Shire cuts Dermagraft, takes $650M loss

When Shire ($SPHG) picked up the regenerative medicine treatment Dermagraft in a $750 million deal a few years ago, it figured it would help take it to new places and bigger sales. Instead it quickly turned into a money-losing dog. So Shire, on to the next big thing with its $4.2 billion deal to buy ViroPharma ($VPHM), has decided it is high time to unload Dermagraft, even if it has to take a loss on the sale.

The Ireland-based company acquired Dermagraft in 2011 in its $750 million buyout of Advanced BioHealing, maker of the diabetic foot ulcer treatment. Soon after it gave up on developing it for venous leg ulcers when it failed a trial. A recent ruling cut Medicare payments for Dermagraft. So Shire today said it is unloading the business to U.S.-based Organogenesis, taking a $650 million loss on the deal. Organogenesis doesn't even have to make a down payment but could pay Shire up to $300 million if it meets sales targets up to 2018. Organogenesis already has its own treatment for diabetic foot ulcers, Apligraf.

Analysts at Societe Generale welcomed the news, Reuters reports. "Any price for the divestment is better than Shire retaining a non-core, loss-making product," it told investors. "As such, we view the divestment as a positive move that should allow Shire to focus on its higher-growth profitable products elsewhere in its portfolio."

While it is not quite in its portfolio, the higher growth products might come from rare disease drugmaker ViroPharma. Last week Shire extended its $50-a-share offer to Jan. 23 when it didn't get enough shares tendered to close the deal. It said it had about 78% of shares committed for its buyout of the Exton, PA-based company.

Shire outmaneuvered other interested companies, which reportedly included French drugmaker Sanofi ($SNY), when it snatched up ViroPharma in November. CEO Flemming Ornskov has said he wants to grow Shire's orphan drug portfolio. ViroPharma's lead drug is Cinryze, a $350,000-a-year treatment for hereditary angioedema--a rare disease with about 18,000 patients in the U.S. and Europe. One of Shire's drugs is Firazyr, its own treatment for hereditary angioedema, and Ornskov sees the deal as a great match. Firazyr treats acute attacks of swelling in patients with the disorder, while Cinryze is designed to prevent them.

In a statement today, Ornskov said, "We have been prioritizing investments that are of the greatest strategic, clinical and commercial value to our company. Dermagraft no longer meets these criteria and this divestment will allow us to focus our resources on other projects."

- here's the announcement
- read the Reuters story