Deal-Hungry Sanofi Wants a Piece of the Rare Disease Cake But Price Tag May be Higher Than Its $20 Billion Budget

March 3, 2016
By Mark Terry, BioSpace.com Breaking News Staff

Since Paris-based Sanofi indicated it was interested in new deals and acquisitions, analysts have been speculating on who Sanofi might be targeting. But some analysts think Sanofi’s $20 billion price range might be too low for the rare disease market.

Recently, David Meeker, head of Sanofi’s Genzyme specialty care business, told The Financial Times that the company was interested in companies focused on rare diseases, and that they could be “up to the size of Genzyme,” which Sanofi bought in 2011 for $20 billion.

Although Meeker didn’t provide any hints on potential acquisition targets, he did say there were a lot of bargains out there. “Valuations have come down but from high levels,” he told The Financial times. “There is a certain resetting of valuations.”

Analysts have thrown out possible targets such as San Rafael, Calif.-based BioMarin Pharmaceuticals , Carlsbad, Calif.-based Ionis Pharmaceuticals (formerly Isis Pharmaceuticals), and Novato, Calif.-based Ultragenyx . BioMarin has a market cap of about $13 billion, Ionis about $4 billion, and Ultragenyx about $2.5 billion.

Rare disease drugs have typically high margins because they’re able to pull in high prices. Max Nisen, writing for Bloomberg Gadfly, points out that Sanofi’s operating margins are dropping, having hit a lot of 26.8 percent last year, down from 39.7 percent in 2010. Compare that to diabetes medicine competitor Novo Nordisk, which had a 45.1 percent margin in 2015, compared to a large-pharma median of 28 percent.

Nisen, however, says, “If Sanofi thinks it’s shopping in a discount bin, it may still be in for some sticker shock.”

Noting that Baxalta , Dyax , and Syngenta have already been scooped up, two other rare-disease companies that are possible targets are Alexion and Vertex. “Even at today’s depressed values,” writes Nisen, “these companies still cost $34 billion and $22 billion, respectively—exceeding Sanofi’s target price range. If Sanofi is willing to lever up, then it could pull together as much as $27 billion in cash for a deal without impacting its credit ratings, according to a BI analysis.”

Vertex , headquartered in Boston, has a strong cystic fibrosis (CF) franchise, but also has a significant pipeline in oncology, pain management and influenza. Rumors have identified Vertex as a potential target for Johnson & Johnson and Gilead , which raises the specter of a possible bidding war.

Alexion , located in Cheshire, Conn., is best known for Soliris, a drug used to treat atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria. The drug is expected to have sales in excess of $5 billion in 2020, and has a strong pipeline and two recently approved drugs. The U.S. Food and Drug Administration (FDA) approved Kanuma (sebelipase alfa) in December 2015 for the treatment of patients with lysosomal acid lipase deficiency (LAL-D). In October 2015, the FDA approved Strensiq (asfotase alfa) for the treatment of patients with perinatal-, infantile- and juvenile-onset hypophosphatasia (HPP).

On the other hand, Sanofi already has a relationship with Cambridge, Mass.-based Alnylam. In October 2015, Sanofi opted into Alnylam Pharmaceuticals ’s ALN-AT3 hemophilia program in territories outisde of North America and Western Europe. The two companies have had a relationship since January 2014, and this marks the first product from Alnylam’s Genetic Medicines pipeline that Genzyme/Sanofi has opted for.

Nisen observes that Shire ’s acquisition of Baxalta required a 37.5 percent premium, and that deal took months. He also points out that Mylan recently offered $7.2 billion for Meda , which was a 92 percent premium. So it’s possible that all the rumors about cheap deals are unsubstantiated, or they’ll be for companies with interesting pipelines that need cash, rather than for hot companies with new rare-disease drugs already on the market.