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Sanofi beats Novo Nordisk with €3.9bn Ablynx deal

Biotech blockbuster acquisition is second in a week and latest in sector M&A boom

France’s Sanofi will pay €3.9bn to acquire Belgian biotech group Ablynx in a second blockbuster deal in a week that underscores the pressure on pharma groups to replenish their drug pipelines.

Sanofi has agreed to pay more than double Ablynx’s share price from earlier this month when Danish rival Novo Nordisk made a first public takeover approach. In response, Novo Nordisk said that it was dropping its interest, saying that it would not pursue “unrealistic premiums”.

The transaction lifts the total amount of mergers and acquisitions in the pharmaceutical sector to almost $40bn in January, marking the biggest month for healthcare dealmaking in over a decade as companies are being forced to pay high premiums for businesses.

So far this year, buyers of healthcare companies have agreed to pay an average premium of 79 per cent, according to data provider Dealogic — well above the 42 per cent typically paid in 2017.

Shares in Ablynx soared 19.5 per cent in Brussels trading to €44.36, just shy of the €45 per share offer from Sanofi. The bid is a 48 per cent premium to the €30.50 per share offer from Novo Nordisk on January 8, which Ablynx had resisted, and more than double the company’s undisturbed price before that offer was unveiled.

Sanofi has been under pressure to find a deal to plug the revenue gap left by declining sales of its diabetes medicine Lantus, which lost patent protection and is facing competition from cheaper rivals. It missed out on two big acquisitions in the past two years: cancer treatment specialist Medivation in 2016 and Swiss biotech group Actelion last year.

“The Ablynx acquisition makes strategic sense and fits nicely into Sanofi's portfolio,” said Alistair Campbell, an analyst at Berenberg. “However, from a valuation point of view, Sanofi has paid a lot for Ablynx. Their hand was forced a bit by Novo's earlier bid for it."

The acquisition follows Sanofi’s deal for Bioverativ, a US biotech group focused on haemophilia treatments. The French drugmaker announced last week that it would buy Bioverativ for $11.6bn, a 64 per cent premium to its undisturbed price.

On a call with reporters on Monday, Sanofi chief executive Olivier Brandicourt said that “the shareholder value may be longer term” for the Ablynx deal compared with Bioverativ, but pointed to the advantages of owning its most advanced treatment, caplacizumab.

This treats an unusual disorder in which blood clots form in small vessels through the body. It is set for European approval later this year and to be launched in the US in 2019, according to a note from Jefferies, which described it as “a potential game-changer.”

After Novo Nordick’s bid became public in January, Sanofi began to conduct due diligence on Ablynx. Sanofi decided to approach the company, which it had worked with already for several years, when it saw that an acquisition could make strategic sense, according to a person who worked on the deal.

Novo said on Monday that it would not make a revised proposal for Ablynx. When asked if Novo believed Sanofi had overpaid for the asset, Jesper Brandgaard, the Danish drugmaker's chief financial officer, told the Financial Times he would “not speculate on the value of Ablynx for Sanofi”.

He added: “I just note it is a substantial premium of more than 60 per cent on the cash offer we made on December 22 and about a 50 per cent premium on the total offer we made and we have not made any proposal to Ablynx's board of directors since then.”

Mr Brandgaard denied that losing out on Ablynx represented a setback for Novo. He said: “This was not feasible for us to do at what we felt was a meaningful value. I don't think our shareholders should suffer from us pursuing unrealistic premiums and hence we will be looking for other assets."

Morgan Stanley and Lazard are advising Sanofi on the transaction. JPMorgan is advising Ablynx.

(Reuters) - Danish drugmaker Novo Nordisk (NOVOb.CO) said on Tuesday the chief executive of Canadian biotech company Novelion Therapeutics (NVLN.O) had left its board with immediate effect due to “a potential conflict of interest”.

The departure of Mary Szela follows her firm’s decision to work on non-alcoholic steatohepatitis (NASH), or fatty liver, a Novo company spokeswoman said. NASH is a growing focus for the Danish group as it seeks to diversify beyond diabetes.

The progressive liver disease is increasingly common in nations with fatty diets and is linked to rising rates of obesity and diabetes.

As such, it is an attractive adjacent market opportunity for Novo, which faces pricing pressure in its core insulin business. Novo hopes to use its next-generation GLP-1 drug semaglutide to fight diabetes, obesity and NASH.

Diversifying into disease areas connected to diabetes, like obesity and NASH, is a strategic goal for Novo’s new CEO Lars Fruergaard Jorgensen, who has said he would consider acquisitions in the “low single-digit billions of dollars”.

