Shire’s NPS Purchase Highlights Its Orphan Drug Strategy Post-AbbVie Bid

The Dublin-based drugmaker’s buy of rare disease specialist NPS Pharma signals it is back on the offensive after AbbVie’s aborted bid, but observers say the deal’s sound logic may make Shire a takeover target again.

Shire PLC has put itself back in the M&A spotlight by launching the year’s first major Pharma acquisition and the group’s biggest ever with an agreed $5.2 billion purchase of NPS Pharmaceuticals Inc.. Analysts say the deal makes solid sense – so much so that it might also make the Irish orphan drugs specialist a takeover target once more, after AbbVie Inc.’s marriage attempt failed in October of last year.

Shire’s planned purchase of New Jersey-based NPS Pharma, announced Jan. 11, aims to boost the suitor’s rapidly expanding rare disease drug portfolio (Also see "Shire’s NPS Buy Ahead Of FDA Natpara Vote Underscores Deal’s Logic" - Pink Sheet, 12 Jan, 2015.). The pact’s logic relies on two key assets, Gattex (teduglutide [rDNA origin]) and Natpara (rhPTH [1-84]). Both drugs target markets offering sales of more than $1 billion, but face commercial challenges. [See Deal]

Gattex is an injectable glucagon-like peptide-2 (GLP2) analog that increases remaining bowel absorption and reduces the need for parenteral nutrition in short bowel syndrome. There are between 12,000 to 14,000 eligible patients in the U.S. and the EU combined. Gattex generated some $68 million over the nine months to end-September 2014.

NPS's other drug Natpara is a recombinant human parathyroid hormone that increases calcium levels while reducing the need for high dosage pills containing calcium and vitamin D supplementation in treating hypoparathyroidism. It has a Prescription Drug User Fee Act (PDUFA) action date of Jan. 24.The drug is currently also under review in Europe.

Deal Heralds Return Of Independent Shire

Flemming Ornskov, Shire's chief executive, said the acquisition of NPS was a declaration “of our intent to be a strong, thriving independent company" after AbbVie reluctantly walked away last Autumn from an agreed deal to acquire Shire (Also see "AbbVie CEO Pleads For U.S. Tax Reform In Eulogy For Shire Merger" - Pink Sheet, 21 Oct, 2014.). Shire continues to transform itself from being based on three business platforms and corresponding R&D operations to a single integrated entity focused almost exclusively on rare diseases.

Ornskov told analysts on Jan. 11 that “with our global strength and expertise in both rare diseases and gastrointestinal disorders, Shire is uniquely positioned to drive the continued success of Gattex and, if approved, commercialize NPS Pharma’s pipeline compound Natpara.”

John Lyon, a professor at Warwick Business School in England said the acquisition “makes good sense for Shire, and no doubt it will continue to mop up further niche acquisitions in these areas. But that will make Shire a more attractive vehicle as a takeover target.” Lyon in reaction to the deal added: “AbbVie has already failed in one bid, but this acquisition could spark renewed interest from U.S. companies and other major pharma firms [in Shire].”

Shire Takes Risk On Natpara

He and other observers expressed surprise Shire did not wait for the FDA’s decision on Natpara. “No doubt, Shire will have conducted extensive due diligence and concluded that any risks of delayed final approval will be manageable, if indeed this drug did not pass its final hurdle on this attempt," Lyon noted.

Chloe Thornton, corporate analyst for London-based consulting firm GlobalData, said that while Natpara showed promising results in Phase III clinical studies, the accompanying regulatory risk remains a threat to the value that Shire can accrue from the deal. “However, if approval is granted, Shire will be well-positioned to employ its U.S. resources to maximize Natpara’s uptake,” she said. GlobalData estimates peak sales for Natpara of around $760 million in 2024, contributing total revenues of $5.7 billion over the next 15 years, and have calculated a net present value (NPV) of $2.1 billion for the drug.

CEO Ornskov said the agreed deal will go ahead even if Natpara doesn’t get FDA approval. But he stressed that Shire is confident it will get the go-ahead, which would make Natpara the first marketed treatment for the potentially fatal disease. “We of course looked very carefully at Natpara. There are no guarantees but we feel as confident as we can be.” It was worth the risk to move ahead of the FDA’s Natpara decision.

