NPS Pharmaceuticals (NPSP) Sees Stock Spike on Shire (SHPG) Buyout Rumor

Joel Anderson  |

Rare-disease specialist NPS Pharmaceuticals (NPSP) is spiking on Friday after rumors of a pending buyout by British pharma giant Shire (SHPG) .

NPS Pharmaceuticals Stock Suddenly a Hot Commodity

Shares of NPS opened at $27.53, about even with yesterday’s close, and showed little movement through the first 45 minutes of trading. However, the stock suddenly skyrocketed at 10:18 am ET, a time that corresponds with the release of an article by FT Alphaville that cited unnamed sources as saying Shire was discussing internally making a cash offer for NPS of $4 billion.

That $4 billion offer would represent a 37-percent premium on yesterday’s closing price, investors were understandably enthusiastic about the stock. Shares immediately took off and shot up to an intraday high of $34.50 almost exactly an hour after the release of the article.

The stock has retreated from that point, pulling back to under $32 a share as investors appeared to reconsider just how much stock they wanted to place in this particular buyout rumor. However, gains on the day remain over 16 percent on extremely heavy volume. More than 11.5 million shares had changed hands headed into the final hour of trading against an average daily volume of just over 2 million.

The FT Alphaville article noted that its sources were cautious, pointing out that it was clearly the early stages of any buyout discussion and that industry experts hadn’t heard any news. However, it does note that NPS could be a good fit in Shire’s current portfolio of treatments for rare diseases.

Shire May be Trying to Get While the Getting’s Good

The timing of this probably isn’t a coincidence. March and April’s market swoon for small-caps, growth plays, and biotechs hit NPS as hard as it hit many of its competitors. The company had lost nearly a third of its value from late February through yesterday.

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The motivation for this decline, like similar sell-offs throughout the biotech industry, appears to potentially be driven by broader market forces rather than any particular change in the company itself. NPS hasn’t had any serious changes in its product portfolio or pipeline that might motivate such a large selloff. As such, Shire may see this market correction as creating just the opportunity they need to get an attractive asset at a solid price.

Keep in mind, $4 billion wouldn’t have been a premium three months ago, it would have been below the company’s market value. With growth stocks and small-caps starting to show signs of recovery in recent weeks, Shire may be seeing their window of opportunity as closing and need to decide if they want to go after the company at a price they like or not.

Market Swoon for Biotechs Creating Buying Opportunity for Major Pharma?

It’s not hard to imagine that this could be just one step in a broader trend. The practice of absorbing smaller competitors is a common practice among the industry’s pharma giants, and smaller biotech firms with only one or two therapies in development are often more than happy to sell rather than set out building the sales and administrative infrastructure necessary to market their products after years of solely focusing on R&D.

If that’s the case, the timing would seem ripe for such purchases to be taking place. With large-cap indices like the Dow Jones Industrial Average (DJIA) and S&P 500 hitting all-time highs, the major pharmas appear to be doing well.

But, it may also be the case that major pharma companies still see biotechs as overvalued following the segment’s massive run in 2013.

“The fact that there hasn’t been a significant buying spree after the sell-off in biotechs would indicate to me that the major pharmaceuticals companies, which are sitting on a significant amount of cash, have estimates of fair value that are probably even lower than what the market is giving them now,” said Quantitative Research Analyst Nicholas Bhandari when reached for comment.

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