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Shire: `Investors back TKT deal'

The response from most of the top 20 shareholders in Shire Pharmaceuticals has been ìoverwhelmingly positiveî according to CEO Matthew Emmens.

The response from most of the top 20 shareholders in Shire Pharmaceuticals has been ìoverwhelmingly positiveî, according to CEO Matthew Emmens, whose poorly received decision to purchase ailing US biotech firm Transkaryotic Therapies (TKT) has led him to defend his plans.

The proposed $1.6bn buy-out of TKT, which specialises in enzyme replacement therapies for rare genetic diseases, received a cold shoulder from investors and analysts who, on first glance, were worried that Emmens had overpaid for the flagging firm.

Some were shocked at the direction in which he had decided to take the company as Shire had been expected to seek out and buy a speciality pharmaceutical business in a bid to expand its experimental pipeline, rather than go down the biotech route.

ìWe try to be reasonably balanced in assessing deals like this but I cannot find anything attractive in this deal at all,î said Dennis Wyles, who helps manage $25bn including Shire shares at Britannic Asset Management, which holds a 2 per cent stake in Shire. ì[Shire] has restructured itself but this deal is at all odds with the direction the company was going in.î

Yet Emmens has deflected the questions about his strategy, maintaining that the purchase of TKT was ìconsistent with Shire's strategyî as well as ìhighly complementary to [its] business modelî.

With a cash pile of around $1.4bn, the Shire chief drew attention to the fact that the business of producing biotech products for enzyme deficiency was supported by a successful history. ìThe risk is very low,î he said, claiming that none of these types of products had failed yet. `Enzyme-related drugs have a high success rate in reaching the market,' Shire noted on its website.

However, this week saw Shire announce a 35 per cent nosedive in first quarter earnings, which saw the shares slip yet further down from the announcement of the TKT deal. Analysts said they weren't surprised by the weakness of the results, and some pointed out that the TKT deal will not only result in significant charges but will not enhance Shire's earnings until after 2007.

Attention-deficit hyperactivity disorder drug, Adderall XR, remains as Shire's top selling product, though it could lose patent protection in the US from as early as next year.

Emmens has noted that through the TKT deal, Shire gains two approved products plus a further two that are in clinical trials. Trial data for TKT's Hunter Syndrome product, I2S, should be available before investors vote on the deal in the summer, he added.

30th September 2008

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