Shire is paying $5.9B for Dyax in a defensive rare disease deal

Shire CEO Flemming Ornskov

Shire ($SHPG) signed a deal to buy Dyax ($DYAX) for $5.9 billion, planning to snatch up a smaller competitor and fortify its rare disease business without taking its eyes off of acquisition target Baxalta ($BXLT).

With the transaction, expected to close next year, Shire is deepening its portfolio of treatments for the rare hereditary angioedema, or HAE, an inflammatory disease that results in bouts of severe swelling and affects about 1 in every 50,000 people. Dyax pulls in about $65 million a year from the on-the-market HAE treatment Kalbitor but has high expectations for DX-2930, a next-generation drug that has received the FDA's breakthrough therapy designation and could win approval by 2018.

And that's the big get for Shire, which believes the Phase III-ready DX-2930 could bring in peak sales of $2 billion if approved for both Type 1 and Type 2 HAE. To sweeten the deal for Dyax shareholders, Shire has offered a nontradable contingent value right that will pay out another $4 per share if the drug wins approval, adding another $646 million to the transaction.

The Dyax deal is something of a defensive move for Shire, whose own Cinryze and Firazyr are major figures on the HAE market alongside a treatment from Valeant Pharmaceuticals ($VRX). DX-2930, if it lives up to Shire's expectations, would most likely claim revenue from the company's approved drugs along the way, though the company touts it as a "strategic fit."

Despite its sizable price tag, the Dyax deal is unlikely to relieve the recent pressures on Shire's management, brought on by a string of pipeline setbacks and a lukewarm reception to the company's gambit to acquire Baxalta for $30 billion. Shire CEO Flemming Ornskov was quick to note that the company's latest multibillion-dollar check in no way derails its pursuit of Baxalta, which has steadfastly refused what its management calls a "low-ball" offer.

Shire has had a turbulent run of form since shaking off AbbVie's ($ABBV) $55 billion takeover attempt last year, struggling to follow through on Ornskov's 2014 promise to effectively double the drugmaker's sales to $10 billion by 2020. A few of the assets key to that vision of the future have since dropped out entirely, and one of the biggest, the eye drug lifitegrast, has been delayed by at least a year after getting rejected in October.

But Dyax offers a chance to make up some ground.

DX-2930 is a subcutaneous treatment that blocks the enzyme plasma kallikrein, and the drug had a statistically significant effect on weekly HAE attacks in Phase Ib results disclosed last year. Beyond its lead candidate, Dyax brings an early-stage pipeline of treatments for plasma kallikrein-related diseases beyond HAE, investigating whether its proprietary technology has a future in diabetic macular edema, inflammatory bowel disease, rheumatoid arthritis and other disorders.

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