Shire’s Purchase of Advanced BioHealing for $750 Million Hits ‘Sweet Spot’
Stock Chart for Shire PLC (SHP)
Shire Plc (SHP), the Irish maker of treatments for attention-deficit disorder, said it agreed to buy closely held Advanced BioHealing Inc. for $750 million in cash, a day before the biotechnology company was to go public.
Advanced BioHealing’s lead product is Dermagraft, a bio- engineered skin substitute used to treat diabetic foot ulcers, Dublin-based Shire said yesterday in a statement. Advanced BioHealing planned an initial public offering today that would have valued the company at as much as $637.1 million, according to regulatory filings. It was offering 13.4 million shares priced from $14 to $16.
Shire had talked with Westport, Connecticut-based Advanced BioHealing about a potential acquisition since 2008, said Mike Cola, president of Shire’s specialty-pharmaceuticals business. The biotechnology company now will become the focal point of Shire’s new regenerative-medicine unit, Cola said. It will operate as a semi-autonomous division and its management team will stay in place.
“Advanced BioHealing will drive our ambition in regenerative medicine,” Cola said in a telephone interview. “This deal falls into a very sweet spot for Shire.”
Shire’s purchase values Advanced BioHealing at 5.1 times last year’s sales of $146.7 million. Acquirers paid a median three times sales for medical-products companies in deals of $500 million or more over the past five years, according to data compiled by Bloomberg.
“We see the deal as strategically sound, helping Shire potentially achieve its aspirational mid-term growth goals,” Peter Welford, an analyst with Jefferies International in London, wrote today in a note to clients. “However, given the multiple paid and uncertain peak potential, we anticipate some stock weakness.”
Shire shares gained 49 pence, or 2.6 percent, to close at 1,949 pence in London trading, giving the company a market value of 10.9 billion pounds ($17.7 billion).
Shire has been the subject of takeover speculation with Exane BNP Paribas, Kepler Capital Markets and Nomura Holdings Inc. (8604) each listing the company as among drugmakers likely to be acquired. The shares have climbed 25 percent this year, touching a record price of 1,987 pence May 13, buoyed by the takeover speculation and rising sales from the Replagal and Vpriv therapies for genetic disorders. Shire’s treatments for attention-deficit and hyperactivity disorder generated $1.2 billion in 2010.
“This might take any focus off Shire as a takeover target in the short term, but for those pharma companies looking to see what the next big thing in medicine is, this deal could make Shire even more attractive,” Navid Malik, an analyst at Matrix Corporate Capital LLP, said in a telephone interview.
“It’s going to offer any acquirer not just the ADHD or rare-disease franchises, but also offer them a regenerative medicine franchise, which is aimed at a high unmet medical need,” Malik said.
Cola said he has known Advanced BioHealing’s chief executive officer, Kevin Rakin, for years. Shire had been evaluating the management team’s performance and gauging the reception for Dermagraft among patients and physicians before moving forward, Cola said. He estimates the product has penetrated only about 5 percent of the market.
Dermagraft was previously marketed by Smith & Nephew Plc (SN/) until 2005 when the U.K. company stopped production of the therapy. Smith & Nephew sold rights to the product to Advanced BioHealing the following year.
Currently, standard practice for diabetic foot ulcers involves clearing out dead and infected tissue from the wound and keeping it clean in an effort to prevent the infection’s spread, Cola said. Shire estimates that 65 percent or more of sufferers receive a basic saline and gauze treatment.
“We’re talking about changing the practice of medicine” with Dermagraft, Cola said.
Shire said it would finance the acquisition with existing cash and expects the deal will have no effect on its 2011 forecast. Barclays Capital is Shire’s financial adviser. Bank of America Corp. acted as Advanced BioHealing’s financial adviser.
Matt Cabrey, a Shire spokesman, declined to estimate when the acquisition may close. He said Shire doesn’t anticipate any antitrust or other regulatory issues.
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