Two Biotech M&A's Total $20 Billion, Ignites Hope for More Deals

Monday (January 22) marked a pivotal milestone the biotech industry as Sanofi (NYSE:SNY) and Celgene (NASDAQ:CELG) both announced mergers & acquisitions, totaling roughly $20 billion. 
To provide a little bit of perspective, throughout all of 2017  CNBC reported that there were only 12 biotech acquisitions all-in, amounting to $50 billion. With less than a month into 2018, that number is already almost half of what last year’s mergers and acquisitions amounted to, fueling hope in the biotech sector.
Sanofi, a France-based global pharmaceutical company announced their plan to strengthen and expand their presence by acquiring Bioverativ (NASDAQ:BIVV) for $11.6 billion. The company—which is seventh on our top 10 pharmaceutical list—currently has a market cap of $109 billion.
Bioverativ is a biopharmaceutical company focused on therapies for hemophilia and other rare blood disorders. Hemophilia reduces the body’s ability to clot blood which leads to an increased risk of serious internal bleeding, it affects about 20,000 people in the US. Previously, Sanofi didn’t have an expertise in this field, only rare diseases, meaning this new addition should strength the respective department.

With a market cap of $82.18 billion, American biotechnology company Celgene will merge with Juno Therapeutics (NASDAQ:JUNO) for $9 billion, purchasing the 90 percent of Juno they didn’t already own. With this Celgene will add manufacturing and advanced operational capabilities to their own research, with the goal of becoming a preeminent cellular immunotherapy company.

The future of both biotech companies

Hemophilia is currently the largest market for rare diseases, which is expected to grow seven percent each year through 2022.  Sanofi will do this by geographically expanding Bioverativ’s products.
“With Bioverativ, a leader in the growing hemophilia market, Sanofi enhances its presence in specialty care and leadership in rare diseases, in line with its 2020 Roadmap, and creates a platform for growth in other rare blood disorders,” Oliver Brandicourt, the company’s CEO said in the release. “Together, we have a great opportunity to bring innovative medicines to patients worldwide, building on Bioverativ’s success in driving new standards of care with its extended half-life factor replacement therapies.”
Celgene also reaffirmed the financial target of $19-$20 billion in total net product sales for 2020. They also plan to accelerate Juno’s pipeline development to add approximately $3 billion in peak sales and strengthen its lymphoma portfolio. Juno is working on developing T cell technology for eradicating cancer cells, but their products are still waiting FDA approval, or still going through trials.
“The acquisition of Juno builds on our shared vision to discover and develop transformative medicines for patients with incurable blood cancers,”  Mark J. Alles, Celgene’s CEO was quoted saying.
The merge between Celgene and Junmo should be mutually beneficial to both companies, however Juno may have better resources for their investigational products and Celgene is adopting better technology to their product portfolio.

Investor takeaway

“Sanofi expects the deal to bolster 2019 earnings by 5 percent,” wrote Morningstar analyst, Damien Conover, in an article about the acquisition. “Bioverativ has not yet launched its key drugs Eloctate (hemophilia A) and Alprolix (hemophilia B) in Latin America, South America, China, and India, where we believe Sanofi can leverage its global infrastructure to accelerate our 10% 5-year compound annual growth estimate for Bioverativ on a stand-alone basis.”
Conover believes Sanofi overpayed for Bioverativ as earning pressure was building up from Lantus, a competitor. Sanofi paid $105 per Bioverativ share, whereas Morningstar gave them a $49.50 stand-alone valuation. “We expect to slightly lower our fair value estimate for Sanofi,” he wrote.
Since Monday’s announcement, Sanofi’s shares have increased 1.27 percent to close at $43.74 on Tuesday (January 24). After-hours trading, however, bumped its share price up by 0.11 percent to $43.79.
As for Celgene, 16 firms call it a strong buy and 13 call to hold the stocks, according to Nasdaq analyst recommendations; both suggest the price should rise.
Celgene’s shares also responded positively since its announcement on Monday: over a one-day trading period, its price has increased by 1.59 percent to close at $104.55 on Tuesday, although after-hours trading brought back down by 0.53 percent to $104 even.
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Securities Disclosure: I, Gabrielle Lakusta, hold no direct investment interest in any company mentioned in this article.