Big Drugmakers Pay Big Prices for Promising Biotechs

FeaturesDow Jones Newswires

A pair of multibillion-dollar biotech deals announced Monday commanded hefty premiums, driven by big drugmakers' need for new sources of revenue amid a scarcity of quality assets.

Sanofi SA agreed to pay a 63% premium to buy hemophilia drug company Bioverativ Inc., confirming a Wall Street Journal report Sunday, while Celgene's agreement to buy Juno Therapeutics Inc. values shares in the biotech at 87% more than their worth before the Journal reported on the deal talks last week.

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Both Sanofi, which is paying $11.6 billion cash for Bioverativ, and Celgene, whose cash deal values Juno at $9 billion, have been looking to add products to cope with lower-price competition looming for their top-selling drugs.

As big drugmakers look to deal-making, rather than their own laboratories, to plug gaps in their product lineups, they are increasingly willing to pay up for companies with promising products. And analysts say premiums may only get bigger as other big drugmakers, aided by the new tax law in the U.S., consider acquisitions to bolster their lineups.

"Many of the largest, most cash-rich companies in the industry have not even begun to participate in M&A, and when they do, prices and deal volumes could step up significantly," Leerink Partners analyst Geoffrey Porges wrote Monday in a note to investors.

So far this year, the median premium paid in health-care deals worth more than $1 billion is 89%, almost double the median of 45% since 2010, according to Dealogic.

Paris-based Sanofi has already missed out on two high-valuation deals. It lost the bidding for cancer biotech Medivation to Pfizer Inc., which paid $14 billion in 2016. Then last year, Johnson & Johnson outbid Sanofi to buy rare-disease drug maker Actelion for $30 billion.

Bioverativ, of Waltham, Mass., sells two top-selling treatments for the rare blood disorder hemophilia. The company was spun out of big biotech Biogen Inc. last year after Biogen couldn't find any companies willing to buy it for about $3 billion, according to a person familiar with the matter.

Sanofi turned to Bioverativ as low-price competition drew closer for the French company's top-selling product, Lantus insulin. Lantus revenue has been dropping but still accounted for 13% of Sanofi's sales during the first nine months of 2017.

Bioverativ's hemophilia drugs will fit in Sanofi's rare-disease business and complement the company's collaboration with biotech Alnylam Pharmaceuticals Inc. in developing a new kind of hemophilia therapy using an emerging technology called RNA interference.

"With Bioverativ, we welcome [a] leader in the growing hemophilia market and that will create a platform for expansion in other rare blood disorders," Sanofi CEO Olivier Brandicourt said in a conference call.

Sanofi said adding Bioverativ will be "immediately accretive" in fiscal year 2018. Yet traditional hemophilia drugs from Bioverativ and other drug companies could see sales drop over the long term if gene therapies now in development work out and take over the market.

As for Celgene, the Summit, N.J., company is a major seller of blood-cancer drugs. But rivals have been challenging the patents protecting its top-selling product, multiple myeloma treatment Revlimid, in their efforts to sell generic versions.

In advance of Revlimid's patent expiration, Celgene has been entering partnerships with biotechs working on promising new drugs for cancer and other diseases. While waiting on the collaborations to pan out, Celgene has added some products through acquisitions.

Just this month Celgene agreed to pay $1.1 billion upfront for privately held cancer biotech Impact Medicines and committed to spending billions more dollars if Impact's blood-disease drug is approved for sale and reaches other milestones.

The Juno deal "is an important step in executing our strategy to sustain industry-leading growth by focusing on disruptive, innovative medicines and immediately establishes Celgene as global leader in the rapidly emerging field of cellular immunotherapy," Celgene CEO Mark Alles said in a conference call with analysts and investors.

Celgene said the Juno acquisition won't become "incrementally additive to net product sales" until 2020. It also predicts that Juno's most-advanced drug, JCAR017, will peak at $3 billion in yearly world-wide sales. But some industry officials and advisers question how lucrative the drugs will be unless they can be used beyond blood cancers and don't have to be tailored to each individual patient.

Celgene's valuation of Juno was influenced by Gilead Sciences Inc.'s $11 billion acquisition of Kite Pharma, which also has a CAR-T treatment. Gilead said it paid a 50% premium to the 30-day volume-weighted average of Kite.

Celgene executives said on a conference call with investors that the company will continue looking for acquisitions.

--Cara Lombardo contributed to this article.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com

(END) Dow Jones Newswires

January 22, 2018 13:58 ET (18:58 GMT)

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