Easier to Move the Needle When You Think Small: Shire Buys ViroPharma

It appears that PropThink wasn’t the only firm to notice that ViroPharma’s (VPHM) third quarter results signaled the start of some very promising trends.  On Monday, Shire Pharmaceuticals (SHPG) announced it would buy VPHM for $4.2 billion. The buyout nets PropThink readers who followed us into VPHM late last year a 100% return.

With the acquisition of VPHM, Shire adds to its already important rare-disease portfolio, which currently accounts for 30% of sales. The VPHM acquisition will raise the percentage of Shire’s sales from its rare disease portfolio to 40% of total.

In our November 6 report, we noted that ViroPharma is putting Vancocin in the past and focusing its efforts on building sales for Cinryze and advancing the pipeline. In the third quarter, sales of Cinryze, which prevents a hereditary form of tissue swelling called angioedema (HAE), rose nearly 25% on a year-to-year basis on increased awareness and diagnoses of HAE, as well as an increase in market share. The company noted that a number of new Cinryze patients switched to long-term treatment with Cinryze from products that are only designed to treat acute attacks of HAE, like SHPG’s Firazyr.

Shire noted several advantages from the acquisition including:

  • Immediate accretion to Shire’s Non GAAP EPS
  • A more diversified earnings growth profile
  • Anticipated cost synergies of $150 million by 2015
  • Return on invested capital (ROIC) above Shire’s weighted average cost of capital.

Shire will acquire all outstanding shares of VPHM for $50 per share in cash, for a total consideration of approximately $4.2 billion, a 27% premium to VPHM’s closing share price on Friday, November 8, 2013.

Shire’s CEO, Flemming Ornskov, has been open about his plans to expand Shire’s presence in the rare disease market. Orphan drugs attract fewer competing products, often made by smaller companies, and offers the likelihood of attractive margins and often long-term (chronic) treatment regimens. While a focus on rare diseases may not be enough to move the needle of a $60 billion company such as Pfizer (PFE), it can be game-changing for a smaller player like Shire.

In connection with VPHM, PropThink has taken a long position.