Natpara risk overshadows Shire’s NPS takeout

Shire has made the transition from prey back to predator, this weekend announcing that it had bagged the rare-disease developer NPS Pharma, long-rumoured as a target.

For $5.2bn, Shire snares the only innovative marketed product to treat short bowel syndrome – forecast to bring in half a billion dollars a year by the end of the decade – but will take on significant regulatory risk with NPS’s other big asset, Natpara, due an FDA decision within days. If Natpara is turned down it will not be the first time that an acquirer has been caught out immediately on a binary event, as Merck & Co can attest (Cubist patent loss means buyer’s remorse for Merck, December 9, 2014).

Thanks, AbbVie!

The all-cash acquisition came at $46 a share, a 51% premium on the unaffected share price on December 16, when reports of a deal emerged. NPS had been speculated to be a Shire target early in 2014, but that was largely forgotten amid AbbVie’s abortive attempt to take out Shire.

The AbbVie break fee of $1.6bn, not to mention cash flow in excess of $2bn a year, has given Shire an impressive M&A war chest and the Ireland-domiciled, UK-headquartered group has made good use of this by bringing in a company that ticks two strategic boxes: it has a rare disease and gastrointestinal focus.

In late 2012 NPS succeeded in getting approval for its main growth driver, Gattex, in short bowel syndrome, on the basis of its ability to reduce dependence on parenteral nutrition in patients who have had parts of their intestines surgically removed. Analysts have trimmed forecasts as management has reduced guidance, however – a sign of the pitfalls of small companies launching solo, even in rare diseases (Small companies’ struggles sound a warning over in-house drug launches, November 7, 2013). Gattex sold $32m in 2013.

In the hands of Shire, Gattex will have a bigger sales and marketing force, and one with existing gastrointestinal expertise – the ulcerative colitis drug Lialda is a $500m-plus product for Shire. The two drugs are at the opposite ends of the spectrum when it comes to disease prevalence, however, with Lialda treating more than 100,000 patients in the US and generating per-patient revenue of about $3,000; Gattex has a list price of $330,000 and most likely 2,000-6,000 potential users.

This is where Shire’s expertise in rare disease will come in handy. The company is accustomed to building physician awareness and negotiating with payers on such high-price, low-volume drugs as Replagal. Its chief executive, Flemming Ornskov, declined to give a forecast of peak sales for Gattex once his company takes possession of it, however. EvaluatePharma’s 2020 consensus is $539m.

Mr Ornskov’s executive team did say that the deal would become accretive in 2016, reflecting a belief that growth can be driven by Gattex and Natpara. The hypoparathyroidism project is currently awaiting FDA approval.

Half still at risk

And Natpara is where the risk of this acquisition lies. Its 2020 consensus forecast is almost the equal of Gattex at $439m, so any setback will significantly change the potential payoff from the deal.

The FDA’s decision deadline is January 24. While Natpara got a positive vote from an advisory committee, the narrow 8 to 5 verdict points to significant differences of opinion over its benefit. Experts voting against approval centred on a lack of quality of life data and concerns over osteosarcoma, along with questions about appropriate dosing and titration.

Shire executives sought to ease investor concerns by saying that the agency’s correspondence has been positive. The likelihood of approval after a split adcom vote like this one is hard to gauge, but it certainly raises regulatory risk, something Mr Ornskov acknowledged while saying: “This was a situation where for us to get over the finish line [of completing the deal] that’s the risk we had to take.”

This is probably a reason for the muted reaction from investors today. Shire was down slightly, to £46.98, in mid-afternoon trading in London.

Buying NPS looks like a well-aligned deal, but until the launch of Natpara can be assured it appears pricey. Investor reaction will probably be more amplified after the FDA’s decision.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter

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