Only about a year after Bioverativ (NASDAQ:BIVV) was spun off from Biogen (NASDAQ:BIIB), Sanofi (NASDAQ:SNY) has swooped in and acquired it for $11.6 billion. That's arguably a rich valuation when you consider that Bioverativ IPO'd with a market cap below $5 billion. Will this deal end up being a win?

What's the story?

Bioverativ is a hemophilia-focused drug developer that was created early last year when Biogen reorganized itself to focus on central nervous diseases, including Alzheimer's disease.

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The company went public with two fast-growing, long-lasting hemophilia drugs already on the market: hemophilia A drug Eloctate and hemophilia B drug Alprolix. Both of these treatments use a process called Fc fusion to link recombinant factor VIII and factor IX, respectively, to a protein fragment in the body known as Fc. The process extends their half-life so that they remain in a person's blood longer, reducing the number of monthly infusions.

Eloctate reduced the number of infusions from three weekly infusions to once every three to five days, while Alprolix reduced the number of infusions from two or more per week, to once weekly or once every 10 days, depending on the patient.

Why Sanofi stepped in

The market for hemophilia treatment is big, and Sanofi thinks Bioverativ's products can somewhat offset declining demand now that Sanofi's multibillion-dollar diabetes drug, Lantus, has lost patent protection. Globally, there are about 151,000 hemophilia A patients and around 30,000 hemophilia B patients, and since hemophilia treatments can cost tens of thousands of dollars per year, the hemophilia market is worth $10 billion.

Bioverativ accounts for a small proportion of the hemophilia market, but sales have been growing rapidly. Eloctate and Alprolix revenue totaled $560 million in 2015, $847 million in 2016, and sales exited the third quarter of 2017 at an annualized $1.16 billion pace.

Although Bioverativ's drugs have been a commercial success, they face stiff competition from deeply embedded competitors, including Shire (NASDAQ: SHPG), which bought Baxalta for $32 billion in 2016, and Bayer (OTC:BAYR.Y).

In 2015, Shire launched a twice-weekly hemophilia A drug, Adyvonate, and in 2016, Bayer launched Kovaltry, a hemophilia A drug that can be taken two to three times weekly. Those new drugs have helped Shire and Bayer slow Bioverativ's advance, but they haven't stopped it. For example, Shire reported hematology sales of $916 million in the third quarter, but that represented year-over-year growth of only 4%. Meanwhile, Kovaltry sales clocked in at about 215 million euros in Q3 2017, down 29% year over year. For comparison, Bioverativ's third-quarter 2017 revenue grew 27% year over year.

Bioverativ's ability to deliver that kind of market-beating growth in the face of stiff competition is likely a big reason why Sanofi was willing to pay top dollar to acquire it.

What's next

In the short term, adding Bioverativ's hemophilia drugs to its portfolio will help Sanofi navigate choppy waters due to Lantus' patent expiration. However, it remains to be seen whether this deal is a long-term winner. The hemophilia drug market could quickly change if next-generation gene therapies being developed by Spark Therapeutics (NASDAQ:ONCE) and BioMarin (NASDAQ:BMRN) succeed. So far, it looks like they will. In December, Spark and BioMarin unveiled data for one-and-done gene therapies that effectively eliminate bleeding events and the need for prophylactic transfusions.

Granted, Bioverativ's developing its own gene therapy, but its research trails that of its competitors so it's got some catching up to do. If Bioverativ falls further behind its competitors in the gene therapy race, the long-term success or failure of this deal may ultimately hinge on Bioverativ's projects outside of hemophilia, including sickle cell disease, beta-thalassemia, and cold agglutinin disease. Since the stakes are high for Sanofi, investors will want to keep close tabs on those programs once this acquisition is complete.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.