Genzyme Corp. (GENZ) said it acquired the worldwide rights of marketing leukemia treatment Campath and two other hematological-cancer drugs from its German partner Bayer for up to $650 million in royalties.

As part of the agreement, Genzyme will be responsible for developing Campath to treat multiple sclerosis (MS). However, Bayer will retain an option to co-promote the drug if it gets approval for MS and the right to commercialize Campath for use in organ transplantation.

After selling the rights of Campath, and blood cancer drugs Flurdara and Leukine to Genzyme, Bayer said it will focus on kidney and liver cancer drug Nexavar.

A Bayer spokesperson said the deal "significantly improves the profitability for two of our key franchises - oncology and MS". The company has generated about 220 million euros ($293.2 million) annually from the three drugs.

On the other hand, the deal will generate $185 million in sales for Genzyme's oncology segment in 2009 and up to $700 million over the next three years. The Cambridge, Massachusetts-based company also expects the transaction to add to its earnings per share.

Genzyme shares climbed more than 2% to $60.35 at noon on the NASDAQ.

Given the challenges in the market right now, are you seeing areas to invest in pharma / biotech?

Well, that’s a good question Mark, and the answer is absolutely we are. The ole “baby and bathwater” move seems to be the prevailing scenario in the market right now. But, I think things should settle down soon, so let’s talk about two different strategies that we have right now for investors looking to put money to work in healthcare.

The first is the long-term, big, safe, blue-chip strategy. Here I really would recommend Abbott Labs (ABT). ItÂ’s our top-pick in large-cap pharmaceuticals. The stock has held up very well over the past three months in this turbulent market. In fact, itÂ’s actually up around 10% since mid-June.

The reasons we like Abbott are numerous, but the key points are simple. The core business is solid. Products such as Humira, TriCor, Kaletra and Niaspan are all growing double-digits. Humira is really picking up significant market share against AmgenÂ’s (AMGN) Enbrel and J&JÂ’s (JNJ) Remicade in the anti-inflammatory space. ItÂ’s on track to become one of the top-five largest pharmaceutical products in the world over the next few years.

But besides the pharmaceutical business, AbbottÂ’s vascular, diagnostics and nutritional business are all also growing at double-digit rates. The company recent entered the drug-eluting stent (DES) market with its Xience V product. Based on clinical data, Xience V looks like the best product out there and should again significant share over the next few quarters against J&JÂ’s Cypher and Boston ScientificÂ’s (BSX) Taxus. We think it could be No. 1 in market share by 2009. ThatÂ’s truly amazing considering Cypher and Taxus have been on the market for years now.

We also like the pipeline at Abbott. The company has teamed up with AstraZeneca (AZN) recently to co-promote cholesterol blockbuster Crestor. Eventually the duo will co-formulate Abbott’s TriLipix, a “next-generation” TriCor product, with Crestor to form one pill designed to lower LDL cholesterol and control triglycerides. We think the combo product could be a blockbuster for Abbott. Abbott also has an anti-inflammatory molecule in phase II trials for a host of indications that could be a blockbuster, and several anti-cancer agents in mid-stage trials that look very interesting. There’s a lot more in the research report, so I encourage investors to read it.

Anything else under the “blue-chip” banner?

Well, as far as large-cap pharmaceuticals go, we like both Bristol-Myers (BMY) and Johnson & Johnson (JNJ). We like them for different reasons, however.

J&J is solid. The business is performing very well, the management is top-notch, and investors can sleep well at night knowing itÂ’s the most diversified healthcare giant out there. From pharmaceuticals, to medical devices, to consumer related products, J&JÂ’s business is doing well even in this challenging market.

Bristol, on the other hand, is a turnaround story. The company has some significant patent expirations on the horizon, but we think investors are too focused on Plavix and ignoring a very attractive late-stage pipeline. Bristol recently received approval for chemotherapy agent, Ixempra, which we think has $500 million potential. We also see Sprycel, approved in 2006 for various forms of leukemia (CLL and ALL), starting to pick up steam.

Other new products, including Baraclude for HBV and Orencia for refractory arthritis, are also showing impressive growth. Bristol also has two diabetes drugs, saxagliptin and dapagliflozin, in late-stage trials. Not to mention, management has been one of the most aggressive restructurers in the business over the past few years. Bristol has sold or spun-off its oncology therapeutics business, its Canadian consumer business, its medical imaging business, and just recently its ConvaTec ostomy and wound therapeutic business.

All these moves are designed to streamline operations and transform Bristol into a more focused and nimble specialty pharmaceutical company. Management has used the cash from these sales to acquire several biotech firms, most recently Kosan in May 2008. They also offered $60 per share for ImClone (IMCL) in July. Fundamentals are improving and the valuation is cheap because all anyone looks at is the Plavix patent expiration in 2012. But we think Bristol can survive just fine, and we like the ongoing turnaround story.

Jason Napodano, CFA is a senior analyst covering the pharmaceutical and biotech industries for Zacks Equity Research.
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