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Shire plan creates unease

Shire Pharmaceuticals is set to splash out $1.6bn (£838m) on flagging US biotechnology company Transkaryotic Therapies.

Shire Pharmaceuticals is set to splash out $1.6bn (£838m) on flagging US biotechnology company Transkaryotic Therapies (TKT) in a bid to boost its experimental drug pipeline.

However, the deal has drawn criticism from both investors and analysts who are worried the Basingstoke-based company has paid too much for an unprofitable firm with a portfolio of drugs that essentially treats rare diseases.

Shire chief executive Matthew Emmens, currently sitting on a $1.4bn cash pile, has been seeking acquisitions to reduce the firm's reliance on hyperactivity treatment Adderall XR, which currently accounts for nearly half of the company's revenue.

The purchase of TKT will give Shire the rights to two already approved drugs: Replagal, a treatment for the enzyme deficiency Fabry disease, and Dynepo, a drug developed by Aventis to which TKT holds the rights outside the US.

ìIt seems to be a large outlay for a company that's focused on research,î said analyst Karl Keegan at Canaccord Capital, adding that none of TKT's drugs looked ìa real winnerî.

Shire investor, Britannic Asset management, which owns about 2 per cent of the company, also announced its opposition to the deal.

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. ì[Shire] has restructured itself but this deal is at all odds with the direction the company was going in.î

He added that Britannic was trying to encourage ìan open discussionî on the merits of the deal.

A spokesman for Shire said that a meeting with Britannic was on the schedule: ìIt will be an opportunity for us to persuade them as to the value of the deal, the strategic fit and how it complements our pipeline.î

Describing the deal as ìan engine for future growthî, Emmens said it fitted in with his strategy of focusing on low-risk speciality treatments marketed to specialist doctors and would also increase the company's presence in European markets. He declined to comment on whether the acquisition had spurred the sudden departure of TKT's chief executive, Michael Astrue.

Astrue is thought to oppose the deal due to its timing. An eventual approval for TKT's experimental Hunter syndrome drug, I2S, could be lucrative for the biotech company as, under US rules, drugs for rare disorders usually sell at a premium for several years.

If shareholders decide not to approve the deal, Shire would have to pay a break-up fee of $40m to TKT. Either company may cancel the agreement if the deal fails to close by Dec 31.

30th September 2008

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