Coverage: Shire to buy NPS

It’s the year’s first big deal merger, and it’s in the pharmaceutical space. Shire is planning to buy NPS in order to continue growing.

The Financial Times had this story by Arash Massoudi:

Shire, Britain’s third-largest drugmaker by market value, has made its biggest ever acquisition with a $5.2bn deal for US biotechnology company NPS Pharmaceuticals, as the FTSE 100 group looks to build its pipeline of standalone specialty drugs.

The all-cash deal comes just three months after Shire’s proposed $54bn sale to larger US rival AbbVie collapsed as a consequence of US government efforts to limit the tax advantages of takeovers in which the acquirer uses the transaction to redomicile its tax base outside the US.

Shire, which has its headquarters in Dublin, will pay $46 a share for New Jersey-based NPS, a 51 per cent premium to its share price on December 16 when news of Shire’s interest resurfaced. The Financial Times first reported that Shire was considering a takeover of NPS in May, but those plans were sidelined after it emerged that AbbVie was pursuing Shire and were reignited when that deal failed in October.

Manuel Baigorri, Simeon Bennett and Caroline Chen wrote for Bloomberg that NPS would let Shire expand its treatments for rare diseases:

Adding Bedminster, New Jersey-based NPS will enable Shire to expand in rare diseases such as gastrointestinal and endocrine disorders. The deal comes before NPS learns whether its Natpara medicine to treat hypoparathyroidism wins approval from the U.S. Food and Drug Administration. A decision on the drug, which would be the first marketed treatment for the potentially fatal disorder, is scheduled to be made by Jan. 24.

NPS has “a rare-disease focus and in addition it builds on our strong expertise in gastrointestinal diseases,” Shire Chief Executive Officer Flemming Ornskov said in a telephone interview. “So it’s a strategic fit, growth enhancing, and we can afford it. It ticks almost all the boxes.”

Writing for The New York Times, David Gelles said that Shire is trying to recover from big missteps last year:

This deal would allow Shire to move past one of last year’s biggest corporate missteps. In July, Shire agreed to sell itself to AbbVie, the big American drug maker, for $54 billion. The deal was the largest of the year at the time and came after months of tense negotiations.

But AbbVie, like many other American companies last year, wanted to undertake an inversion transaction, in which a company reincorporates in a country with lower taxes. Acquiring Shire would have allowed AbbVie to reincorporate in the small British tax haven of Jersey. When the deal was announced, AbbVie played down its interest in an inversion and emphasized the strategic merits of combining the companies.

For Susan Kilsby, the recently appointed chairwoman of Shire’s board, the sale of the company for a generous premium was a quick success, and for Flemming Ornskov, Shire’s chief executive, it was a vindication of his work in building up the company’s portfolio of drugs.

Months later, however, when the Treasury Department announced new rules targeting companies trying to strike inversions, AbbVie retrenched. Rather than go through with the acquisition of Shire without the tax benefits, it decided to walk away. As a result, it paid Shire $1.6 billion in cash.

Though Shire emerged from the ordeal somewhat richer, it was unclear what its next move would be. Some analysts speculated it remained a takeover target for another big global drug maker.

The Wall Street Journal story by Jonathan D. Rockoff, Shayndi Raice and Dana Mattioli that Shire planned to continue looking for deals:

The company has been aiming to use the breakup fee to restart its shift from drugs for common conditions like attention-deficit disorder toward drugs for rarer diseases. Dr. Ornskov said combining NPS’s two drugs with Shire’s existing sales force could eventually yield blockbuster sales for each of the NPS therapies.

NPS, of Bedminster, N.J., specializes in rare-disease drugs. Its Gattex injections treat a potentially deadly bowel disorder that diminishes the body’s ability to absorb nutrients and fluids. Gattex, which costs $376,200 a year, had $67.9 million in sales during the first nine months of 2014. NPS earned $157.4 million in total revenue during the period.

The market for rare-disease treatments is considered attractive, despite a small number of patients, because companies can command prices in the hundreds of thousands of dollars—as is the case with Gattex. Sales of so-called specialty drugs are forecast to reach $162 billion in 2018, up from $108 billion in 2013 and $81 billion in 2008, according to Credit Suisse.

Despite the cost, insurers are usually willing to pay for the therapies because they have few members who need them and the drugs can be lifesaving. Also making the market attractive is a lack of competition for the drugs.

This looks like the beginning of a good year for deals. Shire is spending this kind of cash and openly looking for other companies to buy, a strong sign for those working on mergers. This should be welcome news for Wall Street bankers and lawyers. With the global economy in flux, it could be a good year for those looking to consolidate.