Shire to Buy Out Partner

One equity analyst jokingly called it ransom - at a fair price.

Shire P.L.C., the No. 1 maker of attention-deficit medications with U.S. headquarters in Wayne, said yesterday that it would buy out its longtime partner, New River Pharmaceuticals Inc., for $2.6 billion.

They announced the deal just days before Friday's expected federal approval of their new product for attention-deficit/hyperactivity disorder, Vyvanse, which will be pitched to succeed Adderall XR as the world's top-selling treatment.

Wall Street cheered the pricey deal, calling it essentially unavoidable. Virginia-based New River owns the patent to the next-generation drug, Vyvanse. Shire faced the prospect of steep royalty payments and sharing up to 60 percent of the profit from Vyvanse.

The deal "significantly enhances Shire's operating margin through elimination of Vyvanse's profit share and royalties," Shire said in a statement.

Vyvanse has been billed as an improved ADHD medication whose method of action makes it harder to abuse. The company says it has the same safety profile as Adderall XR.

Under the deal, Shire would pay $64 for each New River share, or nearly 10 percent higher than its Friday close of $58.28. Shire said it would fund the transaction with $2.3 billion in new debt and an $800 million equity financing.

The deal would give Shire full control over Vyvanse. Shire and New River already have been collaborating for two years on the drug.

"It's a fair price," said Andrew Forman, an equity analyst at WR Hambrecht & Co. Quipping that the deal was like a "ransom," he explained: "It gives them a successor to Adderall XR. If they didn't have this, then by 2009, they'd lose their revenue" to generic rivals.

Shares in New River, of Radford, Va., closed up more than 8 percent, or $4.84, at $63.19, near the per-share purchase price. Shares in United Kingdom-based Shire rose more than 5 percent, or $3.33, to $66.61.

The acquisition also would give Shire control of New River's experimental pain reliever NRP290, now in Phase 2 trials, as well as other compounds.

Shire, based in Basingstoke, about 50 miles west of London in Hampshire County, employs about 3,000 people worldwide and 700 in Wayne, where it has been building up its headquarters functions since 2003.

With Shire's arrival in the region, Philadelphia became something of an ADHD Alley. A large share of the $3.3 billion global revenue for ADHD drugs went to companies in the region, including Shire and McNeil Consumer & Specialty Pharmaceuticals, a Johnson & Johnson subsidiary in Fort Washington that makes Concerta.

Shire has been pursuing the sometimes contradictory goals of building up its ADHD lines while trying to wean itself from dependence on ADHD revenue.

Yesterday, it said Adderall XR revenue last year rose to $864 million, 18 percent over the previous year. Total revenue was $1.8 billion, up 12 percent. Net earnings were $278.2 million, up from a loss of $578.4 million in 2005.

In a statement, Shire chief executive officer Matthew Emmens said the New River acquisition "continues our leadership position in the growing U.S. ADHD market, improves our operating margins, significantly enhances our earnings growth from late 2009, and delivers on our overall global growth strategy."

Makers of generic drugs have been nipping at Shire's revenue on Adderall. It noted that Vyvanse has "robust intellectual property with patent protection to June 2023 in the United States and to June 2024 in Europe."

The deal, already approved by both companies' boards, still needs approval of Shire shareholders. If approved, the company expects it to close by June.

The deal would be a windfall for Randal J. Kirk, New River's founder and chief executive, who owns roughly 50 percent of the outstanding stock valued at $1.3 billion in the deal. His 29-worker company reported revenue of just $31 million for the nine months ended Oct. 1.

"We have confidence in Shire's commitment and ability to optimize the therapeutic and commercial potential of the New River portfolio," Kirk said in a statement. "Shire has a proven track record of success in developing and commercializing products, as evidenced by the success of the Adderall XR franchise."

The deal is the second major move for relatively small Shire. In 2005, Emmens led Shire in buying the biotech firm Transkaryotic Therapies Inc. for $1.6 billion.