Analysts Question Takeda-Shire Deal, Speculate on Bidding War

Yesterday’s news that Japanese company Takeda Pharmaceuticals was consideringacquiring UK-based Shire is raising the possibility of a bidding war. But it’s also having decidedly different effects on the two companies’ stock prices.

Investors in Shire, on the one hand, were enthused, causing share prices to climb 26 percent on the news, rising from about $129.18 on Tuesday to a high of $152.48 after the news, although shares are currently at $144.53.

Takeda stock, however, dropped around 7.45 percent to its current value of around 5,120 JPY. Hiroshi Tanaka, an analyst with Mizuho Securities, wrote in a note to clients, "The impression left by the news is that the acquisition would be an overreach."

Takeda had indicated that an offer was "at a preliminary and exploratory stage and no approach has been made to the board of Shire." It also said it "believes that a potential transaction with Shire presents an opportunity to advance Takeda’s stated Vision 2025, build on its current strong momentum, and create a truly global, value-based Japanese biopharmaceutical leader."

Per UK law, Takeda must announce an official offer by 5:00 p.m. (London time) on April 25, 2018.

Takeda’s interest appears to be as a potential boost to its cancer, gastrointestinal and neurology drug portfolio. In particular, Shire has a strong rare disease franchise, as well as a big presence in lysosomal storage disease, gastrointestinal and endocrine, HAE, ophthalmics and oncology.

Takeda currently has a market value of around $39 billion, which is smaller than Shire. Thanks to Shire’s stock jump yesterday, it’s market cap is around $45 billion. If there is a deal, it would likely involve equity, whether a share swap or an issue of additional shares, which would be dilutive for Takeda shareholders.

But some analysts are skeptical that the deal really would benefit Takeda. "We think neuroscience assets alone, which Shire said are under strategic review, would be a realistic target, but we find it hard to imagine Takeda acquiring all of Shire," said Atsushi Seki, an analyst with UBS, to Reuters. "We think the possibility of it making a proposal is very low, but its share price will likely be under pressure from concern over potential dilution."

There is some speculation that since Takeda’s announcement was premature, recommended by the Takeover Panel, that it could inspire a bidding war by companies interested in Shire and its rare-disease portfolio.

Shire has often been the target of takeover speculation. Last summer, amidst news that the company was consolidating more than 3,000 workers spread out over half-a-dozen locations in Massachusetts to two campuses in Cambridge and Lexington, there were rumors the company might be acquired. Earlier rumors had Pfizer or Biogen expressing interest.

"Shire has time and time again been reported as a takeover target, with the most recent reports over the last couple days," Douglas Miehm, an analyst with RBC wrote in a note to clients. "However, we await further details given the relative size of Shire to Takeda, making it an unusually large acquisition based on Takeda’s previous purchases."

Shire is very strong in the hemophilia market, and just yesterday, its chief competitor in that arena, Genentech, a subsidiary of Roche, reported five patients deaths that were receiving its Hemlibra (emicizumab-kxwh) for hemophilia A. Although it appears the drug was not the cause of the deaths, it increased safety concerns, which could be a bright spot for Shire.

Or possibly not. Shire’s Baxalta unit has been behind much of the attacks on Genentech’s Hemlibra criticism. Yesterday, Roche announced that a Japanese court ruled in favor of its subsidiary, Chugai Pharmaceuticals, in a patent lawsuit filed by Baxalta. The drug was approved this month in Japan for routine prophylaxis to prevent or reduce the bleeding episodes in patients with congenital factor VIII deficiency with factor VIII inhibitors. The Japanese court dismissed the entire claim and forced Baxalta to pay all court costs.

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