Max Nisen

Louis Pasteur's Vaccine Successor Bets on mRNA

Sanofi is one of the world's largest vaccine makers, with billions in reliable annual sales coming from the business. With its $3.2 billion purchase of Translate Bio Inc., announced Tuesday, the company is coopting a possible disruptor.

Translate focuses on messenger RNA, the promising new approach behind the wildly successful Covid vaccines from Pfizer Inc.-BioNTech SE and Moderna Inc. Sanofi first partnered with Translate to explore mRNA vaccines in 2018, then expanded the partnership last year to work on a Covid vaccine. Now it’s making a bigger bet on the biotech startup. It's yet another validation of the potential of mRNA vaccines, and even though uncertainty remains, this deal helps Sanofi prepare for the future at a reasonable price.

Sanofi's current vaccine roster focuses on fragments of viruses or bacteria, or dead or weakened viruses, to build an immune response. These are tried-and-true techniques. Indeed, its Sanofi Pasteur vaccine division traces its name to Louis Pasteur, who pioneered research on weakened virus vaccines in the 19th century. But though these categories of shots are proven and easy to store, growing large quantities of a virus or its components takes time.

Messenger RNA vaccines have long been touted as a possible upgrade. They use the body's messaging system to prompt a vaccinated person's cells to create the material that prompts a protective response. The recipient's cells do the hard part, so manufacturing is easier. In addition, changing mRNA instructions is easier than growing new virus batches, making the technology potentially more adaptable.

This was all theoretical until Covid. Leading mRNA vaccines were quickly developed, proving a speed benefit. But the bigger surprise was that they proved exceptionally effective. This development took the technology from potentially exciting to possibly transformative.

For a big vaccine player like Sanofi, the manufacturing and research advantages are enticing. Vaccines are a comparatively low-margin business and cost savings matter. It will take time for those benefits to emerge; developing new shots outside of a pandemic takes years. But it's wise to hedge against the possibility that its current methods become less competitive. Sanofi could see extra benefit if mRNA vaccines outperform in other diseases or the technology can be used as a treatment, though both are riskier bets. Translate is working on treatments for lung diseases and a liver condition.

The price boosts the potential return. Sanofi is paying a 56% premium to the 60-day weighted average price of a stock that's appreciated through the pandemic, which is substantial. But it's reasonable compared to previous deals and the higher valuations now enjoyed by other mRNA players.

Sanofi already planned to spend nearly $500 million a year on mRNA vaccine development. This buyout replaces and accelerates some of that spending. It also secures more immediate expertise and full ownership of partnered programs, helping Sanofi become a significant mRNA player faster.

The deal could protect Sanofi’s vaccine franchise and pay off if the technology delivers on a fraction of its promise. And unlike at rivals where massive success is baked in to inflated share prices, there’s room for significant upside.