Sanofi Chief Executive Paul Hudson is starting a potential M&A spree at a relatively safe fashion. The French drugmaker is purchasing American biotech Principia Biopharma for $3.7 billion, boosting its presence in the lucrative field of diseases where the immune system attacks the body. Purchasing an established collaborator reduces risk, while allowing Sanofi to save on royalty payments.
Sanofi has plenty of money to splash around. In May, the $127 billion pharmaceuticals group sold a $12 billion stake in U.S. biotech Regeneron Pharmaceuticals, which Hudson plans to plough back to drug development and acquisitions to replenish his pipeline and also make up for stagnant diabetes medication sales. Jefferies analysts suspect that the group has around $25 billion of firepower, after factoring in its own relatively low debt.
Sanofi's close acquaintance with its target removes some of the dangers. Principia's major medications, so-called Bruton tyrosine kinase inhibitors, seek to halt the immune system from inducing inflammation or tissue destruction. The French team owns the licensing rights to Principia's key multiple sclerosis drugs, which ought to give it a much clearer perspective on its prospects. Buying the entire business will give it wiggle room to use the medication with fewer constraints and save on royalty payments when it works well. Additionally, it gets access to prospective remedies for conditions like pemphigus, a rare disease that attacks the skin.
Still, investors face a long wait for yields. Tax that in Sanofi's 22 percent tax rate, as well as the French drugmaker can expect to create a 13% yield on its investment, which values Principia at $3.4 billion after money is factored in.
The relatively low-risk deal might help alleviate fears that Sanofi may squander its large money stack. The French team's stocks have climbed 5 percent since Hudson announced his new strategy last December, and they are currently valued at almost 14 times forward earnings, a small premium to peers, according to Refinitiv data. But with money to spare and biotech valuations wealthy, Hudson's challenge is to remain disciplined.
Sanofi has plenty of money to splash around. In May, the $127 billion pharmaceuticals group sold a $12 billion stake in U.S. biotech Regeneron Pharmaceuticals, which Hudson plans to plough back to drug development and acquisitions to replenish his pipeline and also make up for stagnant diabetes medication sales. Jefferies analysts suspect that the group has around $25 billion of firepower, after factoring in its own relatively low debt.
Sanofi's close acquaintance with its target removes some of the dangers. Principia's major medications, so-called Bruton tyrosine kinase inhibitors, seek to halt the immune system from inducing inflammation or tissue destruction. The French team owns the licensing rights to Principia's key multiple sclerosis drugs, which ought to give it a much clearer perspective on its prospects. Buying the entire business will give it wiggle room to use the medication with fewer constraints and save on royalty payments when it works well. Additionally, it gets access to prospective remedies for conditions like pemphigus, a rare disease that attacks the skin.
Still, investors face a long wait for yields. Tax that in Sanofi's 22 percent tax rate, as well as the French drugmaker can expect to create a 13% yield on its investment, which values Principia at $3.4 billion after money is factored in.
The relatively low-risk deal might help alleviate fears that Sanofi may squander its large money stack. The French team's stocks have climbed 5 percent since Hudson announced his new strategy last December, and they are currently valued at almost 14 times forward earnings, a small premium to peers, according to Refinitiv data. But with money to spare and biotech valuations wealthy, Hudson's challenge is to remain disciplined.