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Shire Sells Oncology Unit Ahead of Takeda's Potential Offer

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Shire plc (SHPG - Free Report) announced that it has entered into a definitive agreement with French company, Servier to sell its Oncology business. The deal is valued at $2.4 billion and includes global rights to leukemia drug, Oncaspar, and ex-U.S. rights to pancreatic cancer drug, Onivyde. Servier will also add another leukemia drug, Calaspargase Pegol, to its portfolio, which is under review in the United States.

Shire’s oncology segment also includes immuno-oncology pipeline collaborations, comprising multiple early stage studies. Although the oncology segment has delivered high growth and profitability, it contributed lower than 2% to product sales in 2017.

The company has initiated the sale of this segment as part of its long-term strategy to focus on rare disease leadership. Shire plans to return the proceeds from the sale to its shareholders through a share buyback. However, the buyback program will be initiated after Takeda Pharmaceutical’s potential offer to acquire Shire, which is expected by Apr 25.

Per the terms of the recent agreement, Servier will acquire the segment in an all cash deal, which is valued at an attractive revenue multiple of 9.2 times of 2017 revenues. The deal is not subject to shareholder approval and is expected to close in the second or third quarter of 2018.

Shire is also looking to dispose of other non-strategic assets as part of the strategy.

Shire shares have decreased 1.7% so far this year, comparing favorably with the industry’s decline of 3.2% in that period.

Although investors cheered the news of a potential buyout of Shire by Takeda, with the sale of the oncology segment, Takeda is expected to reconsider its decision before making an offer. Oncology was one of the three core therapeutic areas which Takeda was looking to strengthen through Shire’s acquisition.

However, a deal between Takeda and Shire is still expected to bring strategic synergies. Takeda acquired ARIAD Pharmaceuticals last year in a bid to strengthen and diversify its oncology business. The sale of Shire’s oncology segment may bring down the acquisition cost for Takeda.

The investor community also believes that a formal takeover offer from Takeda may also trigger bids from other companies, which previously showed interest in Shire including AbbVie (ABBV - Free Report) and Pfizer (PFE - Free Report) .

Demand for companies with rare disease drugs in their portfolio or pipeline candidates are rising. This is evident from the billion dollar deals signed this year. Novartis is acquiring AveXis for $8.7 billion while Sanofi has spent nearly $16 billion to boost its rare blood disorder pipeline.

Shire carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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