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4-Traders Homepage  >  Equities  >  London Stock Exchange  >  Shire PLC    SHP   JE00B2QKY057

SHIRE PLC (SHP)

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Pharma M&A Surge Spurred By Necessity And Opportunity

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04/27/2012 | 04:40pm CEST

By Sten Stovall

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The sudden willingness of European drug companies to launch hostile takeover bids -- underscored by numerous bids this month -- underlines the depth of the sector's problems and its need to find new products, while also tapping into emerging markets for growth.

It also highlights the advanced stage of many biotech pipelines which give M&A propositions more certainty, at least in theory, analysts say.

"The asset values of many biotech companies have become more visible and therefore look more secure, so a pharmaceutical company can look at those late-stage assets and say, 'Okay, I can put a value on that'", Panmure analyst Savvas Neophytou said.

In the past, drug companies wanting exposure to cutting-edge therapies had to take nearly blind bets on what a prospective medicine's asset value was just to get involved in a particular hot technology.

"Now, because a lot of biotechs have late-stage assets, prospective buyers are able to be a little bit more specific and more secure in the valuation that they are willing to attribute," Neophytou said.

As a result, companies like GlaxoSmithKline PLC (GSK) and AstraZeneca PLC (AZN) of the U.K. have stepped up their drive to acquire smaller biotechnology companies with promising new drugs to improve their pipelines of high-priced patented medicines.

Confidence can also be enhanced when companies have a good understanding of what target companies can offer, as is the case with Glaxo, which has made a $2.6 billion hostile bid for long-time business partner Human Genome Sciences Inc. (HGSI), although its $13 a share offer was rejected by the U.S. firm as inadequate.

"We are the compelling owner for this business [HGSI] as we have the rights to and control of the company's three main assets including the only one so far launched, Benlysta [for lupus]," Glaxo Chief Executive Andrew Witty said. "We believe this is the right time to maximize value for both sets of shareholders."

The urgency do deals varies from company to company.

Some drug makers, like AstraZeneca, have huge holes to fill in their product pipelines caused by patent expiries on their top-selling medicines and lackluster innovation records.

AstraZeneca joined the fray Monday by announcing it will buy U.S.-based Ardea Biosciences (>> Ardea Biosciences, Inc.) for $1.26 billion, a deal that will expand the troubled British drug maker's thin pipeline of new medicines. Ardea's clinically most advanced candidate medicine, lesinurad, is currently in late-stage trials as a pill for treating the buildup of uric acid in patients with gout. Filings for market authorization in the U.S. and Europe are planned in the first half of 2014. AstraZeneca said it also plans to develop and commercialize lesinurad in China and Japan.

The lure of emerging markets and promises of strong growth there for medicines is also acting as an M&A catalyst, as underscored this week by U.S. biotech company Amgen's deal to buy Turkey's Mustafa Nevzat Pharmaceuticals, a maker of injectable generic drugs, for around $700 million.

The explosive growth projected for generic versions of branded drugs that have or will come off patent protection is another key driver for acquisitions and lay behind Wednesday's transaction whereby Watson Pharmaceuticals Inc. (WPI) agreed to buy Swiss rival Actavis in a widely expected deal valued at $5.9 billion.

The deal elevates the U.S.-based group to No. 3 in the global rankings of generic drug makers.

Angus Russell, Chief Executive of Shire PLC (>> Shire Plc.), a specialist in hyperactivity and rare genetic diseases and Britain's third-largest pharmaceutical company, said small, targeted acquisitions are a sign of the times and a strategy his company has long practiced.

"Others started the other way around. Many of the pharmaceutical companies started producing everything in-house out of their own R&D organizations and over time they've failed to produce enough that way. So the industry is now coalescing around a 50-50 model of half on your own and half bought in. There are some things we'll do for ourselves but we need to be constantly on the lookout for new technologies."

The never-ending search for cutting-edge science is only going to intensify, as benefits from gene sequencing lead to a new era of personalized medicine, yielding new approaches to treating cancers and other serious diseases.

That "Holy Grail" lies behind Roche's failed $6.8 billion bid for the San Diego-based maker of DNA decoding machines Illumina (>> Illumina, Inc.). But Roche has said there are other fish in the sea, and that it's determined to find a suitable acquisition around which to build its diagnostics platform for use in developing targeted medicines.

Application of this science promises to generate a new world of medicines.

Investors may look back at today as a watershed of change -- and value -- for the pharmaceuticals sector.

"Targeted therapies are just around the corner," said Panmure's Neophytou.

"A lot of pharmaceutical companies are not reflecting much of the underlying value contained in their pipelines but that's on the cusp of changing.

"And if we look at the pharmaceutical sector in ten years time people will look back at today and say, "well, that was obviously the wrong way to look at it, because we weren't valuing pipelines."

-By Sten Stovall, Dow Jones Newswires; +44 207 842 9292; sten.stovall@dowjones.com

Stocks mentioned in the article : Shire Plc., Illumina, Inc., Ardea Biosciences, Inc.
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Financials ($)
Sales 2016 11 042 M
EBIT 2016 3 836 M
Net income 2016 1 471 M
Debt 2016 19 896 M
Yield 2016 0,43%
P/E ratio 2016 29,00
P/E ratio 2017 16,03
EV / Sales 2016 7,20x
EV / Sales 2017 4,87x
Capitalization 59 603 M
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Average target price 80,4 $
Spread / Average Target 21%
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Flemming Ornskov Chief Executive Officer & Executive Director
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Philip J. Vickers Global Head-Research & Development
David R. Ginsburg Independent Non-Executive Director
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