Shire strategy fails to keep predators at bay; The UK-listed, Dublin-based speciality drugmaker has long been touted as an attractive prize – especially for US rivals drawn to Ireland’s low corporate tax rate

June 2, 2014 10:11 pm
Shire strategy fails to keep predators at bay
By Andrew Ward, Arash Massoudi and Neil Hume
When bankers talk about the deal frenzy gripping the pharmaceuticals sector, it rarely takes long for Shire’s name to come up as a potential target.
The UK-listed, Dublin-based speciality drugmaker has long been touted as an attractive prize – especially for US rivals drawn to Ireland’s low corporate tax rate.
However, Flemming Ornskov, chief executive, is doing his best to cast Shire as predator rather than prey.
Less than six months after completing its $4.2bn takeover of ViroPharma and two weeks after a $260m deal to buy Lumena, Shire is looking to complete a hat trick of acquisitions in the US rare disease sector.
Its next target looks likely to be NPS Pharmaceuticals, developer of a new drug for a condition called short bowel syndrome.
Shire has put in place a $5bn credit facility arranged by Citigroup that it will use to finance an acquisition of the New Jersey-based company, according to people familiar with the situation.
Shares in Nasdaq-listed NPS are up more than 30 per cent to $35.16 since FT Alphaville first reported Shire’s interest in the company last week.
Shire has been working on an offer that would see it pay around $45-a-share for NPS and possibly more, the people said. Shire and Citi declined to comment.
In a statement on Monday, NPS said it had not had “any communication with Shire or any representative of Shire” concerning a takeover.
Any deal would accelerate efforts by Mr Ornskov to build Shire’s presence in rare diseases – a fast-growing segment of the pharmaceuticals industry focused on treatments for conditions affecting fewer than one in 2,000 people.
These drugs serve a tiny market but command high prices because they are often the only effective therapy for a condition.
The move into rare diseases is reducing Shire’s dependence on its Vyvanse drug for attention deficit hyperactivity disorder, or ADHD, which accounts for more than a quarter of company sales.
Shire’s association with ADHD has often been cited as a deterrent to a takeover by a big pharmaceutical group because of the controversy surrounding alleged over-medication of children in the US.
However, analysts say any stigma surrounding Vyvanse is offset by the strength of its performance – sales of the drug rose 19 per cent to $1.23bn last year – and the growing appeal of Shire’s rare disease portfolio.
This combination of a strong, growing business and a low-tax Irish domicile, makes Shire “the prettiest girl at the dance”, according to one healthcare-focused fund manager.
Allergan, the maker of Botox, has been linked with a takeover approach in recent months as it attempts to fend off an unsolicited approach by Valeant, the Canadian drugmaker.
But any bidder would have to pay a hefty price after a 60 per cent rise in Shire’s share price in the past year to £34.74, valuing the company at just over £20bn.
Tyler Tebbs, analyst at Olivetree Securities, says: “In the last 18 months, Shire has built a stable of high-margin, aggressive treatments to some nasty illnesses and that is why it enjoys the favour that it does among investors.”
Deal speculation surrounding Shire has heightened since the appointment of Susan Kilsby, the former Credit Suisse investment banker as Shire chairman in January.
Another person likely to play a key role in any negotiations with NPS is Colin Broom, a British physician who sits on the US company’s board and was chief scientific officer of Viropharma before it was bought by Shire.
Traders said shareholders were likely to be supportive of a deal with NPS and dismissed the idea that it would be viewed as a defensive move by Shire against a potential takeover.
Even at a price of $45 a share, the acquisition of NPS would be unlikely to deter a predator and could even make Shire a more attractive takeover target, they said.
“NPS’s lead product, Gattex, for short bowel syndrome fits across both Shire’s rare disease and gastrointestinal platforms,” said analysts at Bank of America Merrill Lynch, adding a deal would be earnings enhancing in 2016.
“Shire has a search and develop not R&D strategy, and on initial view [NPS] would seem to be an attractive fit,” said Riccardo Lowi, analyst at Credit Suisse.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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