If you have been following Sanofi it is not a secret that the performance of its stock has much to be desired. Over the last five years, the S&P 500 index has gained nearly 80% in value while Sanofi has fallen approximately 20%. However, Sanofi has made three significant business decisions recently that I believe are worth a closer look and could be a sign of things to change in the future.
First, Sanofi acquired Bioverativ for $11.6 billion in an aggressive move to strengthen its presence in specialty care and itsposition in the rare disease space, paying a 64% premium to the closing price on Jan, 19 (seen below).
Bioverativ is an American biotech company that specializes in the development and discovery for treatments of haemophillia and currently markets two products, ELOCTATE and ALPROLIX, with several other drugs in its pipeline.
The market for developing treatments for haemophillia is very competitive and large with an approximate size of $25 Billion by 2024, growing from $15.8 billion in 2015. It has been approximated that Bioverativ will report $333 million in sales for the current fiscal quarter, a significant increase from the same quarter last year, which was reported to be $259 million. Treatments for haemohillia are also not just being pursued by large pharmaceutical companies such as Novo Nordisk (NVO), but smaller biotech companies such as Spark Therapeutics (ONCE) partnering with Pfizer (PFE) are also pursuing treatments in this space using gene therapy.
Hemophilia is a rare genetic condition where the ability of a person’s blood to clot is significantly reduced causing significant bleeding from small injuries.
Sanofi has also moved forward with a three-party alliance with Evotec (OTCPK:EVTCY) and Apeiron focusing on immunotherapy. A milestone payment has been paid after “partners successfully advanced an undisclosed, novel immuno-oncology small molecule into late-stage pre-clinical development.” This alliance is a continuation of a previously constructed alliance agreement from August 2015. If all milestones are reached, this agreement could total over $240 million in addition to royalties upon commercialization.
Aperion is a biotech company based in Vienna, Austria, with a focus on biological and immunological approaches to treat cancer. It was founded by Professor Josef Penninger in 2006 and currently has a very robust pipeline aimed to treat a variety of cancers. Since being founded, Aperion has managed to secure exclusive agreements with GlaxoSmithKline and EUSA Pharma.
Evotec is a German drug discovery CRO and over the years developed strong alliances with leading pharmaceutical and biotechnology companies. In the past five years, Evotec has performed very well compared to the S&P 500 index (see below) and is likely to continue this performance as it secures additional partnerships and because of the promise concerning Sanofi’s latest agreement with Evotec, the co-development of an infectious disease center.
In this agreement, the upfront payment to Evotec is arguably modest, totaling $74 million. However, Sanofi has agreed to help staff up the operations by committing 100 staffers to support Evotec’s R&D team along with long-term funding. In addition to payments and support, Sanofi will license a significant portion of its infectious disease portfolio to Evotec (approximately 10 assets). This partnership will focus on new mode-of-action antimicrobials. Interestingly, this agreement is an “Open Innovation R&D Platform” and is open to working on these assets with other collaborations with pharmaceutical and biotech companies, foundations, academic institutions and government agencies.
In summary, these actions taken by Sanofi illustrate that it is more than willing to aggressively acquire and collaborate with others when it comes to pursuing promising drug candidates. While Sanofi’s performance does leave much to be desired, the willingness to pursue and continue long-term investments in promising R&D activities is a relief for those hoping for a future turnaround.
Disclosure: I do not have positions in the stocks mentioned.
