Shire to Buy Lotus Tissue Repair (JNJ) (NVS) (SHPG)

Lotus Tissue Repair is developing a protein replacement therapy for the treatment of dystrophic epidermolysis bullosa (DEB).

Shire will pay an upfront fee for the acquisition along with certain contingent payments based on the achievement of certain safety and development milestones. Other financial details were not disclosed.

Shire’s Human Genetic Therapies business will take over the development of Lotus Tissue Repair’s lead candidate, a proprietary recombinant form of human collagen type VII (rC7), an intravenous protein replacement therapy for the treatment of DEB. We note that Shire already has an EB candidate, ABH001, in its pipeline. ABH001 is being developed as a dermal substitute therapy for the treatment of non-healing wounds in patients with EB.

Concurrent with this acquisition, Shire also stated that it expects to meet the general consensus earnings estimate of $6.69 – $6.70 in 2012 driven by a double digit growth in revenues.

The company’s leading drug in the key attention deficit hyperactivity disorder (ADHD) market, Vyvanse, represents significant commercial potential. Vyvanse is being developed for new indications such as major depressive disorder, binge eating, and negative symptoms of schizophrenia, all being in phase III studies.

Vyvanse and Intuniv both together account for 45% of the total market growth in the US ADHD market. Vyvanse should gain approval in Europe (under the trade name Elvanse) soon given the positive outcome from the European Decentralised Procedure (DCP) in Dec 2012. According to the company, the European market is currently worth $500 million.

However, Shire faces stiff competition from the likes of Johnson & Johnson (JNJ) and Novartis (NVS) in the key ADHD market.

We currently have a Neutral recommendation on Shire which carries a Zacks Rank #3 (Hold). Right now, pharma stock Novartis (NVS) looks more attractive with a Zacks Rank #2 (Buy).