1. Assuming a discount rate of 7% for large pharmaceutical companies, what do you estimate as Genzymes intrinsic market value for the management scenario? Express in terms of firm value and as price per share. Be prepared to discuss and defend the key assumptions you made in your analysis.

2. Assuming a discount rate of 7% for large pharmaceutical companies, what do you estimate as Genzymes intrinsic market value for the market scenario? Express in terms of firm value and as price per share. Be prepared to discuss and defend the key assumptions you made in your analysis.

The Valuation of Genzyme

After the failed attempt to buy Genzyme from Termeer and the board in August 2010, Sanofi announced on October 5, 2010, that it would make a $69-per-share tender offer directly to Genzymes shareholders. ^[25]Termeer remained very optimistic about the future of Genzyme and was not ready to relinquish his companys independence. Although the $69-per-share offer valued the company at $18.5 billion, Termeer continued to view it as low considering the higher stock prices Genzyme enjoyed in 2008. He also thought the company should be worth more in light of its recently launched shareholder-friendly initiatives, Cerezyme and Fabrazymes return to normal production, and alemtuzumab, its promising new drug for MS.

Termeer was saving the morning to review the valuation of Genzyme. For the previous year, Genzyme had used Credit Suisse and Goldman Sachs as advisors to provide valuation data for a set of biotech companies that served as market comparables ( Exhibit 13, Excel Workbook) as well as information about corporate and government interest rates ( Exhibit 14, Excel Workbook). The comparables data included commonly used valuation multiples: price-to-earnings ratio (P/E), enterprise-value-to-EBITDA (EV/EBITDA), and enterprise-value-to-sales (EV/S). A recent Sanofi investor presentation argued that the $69-per-share offer was justified when compared to the valuation multiples in the biotech industry ( Exhibit 15) and was also in line with stock price premiums paid in other large biotech transactions ( Exhibit 16).

Exhibit 17 SANOFI-AVENTIS'S TENDER OFFER FOR GENZYME Genzyme-Financial Forecasts (Management Scenario) in Millions of U.S. Dollars Projected 2009 2010 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health S1,850.0S1,757.5 $2,284.8 $2,513.2 $3,015.9 $3,468.3 S980.2 $976.6 $1,171.9 S1,254.3 $1,630.6$2,038.2 $23.4 $1,100.0 $3,815.1 $784.1 S1,347.7 $2,445.9 $24.1 S1,500.0 Renal and Endocrinology S1,008.0$1,058.4 $1,111.3 S679.4 S929.1 S21.4 S0.0 S1,166.9 $1,225.2 $590.8 $688.2 $20.4 $0.0 Biosurgery S781.3 S513.7 S509.8 $29.1 S0.0 Hematology and Oncology $22.0 S25.0 $22.7 S500.0 er Pipeline (probability adjusted) Revenues COGS Gross Profit General & Administrative R&D Service and R&D Revenues EBITDA Depreciation & Amortization Other Expenses Operating Income (EBIT) Taxes $4,076.7S4,115.5$5,026.8 S5,763.4$7,371.8$8,782.4$9,917.2 ($1,386.1) (S1,316.9) ($1,533.2) (S1,671.4) ($2,027.2 ($2,283.4) (S2,578.5) S7,338.7 $2,690.6 S2,798.5 $3,493.7 $4,092.0 $5,344.6 S6,499.0 ($1,428.6) ($1,337.5) (1,558.3) ($1,786.7) ($2,285.3) ($2,722.5) ($3,074.3) ($865.3) ($864.2) ($1,055.6 (1,210.3) ($1,548.1) (1,844.3) ($2,082.6) $991.7 S438.9 S502.7 S576.3 $737.2 S878.2 $1,008.3 $1,382.4$1,671.4 $2,248.4$2,810.4 $3,173.5 (S266.3)($288.1) (S351.9) ($403.4) (S516.0 (S614.8) ($694.2) (S65.6($205.8) S503.7 (S50.3) $0.0 $0.0 $514.4 S980.2 $1,210.3S1,658.7$2,195.6 $2,479.3 (S121.4($180.1) (S343.1) ($423.6) (S580.5) (S768.5) ($867.8) 35% % Tax rate -22% 35% 35% 35% 35% NOPAT Net Op Profit After Tax S382.3 $334.4 S637.2 S786.7 $1,078.1 $1,427.1 $1,611.5 Exhibit 17 SANOFI-AVENTIS'S TENDER OFFER FOR GENZYME Genzyme-Financial Forecasts (Management Scenario) in Millions of U.S. Dollars Projected 2009 2010 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health S1,850.0S1,757.5 $2,284.8 $2,513.2 $3,015.9 $3,468.3 S980.2 $976.6 $1,171.9 S1,254.3 $1,630.6$2,038.2 $23.4 $1,100.0 $3,815.1 $784.1 S1,347.7 $2,445.9 $24.1 S1,500.0 Renal and Endocrinology S1,008.0$1,058.4 $1,111.3 S679.4 S929.1 S21.4 S0.0 S1,166.9 $1,225.2 $590.8 $688.2 $20.4 $0.0 Biosurgery S781.3 S513.7 S509.8 $29.1 S0.0 Hematology and Oncology $22.0 S25.0 $22.7 S500.0 er Pipeline (probability adjusted) Revenues COGS Gross Profit General & Administrative R&D Service and R&D Revenues EBITDA Depreciation & Amortization Other Expenses Operating Income (EBIT) Taxes $4,076.7S4,115.5$5,026.8 S5,763.4$7,371.8$8,782.4$9,917.2 ($1,386.1) (S1,316.9) ($1,533.2) (S1,671.4) ($2,027.2 ($2,283.4) (S2,578.5) S7,338.7 $2,690.6 S2,798.5 $3,493.7 $4,092.0 $5,344.6 S6,499.0 ($1,428.6) ($1,337.5) (1,558.3) ($1,786.7) ($2,285.3) ($2,722.5) ($3,074.3) ($865.3) ($864.2) ($1,055.6 (1,210.3) ($1,548.1) (1,844.3) ($2,082.6) $991.7 S438.9 S502.7 S576.3 $737.2 S878.2 $1,008.3 $1,382.4$1,671.4 $2,248.4$2,810.4 $3,173.5 (S266.3)($288.1) (S351.9) ($403.4) (S516.0 (S614.8) ($694.2) (S65.6($205.8) S503.7 (S50.3) $0.0 $0.0 $514.4 S980.2 $1,210.3S1,658.7$2,195.6 $2,479.3 (S121.4($180.1) (S343.1) ($423.6) (S580.5) (S768.5) ($867.8) 35% % Tax rate -22% 35% 35% 35% 35% NOPAT Net Op Profit After Tax S382.3 $334.4 S637.2 S786.7 $1,078.1 $1,427.1 $1,611.5