With an eye on Allergan and Valeant, Shire bulks up


It is probably a coincidence that Shire announced its $260m takeover of Lumena on the same day that Allergan rejected Valeant’s unsolicited $47bn bid, but there could be a link; both Allergan and Shire could do with bulking up to fend off opportunistic takeovers.

True, the Lumena buy fits neatly with Shire’s rare disease focus, and shows again that, when it comes to small biotech M&A, private companies offer some of the most interesting opportunities. But in the frenzied takeover environment gripping larger groups, making smaller acquisitions makes for a good defensive strategy too.

Through Lumena Shire will gain two key assets: LUM001, a phase II project for four rare liver diseases, and LUM002, in phase I for the red-hot indication of non-alcoholic steatohepatitis (NASH). Both projects work by inhibiting the atypical sodium-dependent bile acid transporter, and Lumena had licensed them from Pfizer and Sanofi respectively.

The $260m Shire is paying up front is a great result for a business that had raised just $68m combined in series A and B rounds over the past year or so, and Shire will pay an additional amount for Lumena’s cash balance, as well as undisclosed milestone fees.

M&A anti-chain

But in the larger picture the transaction could be important since Shire itself has been viewed as a possible acquisition target for either Allergan or AstraZeneca, which are both battling unwelcome takeover approaches from larger groups – Valeant and Pfizer respectively. Such a defensive battle has been likened by Andy Smith, chief investment officer of the Mann Bioinvest fund, to an M&A “anti-chain”.

While the chain in property buying involves a series of contingent transactions, reasons Mr Smith, the “pharmaceutical anti-chain is designed to break the links at every possible point”. He thus speculates that the fallout from Valeant’s offer for Allergan extends to a rumoured bid by Allergan for Shire, which in turn has been linked to an approach to Cubist.

Underlying this is the opportunistic nature of certain takeover approaches, and the need to defend against them; just how much Valeant was chancing its luck was underlined by it teaming up with the hedge fund Pershing Square Capital to bring the bid about (Valeant's move into shareholder activism, April 22, 2014).

Yesterday Allergan responded, saying Valeant’s proposal “substantially undervalued Allergan, created significant risks and uncertainties for the stockholders of Allergan, and was not in the best interests of the company ... Allergan has a strategic plan in place that we believe is the right path forward to deliver value to our stockholders.”

Obviously, it did not say whether this plan involved acquiring another business. Valeant responded today with a pledge to Allergan investors to improve its offer in due course.

“Disastrous forays”

For its part Shire had “disastrous forays into ophthalmic and cell therapies, and I’m still worried that they may have lost their way”, Mr Smith tells EP Vantage. “I do think that [the Lumena] announcement finally aligns Shire’s strategic strength with its business development.”

NASH has been a hot area since Intercept stock quadrupled on the back of a phase II result in January, but nevertheless many uncertainties remain, such as the lack of a simple diagnostic for this largely asymptomatic disease.

As such, the rare disease angle, with the concomitant orphan pricing possibilities, might be more up Shire’s street; LUM001 targets Alagille syndrome, progressive familial intrahepatic cholestasis, primary biliary cirrhosis and primary sclerosing cholangitis, which affect between one and 40 patients in 100,000.

In any case $260m is a relatively small outlay for a company of Shire’s size, and ultimately the transaction is not big enough to be a true anti-chain breaker, says Mr Smith. But as a way of bulking up and potentially extracting a higher price in a future takeover it should do Shire no harm at all.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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