Johnson & Johnson bowed out of the running for Actelion Pharmaceuticals Tuesday, saying it wasn’t able to strike a deal that delivered for shareholders. But another buyer is talking deal with the Swiss biotech—and according to multiple media reports, Sanofi is it.
Next question: At what cost success?
Price was the reason J&J gave up on Actelion, the Wall Street Journal’s sources say, and J&J’s own statement suggests as much. If that’s the case, then Sanofi must be ready to pay more—or offer a more favorable deal structure, at least—than the $27 billion J&J reportedly offered in a sweetened bid. According to Reuters, Actelion is confident it can nab a bid higher than the 250 francs per share J&J had on the table. The WSJ’s sources cited a deal value up to $30 billion.
That’s probably too much, analysts say. “Winning a bidding war when it comes to acquiring biopharmaceutical companies almost always equates to overpaying,” Bernstein analyst Tim Anderson said in a note late Tuesday night. “These are not bragging rights.”
Anderson calculates that a $30 billion deal would equate to 13 times Actelion sales and 30 times earnings (before interest and taxes)—“high figures,” he says. Before J&J’s buyout interest broke, Actelion’s market cap stood at about $20 billion.
J&J CEO Alex Gorsky and CFO Dominic Caruso have said on multiple earnings calls that they’re disciplined buyers who’ll walk away rather than overpay. As evidence, consider Pharmacyclics, J&J’s partner on the blood cancer drug Imbruvica; J&J abandoned any effort to buy that company when AbbVie proved willing to pay $21 billion, a price analysts called "staggering" at the time.
Sanofi showed some discipline itself earlier this year when it ceded the race for the U.S.-based cancer biotech Medivation to Pfizer, which was willing to shell out $14 billion—an example cited by Anderson as the sort of “overpaying” he’s talking about.
Nonetheless, sources close to the Actelion talks are saying that the French drugmaker is the potential buyer cited by Actelion in a Tuesday statement; the company is “engaged in discussions with another party,” the statement said, without specifying.
When talk of Sanofi's interest in Actelion surfaced last week, the company itself said it didn't comment on market rumors. CEO Olivier Brandicourt has stuck to his M&A story—bolt-ons or a larger deal, about the size of Sanofi's 2011 Genzyme buy, i.e., $20 billion—but that doesn't necessarily mean he wouldn't make an exception.
And Sanofi does need a revenue boost. A biosimilar version of its $7 billion diabetes flagship Lantus is scheduled to launch Thursday, and its entire diabetes franchise is suffering on pressure from payers and stepped-up competition—to the point where it’s planned big job cuts in its U.S. diabetes and cardiovascular business. Its much-anticipated PCSK9 cholesterol drug Praluent has faltered since launch because of payer pressure and physician skepticism, and it’s not expected to gather much steam till after an outcomes trial reads out. And that's presuming the outcomes data is strong.
Meanwhile, though Sanofi has a near-term launch prospect in the rheumatoid arthritis med sarilumab, that prospect was delayed by manufacturing problems, and its first-in-class eczema med dupilumab—which analysts expect to deliver hefty sales—could face similar problems, given its production at the same plant. And even best-case, those two drugs together, aren't likely to deliver enough near-term sales to make up for Lantus losses.
Actelion still may not sell; CEO Jean-Paul Clozel has been resisting a buyout, loath to let go of the company he started, and Sanofi may decide in the end that it doesn’t want to pay the price necessary to win over Clozel and his shareholders. "There can be no certainty at this point that any transaction will result," Actelion said in its statement.