Why You Should Keep an Eye on Shire, ViroPharma, and Novartis Today

Good morning, fellow Foolish investors! Let's dig into the top stories that could move health care stocks this morning.

Shire buys ViroPharma for $4.2 billion
Irish pharmaceutical company Shire (NASDAQ: SHPG  ) just announced that it will buy ViroPharma (NASDAQ: VPHM  ) for $4.2 billion in cash. The purchase price translates to $50 per share -- a 27% premium to ViroPharma's closing price last Friday.

Shire, a company which is best known for its ADHD treatments, is also a rising name in treatments for rare diseases. The company's treatment for hereditary angioedema (HAE), Firazyr, is one of four approved treatments for the condition. ViroPharma's Cinryze, which Shire will now own as well, is the most widely used of these treatments. HAE is a rare genetic condition that results in the uncontrollable swelling of the extremities, respiratory pathways, and gastrointestinal system.

Last quarter, sales of Shire's Firazyr climbed 107% year-over-year to $62.6 million, while sales of ViroPharma's Cinryze rose 23% to $94.6 million. Combined, the two treatments will tower over the other two approved treatments -- Dyax's Kalbitor and CSL Behring's Berinert -- and become the dominate HAE treatment in the market.

Cinryze is also the only treatment that can be taken as a preventative measure -- the other three treatments are only administered in the event of an acute attack. Cinryze is also notably one of the most expensive drugs in the world, costing $350,000 per patient per year, while Firazyr costs $6,180 per dose.

Shire estimates that the deal will generate cost synergies of $150 million by 2015, and become earnings accretive immediately. Combined with Shire's other rare disease treatments, which include Gaucher disease and Hunter syndrome, the company expects the ViroPharma acquisition to solidify a rare disease annual revenue base of $2 billion -- which could represent 40% of its total revenue by 2014.

The deal is expected to close by the end of this year or in early 2014. Shire also announced that it intends to terminate its current share buyback program as a result of the acquisition.

Looking forward, things should look bright for Shire, and the bull case for the company -- which I discussed in a recent article -- looks brighter than ever with another expensive, high-growth treatment added to its portfolio.

Novartis inks deals with Grifols and Immunogen
Another major deal announced this morning was Novartis' (NYSE: NVS  ) divestment of its blood transfusion unit to Spanish pharmaceutical company Grifols (NASDAQ: GRFS  ) for $1.7 billion. The deal, which is intended to streamline Novartis' focus on its higher growth businesses, is expected to close in the first half of 2014.

Novartis originally acquired the blood transfusion diagnostics unit in 2006 from its acquisition of Chiron, and has since become part of Novartis Vaccines and Diagnostics.

The unit generated $565 million in revenue during fiscal 2012, accounting for less than 1% of Novartis' top line -- giving Novartis gets a nice injection of cash that it can use toward research & development in other higher growth segments, such as generics and consumer health. However, investors should note that the deal does not include Novartis' companion diagnostics unit or the Genoptix businesses, which are both tightly intertwined with its pharmaceuticals pipeline.

The deal is also a solid strategic fit for Grifols, which is the world's third-largest producer of plasma-based therapies, and could help boost its top line growth. Last quarter, Grifols' adjusted earnings rose 31.9% year-over-year, but its revenue only dipped 0.4%. 

In addition to the deal with Grifols, Novartis also struck a deal with ImmunoGen (NASDAQ: IMGN  ) , the maker of antibody-drug conjugates (ADCs), to license its ADC technology to develop a new cancer treatment. This is the third licensing agreement between Novartis and ImmunoGen, which also holds similar licensing deals with Eli Lilly and Amgen.

ADCs are often nicknamed "cancer smart bombs", due to the ability to locate cancer cells, inject them with toxins, and kill them without harming healthy cells -- making them a viable alternative to chemotherapy.

The deal could possibly help ImmunoGen bounce back after a steep 18% plunge last week after the company halted a phase 2 study of an experiment small-cell lung cancer drug following the death of a patient.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 11, 2013, at 12:36 PM, mapres wrote:

    Typically, a buyout target trades in a narrow range a few percent below the buyout price. I'm thus wondering why it would be a good idea to "keep an eye on" ViroPharma "today". Are you expecting the price to fluctuate in a way, today, that investors can make money? Hope you can clarify this. Appreciate it.

  • Report this Comment On November 11, 2013, at 1:38 PM, TMFSunLion wrote:

    Thanks for reading.

    It's just the title of the article -- I'm just highlighting stocks for investors to pay attention to today.

    Of course ViroPharma probably won't have more upside potential anymore, but it's worth following the buyout to see what it means for Shire's future.

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Related Tickers

9/12/2014 4:00 PM
GRFS $37.75 Down -0.50 -1.31%
Grifols, S.A. (ADR… CAPS Rating: ***
IMGN $11.41 Down -0.27 -2.31%
ImmunoGen CAPS Rating: ****
NVS $93.76 Down -0.60 -0.64%
Novartis CAPS Rating: *****
SHPG $257.66 Up +0.50 +0.19%
Shire plc (ADR) CAPS Rating: **
VPHM $0.00 Down +0.00 +0.00%
ViroPharma, Inc. CAPS Rating: ***

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