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Genzyme Corp.'s deal to buy clofarabine partner Bioenvision Inc. for about $345 million in cash seems likely to take place in July as the firms intend, but not without grumblings from shareholders of the latter.

Head scratching began with word last Tuesday that Genzyme would pay $5.60 per outstanding share of Bioenvision, a 50 percent premium over the average share price during the previous 20 trading days, arguably well short of the firm's worth. For two weeks, Bioenvision's shares had risen steadily amid takeover buzz, jumping from $3.35 to $5.25, and the low-ball Genzyme offer left more than a few investors disappointed.

Genzyme predicted that the deal, already approved by both companies' boards, would be about 6 cents dilutive this year, slightly dilutive to break-even next year, and accretive in 2009. A three-year $1.5 billion share repurchase program disclosed last Tuesday should take the edge off the dilution, as Genzyme licks it lips over possibilities for clofarabine, a nucleoside analogue to which the firm would get exclusive, worldwide rights.

Bioenvision markets the drug as Evoltra in Europe for pediatric relapsed or refractory pediatric acute lymphoblastic leukemia, posting sales of $3.9 million in the quarter ending March 31. Genzyme got North American rights through the $1 billion buyout of ILEX Oncology Inc., which had licensed the rights from Bioenvision, and Genzyme markets the drug as Clolar in the U.S. and Canada, but does not separate the Clolar sales from the rest of the oncology lineup, which netted $22.4 million in the first quarter.

Genzyme's plan is to expand clofarabine's label into adult acute myeloid leukemia, where the firm estimated peak sales could hit $600 million, mostly from overseas sales.

Mark Enyedy, Genzyme's general manager of oncology, noted during a conference call that the international markets in that space have grown at an annual rate of more than 25 percent over the last five years and over 40 percent over the last two years. Six of the 10 leading products today in oncology generate between 40 percent and 60 percent of their revenue from outside the U.S., he said.

If clofarabine reaches its $600 million potential - the numbers are in line with forecasts made by Rodman & Renshaw, which put European Union sales of clofarabine at $350 million in 2014 - and assuming the drug wins clearance for adult AML in 2009, then Bioenvision's fair value looks more like $8 to $10 per share.

None of this was lost on SCO Capital Partners LLC, which owns about 7.2 million shares of Bioenvision, or 13.4 percent of the company. A fax from SCO landed on the desk of Christopher Wood, Bioenvision's chairman and CEO, on the same day that the deal was made public. "Given that the company just completed a dilutive financing in order to finance the completion of additional clinical trials for Evoltra, this deal seems particularly ill-timed," wrote Steven Rouhandeh, SCO's chairman.

In early April, Bioenvision raised $30 million through a direct offering of 8 million shares at $3.75 each. The timing of the sale, "potentially just months before an Evoltra approval in adult AML, where Genzyme recently publicly stated 'the drug is showing dramatic complete response rates,' seems sub-optimal," Rouhandeh added. In May, the same month that SCO exercised warrants to buy stock, Perseus-Soros Biopharmaceutical Fund LP did the same, getting 3 million shares at $2 each. Perseus-Soros and Soros Fund Management reportedly own a combined 12 percent stake in Bioenvision.

ILEX failed in its bid for AML approval, after an Oncologic Drugs Advisory Committee voted no, based on two Phase II studies showing an overall response rate of 20 percent in ALL and 3 percent in AML. Bioenvision could not get the AML label, either, but the push is on again.

Overseas, Bioenvision has filed an application with the European Medicines Agency that includes data from a Phase II trial in which 44 percent of elderly AML patients treated with Evoltra gained a complete response, about the response that the firm expected. Work also is under way with the National Cancer Research Institute to enroll a Phase II/III trial in older patients with AML or high-risk myelodysplastic syndromes. Genzyme is conducting a Phase III study in the older AML, trying the combination of clofarabine and cytarabine. There's a pivotal Phase II study of clofarabine in first-line AML in older patients, too, and a Phase III trial with the Eastern Cooperative Oncology Group in first-line AML in the same population.

CIBC World Markets predicted approval of clofarabine for AML in that patient group late this year; Genzyme conservatively estimated the global label expansion would come late next year.

Bioenvision's pipeline includes Modrenal, cleared for marketing in the UK for relapsed, post-menopausal breast cancer after hormone therapy, and Suvus, an antimicrobial agent that has reached the clinic for hepatitis C. The firm also has Oligon technology, an anti-infective approach based on silver ions, acquired in 2002's buyout of Pathagon Inc.

For the buyout of Bioenvision to go ahead, more than half of the shareholders must agree to tender their shares for cash. Already, holders of 20 percent of outstanding shares have said yes, but if the deal goes bad, Bioenvision gets a $9 million termination fee. Rodman & Renshaw sadly believes the chances of that are low.

"While we would love to speculate on the potential of another suitor to place a competing bid for the company, or the potential for shareholders to reject Genzyme's low-ball offer, at the end of the day, we believe the majority of the shareholders will likely vote in favor of the deal," wrote analyst Ren Benjamin in a research report on the deal. By late last week, no new potential takers had appeared.

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