Should Allergan and Shire pull off an ADHD deal?

Brent Saunders

Allergan ($AGN) and Shire ($SHPG) have never been companies to shy away from a deal. But when it comes to a potential transaction involving Shire’s ADHD portfolio, they might want to, one analyst says.

Shire has hinted at selling its anchoring franchise, and Allergan--which expects to be flush with cash after it closes a $40.1 billion deal to sell its generics unit to Teva ($TEVA)--could be interested. After all, it lists CNS among its disease-area priorities, and it already has some expertise there thanks to its 2014 acquisition of Forest Labs.

Plus, the way Bernstein analyst Ronny Gal sees it, Allergan would have room to cut costs if it picked up lead Shire ADHD drug Vyvanse. And Allergan might be able to stretch the blockbuster’s market reach, which would pad sales in the near term and help the future rollout of the longer-acting amphetamine that’s coming up through Shire’s pipeline.

Shire has plenty of reason to sell, too. The Dublin drugmaker has been working hard over the past few years to position itself as a leader in orphan drugs, and if it bowed out of ADHD, “the transformation to a pure-play orphan company would be much closer,” Gal noted. At that point, Shire would have “only a handful” of specialty assets left in its product stable, and it could use the new cash to snap up other orphan businesses.

But are those reasons enough for the two companies to pull the trigger? Gal isn’t convinced. For Allergan, the buy would be “a near-term solution, but not more,” he figures. It would likely help get the company’s share price into the $300 range by 2017’s Q2, an event that would keep current investors “reasonably happy.” But Gal also thinks it could cap their expectations--and thus, the stock's potential.

And on Shire’s side, its orphan drugs have some challenges ahead that may make it think twice about relying too much on the business. The hemophilia franchise it intends to pick up from Baxalta ($BXLT) when their merger closes is surrounded by a raft of potential competitors, and pharma patent challenger Kyle Bass has been trying his best to swat down the IP protection on Shire GI med Gattex.

Moral of the story? A handoff of Shire’s ADHD meds to Allergan would “clearly not be a bad deal for either company,” Gal wrote. But in the current market environment, both pharmas “could/should probably find better deals than this.”

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