By Alex Gavrish, Etalon Investment Research; author of “Wall Street Back To Basics

Shire

Shire hires takeover adviser

On June 16th, 2014, Reuters reported that drugmaker Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) has hired investment bank Citigroup Inc (NYSE:C) to help defend itself against takeover bids. Company expects to be approached by potential bidders in light of a recent wave of deals in the healthcare sector. For example, according to media reports Shire was approached by Allergan, Inc. (NYSE:AGN) few months before Allergan itself became subject of a takeover bid by Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX). Shire might be an attractive target for US firms as it is domiciled in Ireland and enjoys low corporate tax rate.

ViroPharma acquisition

During January 2014, Shire completed aquisition of Viropharma Inc (NASDAQ:VPHM) for approximately $3.8 billion. The acquisition added CINRYZE to Shire’s portfolio of currently marketed products. CINRYZE is a leading brand for the prophylactic treatment of Hereditary Angioedema (“HAE”) in adolescents and adults. ViroPharma will bring Shire two additional marketed products and other pipeline assets. According to guidance provided by ViroPharma’s management at the time of acquisition, sales in FY 2014 are projected to be $584 millon and EBITDA $166 million. Shire also expects to achieve annual cost synergies of approximately $150 million by 2015. Based on these estimates, Shire paid an EV/EBITDA multiple of approximately x12 in the transaction.

Company profile

Shire plc is a leading specialty biopharmaceutical company that focuses on developing and marketing innovative specialty medicines that address significant unmet patient needs. The company has grown through acquisitions, completing a series of major transactions that have brought therapeutic, geographic and pipeline growth and diversification. Shire has four commercial unitsin the following specialist therapeutic areas: Rare Diseases, Neuroscience, Gastrointestinal (GI) and Internal Medicine.

Current valuation

Based on a recent share price, Shire had maket capitalization of $36.3 billion and enterprise value of $37.7 billion. Company is currently valued at an estimated EV/EBITDA multiple of x15 (FY 2014 Q1 annualized EBITDA). During first quarter of 2014, Shire generated $246 million in cash flow from operations and $231 million in free cash flow. On June 18th, 2014, Bloomberg reported that according to some analysts Allergan might make a takeover bid for Shire in the near future in order to defend itself against takeover by Valeant. Possible surprise in the form of takeover, reasonable valuation, and attractive growth prospects make Shire an interesting candidate for long-term investor.