Sanofi and Boehringer Ingelheim signing contracts on their animal health/consumer business swap today raises the obvious question of what the French company might do with its €4.7bn ($5.2bn) windfall when the deal closes later this year.
But, given the turmoil after the UK’s EU membership referendum result, a more fundamental observation might be that the deal is going ahead without any amendment to its terms. EvaluatePharma calculates that $102bn of open deals in healthcare have yet to be completed, and the euro dipping 2.5% against the US dollar since Thursday might have several companies fretting about their fate (see table below).
Indeed, Sanofi should itself privately be evaluating its ability to pay up for Medivation, given that it is a European company reporting in euros trying to buy a US biotech in dollars. However, for now the French group is playing hardball, trying to oust Medivation’s directors rather than putting a sweetened bid on the table.
And of course this possible move does not appear in the list of open deals, since it is not a transaction that has formal agreement; it is still at the “acrimonious exchange of correspondence” stage, and on Friday Medivation spelled out why it still thought Sanofi’s was a low-ball bid, and why its board should stay.
But investors would be wise to include Brexit in their assumptions for whether the two might strike a deal at some point, and at what price. Similar considerations might come into play in analysing potential risk to some of the sector’s agreed-on transactions that have yet to close.
|Biopharma's biggest open deals*|
|Acquiring company||Country||Target||Country||Deal value ($bn)|
|Teva||Israel||Allergan's generics business||Ireland||40.50|
|AstraZeneca||UK||Option on remainder of Acerta Pharma||Netherlands||3.00|
|Celgene||US||Option on Acetylon Pharmaceuticals||US||1.70|
|Jazz Pharmaceuticals||Ireland||Celator Pharmaceuticals||US||1.50|
|Bristol-Myers Squibb||US||Option on Promedior||US||1.25|
|Merck & Co||US||Afferent Pharmaceuticals||US||1.25|
|Aspen Pharmacare||South Africa||AstraZeneca’s ex-US anaesthetics potfolio||ex-US||0.77|
|Astellas Pharma||Japan||Option on Mitokyne||US||0.73|
|Novartis||Novartis||Option on Selexys Pharmaceuticals||US||0.67|
|Note: *acquisitions agreed on but yet to close, per EvaluatePharma.|
However, just because a deal is cross-border should not necessarily have the accountants revisiting their spreadsheets. More to the point is the target’s exposure to UK and/or EU revenues and profits, a statistic that would apply to any biopharma business irrespective of its domicile.
Moreover, what “exposure” means exactly can still only be guessed at, though with the vote going in favour of Brexit the risks in terms of sentiment are clearly there.
The ability to finance a transaction could also be called into question where a cross-border acquirer has cash tied up in EU currencies, though clearly forex hedging would have reduced this risk. A separate risk could apply to current and future buyers that are reliant on bank loans or other financial instruments to pull off deals, whether these be takeovers or licensing transactions.
After Thursday’s vote some of the heaviest casualties have been European banks, which have been hammered after assuming that the referendum would go in favour of the UK remaining in the EU, and betting the wrong way on forex. Banks under pressure would naturally be expected to think twice about extending cheap lines of credit.
True, most considerations about the post-Brexit environment are pure guesswork at present, but the immediate currency volatility has already given companies plenty to think about.