Sanofi Overpays for Bioverativ
The overpayment to enter the increasingly competitive hemophilia market is relatively small compared with the overall size of wide-moat Sanofi.8445
Sanofi (SAN) announced the acquisition of Bioverativ (BIVV) for $11.6 billion ($105 per share), well ahead of our $49.50 stand-alone valuation of the company and we expect to slightly lower our fair value estimate for Sanofi. However, we continue to view Sanofi’s wide moat as intact, as the overpayment is relatively small compared with the overall size of Sanofi. We believe near-term core earnings support (excludes amortization costs), the ability to geographically expand Bioverativ’s key drugs into emerging markets, and the potential to create a foundation in hemophilia for Sanofi’s pipeline drove the acquisition, as Bioverativ’s pipeline looks thin. Given the acquisition agreement and the rapid nature of the transaction (to close this quarter), we also expect to raise our Bioverativ fair value estimate to match the offer price.
As Sanofi faces earnings pressure from biosmilar Lantus competition, the Bioverativ acquisition helps support earnings, as the deal is expected to be immediately accretive to core earnings and expected geographical expansion holds the potential to increase the growth outlook for Bioverativ’s drugs. Sanofi expects the deal to bolster 2019 earnings by 5%, which looks reasonable (however, the overpayment for the acquisition doesn’t show up in core earnings, as amortization expenses are typically excluded from core earnings). Further, 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.
Sanofi gains a strong foothold in the hemophilia market with Bioverativ, setting up the potential for Sanofi’s pipeline drug fitusiran, but new competition from Roche is concerning for Bioverativ’s portfolio in the near term and fitusiran’s long-term potential.
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Damien Conover does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.