Signing a definitive merger agreement, Genzyme Corp. plans to buy out Bone Care International Inc. for about $600 million in cash.

Cambridge, Mass.-based Genzyme will gain Bone Care's main asset called Hectorol, a line of vitamin D2 pro-hormone products used to treat secondary hyperparathyroidism in patients on dialysis. The product can be used in tandem with Genzyme's Renagel and other phosphate binders.

"I think it's a very good fit for Genzyme," said Dallas Webb, an analyst with Boca Raton, Fla.-based Stanford Group Co. "Genzyme takes their time in analyzing any acquisition that they do, and they've been watching this one for a few years. I think adding Bone Care's drug Hectorol to Genzyme's renal franchise that includes Renagel is a very good strategic move."

Apparently, Bone Care's investors agreed, as the company's stock (NASDAQ:BCII) climbed 34.8 percent Wednesday, or $8.28, to close at $32.11. Genzyme's stock (NASDAQ:GENZ) gained 12 cents to close the day at $60.02.

The all-cash transaction is valued at $33 per fully diluted share, and Bone Care, of Madison, Wis., has 21.5 million shares outstanding. That gives a purchase price of about $709.5 million, and subtracting Bone Care's $119 million in cash approximates the $600 million spent by Genzyme.

Pending Bone Care shareholder approval and government clearance, the acquisition should close in the third quarter. Genzyme expects the buyout to be neutral to this year's earnings and accretive in subsequent years.

Henri Termeer, Genzyme's chairman and CEO, said in a conference call that his company approached Bone Care as a way to strengthen its renal business and to broaden its product portfolio.

"This was obviously something that we were following for quite a while," he said. "There are not that many programs in the dialysis field, so we were very aware of the Hectorol program."

"We believe this merger creates significant value for all parties involved," said Paul Berns, Bone Care's president and CEO.

Hectorol (doxercalciferol) is available in intravenous form for patients on hemodialysis, and in oral forms for patients with earlier-stage chronic kidney disease (CKD). As the first and only vitamin D2 analogue approved to treat CKD, its sales reached $59 million for the nine months ended March 31. Bone Care has given guidance that the product should have sales of between $82 million and $83 million for its fiscal year 2005, which ends June 30.

But with combined sales forces from each company promoting the product, North American revenues are expected to continue their northward climb, said analyst Sena Lund, of New York-based Cathay Financial LLC.

"With increasing [sales] noise, I think the potential is going to be large, somewhere between $200 million to $250 million," he told BioWorld Today. "You also have to look at there being some international potential. The product is not launched" outside North America.

Genzyme intends to immediately begin talks with European and Asian regulatory authorities, and Termeer said additional clinical trials likely will be required overseas. A European launch, however, could bump the sales potential for Hectorol up to as much as $300 million, Lund said.

It is unclear what will happen to all of Bone Care's 170 employees, which include 100 sales people, said John Butler, president of Genzyme Renal.

"We don't know exactly how that will come out as of yet," Butler said, "but we expect that the majority of the folks from Bone Care will be integrated into Genzyme Renal."

First approved in 1998, Renagel is the only calcium-free, metal-free phosphate binder. It controls serum phosphorus levels in patients with CKD Stage 5 on hemodialysis. Genzyme is developing a next-generation sevelamer for use in hyperphosphatemic patients in earlier stages of CKD. The company began enrolling patients in a short-term trial of sevelamer carbonate to evaluate its equivalence to Renagel. Bone Care's expertise in selling Hectorol to that much larger CKD market will benefit Genzyme's path to market with the program.

"This will get them there even quicker and solidify their footprint on the renal market going forward," Webb said.

In turn, Genzyme's sales force will provide Hectorol with a global infrastructure that will help with launches outside of North America. Renagel is approved in 40 countries and is used by more than 350,000 people worldwide. It had sales of $99.4 million in the first quarter. Genzyme expects sales to reach between $420 million and $430 million for the year. About 40 percent of Renagel's current revenues come from outside the U.S., Butler said.

Hectorol was approved last year to treat secondary hyperparathyroidism, which impacts patients with the earlier Stages 3 and 4 of CKD. If left untreated, the condition can result in bone disease, muscle weakness, reduced immunity, cardiovascular disease and increased mortality. Genzyme estimates that more than 500,000 U.S. patients with CKD Stage 3 or 4 have elevated PTH levels.

A U.S. patent expected to be issued in June will provide protection for Hectorol through 2021. The injectable and oral forms of the product cost on average about $1,200 to $1,500 a year per patient.

Genzyme's acquisition of Bone Care is just another of several conducted in the last few years. The company bought San Antonio-based ILEX Oncology Inc. for $1 billion in December, and Fremont, Calif.-based SangStat Medical Corp. for $585 million in September 2003.

"I think Genzyme is continuing its efforts to make strategic acquisitions that are a very good fit," Lund said. "We've seen what they've done in the past with SangStat and ILEX. Bone Care International gives them an additional product for their sales force in the renal care market. It's a very strategic fit for the company."