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Shire is interested in merging with California-based BioMarin Pharmaceutical, the Betaville blog reported today, citing unnamed top sources.

The blog reported citing unnamed sources that Shire recently approached BioMarin regarding a deal, though it is unclear if there have been any further developments. Lazard and Morgan Stanley are advising Shire and MS has been named as the leader in the financing for the deal.

The sources added that BioMarin is believed to have drafted financial advisers as well, including Centreview Partners or Evercore, to defend it against a larger predator.

Shire might not be the lone suitor interested in the target, as Roche was also reported to have been interested in BioMarin a few years ago, the article reported.

Betaville reported that sources said Roche could revisit it's interest in BioMarin in the wake of Shire's potential interest.

BioMarin seen as target but valuation obstacles remain, bankers say

Proprietary Intelligence

Story

BioMarin Pharmaceuticals (NASDAQ:BMRN) is seen as a possible takeover target but the company’s steep valuation could make a sale challenging, according to seven industry bankers.

Shares of BioMarin, a maker of drugs to treat rare, or orphan conditions, surged last Friday after Betaville reported that Shire Pharmaceuticals (NASDAQ:SHPG) had recently approached BioMarin about a deal. Roche (VTX:ROG) was also mentioned as a possible bidder.

The stock was trading at USD 125.92 on Tuesday, valuing the company at about USD 20bn, after having risen as much as 15.5% on the back of the report.

A combination between Shire and BioMarin would make sense, as rare disease/orphan drug companies are coveted assets, the first and second bankers said. However, it would be hard to make the math work given where BioMarin currently trades, the first banker noted.

Shire is an active acquirer of companies that make drugs to treat rare conditions, the second banker said, having closed the purchase of NPS Pharmaceuticals for USD 4.96bn in February. This banker added that the Dublin-based company is no stranger to "transformative" deals as evidenced by its acquisition of Transkaryotic Therapies for USD 1.6bn in 2005.

The deal brought Shire, then a much-smaller pharma company whose primary product was ADHD drugs, into a new area of protein-based biotechnology drug research.

“The Transkaryotic deal turned Shire from an old school specialty pharma company into more of a drug development company,” said this banker.

A third banker said Shire has previously looked at BioMarin and apparently “loved it”, but pointed out that it would have been much easier to swallow BioMarin when it was a USD 10bn company. Given its current size, Shire would likely need shareholder approval to pursue a BioMarin acquisition, this banker said.

“[BioMarin] is awfully expensive … this is not NPS that Shire bought for USD 5bn, we are talking a valuation of close to USD 25bn. It is tricky since it [would] not be immediately accretive,” a fourth banker said.

Three of these bankers said BioMarin's management and board would need a huge premium to be convinced to transact. BioMarin would need a strong reason to do a merger as the Novato, California-based company could double its revenues on its own within the next couple of years, the fourth banker said.

The fifth banker, whose firm has represented BioMarin in the past, said a combination could result in some overlap in drugs currently in development, which could undercut the logic of a deal. For instance, both Shire and BioMarin are developing drugs to treat a rare form of multiple sclerosis, with Shire’s MS program mainly acquired with the purchase of NPS.

However, the third banker said that while BioMarin clashes with a couple of Shire’s products on Gaucher’s disease, its products mostly just drop into Shire’s rare disease franchise.

BioMarin, led by industry veteran Jean-Jacques Bienaime, has long been viewed as a takeover candidate, said the fifth and the sixth bankers. “There have been rumors about BioMarin forever,” added the sixth banker.

The company has five approved products and multiple clinical and preclinical product candidates. After factoring in a premium, paying close to USD 25bn for five marketed products is a huge price to pay, even for Shire, the seventh banker commented. He and the third banker said Shire has a big pipeline of its own to develop and it does not necessarily need to pursue a large, high-premium acquisition.

The third banker said Shire CEO Flemming Ornskov would prefer to do a “handful of good deals rather than one big one”, as transformational deals have to contend with personality issues related to top management. Any approach by Shire could also bring other bidders into the race, making the process competitive and driving up the price, the third banker added.

Aside from Shire, Sanofi (NYSE:SNY) could also be interested in acquiring BioMarin, the second and third banker said. Sanofi’s biggest recent purchase in biotechnology-based drugs was that of Genzyme in 2011 for more than USD 20bn. AstraZeneca (LON:AZN) was floated as another possible acquirer, according to three of the bankers.

A spokesperson for BioMarin declined to comment. A Shire representative could not be reached for comment.

Source Betaville