Shire: Switching Attention to Europe and RoW

“I’m very confident that this year we’ll consummate some more deals,” said Shire CEO Angus Russell at a lunch announcing the group’s full-year results yesterday. And why shouldn’t he be? The company generated $1.2 billion cash last year (while driving a 27% increase in product sales and a 36% step-up in non-GAAP earnings per share).

The deals have started, with today’s announcement that Shire is to acquire worldwide rights (ex-US, Canada and--of course--Barbados) to Equasym IR and Equasym XL for treating Attention Deficit Hyperactivity Disorder. This hasn’t exactly made a dent in the $1.2 billion—Shire will pay the seller, UCB, just €55 million in cash, which is just over three times the products’ 2008 net sales, plus undisclosed milestones if pre-defined sales targets are met.

So it’s a tiny deal (New River it ain't), but a tidy deal: UCB divests drugs (and 20 sales personnel) in markets that aren’t core to it, furthering its focus on "bringing new innovative medicines to people living with severe neurological conditions,” according to Troy Cox, President CNS operations for UCB. (And indeed, the Equasym drugs –which are immediate release and extended release methylphenidate hydrochloride—aren’t innovative, and ADHD doesn’t really classify as a severe neurological condition. That said, UCB’s hanging on to the US market, where the drug is sold as Metadate CD and competes with the likes of Ritalin and Concerta.)

But for Shire, the products fit right in. The group is already a leader in the US ADHD market, with sales of almost $1.5 billion last year. They came from lead drug Adderall XR (a mix of amphetamine salts, likely to face generics from April 1 this year), newly-launched Vyvanse, to which Shire is busily converting Adderall XR patients—pricing it at half the cost of A-XR helps!--plus capturing a growing adult ADHD market given Vyvanse’s 13-hour plus duration of action, and Daytrana, a methylphenidate patch. Equasym fills out the armamentarium.

But most importantly, it provides a bridge into Europe, where Shire doesn’t currently sell any ADHD drugs (the Adderalls were never approved in the EU, where the disorder was only much more recently recognized as a medical condition). This deal helps the company prepare for Vyvanse’s European launch, planned for 2011. And although the products are currently sold in European markets, buying worldwide ex-US rights provides Shire with a cheap, established treatment that may be more suited to some developing markets.

By 2015, Shire hopes to have reduced its dependence on the US and top five European markets—which accounted for 70% and 25% of total 2008 sales, respectively—and to have quadrupled its share-of-sales from RoW markets to 25%. It isn’t alone in understanding where future industry growth lies. The move into BRIC countries will be spearheaded by Shire’s Human Genetic Therapies franchise, the new star of Shire’s show, expected to account for 30% of net sales by 2015, up from 18% today. This makes sense, given that HGT products—such as, for instance, enzyme replacement therapy Elaprase for the rare Hunter Syndrome) are high margin and require little infrastructure.

But for all the value in reducing its dependence on ADHD and on Adderall XR (a dependence long perceived by analysts at Shire’s Achilles heel), the company’s not going to ignore its core as it diversifies geographically—especially as many of its non-HGT products, as cheaper, non-biologicals, may better suit BRIC economies. Phosphate-binder Fosrenol, whose growth is shrinking in the US given competition from Genzyme, will be a close second candidate in the international push. Its sales grew 55% ex-US last year. The company also plans international launches this year for ulcerative colitis drug Mezavant.

“How to develop in those markets [like BRIC countries] that want cheap medicines....when we sell expensive treatments for rare diseases...is a [business development] challenge we’ll be addressing this year,” Russell told The IN VIVO Blog yesterday. Indeed it is.

Right on Schedule

Over the weekend Shire announced approval of Vyvanse, its next-generation ADHD drug licensed from soon-to-be-acquired partner New River.

Once it is launched in the second quarter this year, Vyvanse should quickly inherit ADHD market share from Shire's current leader Adderall XR, for which a soft landing has already been orchestrated via a variety of authorized generics deals. But despite the new drug's approval, despite the $2.6 billion Shire paid for the 50% of Vyvanse it didn't already own, and despite all the talk of potential resistance to abuse, the FDA has recommended to the DEA that Vyvanse join the majority of ADHD drugs as a Schedule II controlled substance.

(editorial aside: is the DEA logo intentionally trippy?)

Shire isn't letting that get them down, and the decision--surely a disappointment to Shire--has been expected for some time. Quoth Shire CEO Matt Emmens in a statement announcing the approval: “The label we received with the approval letter includes information about the extended duration of effect and abuse-related drug liking characteristics of VYVANSE which illustrate benefits that differentiate this compound from other ADHD medicines."
But the authorities' equivocation here won't give Shire much wiggle-room on price and message.

Payday for RJ Kirk & New River

Once again, ally turns to buy.

Eager to land 100% of the two companies' profits from the soon-to-be-approved ADHD drug Vyvanse (formerly NRP-104), Shire Pharmaceuticals bought New River Pharmaceuticals today for $2.6 billion in cash. The broad smile of New River chairman, CEO and founder RJ Kirk, who owns 50.2% of the biotech, can now be seen from space.

Buying out the junior partner on a potential blockbuster is hardly unusual these days--see Lilly/Icos, Genentech/Tanox, and Amgen/Abgenix: partners can be expensive, as we've pointed out before. At $64 per share the deal is a solid one for Kirk and his fellow New River shareholders, though the acquisition premium hardly reaches the heights of previous deals in the space: 10% over New River's closing price on Friday, February 16th and 14% greater than the shares' average over the past four weeks.

Perhaps given New River's backstory, and the company's subsequent growth over the past two years, the size of the premium matters less than the company's spectacular takeout valuation. In the eight years from foundation to IPO, New River was largely funded by Kirk and other managers, acquaintances and friends, and toughed out a tricky IPO market in 2004 before finally raising public funds at $8 per share in a Dutch auction run by WR Hambrecht. Not bad.

Shire consolidates the value of Vyvanse, a probable blockbuster expected to launch in the second quarter of 2007 after FDA and DEA review. The drug has received two FDA approvable letters so far, the latter in December 2006.

Notably Shire is raising $2.3 billion in debt to pay for the transaction (along with a placing of new ordinary shares that should bring in around $800 million) leaving its roughly $470 million cash for additional in-licensing or acquisition deals.

New River's product candidates beyond Vyvanse, NRP290 (in phase II in acute pain) and NRP409 (preclinical, primary hypothyroidism) are non-core to Shire and likely to be out-licensed, though Matt Emmens, Shire's CEO, said today that no decisions have been made.