NEW YORK (TheStreet) - NPS Pharmaceuticals (NPSP) shares surged more than 8% on Monday after Dublin's Shire (SHPG) announced it plans to acquire the Bedminster, N.J.-based biopharmaceutical company for $5.2 billion.

Shire will acquire all outstanding shares of NPS Pharma, a commercial-stage rare disease-focused biopharmaceutical company, for $46 per share in cash, a 9% premium to the company's closing price on Friday, and 51% higher than where the stock was trading in mid-December.

NPS Pharma's GATTEX/REVESTIVE for injection is approved in the United States and Europe to treat adults with short bowel syndrome (SBS) who are dependent on parenteral support, according to the release.

Shares of NPS Pharmaceutical were trading 8.3% higher to $45.39 on strong volume. More than 72 million shares changed hands compared to its three-month daily trading average of 1.6 million.

Michael King, JMP Securities

We believe the announcement of Shire's (SHPG, NC) acquisition of NPS Pharmaceuticals (NPSP, NC) should indicate that most biotech companies are in play, particularly those with worldwide rights to their products for well-defined patient populations. We continue to believe that the announcement of Shire's interest in NPS places strategic M&A in focus as a recurring strategic theme for the year. While the acquisition value is roughly in line with that described in press reports over the past several weeks, we still believe the announcement puts strategic M&A in front of the investor crowd at OULHC, and assumptions regarding who might be next should play out for the rest of the week. OULHC is also a meeting attended by the non-specialists who want/need healthcare exposure as well.

John Newman, Canaccord Genuity (Downgrading to Hold from Buy; $42 PT)

We see Shire as an ideal fit for Gattex and Natpara given the company's long expertise in rare disease, and very strong capabilities in marketing and patient support. Importantly, Gattex should fit well within Shire's expertise in Gastrointestinal health (Lialda, Pentasa), and also with its rare disease sales expertise in general.

We would advise investors to take profits ahead of the potential closing of the deal in the unlikely event that Natpara does not receive FDA approval. However, Shire cannot pull out of the deal without paying an ~$150M breakup fee, suggesting that Shire would acquire NPS even if FDA did not approve Natpara on January 24, 2015.

Jim Birchenough, BMO Capital Markets (Market Perform; $46 PT)

The companies highlighted the strategic fit between NPSP's assets (GATTEX and NATPARA) and Shire's market expertise in gastrointestinal (GI) disorders and rare disease patient management. Shire expects the transaction to be accretive to non-GAAP EPS from 2016 onward. Recall that the PDUFA date for NATPARA is January 24, 2015.

We are maintaining our Market Perform rating on the shares of NPSP and increasing our price target to $46. We expect the merger agreement with Shire to close uneventfully and view the likelihood of a competing bid as exceedingly low due to fundamental limitations of NPSP's business. We continue to expect GATTEX trends in short bowel syndrome (SBS) to flatten, as penetration of smaller infusion organizations will be more difficult, and anticipate a highly restrictive prescribing label for NATPARA to result in a very slow launch for the product in hypoparathyroidism (hPTH). Overall, we view the value proposition of NPSP products as marginal and closer to supportive care drugs, and see Shire as the only acquirer of these assets.

Eun Yang, Jefferies (Hold; $46 PT)

Shire's proposed acquisition of NPSP for ~$5.2B (~25x our estimated 2015 Gattex/Natpara sales) is anticipated to close by 1Q15. Shire notes a calculated risk ahead of Natpara PDUFA date on 1/24/15. The hefty price that Shire is paying for NPSP underscores the premium that marketed/positive Ph3 assets can now command regardless of potential commercial challenges. Setting PT to proposed acquisition price of $46.

Shire (SHPG, Buy) to buy NPSP for ~$5.2B in cash at $46/sh, ~9% premium to last closing price of $41.91. However, given the stock run-up on recently re-emerged take-out speculation, actual premium would be >50%. The acquisition was unanimously approved by the boards of directors of both companies as an all-cash tender deal at $46 per NPSP share. Shire will finance the deal with an $850M short-term bank facility, cash/cash equivalents, and its existing $2.1B five-year revolving credit facility.

 

TheStreet Ratings team rates NPS PHARMACEUTICALS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate NPS PHARMACEUTICALS INC (NPSP) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NPSP's revenue growth has slightly outpaced the industry average of 41.3%. Since the same quarter one year prior, revenues rose by 45.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for NPS PHARMACEUTICALS INC is currently very high, coming in at 95.92%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -3.75% is in-line with the industry average.
  • Net operating cash flow has significantly increased by 106.24% to $0.43 million when compared to the same quarter last year. Despite an increase in cash flow, NPS PHARMACEUTICALS INC's cash flow growth rate is still lower than the industry average growth rate of 117.49%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 97.4% when compared to the same quarter one year ago, falling from -$1.09 million to -$2.15 million.

 

- Written by Laurie Kulikowski in New York.