By Paul Sandle
LONDON (Reuters) – London-listed Shire is buying ViroPharma for $ 4.2 billion, attracted by a pipeline of potentially lucrative drugs to treat rare diseases, a growing trend as drugs companies lose revenues from patent expires on conventional 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 said on Monday it had agreed to pay $ 50 a share in cash for U.S. biopharmaceutical ViroPharma, a 27 percent premium on Friday’s closing price. Shares in the group spiked nearly 30 percent in September on bid speculation.
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 crystallized in 2011 when Sanofi paid more than $ 20 billion to buy Genzyme.
Rare diseases are already an important part of Shire’s portfolio, including drugs to treat Gaucher’s disease and Fabry disease, and it said buying Exton, Pennsylvania-based ViroPharma would create a $ 2 billion a year unit, accounting for 40 percent of Shire’s total revenue.
Shire Chief Executive Flemming Ornskov said the deal was “entirely consistent with our clear strategic objective of strengthening our rare disease portfolio”.
Shares in Shire, already at record highs in recent weeks after the group raised 2013 earnings guidance, reached a new peak of 2,899 pence. They were trading up 3.6 percent at 2,898 pence by 0951 GMT. [ID:nL5N0IE2MB]
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.
Ornskov declined to comment on competition to clinch a 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 for hereditary angioedema, a rare genetic disease characterized 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.
Shire, whose biggest selling drug is hyperactivity blockbuster Vyvanse, has largely grown by buying up promising companies and licensing drugs rather than building its portfolio from first-stage research.
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.”
ViroPharma is forecast to have annual revenues this year of $ 445-465 million, up from $ 428 million in 2012. The bulk of revenues this year, some $ 395-405 million, 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 programs targeted at other rare disease conditions.
Lazard and Morgan Stanley advised Shire on the deal and Goldman Sachs worked for ViroPharma.
(Additional reporting by Ben Hirschler; Editing by Will Waterman)
- Mergers, Acquisitions & Takeovers
- rare diseases