Shire’s Best Takeover Defense Is Deal Offense: Real M&A
With drugmakers pursuing deals like never before, Shire Plc (SHP)’s best defense against becoming a target may be to go on the hunt itself.
Reports last week that Shire is weighing a bid for NPS Pharmaceuticals Inc. (NPSP) have pushed that company’s shares up 20 percent. While NPS said it hasn’t held talks with Shire about a deal, Piper Jaffray Cos. said Shire needs to make purchases if it wants to keep from being gobbled up amid the record $139 billion in pharmaceutical deals that were announced so far this quarter. Dublin-based Shire has been speculated as a takeover candidate because of the $35 billion company’s Irish tax base and focus on fast-growing rare-disease treatments.
“If they want to stay independent, then going on a bit of a shopping spree makes it harder for another entity to go after them,” David Amsellem, a New York-based analyst at Piper Jaffray said in a phone interview. “They will be approached. They probably have been approached.”
NPS, a $3.5 billion maker of medicines for short-bowel syndrome and hypoparathyroidism, would be a logical acquisition candidate for Shire because it would bolster the company’s portfolio of rare-disease drugs, according to Wedbush Inc. Other possible targets for Shire, which has increased its dealmaking the last two years, may include muscular dystrophy drug developers Prosensa Holding NV (RNA) and Sarepta Therapeutics Inc. (SRPT), said Cenkos Securities Plc.
Jessica Mann, a representative for Shire, said the company doesn’t comment on M&A speculation.
The drugmaker has made at least six acquisitions since Chief Executive Officer Flemming Ornskov’s appointment was announced in October 2012. The biggest of those was the purchase of ViroPharma Inc., valued by Shire at about $4.2 billion, which added the treatment Cinryze for a rare swelling disease.
Shire was still among European companies that event-driven traders said may receive takeover interest this year, according to a Bloomberg survey in January. In April, Reuters reported that Allergan Inc. was preparing to approach Shire as it tried to fight off an unsolicited bid it got from Valeant Pharmaceuticals International Inc.
Fueled by speculation of a bid from potential suitors including Allergan, the shares have climbed 23 percent this year, closing yesterday at a record of 3,514 pence a share.
“I think Allergan is certainly kicking the tires if they haven’t approached them already,” Amsellem of Piper Jaffray said. “Put it this way, we’re in an environment where anything really is possible.”
A representative for Irvine, California-based Allergan declined to comment.
Shire shares climbed 0.7 percent today. NPS stock rose 1.1 percent to $33.27, and Sarepta rallied 4.2 percent to $34.06.
There have been $139 billion of pharmaceutical deals announced or reported so far this quarter. That’s more than in any other period since at least 2002, according to data compiled by Bloomberg.
Given the surge in industry consolidation and the jump in Shire’s shares, it’s in the company’s interest to act, said Navid Malik of Cenkos Securities.
“Strike while the iron is hot,” Malik said in a phone interview. “Don’t wait for an approach or multiple approaches and increase the level of vulnerability.”
As Shire seeks to lessen its dependence on its best-selling Vyvanse pill for attention deficit hyperactivity disorder, the company has been building a stable of drugs for rare diseases and expanding into ophthalmology treatments.
Any acquisition will likely be in one of those two areas, and that’s why a deal for orphan drug maker NPS could make sense, according to Jason Gerberry, a Boston-based analyst at Leerink Partners LLC.
NPS won U.S. approval in 2012 for Gattex, a medicine that helps wean patients with short-bowel syndrome off time-consuming intravenous nutrition. The company is also likely to get approval for Natpara, a treatment for hypoparathyroidism, this year, said David Nierengarten, a San Francisco-based analyst at Wedbush.
While it would be surprising if the company was purchased before Natpara was approved, an acquirer confident in the drug’s prospects might be able to get the company at a cheaper price if it bid now, Nierengarten said.
Shire makes sense as a suitor “because they have a rare-disease franchise emphasis,” Nierengarten said in a phone interview. “It wouldn’t surprise me if someone else or another company makes an offer for NPSP at some point in the future also.”
Other possible buyers for NPS include Sanofi, (SAN) which acquired rare-disease drugmaker Genzyme Corp. for about $20 billion in 2011, or AstraZeneca Plc (AZN), Kimberly Lee, a managing director at Janney Montgomery Scott LLC, said in a phone interview.
Pfizer Inc. ended an effort to buy AstraZeneca last month after the London-based company rejected its last bid. The deal could be revived in time.
Representatives for AstraZeneca and Paris-based Sanofi said their companies don’t comment on speculation when asked whether they would be interested in NPS. A representative for Bedminster, New Jersey-based NPS said the company had no additional comment about a possible sale.
While Gerberry of Leerink said investors may have questions on the revenue opportunity for Gattex, Lee forecast the drug may have a global market potential of about $700 million. At Lee’s estimated takeover valuation of about $45 a share, a deal for NPS would cost Shire almost $5 billion.
Shire also could consider buying Prosensa or Sarepta Therapeutics to expand in therapies for Duchenne muscular dystrophy, a rare genetic disorder, said Malik of Cenkos. Prosensa has a market capitalization of $379 million, while Sarepta Therapeutics is valued at $1.3 billion.
Shire discontinued development of muscular dystrophy drug HGT4510 in April 2013 and returned the rights to the asset to Acceleron Pharma Inc.
“That’s an area where maybe there are opportunities in the market, with some Duchenne muscular dystrophy businesses out there that seem to be driving a lot of success in their model,” Malik said.
Representatives for Cambridge, Massachusetts-based Sarepta and Leiden, Netherlands-based Prosensa declined to comment.
In ophthalmology, Shire is among companies weighing a bid for ThromboGenics NV, the $870 million maker of Jetrea eye medicine, people familiar with the matter said in April. ThromboGenics said in February it hired Morgan Stanley to explore strategic alternatives.
Shire doesn’t necessarily need more deals to boost its earnings or growth, said David Steinberg, a San Francisco-based managing director at Jefferies Group LLC. Analysts project an almost 18 percent jump in revenue this year to about $5.8 billion.
Not all of Shire’s deals have worked out either. The company spent $750 million on a 2011 acquisition of Advanced BioHealing Inc. and less than a year later, the U.S. Department of Justice told Shire it was investigating the unit’s sales practices. Shire ended up replacing most of the product’s sales force and taking a $199 million charge last year.
Even so, the company isn’t likely to sit on the dealmaking sidelines and it’s wise for it to be aggressive in going after attractive assets, said Ken Cacciatore, a New York-based analyst at Cowen Group Inc.
While NPS has been speculated as a potential target recently, “if it’s not this one, it will probably be another one,” Michael Leuchten, an analyst at Barclays Plc in London, said in a phone interview. “You just have to accept with this company that part of the story is inorganic, no two ways about it.”
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