We Love You, Just Not Enough to Buy You (Yet)


Regeneron Pharmaceuticals said Monday that it got a notice from its partner Sanofi saying that the pharma intends to buy additional shares of the biotech.

How much? Sanofi isn't saying, but it can't own more than $4.8 billion at current prices as long as the two companies remain partners because it's bound by a standstill agreement to not acquire more than 30% of outstanding shares of Regeneron.

Aventis, which subsequently merged with Sanofi, took a stake in Regeneron when the original deal was set up in 2003, and Sanofi took a larger stake when it revamped the deal in 2007. As of October 2010 -- the last SEC Form 4 I could find -- Sanofi owned 15.8 million shares valued at $2.66 billion at today's prices.

Investors initially jumped at the idea, apparently speculating that Sanofi would launch a hostile takeover but came to their senses with shares trading just a little above Friday's closing price as trading wrapped up Monday.

Biotech has a history of small drug developers being acquired by their larger partners, often hostilely. Roche bought partner Genentech; GlaxoSmithKline bought its partner Human Genome Sciences. Both were hostile takeovers. Neither came down to investors voting in the pharma's board nominees to vote for the deal. Roche and Glaxo succeeded by offering a high enough price that management had to take the deal. Bristol-Myers Squibb failed for the same reason Roche and Glaxo succeeded when it tried to acquire ImClone Systems. Not offering enough for its partner allowed Eli Lilly to top its bid and acquire the biotech.

Sanofi would be crazy to try and purchase Regeneron for a substantial premium. Sure, the launch of its eye drug Eylea is going well, but it seems priced in at this point. Shares are up more than 550% over the last three years. Sanofi would gain full access to the cancer drug Zaltrap that they developed together, but that would be a financial liability for now because Sanofi gets to collect repayment of the development costs for the drug from Regeneron's share of the profits from Zaltrap.

The companies are working on other drugs together, which makes Regeneron a good takeout target, but not at these prices. I'm not even sure why Sanofi would want to increase its ownership at this point, but I guess this announcement is like a board announcing the authorization of a share buyback. The company isn't obligated to make any purchases right now. Sanofi would be smart to wait for a pullback before acquiring more shares.

About that ImClone purchase
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The article We Love You, Just Not Enough to Buy You (Yet) originally appeared on Fool.com.

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