Overview of the deal
Acquirer: Sanofi SA (Paris: SAN)
Target: Bioverativ. (NASDAQ: BIVV)
Estimated value: $11.6bn
Announcement date: 3/12 - 2017
Acquirer Advisors: Lazard
Target Advisors: Guggenheim Securities and JP Morgan Chase
There are two main reasons driving Sanofi’s decision to acquire Bioverativ. Firstly, in its 2020 roadmap, the company stated that it aims to grow its product portfolio by launching new drugs and making further investment in R&D. As such, the acquisition of Bioverativ, who are the leading specialist in the US for Haemophilia treatment, is a crucial step forward for Sanofi’s expansion into this market which is worth approximately $10 billion in annual sales, and is expected to grow by more than 7 percent per year through to 2020.
Secondly, revenue synergies could be realised by leveraging Bioverativ’s products with Sanofi’s pre-existing infrastructure in emerging market economies. Specifically, the current absence of substantial sales revenue of Bioverativ in EM countries combined with the strong presence of Sanofi in these countries should allow sales to climb rapidly as Sanofi introduces new products into new markets (a form of revenue synergy).
WSJ suggests that although Sanofi has been a leading player treating rare diseases, the company’s need to expand its portfolio in order to keep up with the competition is the main motive behind the deal. Further, WSJ highlights that Sanofi would bolster its thriving rare-disease business and gain access to the market for treatments for haemophilia, a $10 billion market.
Company details (Sanofi S.A.)
Sanofi S.A. is a French multinational pharmaceutical company and as of 2013 it is the world's fifth-largest by prescription sales.
- Founded in 2004 and headquartered in Paris, France
- President and CEO: Olivier Brandicourt (Since 2015)
- Number of employees: 110,000
- Market Cap: $80.82bn - EV: $105.77bn
- LTM Revenue: $33.8bn - LTM EBITDA: $11.3bn
- LTM EV/Revenue: 3.12x - LTM EV/EBITDA: 9.36x
Company details (Bioverativ)
Bioverativ is a global biopharmaceutical company with a product portfolio geared towards transforming the lives of people with haemophilia and other rare blood disorders.
- Founded in 2016 and headquartered in Waltham, US
- CEO: John G. Cox (Since 2016)
- Number of employees: 400
- Market Cap: $11.21bn - EV: $10.77bn
- LTM Revenue: $1.17bn - LTM EBITDA: $462m
- LTM EV/Revenue: 9.2x - LTM EV/EBITDA: 23.31x
Projections and assumptions
Short-term consequences
The $11.6bn deal will be financed with a combination of cash and new debt. The deal, which is expected to close within three months, marks Sanofi’s entrance into the field of blood diseases. Through the acquisition of Bioverativ, Sanofi expands into the field of haemophilia treatment. Haemophilia can be treated in two different ways: factor therapy and the stimulation of the body’s own production of clotting agents.
The former method is the dominant treatment and Bioverativ is currently selling such drugs. However, the latter method is also something which the company is aiming to develop. The problem is that Roche, a Swiss drugmaker, already has an approved drug in that area. Despite this fact, which will be discussed later in this report, the revenue growth trajectory of Bioverativ’s product line looks promising. The fact that the use of prophylaxis, a preventative treatment, is expected to be on the rise, as the hemophilia market is gradually shifting from treatment on demand to preventive treatment, is positive for Bioverativ’s revenue growth forecast as it develops drugs in this area.
According to Sanofi, the deal will be accretive to its earnings per share already in 2018, and up to 5% accretive in 2019, even though a 64% premium is being paid. Moreover, the ROIC is not elevated, which means that value creation is likely to be low in the next few years. The management does however aim for a ROIC superior to the cost of capital within three years.
Long-term upsides
Bioverativ currently sells its two medicines in the US, Japan, Canada, and Australia, but is planning to expand to new geographic areas. Sanofi, which is the world’s fifth largest pharmaceuticals company, has an infrastructure established worldwide which can help bringing Bioverativ’s products to new markets at a lower cost. Since these drugs were developed together with Swedish Orphan Biovitrum, which holds the rights to sell in Europe, Russia, and other countries in the Middle East and North Africa, Sanofi will not be able to expand to those markets.
The sales of haemophilia medicines will not only increase as a result of Sanofi’s worldwide infrastructure but also because the market for haemophilia treatment is expected to grow by 7% a year through 2020. There is further scope for treatment growth as, currently, only 25% of the 400,000 people living with the disease receive adequate treatment. Access to this market, which is the world’s largest for rare diseases, will help Sanofi achieve sustainable growth.
The two medicines Bioverativ are currently marketing focus on factor therapy – a type of treatment which Sanofi expects to remain the standard in the treatment of haemophilia for years to come due to its safety and long-acting profile. However, Bioverativ currently has a drug in its pipeline that works through the stimulation of the body’s own production of clotting agents: fitsurian. The expertise available at Sanofi can help advance the development of fitsurian.
Risks and uncertainties
The market for haemophilia treatment is fiercely competitive. On top of established players such as Novo Nordisk, Shire, and Pfizer, Roche is now also entering the market for haemophilia treatment. Although Sanofi expects factor treatment to be leading for years to come, it faces competition from gene therapy solutions, such as Roche’s hemlibra. Around 30% of haemophilia A sufferers have inhibitors, a type of antibody that makes treatment such as Bioverativ’s inefficient. For these people, Roche’s medication has been proven to be effective. It has also shown long-lasting effects.
Sanofi paid a hefty premium of 64% for Bioverativ, ending Sanofi’s seven-year long streak of no acquisitions. This follows Sanofi losing the acquisition of Medivation to Pfizer, and Actelion to Johnson & Johnson. Although the deal presents an opportunity for attractive revenue synergies, management’s pressure from shareholders to close a deal might have made an impact on the decision-making process.
According to Bloomberg, M&A prices this year have been exceptionally high, and Sanofi’s acquisition is one of the highest on that list. Furthermore, Sanofi has previously stated that valuations in the industry were too high. It remains to be seen whether the high price paid for Bioverativ acting in a very competitive field will be substantiated.
FT highlights the increased pressure from Sanofi’s shareholders to close a deal after losing out on multiple big takeovers in the past as a factor behind the transactions. Alongside this, FT emphasises the potential of a growing US healthcare M&A market, following President Trump’s tax reform bill.
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