TheChek News Flow

Shire’s [LON:SHP] rare disease business is the most attractive part of its portfolio, several sector advisers and two industry executives said, following news that Takeda Pharmaceutical [TYO:4502] is exploring a takeover of the London-based pharmaceutical company.

Now that Takeda’s interest in Shire is in the public domain, other interested buyers can be expected to reach out proactively to Shire, two of the sector advisers said. The rare disease business is expected to draw the attention of a handful of strategic buyers, a third adviser said.

Strategics like Novo Nordisk [CPH:NOVO] , Pfizer [NYSE:PFE] and CSL [ASX:CSL] are unlikely to have a compelling case for buying out the whole company, two of the sector advisers said. Still, a deal for all of Shire may require the involvement of other strategics because it is too big for Takeda, this adviser added.

Yesterday, this news service reported that Takeda’s main banks are willing to lend JPY 2trn to JPY 3trn (USD 19bn to USD 28bn) or more if necessary to fund a takeover of Shire. An acquisition of all of Shire, however, would require substantial divestitures to hit Takeda’s stated leverage target, it was reported.

Nonetheless, Takeda CEO Christophe Weber reportedly said at a briefing for sell-side analysts last week that the company is weighing a bid for all of Shire. The Tokyo-listed company has until 25 April to make a firm bid or walk away.

Shire appears to be a willing seller, while Weber has ambitious plans to grow the company, one of the sector advisers said.

There are some obstacles to a potential offer from Takeda. Minority investors in Shire previously told this news service that they questioned the attractiveness of Takeda’s Tokyo-listed shares. There are also minor regulatory obstacles to Takeda making an equity-rich offer, as previously reported.

If Takeda opted to instead bid for only part of Shire, the most likely outcome would be that it picks up the company’s hemophilia and central nervous system franchises, with another strategic picking up the rare disease asset, the third adviser said.

Shire has already announced that it is restructuring into two business units. In January, at the JPMorgan conference in San Francisco, the company said there is a strong business rationale for creating the two divisions: a Rare Disease Division and a Neuroscience Division. Shire expects to report the operational performance metrics of each division separately starting in 1Q18.

This came after Shire announced a strategic review of its neuroscience division in August, flagging the possibility of a sale or listing of the unit. According to the company, this strategic review is still ongoing.

Shire's neuroscience unit, which is focused on ADHD, as well as its hemophilia drugs franchise are both challenged, two industry executives and a fourth sector adviser said.

The neuroscience unit faces exposure to a patent cliff for ADHD drug Vyvanse in 2023. Sector advisors have previously told this news service that the business could face potential liabilities if children who are now on ADHD medication see side effects kick in during adulthood.

In hemophilia, Shire acquired specialist Baxalta for USD 32bn in 2016, but that business is also facing challenges, with Roche’s [SWX:RO] Hemlibra - a hemophilia medication expected to achieve blockbuster status - posing stiff competition.

If Shire wants to maximize its attractiveness for a potential deal, it would have to neutralize the impact of these weaker businesses, said the fourth adviser. No-growth assets would have to be divested to smooth the path for the entire company to sell, the second executive said, describing the hemophilia business in particular as a declining asset.

The universe of potential buyers for the hemophilia business is limited, the first executive said.

It could attract interest, however, from buyers in Asia. Hemophilia treatment and products could be attractive to Hualan Biological Engineering [SHE: 002007], a major blood products maker in China; Creat Goup, the parent company of Hualan’s competitor Shanghai RAAS [SHE: 002252], and others who are actively searching for blood product acquisitions in Europe, said an adviser to Chinese companies.

Plasma collection is very competitive in China, with demand exceeding supply because the Chinese government has not granted any plasma fractionation licenses since 2001, the same adviser explained.

Both Creat and Hualan made a bid for plasma protein products and biotherapeutic drugs company Biotest [ETR: BIO], as previously reported by this news service. Creat acquired Bio Product Laboratory in 2016 and Biotest in 2017, while Hualan is rumored to be eyeing Kedrion, the Italian blood plasma manufacturer, the same adviser said.

Given concerns around foreign buyers getting access to large patient data sets and the sensitive nature of hemophilia products, however, it may be difficult for a Chinese buyer to pursue a deal for Shire’s hemophilia business, the same adviser cautioned.

Shire did not respond to request for comment.