Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Could a takeover of BioMarin Pharmaceutical be Sanofi's backup plan? Recent options trading might be signaling as much. 

Open interest in BioMarin call contracts has more than doubled since June, during which time it was beginning to become clear that French drug giant Sanofi probably wasn't going to succeed with its hostile pursuit of Medivation. Sure enough, on Monday morning Medivation announced that it was selling to Pfizer instead for $14 billion in an all-cash deal -- a generous price well above what Sanofi proposed and on far friendlier terms. Now, investors are piling into BioMarin, thinking that it's next on Sanofi's shopping list.

Deal Chatter?
Contracts betting on a gain in BioMarin's share price cost more than those protecting against a drop, although the relationship was more pronounced earlier this summer than it is now.
Source: Bloomberg
Open for Bidness
Takeover speculation may be behind the drop in BioMarin's put-call open interest ratio, with traders owning more than two bullish contracts for every bearish one as of Monday.
Source: Bloomberg

It was unfortunate for Sanofi that its Medivation plan backfired. Sanofi's revenue is projected to be flat next year and it's been one of the worst-performing big pharma stocks over the past year. Medivation would have been a decent purchase to help with its slowing sales. The target makes a prostate cancer treatment forecast to reach $1 billion in sales by 2018 and it also has two experimental oncology therapies.

Who's Next?
After Pfizer announced its takeover of Medivation on Monday, BioMarin surged 6%, alongside gains at other potential acquisition candidates Vertex and Alexion.
Source: Bloomberg

BioMarin is similar in size to Medivation, but is focused on treating rare diseases. Its two main marketed products are each expected to bring in around $350 million of sales this year...but still no profit. The company continues to lose money and its road to profitability is going to be quite a rocky one, as Max Nisen wrote for Gadfly earlier this year. 

Big GAAP
BioMarin says that non-GAAP results may break even or better in 2017. In other words, it won't actually be making money unless you make all sorts of adjustments.
Source: Bloomberg

Sanofi arguably would get less for its money with a BioMarin deal than it would have with Medivation. Pfizer's winning bid values Medivation at about 13 times its trailing 12-month revenue. BioMarin already trades at 17 times revenue. And if Sanofi were to make an all-cash bid at a 25-ish percent premium for BioMarin, before synergies the deal would be dilutive.

Pfizer 1, Sanofi 0.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net