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Shire to Acquire ViroPharma

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In a bid to strengthen its portfolio of rare disease drugs, Shire (SHPG - Free Report) announced that it will acquire ViroPharma Inc. for approximately $50 per share or $4.2 billion.

The offer price of $50.00 per share represents a 27% premium to ViroPharma's closing share price of $39.38 on Nov 8, 2013, the last trading day prior to the acquisition announcement.

In addition to its existing cash balance, Shire expects to finance the acquisition with a $2.6 billion fully underwritten short-term bank facility and a revolving credit facility of $1.2 billion.

ViroPharma - A Strategic Fit

ViroPharma focuses on rare diseases. The growth story for ViroPharma revolves around Cinryze, which is approved in the U.S. for routine prophylaxis against angioedema attacks in adolescent and adults with hereditary angioedema (HAE).

Cinryze complements Shire's Firazyr which is indicated for the on-demand treatment of acute HAE attacks.  Hence, the addition of Cinryze will bolster Shire’s rare disease portfolio.

We note that ViroPharma was evaluating Cinryze for additional potential indications such as autoimmune hemolytic anemia, antibody-mediated rejection post renal transplantation and neuromyelitis optica.

The acquisition will also add Plenadren – indicated for the treatment of adrenal insufficiency (AI), and Buccolam – indicated for the treatment of pediatric seizures, to Shire’s portfolio.

Further, ViroPharma’s pipeline candidates include maribavir (for the treatment of cytomegalovirus infection in transplant patients), VP20621 (for the prevention of recurrent clostridium difficile infection) and VP-20629 (for Friedreich's Ataxia). Shire will decide on these programs after reviewing its resources.

ViroPharma forecasted net revenues between $445 million and $465 million in 2013. Cinryze revenues are projected between $395 million and $405 million.  

Shire expects the addition of Cinryze to its rare disease business unit will propel the revenues to grow over $2 billion in 2014, accounting for approximately 40% of Shire's total product sales. Moreover, Shire expects to realize approximately $150 million of annual cost synergies across the business by 2015 from the acquisition. The acquisition is expected to be immediately accretive to Shire’s bottom line. 

Our Take

The news of the acquisition does not surprise us as rumors have been doing the rounds from the last four months leading to a massive surge in the share price of ViroPharma.

We are positive on Shire’s acquisition of ViroPharma which will further strengthen its HAE franchise as Cinryze and Firazyr are two complementary therapies for the treatment of HAE.

However, we note that Cinryze’s orphan drug exclusivity expires in 2015 in the U.S., opening the doors for competition thereby impacting sales. We remind investors that BioCryst Pharmaceuticals, Inc. (BCRX - Free Report) has a candidate in its pipeline, BCX4161, which is being developed for HAE.

Another matter of concern is the U.S. Food and Drug Administration’s (FDA) warning letter to Sanquin Plasma Products, which manufacturers Cinryze. The warning letter was regarding compliance with current Good Manufacturing Practices (cGMP) at facilities located in Amsterdam and Brussels.

Shares of ViroPharma gained 25.50% to $49.42 on the acquisition news.

While Shire currently carries a Zacks Rank #1 (Strong Buy), ViroPharma is a Zacks Rank #3 (Hold) stock.  Right now, Jazz Pharmaceuticals (JAZZ - Free Report) also looks attractive with a Zacks Rank #1 (Strong Buy).

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