Shire Acquisition Bolsters Its Rare, And Maybe Not-So-Rare, Disease Portfolio

May.19.14 | About: Shire PLC (SHPG)


Shire plc gains two more rare disease drug candidates from its acquisition in May 2014 of Lumena Pharmaceuticals.

One of Shire's new candidates addresses a rare liver condition also associated with obesity, type 2 diabetes, and high cholesterol.

Investors should look for signs Shire seeks synergies from the acquisition to develop therapies for these more widespread chronic disorders.

The acquisition by Shire plc (NASDAQ:SHPG) earlier this month of Lumena Pharmaceuticals builds Shire's already strong position in rare diseases, but the acquisition can also help Shire advance drug development programs aimed at larger populations. On 12 May, Shire announced it was buying the privately-owned Lumena for $260 million in cash, plus further cash at closing and payments keyed to clinical trial milestones.

Despite their significant risks, rare diseases offer opportunities for pharma companies. Lumena focuses solely on rare diseases of the liver, which is where Shire may find synergies with and benefits to more mainstream disease programs. The liver is a critical organ in the body for digestion and metabolism, thus Lumena's research on liver functions could help further Shire's development of therapies for disorders affecting larger numbers of patients.

Investor snapshot

Shire, based in Dublin, Ireland, experienced a particularly strong 2013, with total revenues rising 9 percent to $4.9 billion, resulting from a 12 percent gain in sales, but royalty and other revenues were down by 36 percent compared to 2012. Earnings per share (ADS) rose to $7.36 in 2013 from $4.23 in 2012. The strong performance continued in the first quarter of 2014, with operating income of $307 million on revenues of $1.3 billion, and earnings per ADS of $1.17.

The company reports sharp sales increases in the first quarter for its ADHD drug Vyvanse, Lialda and Mezavant (marketed in the U.S. and Europe respectively under different brand names) to treat ulcerative colitis, and Firazyr to treat the rare immune system and blood clotting disease, hereditary angioedema. Shire also reported strong sales of the drug Cinryze to treat hereditary angioedema, added through its acquisition last year of ViroPharma.

In the past 12 months, Shire's share price ranged from $91.81 to $180.91, closing at $166.00 on 16 May. Shares traded in the $142-$176 range over the past 90 days.

Rare opportunities in orphan drugs

Shire's strategy is to focus on therapies for unmet medical needs, including disorders often left behind by larger drug companies. While much of its current revenues come from sales of drugs Vyvanse and Intuniv to treat ADHD, a widespread neurological condition, much of its research and development pipeline goes into therapies for rare diseases, including hereditary angioedema, Friedreich's ataxia, and Hunter syndrome.

In the U.S. and Europe, regulatory authorities provide incentives for pharma and biotech companies to develop treatments for rare conditions. The Food and Drug Administration's orphan products program, for example, offers tax credits, and in some cases, grants for companies developing compounds or biologics to treat disorders affecting 200,000 or fewer Americans. In addition, FDA, as a matter of practice, appears to relax some of its clinical trial standards for rare disease drugs, allowing smaller samples with less randomization and blinding of treatment versus placebo conditions.

But developing drugs for rare diseases comes with a great deal of risk. Not only is the total market for these drugs small, only a few university and hospital labs conduct basic research into their underlying genetic or molecular science. In addition, conducting clinical trials on rare diseases is more complex and costly, requiring many more resources to find and recruit patients, even if the FDA allows for less rigorous standards in some of those trials.

Rare conditions affecting a vital organ

Therapies under development by Lumena Pharmaceuticals, based in San Diego, aim at rare conditions affecting the liver's role in digestion and metabolism. Codenamed LUM001 and LUM002, the company's most advanced drug candidates limit the activity of mechanisms in the liver that prevent the healthy recycling of bile salts from the small intestine back into the liver.

LUM001 is the company's lead drug designed to treat cholestatic liver diseases that result in a build-up of bile acids, causing a severe itching condition known as pruritus. The compound is being tested in intermediate-stage clinical trials for four separate cholestatic liver conditions.

LUM002 is designed to treat nonalcoholic steatohepatitis, or NASH, a disorder where the cause is unknown, yet is often associated with obesity, type 2 diabetes, and high cholesterol. The condition resembles alcoholic liver disease and can lead to cirrhosis, but occurs in people who drink little or not at all. LUM002 appears to reduce bile acid concentrations that in turn help reduce LDL (bad) cholesterol, and can also reduce inflammation resulting from fat build-up in the liver. Early-stage safety and efficacy trials are completed, and intermediate-stage clinical studies on larger samples of people with NASH are planned for later this year.

Because the liver is a key organ in many bodily functions, the acquisition of Lumena offers Shire an opportunity to expand its pipeline into disorders affecting larger numbers of people. Shire already has a presence in gastrointestinal drugs with Lialda and Mezavant to treat ulcerative colitis, which in 2013, contributed $529 million in sales. Another Shire compound to treat chronic constipation is in late-stage trials. As a result, research by Lumena scientists should find synergies with these programs.

Indicators of wider integration

Investors should look for evidence Shire is following a strategy of integrating Lumena's two main drug candidates into its larger drug portfolio. LUM001, addressing cholestatic liver diseases, is already in intermediate-stage clinical trials, and assuming positive results from those trials, Shire will likely proceed towards regulatory approval of LUM001 as an orphan drug.

The program to watch for signs of more extensive integration is LUM002 to treat NASH, a condition associated with chronic obesity, type 2 diabetes, and high cholesterol. That program has already shown some early signs that it can help reduce LDL cholesterol. If the scheduled intermediate-stage trials show benefits with LDL cholesterol, type 2 diabetes, or obesity, then the outcome for Shire may go well beyond treatments for patients with rare liver disorders.

Another indicator that Shire is seeking a wider payoff from the Lumena acquisition is in its occasional grants for academic research and investigator-led clinical trials. Grants supporting studies related to controlling diabetes, obesity, and high cholesterol will indicate Shire is looking for connections between its current drug programs and these much more prevalent conditions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.