- Takeda Pharmaceutical Co. Ltd. revealed on Tuesday it is mulling a bid to acquire Shire plc, sending shares of the biotech up more than 15% in next-day trading to linger near $150 apiece.
- The Japanese pharma underscored that it's in a preliminary and exploratory stage regarding a potential offer and hasn't yet approached Shire, a disclosure the target company later confirmed. Neither drugmaker talked financials, but analysts noted that Ireland-based Shire is undervalued given its current stock price.
- As for rationale, Takeda said the acquisition would beef up its prowess in oncology, gastrointestinal, neuroscience and specialized medicines. It would also contribute to one of Takeda's largest goals: fortifying a place in the U.S. market. Last year, 66% of Shire's revenues came from the U.S.
Market researchers expect an uptick in life science M&A in 2018, driven largely by the recently revised U.S. tax code.
Already that seems to be materializing. Sanofi SA and Celgene Corp., for example, threw down more than $25 billion collectively on biotech purchases before January closed out.
Takeda has also been quite the active dealmaker in the new year, paying $150 million and $170 million in upfront cash and equity to enter drug development collaborations with Denali Therapeutics Inc. and Wave Life Sciences Ltd., respectively. Takeda also announced in January it would acquire Belgium-based company TiGenix NV for $625 million.
Those deals pale in comparison to the size of a potential Shire buy, however. Takeda's announcement caused Shire stock to surge on Wednesday, bringing its market cap to roughly $47 billion — a problematic turn, given Takeda's market cap sits at about $42 billion.
"Takeda would need a significant equity raise to acquire Shire, suggesting a 'merger' is perhaps better terminology, which may raise hurdles to the successful completion of any future deal," Jefferies analyst Peter Welford wrote in a March 28 note.
Even with Shire's stock bump, Welford and others believe the Irish pharma is undervalued. Cowen analyst Ken Cacciatore has a price target of $225 per Shire share, well above the $128.87 apiece that shares were trading at by market's close Tuesday.
Based on that closing price, Cacciatore highlighted that an assumed 40% premium to take over Shire would mean the company's shares would be trading at 11.2 times its 2018 EBITDA (a measure of earnings). Conversely, Sanofi's $11 billion acquisition of Bioverativ Inc. clocked in at 18 times the target's 2018 EBITDA.
Notably, the "Buy" ratings for Shire come at a time of great challenges for some of the company's main products. In particular, significant chunks of its hemophilia business are at risk of losing market share to newer products such as Roche AG's recently approved treatment Hemlibra (emicizumab). Before Takeda's announcement, Shire's stock was down nearly 30% over the last year.
Per U.K. law, Takeda has until April 25 to confirm whether it plans on making a formal offer to Shire.