Genzyme Acquires Verigen AG
BY JOHN MCCORMICK, FEBRUARY 14, 2005
On Tuesday of last week, Genzyme Corporation (Nasdaq: GENZ) announced another foray into the world of cartilage repair with the acquisition of Germany's Verigen AG. Founded only in 1999, Verigen has been selling a proprietary cell therapy system for cartilage repair in Germany and Australia. Verigen's flagship product is a collagen membrane called "Matrix-induced Autologous Chondrocyte Implantation" (MACI) which is a second generation system to Genzyme's well known Carticel. Carticel is used for the repair of defects of the femoral condyle - a precursor to Osteoarthritis. To many, femoral condyle repair - or other articular cartilage lesion repair - is viewed to be one the holy grails of orthopedics.
According to Genzyme, the MACI approach offers a more convenient method of delivery than the traditional autologous chondrocyte implantation (ACI) method used with Carticel. Both procedures begin when an orthopedic surgeon harvests a biopsy of healthy cartilage from a patient's knee and sends it to a lab that can grow millions of new cells. The new cells are then delivered to the surgeon, who implants them into the defect, thereby produce new cartilage.
In the MACI procedure, technicians at the processing facility seed the patient's cells onto a collagen membrane, which is fitted by a surgeon into the cartilage defect and can be secured without suturing which is one of the challenges associated with the Carticel procedure. Instead with MACI, the membrane, already coated with chondrocytes, is sealed into the defect with fibrin adhesive. Operating time is therefore substantially shortened. According to last week's press release, MACI has been delivered to more than 3,200 patients in Europe and Australia since it was first offered in the late 1990's.
According to some of our sources, using Carticel can also be taxing because it results in an inferior fibrous cartilage.
Genzyme acquired Verigen for $10 million in initial payments, and potential additional payments of up to $40 million over the next six years based upon the achievement of development and commercial milestones, according to the Company. These include approval of a biologic license application in the US, marketing approval in the US, and royalties on sales.
We note that the cartilage repair market is small today and stands at approximately $40 million. Millennium Research makes the case that the applicable subsegment of the market - autologous chondrocyte implantation (ACI) - stands at just $29.6 million in 2005 and will grow at just over 10% for the foreseeable future. We hope, for Genzyme's sake, that they can beat that forecast and even create additional demand.
According to Genzyme, the transaction is not material from a financial standpoint.
