Sanofi-Aventis SA, France’s biggest drugmaker, is preparing a major acquisition in the U.S., according to five people with knowledge of the situation.
Chief Executive Officer Chris Viehbacher briefed the board on the transaction at a special meeting this week, said two of the people, who declined to be identified because the plan is confidential. The process is in early stages and an agreement with the unidentified target may not be reached, the people said. Allergan Inc., Biogen Idec Inc. and Genzyme Corp. rallied in U.S. trading on speculation they may be the object of Sanofi’s interest.
Viehbacher is counting on acquisitions to help replace revenue the Paris-based company is losing as its medicines face competition from lower-priced generic drugs. Sanofi has spent about $17 billion on 25 acquisitions since Viehbacher joined the company in 2008, according to data compiled by Bloomberg.
“Sanofi have made it very clear they generate lots of cash and part of their way of mitigating the patent cliff is reinvesting capital,” said Marc Booty, an investment manager at Pictet Asset Management Ltd. in London who helps oversee more than $100 billion, including Sanofi shares. “They’ve been very clear external growth is part of their plan.”
Based on conversations Sanofi has had internally and externally about its plans, the U.S. deal may be worth $20 billion or more, two of the people said. The French company generated 8.52 billion euros ($10.7 billion) in cash from operations last year, and had 4.1 billion euros in cash and equivalents on the balance sheet as of March 30.
Jean-Marc Podvin, a spokesman for Sanofi, said the company does not comment on “market rumors or speculation.”
Sanofi fell 1.17 euros, or 2.4 percent, to close at 47.06 euros in Paris trading, giving the company a market value of 61.7 billion euros. The decline was the biggest among the 18 stocks in the Bloomberg Europe Pharmaceutical Index, which fell 0.6 percent.
Acquisitions allow big drugmakers to replenish their supply of newer drugs and cut costs by combining sales forces. In last year’s biggest deals, Pfizer Inc. bought Wyeth for $68 billion, and Merck & Co. bought Schering-Plough Corp. for $47 billion.
U.S. health-related companies with market values of $10 billion or more include Biogen, the world’s largest maker of multiple sclerosis treatments; Allergan, which sells the Botox wrinkle smoother; and Celgene Corp., a cancer-drug manufacturer. Amy Reilly, a spokeswoman for Biogen in Cambridge, Massachusetts, and Caroline Van Hove, a spokeswoman for Allergan in Irvine, California, declined to comment. A Celgene spokesman didn’t return a call.
Sanofi may want to consider diversifying by buying Mead Johnson Nutrition Co., a maker of infant formula that was spun off from Bristol-Myers Squibb Co. last year, said Tim Anderson, an analyst at Sanford C. Bernstein & Co. Mylan Inc., the biggest U.S. maker of generic drugs, and Hospira Inc., a manufacturer of intravenous products, also may be targets, he said in a telephone interview from San Francisco today.
“That company was grown through acquisitions; I don’t know why they would stop now,” he said of Sanofi. “It wouldn’t surprise me if they wanted to diversify further, in consumer health care or generics.” He also cited Biogen and Genzyme, the world’s largest maker of drugs for rare genetic diseases, as possibilities. “Those are the usual suspects,” he said. He has a “market perform” rating on Sanofi shares.
Chris Perille, a spokesman for Glenview, Illinois-based Mead Johnson, declined to comment. Tareta Adams, a spokeswoman for Hospira, said the company doesn’t comment on market speculation. Spokespeople for Mylan and Genzyme didn’t return calls.
Biogen climbed $2.69, or 5.8 percent, to $49.42 at 4 p.m. in Nasdaq Stock Market trading. Allergan climbed $4.19, or 7.2 percent, to $62.29 in New York Stock Exchange composite trading. Celgene gained $1.12, or 2.3 percent, to $50.74. Mead Johnson advanced 64 cents, or 1.3 percent, to $51.17. Genzyme rallied $2.94, or 5.9 percent, to $52.80. Mylan rose 3 cents to $16.93 and Hospira lost 4 cents to $57.12.
Sanofi is looking for new products as generic versions of cancer treatment Eloxatin and blood-thinner Plavix hurt sales. Drugs accounting for more than 20 percent of revenue face competition by 2013.
Viehbacher has identified consumer health, emerging markets, new prescription drugs, vaccines and diabetes as “growth platforms” that will help Sanofi make up for lower revenue in the years to come. The company aims to keep 2013 earnings and sales at 2008 levels at least.
Sanofi did two to three acquisitions a month last year, and probably will do the same in 2010, Viehbacher said in a February interview. He said he preferred to stick to small or mid-sized deals of $15 billion or less.
Acquisitions have to add to earnings in the first year, earn the cost of capital by the fifth year and provide a return that’s 2 to 3 percentage points above the weighted average cost of capital, Viehbacher has said. At a dinner with institutional investors last week, he reiterated those criteria, according to a report today by Andrew Baum, an analyst for Morgan Stanley, which organized the event.
Sanofi probably won’t want to issue new stock to fund a purchase because that would dilute existing shareholders, Baum wrote. The company could carry debt of as much as $20 billion, compared with a net debt now of about $5 billion, he wrote.
Last year, Sanofi acquired Merck & Co.’s half of their Merial animal-health venture for $4 billion, Viehbacher’s biggest purchase so far. In March, Sanofi bought Chattem Inc., the U.S. maker of Gold Bond medicated powder and other non-prescription health products, for $1.9 billion.
The cost of protecting Sanofi debt from default rose today to the highest in more than a year. Credit-default swaps on the company increased 10 basis points to 77, according to CMA DataVision in London.
Drugmakers have announced about $83.5 billion of acquisitions in the past year. In the past month, Celgene agreed to buy Abraxis Bioscience Inc., a maker of drugs for solid-tumor cancers, for $2.9 billion. Grifols SA struck a $3 billion deal for Talecris Biotherapeutics Holdings Corp., and Valeant Pharmaceuticals Inc. and Biovail Corp. signed a merger pact.