Sanofi's Ablynx buy leaves no doubt about its pipeline troubles

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The current biotech cycle has flushed out several bidders desperate to acquire at all cost to regain lost ground: think Astrazeneca in 2013 or Abbvie in 2015. Today Sanofi secured its place in this club, showing how seriously its chief executive, Olivier Brandicourt, views its poor pipeline and plummeting Lantus sales.

The French group’s swoop on the Belgian biotech Ablynx had to be infallible – a knockout bid aimed at securing the target company’s acquiescence and blowing out of the water an earlier approach from Novo Nordisk. Of course, it will be years before investors find out whether this degree of optimism was well placed.

This likely matters little in the current market, where investors tend to view business development – at any price – as preferable to discipline and cash conservation. Groups like Glaxosmithkline and Gilead found this out the hard way, while conversely Astra and Abbvie have reaped the rewards of deal-making that is overpriced on a fundamental valuation basis.

Novo bows out

Novo’s approach – actually its second, but the first disclosed – already looked rich, offering up to €2.6bn ($3.1bn) in cash and a contingent value right (CVR) (Novo Nordisk turns the screw on Ablynx by making bid public, January 8, 2018).

However, 2018 is no place either for CVRs or for mere 44% premiums. And Ablynx was vindicated in its refusal to accede when today Sanofi paid €3.9bn, all in cash, representing a 21% premium to Friday’s close, or 112% more than where Ablynx was trading before Novo revealed its hand.

In particular this is vindication for Ablynx’s C-suite; just after rejecting Novo’s approach the biotech’s chairman, Peter Fellner, resigned, hinting at internal friction over whether to engage the Danish group in negotiation. Today Novo confirmed that it would not be making a revised proposal.

Price aside, there are similarities between Novo and Sanofi: both are big in diabetes, and both need to diversify away from this therapy area. Sanofi’s need is greater than Novo’s, as the performance of Lantus, a long-acting basal insulin analogue, in the face of biosimilar insulins amply shows.

This explains Mr Brandicourt’s eagerness to pay up. Sanofi had already signalled its desire to move further into blood therapeutics and rare diseases when it bought Bioverativ last week for $11.6bn, in a first sign that it was prepared to pay through the nose.

Full rights

Through Ablynx Sanofi gains full rights to a nanobody technology over which the groups have an existing collaboration. Ablynx’s most significant project is the thrombotic thrombocytopenic purpura nanobody caplacizumab, which has been filed in the EU and should go before the US FDA shortly.

Despite doubts about its primary efficacy benefit caplacizumab secured a prized late-breaker spot at Ash last year, and this clearly generated interest. The size of this opportunity is still unproven; Berenberg analysts today wrote that caplacizumab sales might approach €400m by 2023, but that even with a 60% margin this would generate no more than a 4% return on capital.

On an analyst call today Sanofi was evasive, refusing to provide “specific forecasts” as to the market penetration expected of caplacizumab, and saying it was “too early to make any comments” as to how realistic Ablynx’s recent €1.2bn potential market forecast was. An estimate of 7,500 annual cases of the disease was attributed specifically to Ablynx.

Sanofi also highlighted Ablynx’s phase II anti-respiratory syncytial virus (RSV) MAb ALX-0171 as a promising asset. RSV is a highly prevalent seasonal disease, but also one that is extremely intractable, as groups from Astrazeneca to Novavax have found.

But in a market that increasingly values short-term deal-making these might be peripheral considerations, particularly for the investment bankers who at last have some M&A to get excited about.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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