Politics, pricing controversy, tax reform and steep valuations conspire to confuse Sanofi’s M&A strategy

Feb 7, 2007: President George W. Bush and NIH Director Dr. Elias Zerhouni enjoy an exchange. NIH – Screenshot

One of the big questions facing the industry right now is whether or not the M&A train will get rolling in a meaningful way in 2017. It’s clear that many of the major players — the ones expected to add billions in meaty deals to the bare bones of what we’ve been seeing — have been caught at least somewhat off balance by a new president that constantly spouts off about outrageously high drug costs as well as plans to reform corporate taxes.

That indecision was captured perfectly over the weekend by the Financial Times, which interviewed Sanofi R&D chief Elias Zerhouni. Sanofi has tried, and failed, to bag Medivation as well as Actelion, beat out by bigger check books (Pfizer/Medivation) and more consistent players (J&J/Actelion). Whatever happens to its reported interest in Flexion, that deal won’t tip the M&A scales very much.

Zerhouni understands to pricing uncertainty perfectly.

“There is a lot of uncertainty right now in the values of all companies because of pricing issues in the US . . . in particular, but worldwide,” he told the FT. “And so when you see the values that are being paid you question yourself as to the sustainability of those values, given the uncertainty in the pricing environment.”

He also has the luxury of counting on Regeneron to provide the innovation the company has failed to provide for itself. That is evident with the big new approval for Dupixent and the continuation of its longrunning legal battle with Amgen. And so there’s some leeway in when and what Sanofi goes after next, though a number of analysts and big investors aren’t about to let Sanofi CEO Olivier Brandicourt off the hook on M&A. Says Zerhouni:

It’s not fair to say that we’re not interested, but we’re also very disciplined. There is an inflation of prices for these assets and they are quite unusual.

So valuations are high, US politics are particularly uncertain and Sanofi execs naturally don’t like to sweat in public. It should be an interesting year, but with the diabetes franchise on the wane, marking time is not a luxury that Sanofi can afford — whatever Zerhouni says in an interview.

The M&A train at the French company can’t stay in the station indefinitely.

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