Shire Sells Dermagraft - Analyst Blog

Shire (SHPG) announced that it has entered into a definitive agreement with Organogenesis Inc. to sell Dermagraft.

Shire acquired Dermagraft through the acquisition of Advanced BioHealing in 2011 thereby creating a separate business unit, Regenerative Medicine.

We note that Dermagraft is approved for the treatment of diabetic foot ulcers in the U.S. and Canada.

Shire had undertaken restructuring of the sales and marketing organization of Dermagraft and the implementation of a new commercial model. However, Dermagraft no longer fits into the revised business structure of Shire and hence the company decided to divest it.

As per the agreement, Shire will receive no upfront payment from Organogenesis. However, Shire is entitled to receive up to $300 million cash in milestone payments assuming Organogenesis meets certain annual net sales targets through 2018.

We remind investors that Shire has merged its three autonomous divisions into one with an aim to reduce overlapping. Shire has decided to pursue development programs with a focus on rare diseases only. Hence, it discontinued all other development programs. We believe Shire’s efforts to build a leaner organization with better focus on rare diseases should lead to improved margins.

In a bid to strengthen its portfolio of rare disease drugs, Shire announced that it will acquire ViroPharma Inc. (VPHM) for approximately $50 per share or $4.2 billion in Nov 2013.

Shire remains confident that if the potential acquisition goes through, it will augment both its top and bottom line. ViroPharma's lead drug Cinryze is approved in the U.S. for routine prophylaxis against angioedema attacks in adolescent and adults with hereditary angioedema (HAE). Cinryze complements Shire's Firazyr, which is indicated for the on-demand treatment of acute HAE attacks.

Shire carries a Zacks Rank #3 (Hold). Investors may consider companies like Forest Laboratories (FRX) and Questcor Pharmaceuticals Inc. (QCOR), which carry a Zacks Rank #2 (Buy).

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