Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) announced today that it would purchase ViroPharma Inc (NASDAQ:VPHM) for around $4.2 billion. The deal will allow Shire to rely less on its strong selling Vyvanse pill used to treat attention deficit hyperactivity disorder.
Shire’s bid for ViroPharma
Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP)’s bid of $50 per share represents a 27% premium on Viropharma Inc (NASDAQ:VPHM)’s closing price on Friday.
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
With the purchase, Shire will pick up Cinryze, a pill used in the treatment of angioedema which will complement Shire’s Firazyr which is used to treat the same condition. With the acquisition, Shire has now picked up three companies under the stewardship of Flemming Ornskov, who became CEO in April. The deal for ViroPharma Inc (NASDAQ:VPHM) is the largest of its acquisitions, beating out the $3.6 billion that the company paid for BioChem Pharma Inc. in 2001.
“This is the big deal the market had been waiting for,” Savvas Neophytou, an analyst at Panmure Gordon & Co., said in a note to investors today. The purchase is “clearly at an eye-watering multiple but strategically very sound.”
According to Bloomberg, Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) is paying 58 times earnings before interest, tax, depreciation and amortization.
Shire’s stock rise
Following the announcement shire rose 5.1% to an all-time high of 2,939 pence. For the year the company’s share price is now up 54%. Not surprisingly, ViroPharma Inc (NASDAQ:VPHM)’s stock also experienced large gains rising 26%.
“With Cinryze, we will add another growth engine to our portfolio,” Ornskov said in a conference call, adding that the acquisition will help create a rare-disease business with $2 billion in annual sales. “It’s a deal that fits with our strategy of increased focus on high-growth specialty markets, particularly rare diseases.”
Orphan drugs becoming important
Drugs that treat rare diseases are known as “orphan drugs” and they are becoming more important to larger pharmaceutical firms in recent years as they look to avoid falling sales as patents for their larger drugs expire.
Recently, Shire has been slimming down its employees in order to focus on its rare disease drugs.
“They’re basically saying, ‘Our research and development does not give us enough return. Let’s shrink it and grow by acquisitions,’” Guillaume van Renterghem, an analyst at UBS AG (NYSE:UBS) in London, said in an interview with Bloomberg. He added that today’s acquisition, once finished, will represent nearly five times Shire’s research and development budget.