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BOSTON/PHILADELPHIA (Reuters) – Sanofi-Aventis SA (SASY.PA) has reached an agreement in principle to buy Genzyme Corp (GENZ.O) for about $19 billion in cash plus future payments based on the performance of an experimental Genzyme drug, according to two sources with knowledge of the talks.

Under the agreement, Genzyme investors will receive $74 per share in cash plus a contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada, the sources said on Tuesday.

The value of the CVR could not immediately be established.

The deal is expected to be announced by Wednesday morning, the sources said. The two companies' boards are expected to vote on the agreement shortly.

The deal is the second-biggest in biotech history and gives France's Sanofi, which has pursued Genzyme for nearly nine months, a foothold in the market to treat rare diseases. It will help Sanofi compensate for declining revenue from drugs that have lost, or are set to lose, patent protection.

Officials at Sanofi were not immediately available for comment.

Bo Piela, a spokesman for Cambridge, Massachusetts-based Genzyme, said he "cannot confirm" that an agreement has been reached.

Genzyme shares rose 3.5 percent in afternoon trading to $74.21 on Nasdaq. Sanofi's U.S. shares (SNY.N) rose 1.6 percent.

Genzyme shareholders last year rejected an initial offer from Sanofi of $69 per share. A Reuters poll last August indicated that a majority of shareholders would be willing to sell their shares for a price between $75 and $79.

Sources previously told Reuters the CVR would likely be valued at $5 to $6 a share. That could subsequently have changed.

Some investors do not expect the CVR to trade at more than $2 a share. Short-term investors and index funds, which do not normally like owning this kind of instrument, will move quickly to sell.

Genzyme was the first company to show that money could be made by making drugs for diseases with small patient populations. In 2009 it generated revenue of $4.5 billion, enough to replace roughly a third of the sales Sanofi is expected to lose through 2013 to generic competition.

ENDING STANDOFF

The deal in principle was struck after a lengthy stand-off between two determined chief executives: Genzyme's Henri Termeer, a Dutchman who has led the company for more than 25 years, and German-Canadian Chris Viehbacher, who took over as chief executive of Sanofi at the end of 2008 after a 20-year career at GlaxoSmithKline Plc (GSK.L).

Termeer was reluctant to sell the company that had come to define him. But a manufacturing crisis had caused a shortage of two of Genzyme's life-saving drugs, leading to outrage among patients and investors alike.

By May, 2010, the company's shares had fallen roughly 46 percent from a high of nearly $84 in July 2008.

Word of Sanofi's interest began circulating in the press in late July, and on August 2, Sanofi made a formal offer of $69 a share. Genzyme rejected it, arguing that Sanofi was taking advantage of the company's troubles and an artificially depressed share price.

Sanofi refused to increase its offer, and no other bidders emerged. Sanofi took its offer directly to shareholders, who rejected it.

Most of the disagreement between the two companies centered on their respective expectations for Lemtrada, Genzyme's experimental multiple sclerosis drug. Genzyme believes it could generate peak annual sales of $3.5 billion. Sanofi envisages a range closer to $700 million.

Genzyme's biggest-selling drugs include Cerezyme, a treatment for Gaucher disease and Fabrazyme, a treatment for Fabry disease. Both are rare genetic disorders that can cause organ damage and death, and both carry an average annual cost of about $200,000.

The company's newest drug, Myozyme, known in the United States as Lumizyme, treats a rare muscle disorder known as Pompe disease and costs an average of $300,000.

Genzyme's success has also provided the blueprint for a new generation of biotechnology companies who are developing drugs for so-called "orphan diseases," or those with fewer than 200,000 patients in the United States.

The field has attracted investors, and, increasingly, big pharmaceutical companies like Pfizer Inc (PFE.N) and Glaxo.

Genzyme is due to report results for its fourth quarter before the market opens on Wednesday. Analysts are expecting earnings to have nearly tripled to 86 cents per share from 31 cents in the same quarter the previous year, according to Thomson Reuters I/B/E/S.

(Editing by Maureen Bavdek, John Wallace, Dave Zimmerman)