Sanofi restructure investment to focus on blooming business ventures

MarketLine   26 May 2020 (Last Updated May 26th, 2020 14:54)
Sanofi restructure investment to focus on blooming business ventures

Paris-based pharmaceutical company Sanofi sells $13bn stake in biotech Regeneron. The biotech company will repurchase $5bn of stock from Sanofi, while the French company plans to sell a further $7bn-worth shares in the largest public equity offering in the healthcare industry.

Also, both companies have confirmed that they will continue working together on promising eczema and rheumatoid arthritis drugs, which has shown promise to treat inflammatory response to the coronavirus.

This operation seems like the first significant step in the revamping strategy that the French pharma CEO, Paul Hudson, announced back in December 2019.  Considering the current climate in the healthcare business, this is the key moment to set the foundations for long-term success.

The aforementioned strategy revolves around investment optimisation, cutting down funding for mild-growth ventures to redeploy capital into key growth areas like immunology, oncology and genetics.

Exiting almost entirely, Regeneron will boost Sanofi liquidity up to $50bn to engage in M&A talks with smaller biotech devoted to R&D in more auspicious sectors in the healthcare industry.

Prospective operations may be similar to the recent acquisition of Synthorx for $2.5bn, Californian biotech specialised on gene-targeted treatment for cancer and autoimmune disorders.

Additionally, the US government has invested heavily in Covid-19 Sanofi vaccine research, which has led to a large pre-order. Should the French pharma be able to deliver, it would secure a short- term stream of revenue which would relieve pressure on their long-term biotech ventures.

Pharmaceutical sector to lead M&A as business opportunities expand

This divestment marks the end of a fruitful almost-twenty-years partnership between the two, where the biotech has gone from $20 to $570 share value. However, it looks unlikely that this will be the last partnership to end in the sector.

As the pharmaceutical sector was already in the midst of restructuring, partially due to the inclusion of big tech in healthcare, the current pandemic crisis may accelerate sector transition. Efforts will likely to be focused on Covid vaccine and treatment, especially amid fears that virus might mutate.

Also, some of the most prolific fields in the sector are starting to show signs of softening demand or tight-profit margins. Therefore, big pharma is currently moving away from cardiovascular or diabetes treatment and towards cancer treatment and genetics research.