Sanofi pays up for Principia

The French group will need to answer questions about data and the rationale behind a full takeover to convince doubters.

Deals

The rumours are true: Sanofi has bought its partner Principia Biopharma for $3.7bn. But, while the French group undoubtedly needs new avenues for growth, there are questions over whether this is a wise deal.

A big one is why Sanofi paid top dollar when it already had rights to Principia’s key asset, the oral BTK inhibitor SAR442168, being developed in multiple sclerosis. As well as potentially saving milestone payments of $765m, Sanofi said part of its rationale was to eliminate future royalties. Based on EvaluatePharma’s consensus sales forecasts and an estimated royalty rate, these could come to around $900m.

Devil in the details

There are also questions about the data so far with SAR442168, which come from a phase II trial in relapsing MS (Multiple sclerosis “win” makes the Principia shorts squirm, February 6, 2020).

Sanofi has reported that the highest dose of SAR442168, 60mg, reduced Gd-enhancing T1 hyperintense lesions by 85% versus placebo.

The use of a surrogate endpoint rather than harder outcomes like relapse raised alarm bells. And the complex trial design, along with small patient numbers, makes it much harder to handicap future success. 

In June Sanofi enrolled the first patient in a pivotal study comparing SAR442168 against Aubagio in relapsing MS, part of a four-trial programme.

Phase III trials of SAR442168 in multiple sclerosis
Name Setting  Comparator Trial ID Primary completion
Gemini 1 Relapsing MS Aubagio NCT04410978 Aug 2023
Gemini 2 Relapsing MS Aubagio NCT04410991 Aug 2023
Perseus Primary progressive MS Placebo NCT04458051 Aug 2024
Hercules Secondary progressive MS Placebo NCT04411641 Sep 2024
Source: EvaluatePharma & clinicaltrials.gov.

SAR442168’s unique selling point is its ability to penetrate the brain; Sanofi hopes to evaluate the project in other CNS diseases “and beyond”.

During a conference call today to discuss the deal John Reed, Sanofi’s global head of R&D, declined to say what these other indications might be, but did not disagree with an analyst who suggested that SAR442168 could have utility in Parkinson’s, amyotrophic lateral sclerosis and the big one – Alzheimer’s.

Buying Principia in full will also give the French group two more BTK inhibitors: rilzabrutinib, an oral project in late-stage development for the autoimmune diseases pemphigus and immune thrombocytopenia; and PRN473, a topical agent in phase I.

Rilzabrutinib’s chances are also hard to call, particularly as its phase II trials did not include control groups.

Royalties

But SAR442168 is the main attraction. If Sanofi’s main motivation was avoiding royalties, it looks to have paid handsomely for the privilege, at least based on the current sales consensus.

The 2017 licensing deal over the project details tiered royalties up to the mid-teens. Assuming that this would average out at around 10%, and using an 8% discount rate, total royalties from launch until a sales peak in 2036 would come in at $872m.

So, even adding the $765m in potential milestones saved, the price Sanofi has paid looks rich. 

Worth it? What SAR442168's royalties could amount to
  2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e 2034e 2035e 2036e
Forecast sales 167 488 752 988 1,199 1,383 1,541 1,673 1,778 1,857 1,909 1,936
10% royalty 17 49 75 99 120 138 154 167 178 186 191 194
                         
NPV of royalty stream @ 8% WACC  872  
All figures in $m. Source: EvaluatePharma.

Of course, better than expected sales of SAR442168 would cast the deal in a better light. This must be what Sanofi is banking on, particularly if it can expand the project’s use outside MS. If the company is indeed looking at Alzheimer’s this could be its golden ticket, although this would be a long shot given others' track record in this disorder.

Right now it appears that Principia got the better end of this deal. The group’s stock, which had already doubled since July when rumours of an acquisition emerged, was up another 9% this morning.

Principia’s hand was no doubt strengthened by Sanofi’s need to build a pipeline fast, and the fact the French group has ready cash to deploy after disposing of its stake in Regeneron. Jefferies analysts estimate that Sanofi could have another €20bn ($23bn) to spend on M&A, something that could lift the valuations of several other biotechs.

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