Right on Schedule

Over the weekend Shire announced approval of Vyvanse, its next-generation ADHD drug licensed from soon-to-be-acquired partner New River.

Once it is launched in the second quarter this year, Vyvanse should quickly inherit ADHD market share from Shire's current leader Adderall XR, for which a soft landing has already been orchestrated via a variety of authorized generics deals. But despite the new drug's approval, despite the $2.6 billion Shire paid for the 50% of Vyvanse it didn't already own, and despite all the talk of potential resistance to abuse, the FDA has recommended to the DEA that Vyvanse join the majority of ADHD drugs as a Schedule II controlled substance.

(editorial aside: is the DEA logo intentionally trippy?)

Shire isn't letting that get them down, and the decision--surely a disappointment to Shire--has been expected for some time. Quoth Shire CEO Matt Emmens in a statement announcing the approval: “The label we received with the approval letter includes information about the extended duration of effect and abuse-related drug liking characteristics of VYVANSE which illustrate benefits that differentiate this compound from other ADHD medicines."
But the authorities' equivocation here won't give Shire much wiggle-room on price and message.

Payday for RJ Kirk & New River

Once again, ally turns to buy.

Eager to land 100% of the two companies' profits from the soon-to-be-approved ADHD drug Vyvanse (formerly NRP-104), Shire Pharmaceuticals bought New River Pharmaceuticals today for $2.6 billion in cash. The broad smile of New River chairman, CEO and founder RJ Kirk, who owns 50.2% of the biotech, can now be seen from space.

Buying out the junior partner on a potential blockbuster is hardly unusual these days--see Lilly/Icos, Genentech/Tanox, and Amgen/Abgenix: partners can be expensive, as we've pointed out before. At $64 per share the deal is a solid one for Kirk and his fellow New River shareholders, though the acquisition premium hardly reaches the heights of previous deals in the space: 10% over New River's closing price on Friday, February 16th and 14% greater than the shares' average over the past four weeks.

Perhaps given New River's backstory, and the company's subsequent growth over the past two years, the size of the premium matters less than the company's spectacular takeout valuation. In the eight years from foundation to IPO, New River was largely funded by Kirk and other managers, acquaintances and friends, and toughed out a tricky IPO market in 2004 before finally raising public funds at $8 per share in a Dutch auction run by WR Hambrecht. Not bad.

Shire consolidates the value of Vyvanse, a probable blockbuster expected to launch in the second quarter of 2007 after FDA and DEA review. The drug has received two FDA approvable letters so far, the latter in December 2006.

Notably Shire is raising $2.3 billion in debt to pay for the transaction (along with a placing of new ordinary shares that should bring in around $800 million) leaving its roughly $470 million cash for additional in-licensing or acquisition deals.

New River's product candidates beyond Vyvanse, NRP290 (in phase II in acute pain) and NRP409 (preclinical, primary hypothyroidism) are non-core to Shire and likely to be out-licensed, though Matt Emmens, Shire's CEO, said today that no decisions have been made.