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Shire’s Shareholders Approve Baxalta Merger: What’s Next?

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Shire shareholders approve Baxalta merger

Shire (SHPG) performed the worst among the large-cap stocks of the iShares Nasdaq Biotechnology ETF (IBB) on May 27, 2016.

SHPG fell by 1.7%. It also underperformed the SPDR S&P 500 ETF (SPY), which gave a return of 0.4%. Shire closed at $186.96 and was trading above its 20-day moving average price of $181.20.

The above graph reflects Shire’s performance in comparison with IBB’s and SPY’s performances in May.

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In a recent development, Shire’s shareholders approved its merger with Baxalta (BXLT). In a press release, Shire announced, “At a general meeting convened for the purpose, its shareholders have approved proposals relating to Shire’s combination with Baxalta Incorporated, which would create the leading global biotechnology company in rare diseases and other highly specialized conditions.”

Under the merger agreement, Baxalta’s shareholders will receive $18.00 in cash per share and either 0.15 of Shire’s ADSs (American depositary shares) or 0.45 of Shire’s common shares per Baxalta share. Baxalta’s shareholders have yet to approve. Shire expects the merger transaction to be completed by June 3, 2016.

Revestive receives positive opinion in Europe

In another positive development for Shire, it received a positive opinion from the Committee for Medicinal Products for Human Use on its Revestive treatment for short bowel syndrome.

In a press release, Shire announced, “The European Medicines Agency’s [EMA] Committee for Medicinal Products for Human Use [CHMP] adopted a positive opinion, recommending the extension of the approval of Revestive®* [teduglutide] 5 mg powder and solvent for solution for injection in paediatric patients [aged one to 17 years] with short bowel syndrome [SBS]. Teduglutide is an analogue of human glucagon-like peptide 2 [GLP-2] that enhances key structural and functional adaptations in the intestinal mucosa.”

Analysts’ recommendations and valuations

Analysts’ consensus 12-month target price for Shire is $238.5. Fourteen analysts recommend “buys” on the stock, two analysts recommend “holds” on the stock, and no analysts recommend “sells” on the stock. On May 27, 2016, the stock was trading at a 2016 forward price-to-earnings (or PE) multiple of ~14.6x. Shire has a weight of ~1.3% in IBB’s portfolio.

While Shire was an underperformer, Incyte (INCY) was an outperformer, with a rise of 3.4% on May 27, 2016. The stock continued its upward trend on good buying support. Incyte closed at $84.53 and was trading above its 20-day moving average price of $75.6. The stock has fallen by 22.1% year-to-date.

Incyte is trading at a 2016 forward PE multiple of 276.2x. Incyte has a book value of $1.22 per share. At its current price, the stock is trading at a price-to-book value of ~69.6x. Incyte has a weight of ~3.0% in IBB’s portfolio.

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