The market for NASH drugs is forecast to eventually be worth more than $20 billion in annual sales as populations with fatty diets increasingly fall victim to a condition with no approved treatment.

The once-obscure material is valued for its ability to withstand the heat generated by lithium-ion batteries

Booming demand for cellphone and electric-vehicle batteries has created a once-unthinkable metals-industry player: the pure cobalt company.

Cobalt prices have risen 270% on the London Metal Exchange to about $80,000 a metric ton since early 2016, creating an opening for companies to specialize in a metal once seen as a waste product. Cobalt is now valued for its ability to withstand the intense heat generated by lithium-ion batteries.

Exhibit A is Cobalt 27 Capital Corp., which currently does nothing but buy and hold cobalt. It keeps 3,000 tons of cobalt distributed in warehouses in Antwerp, Baltimore and Rotterdam—one of the world’s largest stockpiles of the metal.

Cobalt 27’s shares have quadrupled since it went public in Toronto in June, giving it a market value of about $370 million.

“We are entirely, solely focused on cobalt,” says Anthony Milewski, chief executive of Cobalt 27. The number in the name derives from the metal’s atomic number.

Cobalt 27 is among a vanguard of companies trying to take advantage of a surge in cobalt demand largely fueled by auto makers trying to lock down supplies of an essential ingredient for their coming electric-vehicle fleets. London commodities researcher CRU Group predicts that by 2030, annual demand for cobalt for lithium-ion batteries will be triple the roughly 100,000 metric tons a year produced globally today.

Some of the companies are established mining giants like Glencore PLC, which has a dominant position in the Democratic Republic of Congo—where over 60% of the world’s cobalt lies. Others are newcomers, like First Cobalt Corp., a Toronto-listed cobalt-exploration company whose shares are up more than 90% in the past 12 months.

First Cobalt is exploring a 110-year-old silver-mining site in Canada that also produced cobalt. Since cobalt wasn’t in high demand when the silver was mined, much of it was either left in the ground or discarded into waste piles.

Now, with prices skyrocketing, there is a big incentive to go after the left-behind metal.

People inspected a drum during a Jan. 22 tour of a warehouse in Rotterdam where Cobalt 27 stores the metal.

People inspected a drum during a Jan. 22 tour of a warehouse in Rotterdam where Cobalt 27 stores the metal. Photo: Herman van Heusden for The Wall Street Journal

“It’s not that there’s no more cobalt out there, it’s that we’ve never been paid [enough] to go find cobalt,” says First Cobalt Chief Executive Trent Mell.

Glencore Chief Executive Ivan Glasenberg says he believes there will ultimately be a shortage of cobalt as electric vehicles become more widely adopted unless a major new supply is discovered. The world’s biggest car makers are plowing cash into EVs. Ford Motor Co. recently said it plans to spend $11 billion on EVs by 2022. General Motors Co., Toyota Motor Co. and Volkswagen AG, among others, are aggressively ramping up their spending on EVs.

“Our cobalt trader is very much in demand right now,” Mr. Glasenberg told reporters in December.

To be sure, electric vehicles currently make up a tiny portion of global automobile sales, accounting for less than 2% of overall volume. But the pace of EV sales is expected to accelerate in the coming years, reaching 10% of global sales in 2025 and 30% in 2030, according to CRU.

Other risks include miners finding big new supplies of cobalt, or that developers create a battery for electric vehicles that doesn’t require the metal or requires much less of it. As cobalt prices surge, car and battery makers have a heightened incentive to do just that.

“The battery manufacturer will use less and less cobalt in each unit because they have to” as prices rise, said John Meyer, an analyst at London commodities brokerage SP Angel.

Bankers visited Cobalt 27’s warehouse in Rotterdam last week, digging their hands into barrels full of small chips full of cobalt. They were conducting due diligence ahead of debt financing for the company, which says it is in talks to purchase more cobalt from miners around the world.

One of the firm’s selling points: None of the cobalt it owns comes from Congo, where independent mining, often including children, has skyrocketed in recent years as demand for the metal has surged.

Mr. Milewski, 37 years old, says the idea of building a cobalt company first came to him about three years ago in the midst of the collapse of a decadelong China-fueled “supercycle” in commodities. He and a small team of other traders at the firm were searching for the next trend that would drive demand for natural resources.

Cobalt quickly caught his eye. Unlike lithium, another commodity seeing sharp demand for batteries, cobalt is very scarce.

Mr. Milewski says the company’s stockpile is a steppingstone toward other deals, since he can use it as collateral for loans for other cobalt investments. He also thinks Cobalt 27 could become an acquisition target for a car maker or battery company that covets the metal.

“Ultimately someone is going to have interest in that position,” he says.

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