Sanofi plans to acquire American vaccine company Dynavax for $2.2 billion, strengthening its adult vaccine portfolio

French pharmaceutical giant Sanofi has agreed to acquire American vaccine company Dynavax for approximately $2.2 billion, aiming to expand its vaccine business, which is currently centered around flu vaccines. Meanwhile, the company's investigational drug for treating multiple sclerosis unexpectedly faced a review rejection from the U.S. Food and Drug Administration (FDA).

On December 24, Bloomberg reported that Sanofi will acquire the Emeryville, California-based company for $15.50 per share in cash. Just minutes before the acquisition announcement, Sanofi had announced that the FDA unexpectedly rejected its experimental drug tolebrutinib for treating multiple sclerosis.

Sanofi's U.S. stock rose nearly 38% in pre-market trading. So far this year, Sanofi's French stock has fallen about 12%. To address the potential revenue decline from its core product Dupixent due to patent expiration, CEO Paul Hudson is actively investing in research and development and seeking acquisition deals to explore new revenue sources.

Vaccine Business Strategic Expansion

By acquiring Dynavax, Sanofi gains access to an already marketed hepatitis B vaccine in the U.S., as well as an experimental shingles vaccine currently undergoing early human trials. The company stated that this will enhance its market position in the adult immunization field. Sanofi's vaccine and immunology product portfolio covers various diseases, including flu, respiratory syncytial virus, meningitis, and whooping cough.

The commercial potential of the shingles vaccine has been validated by the market, with its competitor GlaxoSmithKline achieving significant revenue increases from this product. Additionally, research has shown that this vaccine may be associated with a reduced incidence of dementia.

In addition to the aforementioned vaccines, Dynavax's pipeline of experimental vaccines also includes candidates for Lyme disease and plague. The company has a history dating back to the 1990s (operating under different names in its early years) and went public in 2004.

Global Vaccine Market Facing Challenges

Despite the challenges facing the global vaccine market, Sanofi has decided to proceed with this acquisition. The company's flu vaccine sales declined last quarter, competition in Europe has intensified, and vaccination rates in the U.S. have dropped. Robert F. Kennedy Jr., the Secretary of Health and Human Services, is disrupting long-standing vaccine guidelines, although many changes are primarily focused on childhood vaccines.

Sanofi's Chief Financial Officer Francois-Xavier Roger stated in the latest earnings call that global vaccination rates are declining. He remarked:

"This may be related to vaccine fatigue among people following the COVID-19 pandemic. Additionally, there may be some negative sentiments towards vaccines overall."

Drug Rejection by FDA Deals a Blow to Expectations

The U.S. Food and Drug Administration (FDA) has refused to approve the market launch of tofacitinib, which is a significant blow to Sanofi. Bloomberg Industry Research had previously predicted that the drug's peak annual sales could reach $17 billion. The research and development process has been challenging, with previous trials revealing risks of liver damage, and this rejection undoubtedly worsens the outlook.

Currently, Sanofi is actively seeking new sources of revenue to address the potential revenue decline crisis its star drug Dupixent may face due to patent expiration in the future.

Jefferies analyst Michael Leuchten pointed out in a report that considering Sanofi's substantial investment in the development of tofacitinib, this setback may raise market concerns about the management's judgment and credibility. Sanofi's R&D head Houman Ashrafian stated in a statement that the company is "deeply disappointed" by the FDA's decision and described this outcome as "a significant and far-reaching shift compared to the feedback previously provided by the FDA."

JP Morgan analyst Richard Vosser further analyzed that "the likelihood of tofacitinib being approved for market launch in the U.S. has now significantly decreased." However, he also noted that given the many setbacks during the drug's development process, the market "has largely already priced in its potential value."