Sanofi-Aventis has made progress in talks with U.S. bid target Genzyme and leaders of both companies may bump into each other in Davos this week, Sanofi's CEO said on Wednesday.

Teams from both companies have been meeting to discuss a negotiated deal after Sanofi's $18.5 billion offer, worth $69 per share, was rejected by Genzyme as too low.

"There are still gaps but I think we have made some progress,"

Chris Viehbacher told Reuters on Wednesday, adding that a so-called contingent value right (CVR) for a key drug could offer Genzyme shareholders significant value.

Discussion over a CVR - an extra fee shareholders will receive if Genzyme's experimental multiple sclerosis treatment Lemtrada hits certain targets - remains the "priority item" in talks between company representatives.

"Whether that is enough to entirely close the gap we will have to wait and see. But I think we would expect that given the forecasts, which we don't necessarily share, that it could be of significant value to Genzyme shareholders," Viehbacher said.

Genzyme has forecast peak annual sales of $3.5 billion for Lemtrada, which is already marketed as a cancer treatment under the brand name Campath, while Sanofi, using the average of several analyst estimates, expects sales of about $700 million.

Asked if he would meet Genzyme chief executive Henri Termeer while both were attending the annual meeting of the World Economic Forum in Davos, Viehbacher said: "I have no plans, but we may run into each other... I've known Henri for a number of years and we actually have a very good personal relationship."

Keeping Options Open
Some investors have expressed frustration at the drawn-out nature of Sanofi's bid for Genzyme, with the French drugmaker this week extending its tender offer once again at the same price until Feb. 15. But Viehbacher said six months was not unusual for a deal of this size and complexity.

Sources familiar with the situation said on Monday that Sanofi had hired a search firm to look for potential candidates to nominate to Genzyme's board - a strategy viewed as a back-up if talks break down.

"I can't comment on that specifically but I think we've been pretty clear that we've always said we'd keep all options open," Viehbacher said when asked about the move.

Buying Genzyme would give Sanofi a new area for growth in the high-margin business of rare diseases as it seeks to diversify to make up for patent losses that will take out roughly a third of its 2008 sales base through to 2013.

One of the casualties is the injectable blood thinner Lovenox, where Teva Pharmaceutical Industries' is close to winning approval for a generic that would be the second to hit the market, after one from Novartis's Sandoz unit.

Viehbacher acknowledged the second generic would ramp up competition and squeeze prices, hurting Sanofi sales, but said it was not a surprise.

"Sandoz has not been able to fully supply the market, so as another entrant comes in one would expect the market dynamics to change," he said.

"But we've taken that into account in our outlook for the business, really from the time that the first generic was approved where we said it wouldn't affect our longer term guidance for 2013."