Regeneron Shares Advance on Sanofi’s Plan to Buy StockMeg Tirrell and Albertina Torsoli
Regeneron Pharmaceuticals Inc., maker of the eye medicine Eylea, rose the most in three weeks on drug-development partner Sanofi’s plans to raise its stake in the company by buying shares on the stock market.
Sanofi revealed the planned purchases because the Paris-based company had to submit a filing to U.S. antitrust regulators to acquire the shares, Tarrytown, New York-based Regeneron said today in a statement. Sanofi, Regeneron’s biggest shareholder with a 17 percent stake, can’t increase the holding to more than 30 percent because of a 2007 agreement.
The increased stake may reflect Sanofi’s optimism about the medicines it’s working on with Regeneron. One of the most advanced compounds, known as SAR236553 or REGN727, may become the first treatment to lower so-called bad cholesterol by targeting an enzyme called PCSK9. The companies are further along in their research than Roche Holding AG and others working on similar products.
“We are very happy with the relationship with Regeneron, but needed this technical filing to get freedom to operate,” Jean-Marc Podvin, a spokesman for the Paris-based company, wrote in an e-mail. “Sanofi has the right to increase its shareholding. It may increase its holding over time subject to market conditions and within the terms of our partnership agreement.”
Regeneron rose 2.7 percent to $170.35 at the close in New York, giving the company a market value of $16.4 billion. The shares have gained 67 percent in the past 12 months.
“There is definitely a signal here that they’re optimistic,” Chris Raymond, an analyst at Robert W. Baird & Co. in Chicago, said of Sanofi. “They had to know it triggers this kind of response, so you wouldn’t take such a step lightly.” He has an outperform rating on Regeneron’s stock.
The move may fuel speculation Sanofi will buy Regeneron, Joshua Schimmer, an analyst with Lazard Capital Markets, wrote today in a research note.
“Presumably, they were unable to agree upon a reasonable purchase price, and Sanofi can’t go hostile given the standstill agreement,” Schimmer wrote. He has a “neutral” rating on Regeneron shares.
Sanofi may also want to make it more difficult for other suitors to approach Regeneron, analysts said.
“Given the reliance that Sanofi has in Regeneron’s R&D capabilities, it makes strategic sense for Sanofi to hug Regeneron a little tighter,” Phil Nadeau, an analyst with Cowen & Co., wrote in a research note.
Peter Dworkin, a spokesman for Regeneron, said the company doesn’t comment on market rumors or speculation. The collaboration with Sanofi runs until 2017 and the standstill agreement on Sanofi purchasing more than 30 percent of Regeneron shares doesn’t expire until five years after that, he said.
“We’re not building our company for a sale,” Regeneron Chief Executive Officer Len Schleifer said in an interview in January. “What distinguishes us is we’ve always cared about the long term.”
Sanofi plans to buy shares in the market and through direct purchases from shareholders, according to Regeneron’s statement. Sanofi gained 3.4 percent to 71.40 euros in Paris trading.
The French drugmaker also may be trying to reach an ownership level of Regeneron to book some of its partner’s profits, analysts said. Regeneron became profitable in 2012 on the back of Eylea, on which it doesn’t collaborate with Sanofi, said Tim Anderson, an analyst with Sanford C. Bernstein & Co. Anderson recommends buying Sanofi shares.
A stake above 20 percent, along with satisfying other provisions, would enable Sanofi “to book as ‘Equity Income from Affiliates’ its portion of Regeneron’s profits,” Anderson wrote today in a note to clients. That would enable Sanofi to reach “its stated growth targets more easily.”
Sanofi spokesman Podvin declined to comment further.
Eylea received approval in September for patients with macular edema following central retinal vein occlusion, an eye disorder that affects an estimated 100,000 people in the U.S. The drug was approved in November 2011 for wet age-related macular degeneration, a leading cause of blindness for the elderly.
The two companies have a partnership on Zaltrap, approved in August 2012 for previously treated metastatic colorectal cancer. They also have a development agreement on antibodies in Regeneron’s pipeline, expanded in November 2009. The companies’ goal is to bring 20 to 30 new antibodies into clinical development from 2010 through 2017, according to Regeneron’s 2011 annual report.
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