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Reckitt Heroin Addiction Treatment Seen Luring Shire: Real M&A
2013-10-31 00:00:01.3 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Trista Kelley and Matthew Boyle
Oct. 31 (Bloomberg) -- Reckitt Benckiser Group Plc’s heroin
addiction treatment could tempt drugmakers from Shire Plc to
Actavis Plc to bid for the company’s pharmaceuticals unit.
Shire has been on the hunt for deals to ease reliance on
its best-seller Vyvanse for attention deficit hyperactivity
disorder. The Dublin-based drugmaker could be a logical buyer
for the unit because it has managed competition with generics
before and is adept at handling complex U.S. rules to curb
illicit use of prescription medicines, Liberum Capital Ltd.
said. While generic variants of Reckitt Benckiser’s Suboxone
were introduced this year, the drug still dominates the U.S.
market and a new injectable treatment is under development.
Shire surged to a record this week, increasing its ability
to finance an acquisition with stock, and also has more cash on
hand than 99 percent of specialty drug companies, according to
data compiled by Bloomberg. Generic-drug makers Valeant
Pharmaceuticals International Inc. and Actavis also may be
interested in the RB Pharmaceuticals unit based on their
experience extracting profits from assets that, like Suboxone,
have declining sales, Sanford C. Bernstein & Co. said.
“There is definitely a lot of future potential in RB
Pharma,” said Andrew Wood, an analyst at Bernstein in
Singapore. “There must be some pharma companies out there who
think that they can do even better, and take it to the next
level.”
Weighing Options
Reckitt Benckiser said this month that it’s weighing
options for its pharmaceuticals unit, whose main drug Suboxone
treats addiction to opioids including heroin. The company, which
also makes French’s mustard, Nurofen painkillers and Durex
condoms, hasn’t yet hired advisers and said it plans to update
investors on the progress of the review next year.
Andraea Dawson-Shepherd, a spokeswoman at Slough, U.K.-
based Reckitt Benckiser, declined to comment on the review
process.
Since 2010, RB Pharma has offered Suboxone in a film-strip
format, which has captured more than two-thirds of the $1.7
billion market in the U.S. While the film version is patent-
protected until at least 2020, it’s grappling with increased
competition.
Zubsolv, a tablet from Orexo AB, won U.S. regulatory
approval in July and began selling in September. Plus, two
generic Suboxone tablets hit the market in March.
Not Core
RB Pharma is “a fantastic business, but it’s not core to
the company,” Reckitt Benckiser Chief Executive Officer Rakesh
Kapoor said in a phone interview on Oct. 22, when the company
announced the review. “I’ve said that several months after the
entry of generics we will confirm the resiliency of the film
business and the impact of generics. We are now in that phase.
Nothing is ruled out.”
Analysts including Bernstein’s Wood have advocated for a
sale of RB Pharma. The unit, which is also developing an
injectable version of Suboxone and a drug for people addicted to
cocaine, may fetch 2.95 billion pounds ($4.7 billion) in a sale,
according to the average of 11 analysts’ estimates compiled by
Bloomberg. The estimates ranged from as low as 1.5 billion
pounds to as high as 4.7 billion pounds.
RB Pharma’s 837 million pounds in sales last year accounted
for about 9 percent of Reckitt Benckiser’s revenue, and the unit
made up 21 percent of operating profit.
While competition reduced the division’s sales in the last
two quarters, the market for opioid addiction treatment isn’t
in decline.
Heroin Use
As of 2011, some 4.2 million Americans had used heroin at
least once in their lives, according to the National Institute
on Drug Abuse, which estimates that about 23 percent of
individuals who use heroin become dependent on it. About 16.5
million people worldwide use opiates, including heroin,
according to a report this year from the United Nations Office
on Drugs and Crime.
Suboxone only treats about 15 percent of the addressable
market, Reckitt Benckiser has said.
“It appears there is a long runway for further growth,”
Bernstein’s Wood said in an e-mail.
