What: Shares of Dyax Corp. (NASDAQ:DYAX), a drug developer with a focus on rare diseases, skyrocketed more than 30% today after the company announced that it is being acquired by Shire PLC (NASDAQ:SHPG).
So what: Shire has agreed to acquire Dyax for $37.30 in cash, which values the company at approximately $5.9 billion. In addition, Dyax shareholders could receive some additional upside from this deal as they will also receive a non-tradable contingent value right, which could pay off an additional $4.00 in cash if its investigational drug DX-2930 gains FDA approval before Dec. 31, 2019. If that happens, it would add another $646 million to the purchase price, which would bring the total value of this deal to $6.5 billion.
Shire will finance this deal with its existing $2.1 billion revolving credit facility in addition to a newly announced $5.6 billion loan.
Now what: This deal shows that Shire is willing to bet big on the future success of DX-2930, and it appears to have good reason to do so. DX-2930 is an investigational drug that is being studied as a treatment for hereditary angiodema, or HAE, which is a rare genetic disease that causes episodes of swelling in the face, extremities, and GI tract. This disease can be life-threatening, and in clinical studies DX-2930 demonstrated a greater than 90% reduction in HAE attacks compared to placebo.
Those results were good enough for the FDA to bestow DX-2930 with the coveted Fast Track, Breakthrough Therapy, and Orphan Drug designations, and it has also received Orphan Drug status in the EU. It is expected to enter phase 3 clinical trials by the end of the year. If approved, Shire estimates that its annual global sales could be up to $2.0 billion, and it also holds patent protection and anticipated regulatory exclusivity beyond 2030.
Shire is already a big player in the HAE market, as it holds a leadership position with its products Firazyr and Cinryze. Given its position, if DX-2930 is approved, the company already has the infrastructure in place to launch the drug successfully.
Shire is assuming that the FDA will approve the drug in 2018, and it's looking to launch soon after. The company expects this deal to be slightly dilutive to earnings in 2016 and 2017 and accretive in 2018 and beyond. Like most deals, Shire is expecting to realize synergies of about $50 million starting in 2017, which could grow to over $100 million by 2019.
Dyax CEO Gustav A. Christensen said:
Shire's expertise and proven rare disease patient identification and management capabilities make it the ideal partner to efficiently bring DX-2930 to HAE patients worldwide. I'm proud of the company that our team has built, and I'm confident that Dyax's important mission and focus on improving the lives of patients will continue as part of the Shire family.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.