U.S. drugmaker Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) said on Monday it would repurchase about $5 billion of its shares directly from France’s Sanofi, without altering their over-a-decade-long partnership.
Regeneron said the French company also plans to sell approximately 12.8 million shares, a holding worth more than $7 billion, based on Friday’s closing price. This will mark the largest public equity offering in the healthcare industry on record.
Sanofi is selling a stake in Regeneron Pharmaceuticals Inc. valued at about $13 billion, giving the French drug giant more power to invest in fast-growing fields such as cancer.
Sanofi, which holds about 23.2 million shares of Regeneron’s common stock, or about a 20.6% stake would continue to own about 400,000 Regeneron shares to support the collaboration.
Bank of America Corp. and Goldman Sachs Group are the underwriters of the stake sale. Regeneron said it will fund the share repurchase with $3.5 billion of cash and $1.5 billion of financing from Goldman Sachs Bank USA.
The divestment will take place as an underwritten public offering starting on Tuesday in New York. Sanofi said it intends to sell approximately 12.8m Regeneron shares out of a total of 23.2m, and may also sell an additional 10 percent of the offering, or 1.28m shares, in the next 30 days if there is sufficient demand.
The announcement is part of Sanofi chief executive Paul Hudson’s revamped strategy. He set a new strategy for Sanofi in December to focus on key growth areas such as oncology, rare diseases, and immunology while ending research into diabetes and heart disease. This would help the company to save more than $2 billion. The company is also testing two experimental vaccines for Covid-19.
“We believe the proceeds from this transaction will help further our ability to execute on our strategy to drive innovation and growth,” CEO of Sanofi, Hudson, said in a statement.
Mr. Hudson said the cash from the Regeneron exit would go towards boosting Sanofi’s research and development of new drugs and could include acquisitions along the lines of that of Californian biotech Synthorx for $2.5bn in December.
“We want to add to our pipeline organically through our own R&D and through acquisitions,” he said, adding that the proceeds would not go to paying down debt.
Sanofi and Regeneron said there will be no change in their ongoing partnerships. Sanofi originally purchased a stake in Regeneron in 2004. Through their longstanding collaboration since 2003, the companies have brought five medicines to market. They also have additional drug candidates currently in clinical development.
Sanofi’s decision to sell comes after Regeneron’s stock surged 57% in the past six months. When Sanofi first purchased shares of the Tarrytown, New York-based drugmaker in 2003, the stock traded below $20, compared with a closing price of $569.91 last Friday.
Sanofi slipped as much as 1.3% in Paris on Tuesday, while Regeneron was off 4.7% in U.S. premarket trading. Besides cancer and gene therapy technologies, targets for deals may include immunology assets, according to analysts at Bank of America Corp. Switzerland’s Vifor Pharma AG could attract interest from Sanofi, Mirabaud analysts said.
Both Sanofi and Regeneron have positioned themselves as front-runners in the race to develop therapies and vaccines to battle the coronavirus. Sanofi has received funding from the US government to accelerate research and development and scale-up production capabilities for its high-profile vaccine candidates.
Sanofi is also working with Regeneron to evaluate how Kevzara, a rheumatoid arthritis drug, could help very sick COVID-19 patients in respiratory distress. Initial trial results have suggested the drug may help only the most critically ill patients. The companies are moving forward with a big trial focused on the most serious COVID-19 cases, with results expected in June.
In December, Sanofi and Regeneron announced their intent to restructure collaborations for two drugs, the cholesterol-buster Praluent and the arthritis medicine Kevzara. Hudson also said at the time that Sanofi could raise funds by selling its stake in Regeneron after a lock-up period expires at the end of 2020. The two companies agreed to waive that lock-up and amend the agreement.
“We should not be a passive investor in another company. For us, it’s a big opportunity to redeploy capital to do good science,” Hudson said.
“But nothing will change on our collaboration with Regeneron and we’ll be in partnership for many, many years to come.”
The deal could revive speculation that Sanofi may buy back L’Oreal SA’s 9.4% stake in the drug company. That, in turn, raises the possibility that L’Oreal would buy back a 23% stake that Nestle SA holds in the French cosmetics maker.