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Sanofi is about to have $11.7 billion burning a hole in its pocket. What might it buy?

Days after the French drug giant announced that it would sell its stake in the biotech company Regeneron Pharmaceuticals (ticker: REGN), speculation is growing on whether the company might pursue an acquisition or two in the coming months.

Sanofi (SNY) has not said what it plans to do with the proceeds of its sale of 21.6 million shares of Regeneron. In a statement, the company said it would use the proceeds to further execute on its strategy to drive innovation and growth.

Still, Sanofis new CEO, Paul Hudson, said in December that the company would consider future deals: We are open-minded and interested, he said at the time. In January, Sanofi completed the acquisition of the cancer drug developer Synthorx for $2.5 billion.

Sanofi appears to be taking advantage of the strong liquidity in biotech equity markets, and in REGN in particular, to accelerate the implementation of their strategy, and we do not expect them to sit on their new capital, SVB Leerink analyst Geoffrey Porges wrote in a note on Tuesday.

Porges suggested that the company could be looking for a gene therapy company to acquire.

We certainly expect a M&A deal of decent size ($5bn) in the coming months for Sanofi, he wrote.

In another note Tuesday, Citi Research analyst Mohit Bansal wrote that the gene therapy company BioMarin Pharmaceutical (BMRN) was an unlikely target for Sanofi. Bansal said that BioMarin does not fit with previous comments from Sanofi about their acquisition interests, noting that the company has indicated a preference toward smaller companies, and away from the crowded hemophilia gene therapy race in which BioMarin is a lead contender. BioMarins market value is $18.8 billion.

Gene therapy companies with market value closer to the $5 billion range include bluebird bio (BLUE), which has a market value of $3.6 billion, and Ultragenyx Pharmaceutical (RARE), which has a market value of $4.4 billion.

Sanofi had some $10.3 billion in cash and cash equivalents on hand as of the end of 2019. The company did not immediately respond to a request for comment.

Shares of Sanofi are down 6.8% so far this year, and on Wednesday morning were trading down 1%. The stock trades at 13.4 times earnings projected over the next 12 months, close to its five-year average of 13.5 times earnings.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

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What Sanofi Might Buy With Its Regeneron Windfall - Barron's

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