Takeda Shareholders Should Come Around to Shire

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(Bloomberg) -- Takeda Pharmaceutical Co. investors may belatedly be coming around to the view that the $62 billion purchase of Shire Plc is the best thing that could have happened to the Japanese drugmaker.

Just consider the alternatives.

To get the same U.S. exposure, and generate cost savings, Takeda might have looked to Celgene Corp. or Biogen Inc., according to Datamonitor Healthcare analyst Edward Thomason. The former has a burgeoning cellular immunotherapy presence and an impressive multiple myeloma portfolio, while the latter has a strong neuroscience focus.

But buying Celgene or Biogen would have set Takeda back even more. Celgene’s market value has slipped but it’s still worth about $60 billion; Biogen, which generated revenue of $12.3 billion last year, is capitalized at $58 billion. Tack on the almost 65 percent premium that Takeda offered versus where Shire was trading a few weeks ago and you’re talking an awful lot of money.

Smaller targets would have come with their own drawbacks.

Connecticut-based Alexion Pharmaceuticals Inc., with a market value of $26 billion, would have been a lot easier to digest, but it doesn’t have many promising drugs beyond current blockbuster Soliris. BioMarin Pharmaceutical Inc., which competes with Shire in hemophilia medicine, is cheaper still but has a smaller U.S. exposure.

Ultimately, Shire is an expensive acquisition, and the $1.4 billion in cost savings that Takeda is promising won’t move the needle much. The price tag will also put pressure on Takeda’s already strained finances, with the group planning to bring net borrowings to two times Ebitda within three to five years. The Osaka-based group’s desire for geographic reach and drug diversification also saw it overlook warts such as looming competition in Shire’s hemophilia business.

But the company’s strength in rare-disease drugs is a big advantage. People requiring such pharmaceuticals are about the sickest patients you can get. They need treatment for life, and businesses can charge high prices.

Maybe Takeda, like several other Japanese firms that have bought companies offshore, botches this one up. Moody’s Investors Service has already trimmed its credit rating, and the new level is under review for further downgrade. Holders of the company’s $500 million 2.45 percent notes are certainly rattled, sending the bonds down to a record low of 94.66 cents on the dollar Wednesday.

Or maybe, in taking a risk, Takeda will cement its place in the global pharmaceuticals market. With its stock rallying as much as 3.7 percent Thursday, it seems some shareholders at least share the view that in Shire, Takeda has found the savior it sorely needed.

©2018 Bloomberg L.P.

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