independent

Wednesday 16 April 2014

Shire to pay $4.2bn for rare disease firm ViroPharma

A researcher works at a laboratory in a file photo. REUTERS/Sebastian Derungs
A researcher works at a laboratory in a file photo. REUTERS/Sebastian Derungs

LONDON-listed Shire is buying ViroPharma for $4.2bn, its biggest deal yet to strengthen its portfolio of lucrative drugs to treat rare diseases, which are attracting increasing attention from drugs companies as patents expire on their older treatments.

Several companies including France's Sanofi, according to reports, were interested in ViroPharma, which makes Cinryze for the treatment of immune disorder hereditary angioedema.

Treatments for such rare disorders can command huge prices, running into hundreds of thousands of dollars a year per patient.

Shire, which latched onto the rare disease drugs trend years before bigger rivals, said on Monday it had agreed to pay $50 a share in cash for ViroPharma, a 27pc premium on Friday's closing price. Shares in the U.S. biopharmaceutical spiked nearly 30pc in September on bid speculation.

Analysts at Morgan Stanley said that for Shire the deal "cements strategy", and it could bolster earnings per share by 5-10pc in 2014-2016.

Though some investors have raised concerns about the sustainability of the business model for rare disease drugs, healthcare providers have so far generally accepted the high costs, given the transforming effects of the medicines and the very small number of patients who need them.

The value of biological drugs to treat rare disease was crystallised in 2011 when Sanofi paid more than $20bn to buy Genzyme.

Rare diseases are already a central plank of Shire's strategy, and acquisitions have helped it build up a portfolio of drugs including treatments for Gaucher's and Fabry diseases.

It said buying ViroPharma, based in Exton, Pennsylvania, would take its rare diseases unit to $2bn a year in revenues, or 40pc of Shire's total, up from about 30pc today.

Shire Chief Executive Flemming Ornskov said the deal was "entirely consistent with our clear strategic objective of strengthening our rare disease portfolio".

Shire, which also makes blockbuster drug Vyvanse to treat hyperactivity, has largely grown by buying up promising companies and licensing drugs rather than building its portfolio from first-stage research.

It said more acquisitions in rare diseases could follow. Ornskov said mergers and acquisition and in-licensing was in Shire's DNA: "Our focus on this does not stop as a result of today's transaction."

Shares in Shire, already at record highs in recent weeks after the group raised 2013 earnings guidance, reached a new peak of 2,939 pence. They were trading up 3.8pc at 2,903 pence by lunch time.

Analyst Savvas Neophytou at Panmure Gordon, who has a "buy" rating on Shire, said the deal was "clearly at an eye-watering multiple" of 7.6 times enterprise value over revenues, but it was strategically very sound.

"Given the company's growth characteristics, a premium valuation is warranted in our view," he said.

NO PRESSURE

Ornskov declined to comment on competition to clinch the deal, but he said he was under no pressure and the price agreed was good for both sets of shareholders.

He said Cinryze, ViroPharma's leading product, would complement Shire's Firazyr on-demand treatment for acute attacks of hereditary angioedema, a rare genetic disease characterised by sudden attacks of swelling of the skin or the mucous membranes, which can be disfiguring, painful and life-threatening in some circumstances.

"Hereditary angioedema is a devastating rare disease that affects about 18,000 patients in the U.S. and EU," he told reporters on Monday.

"We will be able to better serve them by long-term prophylactic prevention with Cinryze and on-demand prevention of acute attacks with Firazyr." Firazyr is one of Shire's fastest growing drugs.

ViroPharma is forecast to have annual revenues this year of $445-465m, up from $428m in 2012. The bulk of revenues this year, some $395-405m, is expected to come from Cinryze sales in the United States. Shire said it hoped to grow international sales of the medicine.

Ornskov said ViroPharma also had a number of other biological drugs, and a portfolio of development programmes targeted at other rare disease conditions.

He said the group expected to make annual synergy savings of $150m a year by 2015. Shire also says it will be able to cut ViroPharma's tax bill from the mid-high thirties percent to the high-teens rate that Dublin-based Shire pays.

Lazard and Morgan Stanley advised Shire on the deal, and Goldman Sachs worked for ViroPharma.

 

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