Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of NPS Pharmaceuticals (NASDAQ: NPSP), a biopharmaceutical company focused on developing therapies to treat orphan diseases, rocketed higher by as much as 23% after once again becoming the talk of takeover rumors.
So what: According to a Bloomberg report released during the trading session, Ireland-based Shire (NASDAQ: SHPG) is considering an offer for NPS Pharmaceuticals. Whether or not a bid would actually come to fruition will depend on whether or not Natpara, a hormone replacement therapy designed to treat hypoparathyroidism, is approved by the Food and Drug Administration. The FDA is expected to make it decision on or before Jan. 24, 2015. If the drug is approved it'd launch in the second quarter and join Gattex (known as Revestive abroad), a small bowel syndrome therapy, as NPS' only approved drugs.
Now what: Keep in mind here that when AbbVie walked away from purchasing Shire in October for $55 billion due to a Congressional rule change in how tax inversions would be treated, it was required to pay a $1.6 billion deal breakup fee to Shire. Essentially, this $1.6 billion is free money for Shire, and its management team noted that it was looking forward to deploying this cash with the expressed intent of driving future growth. If Shire were able to pick up a company like NPS in the $4 billion range, the breakup fee, after taxes, would likely pick up around a third of the tab -- making the deal very affordable to Shire.
Furthermore, NPS' focus on orphan disease drugs means its portfolio is well-protected from generic competitors, and the price point for its therapies is relatively high. With few to no alternatives for a number of rare diseases, NPS' pricing power is expected to remain strong for the foreseeable future.
Of course, everything will depend on Natpara next month. But this is clearly a possible deal in the making that investors should monitor closely.