Deal announcements are in the very DNA of the annual biotech event, also known as the JP Morgan Healthcare Conference in San Francisco. And after a tough biotech year in 2022, when only 11 companies went public and scores of private companies’ valuations fell, the future of biotech M&A is a topic of great interest.
So it’s no surprise that the topic of M&A and strategy came up at Sanofi’s media briefing on Wednesday. CEO Paul Hudson and CFO Jean-Baptiste Chasseloupe de Chatillon were asked if regulatory scrutiny from the FTC, the macroeconomic environment and provisions in the DEA are hindering large-scale M&A in the biopharma world. They were also asked about their strategy, particularly in the context of their unsolicited bid for Horizon Therapeutics, which Amgen it eventually settled for $27.8 billion at the end of December.
Hudson said “all of the above” in response to a question about M&A headwinds, but instead of directly answering what type of target or size of future deals, he turned the question on its head, seemingly suggesting that Sanofi’s Big Pharma rivals have more a great need to engage in large-scale mergers and acquisitions because they have a “broken bathtub”. Here’s what Hudson said [edited for clarity]:
If you look at the top 20 pharmaceutical companies and look at their percentage of sales at risk of intellectual property loss between now and the end of the decade, we’re the lowest. We’re less than 9%, and a lot of our peers are up to 75%, which means they have to completely renew all of their revenue over the next five, six, seven years — all of them — and these are big companies. So when you ask us about M&A, you’re assuming that at some point those earnings margins mean that companies have to start making additional acquisitions. Some of these drugs are big drugs – some of the top two or three drugs in the world — that will lose their patent – what does that mean for these companies to replace it [revenue]? What could they buy to do this?
There are only a small number of companies [you can buy] and it’s not an easy road. So why are people hesitant to divest Amgen Horizon? I think people are waiting to see… and trying to decide what’s best for them in their own journey and where is the science that’s most predictable and reliable over time to make these big premiums — and they are large premiums – defensible. Our focus is to go and buy 10, 12, 15 small biotechs and spin the roulette wheel, which is also reliable work, but it doesn’t necessarily mean by 2027 that you can cover the gap.
If nothing happens, a lot of people here are talking about whether this leads to consolidation because people will have to find a way to continue to fuel R&D and whether there aren’t enough breakthrough science organizations that can help fill in [the lost revenue], then it gets more complicated for some of these companies. Whether by hook or by crook, we have the lowest exposure…we don’t have a leaky bathtub and that’s the best way to describe it.
So whose bathtub is leaking?
Quick fact checking shows that in 2021, Humira is the world’s second-biggest drug by sales (after Pfizer/BioNTech’s Covid-19 mRNA vaccine), earning $20.7 billion. Although Humira’s US patent expired in 2016, Abbvie, the maker of Humira, was able to disputes an additional 132 patents related to other uses of the drug — including manufacturing methods and the actual administration of Humira. All of them pushed the patent expiration date to 2034. But the long-awaited biosimilar Humira is due to be released this year. Humira treats rheumatoid and psoriatic arthritis, ankylosing spondylitis, Crohn’s disease, and ulcerative colitis.
Another top drug – 4th best selling drug after Moderna’s Covid-19 vaccine — is Merck’s oncology drug, Keytruda, which earned $17.2 billion in 2021. But many believe competition from biosimilars will eat into that revenue by the end of the decade. Keytruda’s US patent expires in 2028. [In the list of top-selling drugs, Sanofi’s Dupixient came in at no. 14 with 2021 sales of $6.2 billion. The drug treats atopic dermatitis, asthma and chronic rhinosinitus with nasal polyps]
Although Hudson did not provide the source of the data that led him to conclude that Sanofi’s overall risk profile is quite low in terms of the percentage of sales at risk of losing IP, the issue of patent failure has long been an existential threat that Big Pharma has aggressively tried to manage.
Sanofi is in the midst of a transformation expressed in 2019 when it decided to abandon its focus on diabetes and cardiovascular products and to take the path to product development for oncology, immunology and gene therapy. And that’s what spurred his interest in Horizon Therapeutics, which is developing treatments for rare and rheumatic diseases.
“[Horizon was struggling a little bit if you remember at the beginning of the year with the launch of their new drug,” recalled Chasseloup de Chatillon, Sanofi’s chief financial officer. “Their share price was down, so it was an opportunity to help the deployment the drug for new patients and to create value for the shareholders of Sanofi, so we were interested but at the right price. The minute the price went off from what we thought was [the] value creation point, we moved away. It’s very simple.”
OK, so $27.8 billion was too high a price for the Paris-based drugmaker. So what deals can we expect from Sanofi in 2023?
“We’ve been clear with our capital allocation from the moment we launched our strategy in 2019 that we’re in the science business, sort of Acquisitions for $2-5 billion [space] – and everything we did was aligned with that,” Hudson said.
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