The French drug maker’s CEO Olivier Brandicourt once more showcased his
deal discipline, but he could also do without pesky Americans snapping
up his targets.
By Paul Whitfield
Sanofi
SA’ CEO Olivier Brandicourt must be tiring of losing biotech targets to
American rivals.
France’s
biggest drugs maker on Thursday missed out on a second multibillion acquisition
in less than a year when Johnson & Johnson announced it had agreed a $30
billion deal for Switzerland’s Actelion Pharmaceuticals Ltd.
In
August, Brandicourt failed with a hostile offer for San Francisco-biotech
Medivation Inc. when Pfizer Inc. stepped in with a $14 billion deal.
The
twin false starts can be viewed both positively and negatively.
The
glass half full interpretation is that Brandicourt remains admirably
disciplined, unwilling to risk value destruction by overpaying for niche, and
potentially risky, drug makers.
J&J’s
agreed offer of $280 per Actelion share is more than 80% over the target’s
share price before rumors of a bid emerged in November last year and 14% more
than J&J initial valuation of $248 per share. The deal also includes a plan
to spin off Actelion’s R&D unit, which will depart with about $1 billion of
Actelion’s cash, its highly successful CEO Jean-Paul Clozel (pictured left of chairman Jean-Pierre Garnier), and assets that
analysts at London-based broker Jefferies said could be worth between $5 and
$10 dollars a share.
J&J will hold 16% of the spin-off and an option to
double that stake, but its potential to benefit from Actelion’s pipeline of
more than 15 early stage drugs will remain diluted.
The
deal values Actelion at about 13 times current year sales, making it a bet on
Actelion’s continued rapid sales growth. Biotech acquisitions over 2015-16 were
typically price in the range of 3.3 times to 5.5 times 2020 forecast sales,
according to a recent Goldman Sachs note.
The
risks to those growth assumptions were made clear this week when Actelion said
its potential blockbuster drug Opsumit had failed a key late-stage trial,
throwing into doubt plans to expand applications for drug that is currently
approved to treat a rare form of pulmonary arterial hypertension.
Those
sort of risks likely proved a deal breaker for Sanofi, which had been widely
reported to be willing to pay about $30 billion for Actelion but had attempted
to limit potential downside asking for a contingent value rights clause. CVR’s
link payments to the future performance of pipeline drugs.
On
the negative side of the ledger, the failure to real in Actelion means that
Brandicourt will come under renewed pressure to find an alternative growth
prospect to offset his company’s dwindling sales, particularly amongst its key
diabetes treatments.
While
Sanofi insisted that the widely reported talks with Actelion were “market
rumors” there seems no doubt it was the rival to J&J that Actelion
said it was talking to. Brandicourt said last year that he was looking for
acquisition and was ready to “act rather swiftly.”
The
need for Sanofi to secure new blockbusters was highlighted earlier this month
by analysts at Exane BNP, who described its pipeline of new drugs as
“lacking sparkle” and noted that it had no potential blockbuster
drugs, or “stars”, due for release in 2017.Sanofi’s earnings are
likely to grow by an anaemic 3% to 4% over the next four years based on its
in-house drug portfolio. That is a rate that will test investors patience and
ensure that pressure to find a new motor for growth remains.
With
Actelion off the table, that search continues.
Sanofi
shares traded Thursday at €75.36 ($80.75), up €1.10 or 1.5% on its Wednesday
close. Actelion was up just under 20% to Sfr272.50 ($275.60), while J&J
climbed in pre-market trading to $114, up $1.2 or just over 1%.