RB Pharma President Shaun Thaxter told investors last year
that Suboxone, which combines a painkiller derived from the
opium poppy and a chemical that blunts withdrawal symptoms,
could expand sales in Europe and Australia.
Diversification Play
For Shire, adding Suboxone would allow it to reduce its
dependence on ADHD treatments. Shire knows how to navigate the
complex rules surrounding so-called controlled substances, a
category which includes most ADHD pills and opioid-dependency
drugs like Suboxone.
“Diversifying away from being an ADHD business would be
helpful because they have one product being the dominating
earnings driver: Vyvanse,” Naresh Chouhan, a London-based
analyst at Liberum Capital, said in a phone interview. “They’ve
also got a supply chain in place which means the drug won’t end
up in the wrong hands.”
Shire also has experience winning sales in the face of
threats from generics. The company successfully persuaded
doctors to switch patients to Vyvanse before the older version
Adderall XR lost patent exclusivity in 2009, helping sales of
Vyvanse gain last year.
“Reckitt’s pharma unit is a declining business and it’s
really hard to manage a decline, but Shire has done this
before,” Chouhan said.
Deal Firepower
Shire CEO Flemming Ornskov has been scanning the industry
for potential targets since taking over at the company in May.
Shire has “multi-billion dollar capacity” for deals and is
looking in areas including rare disease, neo-natal care, eye
care and cancer, management said after reporting earnings last
week.
Shire has the firepower for acquisitions as its stock
reached a record 2,814 pence this week. The company also had
$1.69 billion of cash as of Sept. 30, surpassing more than 1,000
other specialty pharmaceutical companies, according to data
compiled by Bloomberg. Only Valeant, Elan Corp. and Allergan
Inc. had larger cash piles, the data show.
Jessica Mann, a spokeswoman for Shire, said the company
doesn’t comment on speculation.
Other drugmakers including Valeant, which had $2.54 billion
of cash as of June 30, and Actavis might be interested buyers
because the companies know how to make the most of assets with
declining sales, said Ronny Gal, a New York-based analyst at
Bernstein who covers pharmaceutical companies. Actavis is one of
the companies that have come out with a generic Suboxone tablet.
‘Good Opportunity’
“It’s very simple,” Gal said. “If you’re paying less for
the asset -- even if it’s declining -- than you can get out it,
it’s very much a good opportunity.”
A representative for Parsippany, New Jersey-based Actavis
declined to comment, while a phone call and e-mail to a
representative for Bridgewater, New Jersey-based Valeant wasn’t
returned.
While RB Pharma may attract pharmaceutical companies
looking for products to add to their lineups, other drugmakers
may be more likely to pursue medicines with more growth
potential.
“Most companies are not interested in declining assets,”
Gal said.
Shire CEO Ornskov said the company’s focus is on “growing
assets,” when asked last week about its interest in the RB
Pharma unit.
Dominant Player
Suboxone still dominates the opioid-dependency treatment
market, and new medicines in development such as the injectable
version of the drug could help keep it in the lead. With
generics entering the market, a pharmaceutical company may be
best able to contend with the threat, said Eamonn Ferry, a
London-based analyst at Exane BNP Paribas.
“Reckitt is not a pharma company, that’s not where their
expertise is,” Ferry said in a phone interview. “It’s not in
their core DNA to manage products that have been subjected to
generics. It may well be better in the hands of a pharmaceutical
company, and you could say the same about the pipeline.”
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--With assistance from Brooke Sutherland and Tara Lachapelle in
New York, Gaurav Panchal in London and Chiara Remondini in
Milan. Editors: Beth Williams, Sarah Rabil
To contact the reporters on this story:
Trista Kelley in London at +44-20-7073-3074 or
tkelley2@bloomberg.net;
Matthew Boyle in London at +44-20-3525-8675 or
mboyle20@bloomberg.net
To contact the editors responsible for this story:
Phil Serafino at +33-1-5530-6277 or
pserafino@bloomberg.net;
Sarah Rabil at +1-212-617-5992 or
srabil@bloomberg.net