Rumoured $20bn Sanofi-Aventis swoop could be about diversification

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Chris Viehbacher, Sanofi-Aventis’ aggressively acquisitive chief executive who has overseen a significant splashing of the cash since he took the helm 18 months ago, has made no secret of the fact that he still has cheques to write in his quest to reinvigorate the French drugmaker (Vantage Point - Big pharma on a diversification spending spree, February 1, 2010). 

Therefore a report by Bloomberg Newsclaiming that Sanofi-Aventis is gearing up for a $20bn US acquisition, a claim that sent shares in the company lower today and fanned the flames of speculation, is not a complete surprise. However, the list of drugmakers below that fit the criteria mentioned does not throw up any immediately tempting targets – most are either looking very expensive or are dealing with critical issues. Meaning if the rumours are true, Mr Viehbacher could be planning on taking another step beyond Sanofi’s traditional core pharma heartland.

Out of reach?

Realistically, there are not many pure-play drugmakers to choose from if a $20bn deal in the US is the aim. The table below reveals that the likes of Bristol-Myers Squibb, Eli Lilly and Gilead are out of reach for the mooted budget, and probably Celgene too.

The latter would certainly give any company an immediate and significant foothold in oncology, certainly an area that Sanofi is interested in. However Celgene shares have fallen recently, on the acquisition of Abraxis Bioscience and largely reflecting wider stock market declines, trading just shy of $50 today after spending several months above $60. Therefore its investors could probably argue that a significant premium was deserved, and this starts to make the company look very pricey.

A bit further down the list is Allergan, a company that is perennially linked to a bid from GlaxoSmithKline. The fact that shares in the maker of Botox jumped 7% in early trade today, to touch an eight week high of $62, suggests that this is not considered out of the question. It would be interesting to see if Glaxo would jump into the fray should Sanofi make a move. However, with a lot of takeover premium already in the stock, this might prove too expensive.

Buying trouble?

Biogen Idec and Genzyme also saw significant speculative buying in early trade today, the former climbing 7% to $50 and the latter 5% to $52.

There are certainly reasons why Sanofi might be interested in both companies - the former for an antibody platform, access to MS drug Tysabri and blockbuster alliance revenues from the Roche leukaemia antibody Rituxan, the latter for its high margin enzyme replacement therapies, so called “nichebusters” that big pharma are now keen to contemplate.

However there are also big reasons to put it off. For Biogen, which tried and failed to sell itself two years ago, ongoing safety issues with Tysabri, which is also about to see its first real competition in the shape of Novartis’ Gilenia, and lack of any really big products in the pipeline, could be enough to deter bidders. And for Genzyme, ongoing manufacturing issues that have dogged the company for over a year now are far from being solved, and its competitive landscape has worsened significantly over the last year.

Shire, which is not technically a US company but derives the majority of its sales from the region, might be a more interesting buy if Sanofi were interested in building a presence in orphan drugs.

Diversification

Covidien is certainly an interesting prospect. The company, spun out of Tyco in 2007, has branded drugs, generics, medical technology and diagnostic divisions, certainly the territory of a diversifying move. Sales are also forecast to grow strongly over the next five years, although with a market cap already at $20bn, this again could be an expensive move.

Other diversifying options in the table include the generics players Hospira and Mylan - the former in particular has a big hospital supply unit as well. Indeed, a number of medical technology or medical supply companies could be on Sanofi’s shopping list, if it is looking for a big diversifying move, such as Boston Scientific or Cardinal Health.

It should also be remembered that if this is true any plans are likely to be in the very early stages, as the Bloomberg article stressed, which was sourced from a number of people claiming to have been at a special meeting about the potential transaction.

The news wire itself published an article a few months ago quoting Mr Viehbacher as saying any further acquisitions would probably not top $15bn, meaning the amount being talked about today is actually the most surprising aspect.

Mr Viehbacher's spending spree resulted in the addition of an impressive 130 new products to Sanofi's R&D pipeline last year, through both licensing and acquisition, plus at least a further 16 this year, according to EvaluatePharmadata. The $63bn acquisition of Aventis by Sanofi-Synthélabo back in 2004, creating the company as it is known today, added 273 products, illustrating how significant this drive has been.

Of course this strategy has not been just about the number of R&D projects, it has also resulted in a major expansion into generics, emerging markets, animal health and over-the-counter medicines, as Sanofi has attempted to move away from the boom-and-bust model of traditional big pharma. So it does seem more likely that any big move, should it materialise, will be about further diversification.

Signficant US drug makers Market Cap ($bn) Total WW Group Sales ($bn)
2010 2016
 Sanofi-Aventis  84.8  39.9  41.3
 Bristol-Myers Squibb  42.6  19.8  16.7
 Eli Lilly  38.2  23.8  20.8
 Gilead Sciences  30.4  8.1  12.1
 Celgene  22.9  3.3  6.2
 Covidien  20.0  11.0  15.3
 Allergan  17.9  4.7  7.1
 Genzyme  13.3  5.1  6.7
 Biogen Idec  12.5  4.5  4.9
 Shire  11.4  3.2  5.2
 Hospira  9.5  3.9  5.0
 Forest Laboratories  7.8  4.3  3.6
 Vertex Pharmaceuticals  6.5  0.1  1.8
 Warner Chilcott  5.6  3.0  2.4
 Perrigo  5.3  2.5  3.3
 Mylan  5.2  5.5  8.8
 Watson Pharmaceuticals  5.1  3.5  4.1
 Alexion Pharmaceuticals  4.5  0.5  1.3
 Human Genome Sciences  4.2  0.2  3.1
 Cephalon  4.2  2.7  2.6
 Dendreon  4.1  0.1  2.8

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