Kenneth Pittman, writing for Seeking Alpha, takes a look at why Shire is thinking of unloading its neuroscience division and suggesting an alternative.
At its second-quarter financial results in August, Shire indicated that it was reviewing options concerning its neuroscience franchise, including the possibility of an independent public listing. It reiterated this in its third-quarter results, suggesting it would have more information by the end of the year. Kenneth Pittman, writing for Seeking Alpha, takes a look at why Shire is thinking of unloading its neuroscience division and suggesting an alternative.
Analysts and investors didn’t seem very enthused about the idea. Shares have dropped since August from around $170 per share to around $137 per share. Max Nisen of Bloomberg Gadfly thought the “idea was shaky.” Nisen’s argument was that Shire Neuroscience has a valuation of around $11 billion, but it doesn’t have much of a pipeline. Most of its value is hinged on Vyvanse, which brings in $2 billion per year, but its patent expires in 2023. The company’s newest drug in the area is Mydayis, which delays the patent issue until 2029, but Shire’s projections for the drug are $500 million per year, although consensus estimates are lower, at $300 million per year.
Adderall XR, Adderall and Intuniv would be part of any Shire Neuroscience spinoff or sale, but all face generic competition. Pittman writes, “Adderall XR still contributed $363 million to revenue in 2016 (despite being generic), but Mydayis will likely reduce this number at least somewhat (as Mydayis is basically Adderall XXR). Mydayis may also reduce Vyvanse revenue somewhat as well. Therefore, I would estimate that Shire Neuroscience would have around $2.5 to $3 billion per year revenue through 2023, with revenue dropping to somewhere between $0.5 to $1 billion per year after that through 2029.”
In 2006, Shire spun off Shire Laboratories, renamed as Supernus Pharmaceuticals. In 2012, Supernus launched its own initial public offering. The company currently has two products on the market, both in neurology, is profitable, and has a market cap of around $2 billion. It has three drugs in its pipeline for attention deficit hyperactivity disorder (ADHD) or depression. It is also looking to expand the indications for one of its seizure medications to Bipolar Disorder.
Pittman notes that Shire is in a position to consider a spinoff partly because it acquired Baxalta when Baxter spun it off. This boosted Shire’s position in rare diseases, minimizing the impact of the Neuroscience unit. As such, he speculates, what if Shire Neuroscience merged with Supernus?
Most of the industry speculation on the issue is on whether Allergan would buy Shire Neuroscience. Allergan has the money and is noted for gobbling up smaller companies left and right. But Pittman points out that if Shire Neuroscience merged with Supernus, the merged companies would have five marketed products for ADHD, binge eating disorder, seizures, migraine prevention, and potentially bipolar disorder. It would have four drugs in its pipeline for ADHD and depression and have a 2018 revenue of about $3 billion with potential for growth.
Pittman writes, “Both Shire and Supernus certainly have other options. Shire could sell the Neuroscience unit to Allergan or any other company with sufficient cash. Supernus could choose to use their cash to purchase a company like Neos Therapeutics and by doing so it would have stimulants to market with their other medications. Either company could also buy KemPharm to improve their stimulant pipeline. Interestingly, both Neos and KemPharm have significant personnel connections to Shire as well. However, both Neos and KemPharm make stimulants that would compete with Vyvanse and Mydayis, whereas Supernus has focused on non-stimulant ADHD medications that could complement stimulants.”
Of course, it’s possible Shire will decide to keep its neuroscience unit. Or maybe it’s eyeing some small companies as bolt-on additions that would boost its neuroscience pipeline. Chances are everyone will know in the next few weeks.
