Sanofi SNY announced that it has finalized its negotiations with private equity firm, Advent International to sell Zentiva, Sanofi’s generic business unit in Europe. The companies have signed a share purchase agreement worth $2.2 billion (1.9 billion euros).
With the signing of this share purchase agreement, the closure of the transaction is now subject to approval from relevant regulatory authorities. An approval is expected during the fourth quarter of 2018.
The sale of Zentiva is part of Sanofi’s plan to streamline its business as discussed in its 2020 strategic roadmap. However, the company will continue its generics business in other parts of the world.
Shares of Sanofi have lost 7.7% so far this year compared with the industry’s 6.2% decrease.
Sanofi, along with several other large pharma companies, is shifting its focus to high growth business like biotechnology and rare disease drugs. The pharma sector is facing pricing pressure from regulators as well as rising competition for many drugs since 2016. However, rare disease drugs command a higher price due to lower competition as well as rarity and severity of the diseases.
We expect Sanofi to use the proceeds to acquire biotechs to boost its pipeline. In fact, the company acquired Bioverativ and Ablynx earlier this year for a total cost of $16 billion, adding hemophilia treatment and rare bleeding disorder candidates to its pipeline.
Moreover, Sanofi strengthened its consumer healthcare by swapping its animal health business for Boehringer Ingelheim’s consumer healthcare business in early 2017.
We remind investors that other big pharma companies are also on the lookout for biotechs to boost their pipeline as part of reprioritization and consolidation of business. Novartis AG NVS and Celgene Corporation CELG are two other companies that announced acquisition deals this year. We expect a few others to follow suit. GlaxoSmithKline GSK streamlined its business by transferring its rare disease gene therapy portfolio to private biotech, Orchard Therapeutics.
Sanofi currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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