Updated from 12:17 p.m. EDT

Genzyme

(GENZ)

said Monday that it plans to acquire

SangStat Medical

(SANG)

, a biotechnology company specializing in drugs to prevent organ transplant rejections, in a cash deal worth approximately $600 million.

Genzyme, based in Cambridge, Mass., said the acquisition, worth $22.50 a share, would dilute earnings through 2004 due to amortization. Excluding amortization, Genzyme said the deal would have no effect -- or a slight positive effect -- on earnings through 2004 and a positive impact afterward.

The deal is expected to close in early September. Directors of both companies have approved the transaction.

SangStat's stock closed Friday at $15.48; that means the acquisition price represents a 45% premium. On Monday, SangStat's shares soared to $22.23, up $6.76, or 43.7%. Genzyme's shares lost 3.4%, or $1.66, to $47.62, after falling as low as $45.01.

Genzyme said that SangStat, based in Fremont, Calif., would complement its research on immune system diseases such as scleroderma, multiple sclerosis and pulmonary fibrosis.

SangStat's leading product is Thymoglobulin, which is approved in the U.S. for treating acute rejection in kidney-transplant patients. The drug was launched in the U.S. in 1999. SangStat recently received approval from the Food and Drug Administration to test the drug as a treatment for preventing acute rejection in living-donor kidney transplants and as a conditioning agent in bone-marrow transplants.

In some European countries, the drug has been approved for aplastic anemia -- in which the bone marrow fails to produce blood cells -- and a bone marrow transplant-related malady called graft vs. host disease.

Genzyme said it would try to boost Thymoglobulin's revenue by expanding sales in Europe and Latin America, as well as seeking additional approved uses for the drug.

SangStat also promotes Gengraf, a branded generic cyclosporine co-marketed with

TheStreet Recommends

Abbott Laboratories

(ABT) - Get Report

, also used in organ transplants to prevent rejection of heart, liver and kidney transplants.

This drug, primarily promoted to U.S. organ transplant centers that perform 75% of U.S. kidney transplants, will add to Genzyme's kidney disease work, including Renagel, which is used for patients on dialysis with severe kidney disease, Genzyme said.

"This is a strong strategic fit for Genzyme, which is adding a growing product, a strong pipeline and a skilled team that nicely complements our ongoing programs in the high-potential area of immune mediated diseases," said Henri A. Termeer, Genzyme's chairman and chief executive, in a prepared statement.

Last week, SangStat reported second-quarter earnings of $1.78 million, or 7 cents a share, compared to $1.81 million, or 7 cents a share, for the same period last year. Revenue for the three months ended June 30 rose to $33.42 million from $30.92 million.

Genzyme recently reported a loss of $74.5 million for the second quarter compared to a profit of $28.3 million for the same period last year. Excluding amortization and special charges, the company had a pretax profit of $98.1 million for the three months ended June 30, compared to a pretax profit of $54.7 million for the same period last year. Quarterly revenue rose to $418.9 million from $332.2 million.

Last week, Standard & Poor's raised its corporate credit rating on Genzyme to BBB from BBB-minus and raised its subordinated debt rating to BBB-minus from BB-plus on the company's $575 million 3% convertible subordinated debentures due May 15, 2021. The outlook is stable.

S&P said the higher ratings were due to the company's "continued strong financial performance, moderate financial policies and the promise of increased diversification in its product portfolio."

But the ratings agency said these positive factors were "offset somewhat by the company's still-heavy reliance on its flagship product Cerezyme." This drug treats a rare ailment, Gaucher's Disease -- an accumulation of fatty substances in tissues that can cause anemia and organ damage. The drug accounted for $619 million in revenue last year -- more than half of Genzyme's sales.

Ironically, S&P issued its credit raising report July 28, three days before London-based

Celltech Group PLC

(CLL)

reported that the FDA had approved for marketing its Gaucher's Disease drug called Zavesca. The drug has been approved for the European Union and is being sold in Great Britain and Germany.

S&P said Monday that the proposed acquisition of SangStat has no effect on its Genzyme ratings.