Does Reckitt's drug business make a match with Shire?

We know Reckitt Benckiser is shopping its pharma unit. We also know that Shire ($SHPG) is scouting for deals. Does it follow that Shire may bid on RB Pharma? Logically, yes. Practically? Maybe.

As Bloomberg reports, analysts see RB Pharma as something of a diamond in the rough. Reckitt CEO Rakesh Kapoor said in late October that the drug unit isn't part of his company's core business--which is why, of course, it's for sale. A drug company that folds RB Pharma into its own core business might lavish more attention on it, and, in turn, boost its performance.

"There is definitely a lot of future potential in RB Pharma," Bernstein analyst Andrew Wood told the news service. "There must be some pharma companies out there who think that they can do even better, and take it to the next level." Eamonn Ferry of Exane BNP Paribas also figures RB Pharma could benefit from an owner with more pharma expertise. "It's not in [Reckitt's] core DNA to manage products that have been subjected to generics," Ferry told Bloomberg. "It may well be better in the hands of a pharmaceutical company, and you could say the same about the pipeline."

The Reckitt unit's key drug is Suboxone, which treats opioid addiction. It's sold in a film-strip formula, which is still under patent, but the active ingredient itself is not. RB Pharma has been trying to persuade the FDA to hold off on approving generic versions in other formats, citing safety concerns. The company went so far as to pull its own tablet version in favor of the "safer" film formula. But the FDA hasn't cooperated; three tablet-form generics are now on the market. And Suboxone is feeling the pain; for the third quarter, the drug lost 14% of its sales.

That's worrisome, but the company is developing an injectable version of Suboxone and a cocaine-addiction treatment. Opinions about RB Pharma's prospects vary, as is evident from the wide range of prices analysts put on the unit; as Bloomberg notes, price estimates range from £1.5 billion to £4.7 billion ($2.4 billion to $7.5 billion). The pharma unit brought in £837 million in sales last year.

Why Shire, though? First, the company is on the acquisition trail. Its new CEO, Flemming Ornskov, says he's looking for deals, even multibillion-dollar deals. That's because the specialty drugmaker is heavily dependent on ADHD drugs. Shire does have a growing rare disease business and wound care franchise, but Ornskov would like to diversify further.

Shire's ADHD experience, which involves dealing with the Drug Enforcement Administration's (DEA) controlled-substances rules, could help speed RB Pharma's pipeline drugs through the process. The addiction drugs would augment Shire's CNS business. Plus, Shire has been successful at weathering generic competition by switching patients to follow-up products. "Reckitt's pharma unit is a declining business and it's really hard to manage a decline," Liberum Capital analyst Naresh Chouhan told Bloomberg.

As for other potential buyers, the news service points to Actavis ($ACT), the fast-growing generics maker, which also has brand ambitions. Then there's Valeant Pharmaceuticals ($VRX), which is always shopping for a deal.

- read the Bloomberg story

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