Shire (SHPG) has caught a lot of attention this past week. First, on April 16, Shire announced the sale of its oncology business to Servier for $2.4 billion. The reason for this sale was to allow Shire to focus on its core business, which is rare diseases, and bolster Servier’s ambitions to become a global competitor within oncology.
Then, on April 17, Shire secured a label expansion of Vonvendi for perioperative management of bleeding in adults with Von Willebrand disease. Vonvendi is the first and only recombinant treatment for adults living with Von Willebrand disease, and this label expansion allows doctors to help control heightened risk of bleeding by administering Vonvendi before, during or after surgery. Von Willebrand disease is the most common inherited bleeding disorder and affects approximately 1% of the U.S. population.
Later, on April 19, Allergan (AGN, Financial) announced it was considering buying Shire, only to stop talks “hours later.” This was arguably a surprise considering that the buyout price for Shire would be greater than $65 billion while Allergan currently carries $44.5 billion of liabilities and only $6.4 billion in cash, cash equivalents and marketable securities. Assuming the buyout had gone through, this would mean that Allergan would likely assume more than $90 billion to 100 billion in debt, which is incredibly high considering the market cap of Allergan is only $51 billon and it recently reported -$4.1 billion in income.
Allergan is arguably in a tough spot considering its falling share price and falling revenues. Its No. 2 bestselling drug Restasis (to treat dry-eyes) could also go generic within a year. In fact, in order to try to protect Restasis' revenues, Allergan had tried to extend its patent life by transferring the patents to the Saint Regis Mohawk Tribe of upstate New York to dodge the scrutiny of the U.S. Patent & Trademark Office. A federal court judge struck down this move and Allergan is currently seeking an appeal.
At the same time the Allergan buyout talks were underway, Shire was also in the middle of complicated series of buyout talks with Takeda Pharmaceuticals (TSE:4502). In total, three buyout proposals have occurred between Takeda and Shire. With bids in the $50 billion range and a market cap of only $38 billion, it is no surprise that Takeda is searching for loans to finance the possible acquisition in addition to issuing shares, a move that can be highly dilutive to the company as a whole.
However, if successful, such an acquisition would be able to transform Takeda from a drug manufacturer not well-known outside of Japan, to a global pharmaceutical player. This acquisition would also be the largest-ever overseas acquisition of a Japanese company. Such talks have also caused a significant amount of volatility and uncertainty. As of April 20th, Shire stock is up 10% over three weeks, while Allergan and Takeda are both down 2% and 7%, respectively.
If a deal is to be reached between Shire and Takeda, it will likely occur before April 25, a deadline imposed by British regulators unless an extension can be made. What is for certain is that there is strong interest in acquiring Shire among very different companies and with very different business objectives. It is also apparent that any acquisition would likely include substantial debt and risk, making shareholders weary about what the future would hold if a deal can be struck. Nevertheless, the value of Shire should not be overlooked or underestimated, which is why Shire is such an attractive buyout target.
Revenues of Shire have increased considerably over the years, and the company has a very strong pipeline with seven drug candidate programs in phase 1; 10 in phase 2; and 15 in phase 3. Shire has also consistently beaten earnings expectations and has grown considerably with the help of various acquisitions and partnerships, including acquisition of Baxalta in June 2016, which made Shire a global leader in treating rare diseases.
Disclosure: I do not have positions in the stocks mentioned.
