By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE DEAL:
- Acquirer: Sanofi
- Target: Principia Biopharma
- Industry: Biotechnology
- Estimated value: $3.68B
- Financing: All-cash
- Announcement Date: 17/08/2020
- Acquirer Advisors: Evercore (financial), Gotshal & Manges (legal)
- Target Advisors: Centerview Partners and Bank of America Securities (financial), Cooley (legal)
*Innisfree M&A Inc. acted as the information agent to Sanofi.
Sanofi agreed to acquire Principia Biopharma for $3.3B, valuing Principia at 73.6x its revenue. Under the terms of the transaction, Sanofi will acquire all outstanding shares of Biopharma’s common stock for $100 per share, representing a 14.5% premium to share price 5 days before the announcement. Sanofi said in a statement that it would pay for the acquisition out of its cash reserves. The Boards of Directors of Sanofi and Principia unanimously approved the transaction.
Principia’s shares have risen 66% this year as some investors speculated about a Sanofi bid. Sanofi’s shares were up 1.3% immediately after the announcement.
The transaction is expected to complete by the end of Q4 2020.
“We like the relatively low risk value accretion of this deal with longer-term optionality that fits within the strategy of deploying firepower across numerous deals.” ~Paul Hudson, CEO of Sanofi
COMPANY DETAILS (Sanofi):
Sanofi S.A. is a French multinational pharmaceutical company which researches, develops, manufactures and markets pharmaceutical drugs principally in the prescription market, but the firm also develops over-the-counter medication. In 2013 it was the world’s fifth-largest pharmaceutical company by prescription sales.
- Founded in: 1994
- Headquartered in: Paris, France
- CEO: Paul Hudson
- Number of employees: 100,409
- Market Cap: $125.34B
- EV: $136.15B
- LTM Revenue: $41.68B
- LTM EBITDA: $11.32B
- EV/ LTM Revenue: 3.27x
- EV/ LTM EBITDA: 12.03x
The company covers 7 major therapeutic areas: cardiovascular, central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines. In the vaccines segment it is the world’s largest producer through its subsidiary Sanofi Pasteur. Together with around 20 other pharmaceutical companies around the world Sanofi started clinical trials of its coronavirus vaccine. Other contenders in the race include UK’S GSK and AstraZenca. Other products Sanofi offers include Aubagio, a treatment for multiple sclerosis, and Auvi-Q, an injector for emergency treatment of life-threatening allergic reactions.
COMPANY DETAILS (Principia Biopharma Inc.):
Principia Biopharma is a clinical stage biopharmaceutical company focusing on development of novel therapies for immune-mediated diseases. Autoimmune disorders are a type of condition when the body’s immune system attacks its own proteins. Principia develops small molecule drugs that bind very specifically to targets in the body that are central to immune disorders. Their proprietary technology, Tailored Covalency, enables better selection of where and how binding with problematic molecules takes place, minimising side effects while achieving high clinical benefit.
- Founded in: 2008
- Headquartered in: San Francisco, California
- CEO: Martin Babler
- Number of employees: 104
- Market Cap: $3.33B
- EV: $3.02B
- LTM Revenue: $50M
- LTM EBITDA: -$72.17M
- EV/ LTM Revenue: 60.4x
- EV/ LTM EBITDA: -41.85x
The most prominent example of Tailored Covalency in use are the BTK inhibitors which currently undergo large-scale clinical trials. If successfull they may help treat autoimmune disorders by curbing white blood cells known as B-cells from attacking healthy tissue.
STRATEGIC RATIONALE
SAVINGS
Since 2017 Sanofi and Principia had a licensing deal to develop experimental oral treatment for MS and other central nervous system diseases. Sanofi paid $40M upfront for the deal and would have owed future payments of up to $765M if the drug reached the market. If the deal is completed as planned by the end of 2020, Sanofi would save on those payments.
ACCESS TO NEW LINE OF DRUGS
Earlier this year Principia began enrolling patients in large-scale clinical trials of the BTK inhibitor ‘168 and aims to file for regulatory approvals in 2024. Analysis by Jefferies estimates that the BTK inhibitor could generate $2B in global sales at peak if it is approved.
“This deal will put us at the front of pack in broad deployment of BTK inhibitors, and it will be accretive much faster if we control the drugs completely, as opposed to being in a partnership” ~ Paul Hudson, CEO of Sanofi
DEVELOPMENT OF TREATMENTS
As of Q2 2020 Sanofi had around $18B cash and short-term investments compared to Principia’s $316.5M. With this capital and Sanofi’s scale the combined group will be able to develop new treatments for a variety of conditions.
“Given Sanofi’s scale and resources, we can do more with the assets and have a broader reach by exploring different indications for the drugs than Principia would have been able to do on its own.” ~Paul Hudson, CEO of Sanofi
RISKS AND UNCERTAINTIES
There isn’t a great deal of risks or uncertainties related to this particular transaction. The deal is strategically motivated and it remains to be seen if it will be accretive to Sanofi.
The only uncertainty relates to Sanofi who is in the race to develop a COVID-19 vaccine. With vaccines being developed at record speed during the pandemic, there is potentially a greater risk they may have unexpected consequences. But the EU is offering only partial protection to vaccine makers against legal risks from side-effects of their potential shots and Sanofi is in advanced talks with the EU to supply it with up to 300M doses. Hence, if the vaccines turn out to have significant unexpected side-effects Sanofi will be at risk of lawsuits and poetntially large payouts.
