What’s Going On Here?

French pharmaceutical giant Sanofi agreed to buy US biotech Principia Biopharma for $3.4 billion.

What Does This Mean?

• Sanofi’s a pretty traditional pharma outfit, so its purchase of Principia should help push it toward more innovative therapies, which might lift earnings growth.
• Most of the world’s big pharma and biotech companies are focused on producing and trialing coronavirus vaccines, but those are reckoned not to be the financial blockbuster investors had hoped for.
• Healthcare companies, then, have had to keep looking for other potentially growth-boosting opportunities too.

Why Should I Care?

For markets: Agreement in Principia.

• Sanofi will pay Principia’s stockholders $100 in cash/share – only 10% more than Principia’s stock was worth, but its investors are probably doing okay with the rise of almost 66% this year.
• Sanofi’s shares, meanwhile, rose almost 2%, which is surprising
  • considering a company’s shares usually fall when it announces an acquisition
  • even more, considering Sanofi is paying 34 times Principia’s predicted revenue in three years’ time.

Still, investors might think this deal is a shrewd one: the successful development of new, more innovative drugs under Sanofi’s ownership could more than justify the big spend.

The bigger picture: Sanofi’s choice.

• Sanofi’s deal is the second-biggest pharmaceutical acquisition this year (second only to Gilead Sciences’ $5 billion cancer-related purchase) and follows its purchase of Synthorx for $2.5 billion back in December.
• And it might not be done yet: it’s reckoned Sanofi’s likely to spend $50 billion on acquisitions after it sold off its stake in another biotech company earlier this year.

Content source: Finimize. (2020) Drug Deal. Available at: https://www.finimize.com/wp/news/drug-deal/ [Accessed on August 21, 2020]