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Shire Buying New River

The deal is worth $2.35 billion.

Updated from 1:38 p.m. EST

Shire

(SHPGY)

plans to pay $2.6 billion in cash for

New River Pharmaceuticals

(NRPH)

in order to cement its leadership in treating attention deficit hyperactivity disorder.

By offering $64 a share, Shire gains full control of the experimental ADHD drug Vyvanse for children ages 6 to 12. Shire signed a marketing and development deal with New River in January 2005.

The Shire bid represents a 9.6% premium over New River's closing price on Friday. At first glance, that might seem small by biotech takeover standards, but New River shareholders probably won't complain. On a split adjusted basis, their stock has increased more than 15-fold since the Radford, Va.-based company went public in August 2004.

The takeover has been approved by the boards of both companies. Shire will help pay for the all-cash offer by raising $800 million in a private placement of stock with institutional investors. The financing would take place within 48 hours of the closing of the New River acquisition.

The cash tender offer must be approved by shareholders of both companies and regulators. Shire said the tender offer would start in March and be completed in April.

Shire already sells two ADHD products, extended-release Adderall XR and Daytrana, and it is working on two others. Daytrana, delivered by a skin patch, was developed with

Noven Pharmaceuticals

(NOVN) - Get Novan, Inc. Report

. Shire's original Adderall is now a generic drug.

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"We are delighted to be entering into this transaction with Shire, which will assume full responsibility for the commercialization of Vyvanse, as well as the development of our other pipeline compounds," said Randal J. Kirk, New River's founder, chairman and CEO. Kirk owns 50.2% of New River's shares and has agreed to tender all of them.

New River's stock was up $4.84, or 8.3%, to $63.19, while Shire's shares rose $3.33, or 5.3%, to $66.61.

In addition to expanding its ADHD lineup, the New River transaction "improves our operating margins

and significantly enhances our earnings growth from late 2009," said Matthew Emmons, CEO of Shire.

New River's Vyvanse, known as NRP-104 in development, remains under review by the Food and Drug Administration. It has been the subject of two conditional approval letters from the FDA, but both companies say they believe the drug will be launched during the second quarter. In addition, they expect to file a second-quarter application with the FDA for the drug as an ADHD treatment for adults.

The FDA delay is primarily related to a concurrent review of Vyvanse by the Drug Enforcement Administration. As with other stimulant-type ADHD drugs, the DEA is determining Vyvanse's potential for abuse.

The agency's staff has issued a preliminary recommendation that Vyvanse be classified as a Schedule II drug, the same as other ADHD stimulants. The rating system for controlled substances runs from Schedule I, the highest abuse potential, to Schedule V, the lowest. If Vyvanse receives a more favorable rating, its sales potential could soar.

"Based on Vyvanse's expected profile, we believe it has the potential to be the next generation stimulant product to Adderall XR," Emmons said.

Vyvanse has U.S. patent protection until June 2023 and European patent protection until June 2024, Shire said. Adderall XR will be subject to generic competition in the U.S. in two years.

In addition to gaining control of Vyvanse, Shire is getting several other experimental drugs from New River, including a narcotic pain reliever now in midstage clinical testing and a thyroid hormone-replacement therapy in preclinical testing.

The company also anticipates FDA rulings on two other ADHD drugs in the coming months. The action date for SPD465 is May 21 and the FDA deadline for SPD503 is June 24.

Separately, Shire had fourth-quarter earnings of $68.6 million, or 40 cents a share, on revenue of $497 million. For the year-ago period, it earned $69 million, or 41 cents a share, on revenue of $465 million.

For the full year, Shire's profit was $278.2 million, or $1.64 a share, on revenue of $1.8 billion, compared with a 2005 loss of $578.4 million, or $3.47 a share, on revenue of $1.6 billion. The loss was due primarily to charges for the acquisition of Transkaryotic Therapies.

This year will a busy one for Shire as it forecasts revenue growth of 20% and the introduction of as many as six new products through the first half of 2008.

Like last year, 2007 will feature higher costs for developing experimental products and introducing new drugs. Selling, general and administrative costs will be $930 million to $960 million this year, up from $835 million last year and $656 million in 2005.