Japanese pharma firm Takeda said it is officially considering making an offer for diversified rare-disease-focused Shire (SHP) in what would probably be a merger of equals. Both companies have recently traded around the $40 billion market cap level. We are maintaining our fair value estimates for both until we see evidence that discussions are advancing; an official offer is expected in April.
While we see Takeda's shares as fairly valued, we’ve seen Shire’s shares as significantly undervalued in recent months, so the deal could be partly motivated by Shire’s current valuation, as well as the fact that both firms have a significant presence in Cambridge, Massachusetts.
We think the market’s focus on competition to Shire’s established haemophilia portfolio could give Takeda – or another suitor – the opportunity to acquire a diversified rare-disease business and rapidly growing immunology business at a good price.
Takeda has a mixed record with acquisitions, however, which is part of reason for its low returns on invested capital and very low margins, and we do not award it an economic moat. While Shire’s business faces threats in the form of novel haemophilia drugs and patent cliffs on older specialty pharma products, we think its rare-disease portfolio warrants a narrow moat rating.
Takeda has recently made significant efforts to refocus on a few core therapeutic areas; oncology, gastrointestinal, and neuroscience, and Shire’s attention deficit portfolio; including Vyvanse and Intuniv, and GI drugs would fit nicely with Takeda, particularly given the 2018 launches of Vyvanse and Intuniv in Japan.
However, the move would also significantly shift Takeda’s focus into the rare-disease space and mark its entry into the plasma-derived protein business, both of which are surprising moves, in our opinion. That said, Takeda’s footprint in emerging markets, established with the Nycomed acquisition, could eventually allow it to extend Shire’s immunoglobulin business into nascent markets like China, where an immunoglobulin import ban has prevented the global plasma leaders from entering.
While Shire’s pipeline is weaker than those of its pharma and biotech peers, it has a particularly strong portfolio of in-line products, which could make an interesting bridge for Takeda, which has been very focused on establishing early-stage partnerships in GI and neurology indications.
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