A sign sits in front of Shire’s manufacturing facility in Lexington, Massachusetts. Shire, based in Dublin, said on Sunday it will pay $46 a share in cash for NPS, a 9.8% premium to the closing price on January 9.
Bloomberg/London
Shire Plc will continue buying companies after forging its biggest takeover, a $5.2bn purchase of NPS Pharmaceuticals to add treatments for rare diseases.
“Given the amount of cash we generate and our ability to take on further debt, this does not put any restrictions of significance on our strategy to become a leader in the biotech area,” chief executive officer Flemming Ornskov said in a telephone interview on Sunday. “Obviously that will require further M&A.”
Shire is seeking to boost growth after its proposed $52bn sale to AbbVie collapsed. The purchase is Ornskov’s seventh since his appointment as CEO was announced in October 2012, including the $4.2bn acquisition of ViroPharma to add a treatment for a rare swelling disease.
Shire, based in Dublin, said on Sunday it will pay $46 a share in cash for NPS, a 9.8% premium to the closing price on January 9. The offer is 50% more than Bedminster, New Jersey-based NPS’s share price on December 16, before news broke of Shire’s interest. Both companies’ boards have approved the transaction.
“They can take much more, they have a lot of scope,” Guillaume van Renterghem, an analyst at UBS in Zurich, said yesterday by telephone. “From a commercial point of view they can integrate a lot” because the company’s sales representatives each sell only one or two products to doctors.
Even so, the price for NPS was high and Shire may be better off buying products rather than entire companies to make integration easier, van Renterghem said.
NPS gives Shire Gattex, an approved treatment for short bowel syndrome, and Natpara, a drug for a rare and potentially fatal hormonal abnormality called hypoparathyroidism that is awaiting approval from the US Food and Drug Administration. The regulator is scheduled to make a decision by January 24.
“It ticks almost all the boxes,” Ornskov said in the interview. “It’s a strategic fit, growth enhancing, and we can afford it.”
Shire fell 0.2% to £47.34 as of 1:40pm in London, giving the company a market value of £27.9bn ($42bn). The stock has climbed about 27% since October 16, when it plunged 28% in two days after AbbVie said it was reconsidering its offer. NPS rose to $45.43 in early US trading.
It was worth the risk to move ahead of the FDA’s Natpara decision, Ornskov said. Shire’s due diligence included looking at the correspondence with the FDA and, by moving early, Shire can also help with the drug’s introduction, he said.
NPS “fits right into what Shire wants to do and where they have infrastructure,” Stefan Quenneville, an analyst at Morningstar, said in an interview.
Gattex will garner more than $300mn in sales in 2016, according to analysts’ estimates compiled by Bloomberg, complementing Shire’s existing stable of drugs for gastrointestinal diseases.
In biotechnology takeovers since the beginning of 2014, about one-third of the buyers paid a premium of 25% to 50%, according to data compiled by Bloomberg.
“It’s a full price for two commercially unproven assets,” Quenneville said.
Ornskov had said in November that the company was revisiting some of the deals it was considering before AbbVie’s abandoned takeover. Shire was considering a bid for NPS, Bloomberg News reported on December 17, citing people familiar with the matter. Shire is based for tax purposes in Dublin, and Ornskov and other top executives work in Lexington, Massachusetts.
Acquisitions work best when they’re in a treatment area “you know very well,” he said, which for Shire includes rare diseases, gastrointestinal diseases and opthalmology, he said.
Natpara treats a rare disorder in which a diminished amount of parathyroid hormone causes calcium deficiencies, causing muscle pain, tingling, an inability to focus, and anxiety or depression. In extreme cases, it can cause seizures.
Shire’s pipeline of experimental drugs will add $3bn to revenue by 2020, and acquisitions may further boost sales, the company said on December 10. The NPS offer comes after Merck & Co’s $8.4bn agreement to buy Cubist Pharmaceuticals, which had also been a potential target for Shire.
Shire said it will fund the NPS deal through its cash resources as well as existing and new bank facilities. The company received a breakup fee from AbbVie of $1.64bn, giving it extra cash for takeovers. Before today, the shares had risen 63% in London in 12 months.
The purchase should add to non-GAAP earnings starting in 2016, Shire said. The company reported adjusted net income of $2.93 per American depositary share for the third quarter in October, beating analyst’s estimates, while sales rose 32% to $1.6bn. The drug maker then raised its profit forecast a third time.
NPS reported an adjusted loss of 2 cents a share in the third quarter as sales climbed to $57.2mn.
Shire was advised by Citigroup and Lazard, as well as Davis Polk & Wardwell and Slaughter & May. NPS worked with Goldman Sachs Group, Leerink Partners, and Skadden, Arps, Slate, Meagher & Flom.
