global Lemtrada net sales for a four calendar quarter period are equal to or in excess of $1.8 billion. If Product Sales Milestone #2 is achieved but the Approval Milestone is not achieved prior to March 31, 2014, the milestone payment amount will be $4 per CVR (however, in such event the Approval Milestone shall not also be payable) (“Product Sales Milestone #2”).
  • Product Sales Milestone #3 Payment. $4 per CVR upon the first instance in which global Lemtrada net sales for a four calendar quarter period are equal to or in excess of $2.3 billion (except that no quarter in which global Lemtrada net sales were used to determine the achievement of Product Sales Milestone #1 or #2 shall be included in the calculation of net sales for determining whether Product Sales Milestone #3 has been achieved) (“Product Sales Milestone #3”).
  • Product Sales Milestone #4 Payment. $3 per CVR upon the first instance in which global Lemtrada net sales for a four calendar quarter period are equal to or in excess of $2.8 billion (except that no quarter in which global Lemtrada net sales were used to determine the achievement of Product Sales Milestone #1, #2 or #3 shall be included in the calculation of net sales for determining whether Product Sales Milestone #4 has been achieved) (“Product Sales Milestone #4,” and collectively with “Product Sales Milestone #1,” “Product Sales Milestone #2” and “Product Sales Milestone #3,” the “Product Sales Milestones”).

No payments will be due under the CVR Agreement for any milestones achieved after the earlier of (a) December 31, 2020 and (b) the date that Product Sales Milestone #4 is paid.”

Modified Dutch Auction Tender Offer

The tender offer is interesting because Sanofi must think there is a reasonable chance that Lemtrada will get FDA approval and hit some of the aforementioned milestones.

Click here for more information about the tender offer.

Click here for more information about the CVRs.

Disclosure: I do not own shares of SNY or GCVRZ

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