Shire has a track record of making calculated bets, notably the 2005 $1.6 billion acquisition of Transkaryotic Therapies Inc. before approval of Elaprase (idursulfase) for Hunter syndrome, a transaction that gave it a beachhead in the rare diseases sector and led to the launch of its Human Genetic Therapies division.

Analysts at Morgan Stanley in a note said that “we expect Natpara to be approved, but we recognize some risks given a positive but balanced advisory panel vote of 8 versus 5 and a possible restricted label.”

Shire’s decision to buy NPS ahead of FDA's PDUFA decision date with no material event clauses in the merger documents may have been needed for Shire to clinch the deal, as there are probably other interested parties in the wings. Asked about that on an analysts call on Jan. 11, Ornskov replied that “it’s better to get in early” while an acquisition target is preparing a key launch. The agreement does include a 3% breakup fee. Most analysts said they don’t expect a competing offer for NPS to emerge.

NPS Pharma President and Chief Executive Officer Francois Nader declined on the analysts call to say whether NPS had attracted alternative overtures. But he did outline the deal’s importance for NPS Pharma shareholders and his rationale for accepting Shire’s offer of $46 per share cash, representing a 51% premium to the Dec. 16 2014 price of $30.47, before initial M&A speculation moved it higher.

“Since we turned NPS around in 2006 we have created significant value for our shareholders,” Nader said. “Since March of 2008 our stock price has increased from less than $4 per share to our announced deal price of $46 per share. Our market cap has increased from less than $108 million to over $5 billion.” He said the combined group “will create significant value for patients by leveraging their joint resources.” The deal, to be funded by Shire using a combination of debt and existing cash, is expected to close in the first quarter.

NPS Pharma currently has several partnerships. For example, Amgen Inc. markets Sensipar (cinacalcet) in the U.S. and as Mimpara in the EU; Janssen Pharmaceutical Cos. markets Nucynta (tapentadol) in the U.S.; and Kyowa Hakko Kirin Co. Ltd. markets cinacalcet as Regpara in Japan, Hong Kong, Malaysia, Macau, Singapore, and Taiwan.

NPS Pharma also has an ongoing Phase 2a study evaluating its lead pipeline candidate NPSP795 for the treatment of adults with autosomal dominant hypocalcemia. A small molecule antagonist of the calcium-sensing receptor, NPSP795 is believed to play a role in the distribution of PTH [1-84] throughout the body by antagonizing calcium-sensing receptors on the parathyroid gland to trigger a release of the body's stores of PTH [1-84]. There is no approved therapy for this ultra-rare, life-long genetic disorder that affects both adults and children. “We are currently running a proof of concept study and expect top-line results around the end of the first quarter or early second quarter [of 2015[,” Nader said.

Analysts say Shire's GI and orphan drug expertise should significantly boost sales of NPS's key drugs.

“Gattex's current approximately $100 million run-rate for SBS [short bowel syndrome] reflects promotion by a 25 rep sales force, which should be significantly enhanced by Shire's 100 rep GI focused team,” analysts at Jefferies said, adding: “Shire's commercial infrastructure in Europe and strong capabilities in patient access and services could further boost Gattex's trajectory and enhance peak sales potential.”

More M&A is expected from Shire, a likelihood confirmed by its CEO.

“We want to be a leading biotech with a significant focus on rare diseases and supplement in the areas where we have significant specialty expertise [and] I’m sure there are other opportunities that will come our way,” Ornskov said. He declined to give clues on size or timing of future potential buys.

Jefferies believes Shire has substantial fire power, helped in great part by an estimated $8 billion to $9 billion debt capacity. “Our U.S. Spec Pharma team continues to believe a Salix Pharmaceuticals Ltd. combination is manageable and highly accretive, with a strong strategic rationale,” they added. Salix is a free agent after it and Cosmo Pharmaceuticals SPA walked away from their planned merger, announced on July 8, citing a “changed political environment” (Also see "Deal Watch: Tax Policy Changes Claiming Victims Already, As Salix/Cosmo Plans Abandoned" - Pink Sheet, 6 Oct, 2014.).