Shire pays a steep premium to nab ViroPharma in $4.2B deal

Shire CEO Flemming Ornskov

The housecleaning and R&D revamp announced last week at Shire helped set the stage for today's announcement that the company is buying the rare-disease specialist ViroPharma for about $4.2 billion. The buyout--at $50 a share--will add Cinryze for hereditary angioedema to Shire's ($SHPG) product lineup along with the experimental drug maribavir for cytomegalovirus, one of 8 clinical-stage programs in the pipeline.

The focus will quickly shift now to cost savings as Shire looks to hack out any overlapping features between the two companies as it integrates a rival therapy for hereditary angioedema alongside its franchise for Firazyr. ViroPharma had a staff of 410 split between the U.S. and Europe when it filed its latest annual financial report earlier this year.

Rumors of a ViroPharma takeover ($VPHM) started to sizzle in September when the news wire began to hum with reports that both Sanofi ($SNY) and Shire were in the hunt for the company, with JPMorgan ambitiously projecting a price of up to $60 a share. The final price fell well short of that goal line, but nevertheless reflected a 27% premium over the Exton, PA-based company's Friday close and a 64% hike over its close in mid-September, after ViroPharma reportedly hired Goldman Sachs to advise it on a possible takeover.

Last week Shire said that it would substantially reorganize and shrink its R&D group in Basingstoke, U.K., with plans to cut 180 from the research staff as it jettisons programs outside of rare diseases. Shire's new CEO Flemming Ornskov has been centralizing the company's operations over the year, scrapping the independent approach that had been pursued by its various operations, including Shire HGT and a regenerative disease subsidiary in California.

Ornskov also purchased a couple of small ophthalmology companies this year, but this clearly marks his big play and will go a long way to determining his success as a CEO.

"It's a deal that fits with our strategy of increased focus on high-growth specialty markets, particularly rare diseases," Ornskov told reporters today, according to a report from Bloomberg. "With Cinryze, we will add another growth engine to our portfolio."

The biotech IPO booms has helped trigger a sharp spike in valuations in the industry, though, and some analysts were clearly a little shocked at the price Shire agreed to pay.

Panmure Gordon analyst Savvas Neophytou called the valuation "eye-watering," reports The Wall Street Journal, noting that a company like ViroPharma typically goes for about 6 times sales. ViroPharma's valuation, though, was set at 9 times sales. 

Nevertheless, there are plenty of buyers out in the market still looking for just these kinds of bolt-on buyouts. Shire evidently had to beat out some major league competitors to get the company, and Ornskov has clearly signaled that he's willing to make cuts in other areas--and likely at ViroPharma as well, after the deal goes through.

Shire execs told analysts today that the company expected to carve out $150 million in "synergies" after the deal goes through, and that's on top of the savings already mapped out in last week's reorganization. 

- here's the release
- read the Wall Street Journal story (sub. req.)
- see the Bloomberg report

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