Finally! Shire And Baxalta Sign $32bn Deal To Form Largest Rare Disease Company
This article was originally published in Scrip
Shire plc and Baxalta Incorporated have confirmed they are to merge. The combined company, which will be 34% owned by Baxalta shareholders, will be "the partner of choice in rare diseases," claimed Shire CEO Flemming Ornskov.
Ornskov said the deal would see Shire achieve $20bn in annual revenues by 2020, compared with $10bn prior to the deal. The combined company will have 60 compounds in clinical development, 50 of which are in rare disease. "We now have the number one platform in rare diseases," he said in a conference call (Jan. 11).
Under the agreement, Baxalta shareholders will receive $18.00 in cash and 0.1482 Shire ADS per Baxalta share. Based on Shire's closing ADS price on January 8, 2016, this values each Baxalta share at $45.57, and a deal value of $32bn. On a 30-day average Shire ADS price, each Baxalta share is worth $47.50.
The offer price represents a premium of around 37.5% to Baxalta's unaffected share price on Aug. 3, 2015, the day prior to Shire's initial offer for Baxalta.
Baxalta's management, which only took the company public on July 1, 2015, turned down Shire's initial August offer, which was worth around $30bn.
"We feel comfortable with the new shape of the deal," said Ornskov. "Initially it was an all-share deal with a significant buy-back at the end. We had good collaboration with Baxalta [during negotiations] and we are confident we will meet the expectations of all the shareholders."
Tax Considerations
Baxalta was spun out of Baxter International in 2014 as a biopharma-focused unit. Shire has conducted "extensive due diligence" and is "confident" that even with the proposed cash consideration of $18 per Baxalta share, the transaction "will maintain the tax-free status of the Baxalta spinoff from Baxter," assured Ornskov.
Baxter International chairman and CEO José Almeida said in a statement: "Baxter fully supports the proposed combination of Shire and Baxalta, which will create a major biotechnology company and global leader in rare diseases. Baxter is pleased to support this value enhancing transaction."
Shire's tax rate will drop to 16-17%, down from 18%, but Ornskov was quick to state, "This deal is not about tax. It is about growth."
Shire expects to achieve annual operating cost synergies of $500m within three years, as well as significant revenue and tax synergies.
In addition to the pipeline boost, Shire will expand its geographical footprint from a presence in 72 countries to more than 100 countries.
Prior to Baxalta, Shire's largest acquisition to date was that of Dyax for $6bn.
Shire has arranged an $18bn bank facility, which will fund the $6bn Dyax deal and the $12bn cash component of the Baxalta offer.
"We are very disciplined and we pay down our debt quickly," noted Ornskov. Further M&A activity is likely to be limited this year. "For the short-term we are focused on integration and paying down debt," he said.
The transaction is expected to be accretive to EPS in 2017, and the combined company is expected to generate annual operating cash flow of $6.0bn beginning in 2018.
The move has been approved by the boards of directors of both companies, and is expected to close mid-2016.
The combination of Shire and Baxalta will create "multiple billion-plus-dollar products," said Ornskov. Key franchises are in hematology, immunology, neuroscience, lysosomal storage diseases, gastrointestinal/endocrine and hereditary angioedema (HAE). The combined company also has a significant presence in oncology and ophthalmics.
Hematology
Baxalta has a well-established hematology portfolio including Adynovate (Antihemophilic Factor (Recombinant), PEGylated), a recombinant factor VIII treatment for hemophilia A which was recently approved in the US.
Immunology
Baxalta is contributing a broad portfolio of immunoglobulin (IG) products to the combined company, most notably the recently launched Hyqvia, a next generation subcutaneous IG treatment for patients with primary immunodeficiency.
Neuroscience
Shire has a long history in ADHD with a strong franchise and pipeline, including a new Vyvanse indication for adults with moderate-to-severe binge eating disorder.
Lysosomal Storage Diseases
Shire has a range of therapies for these rare genetic diseases including: Vpriv for type 1 Gaucher disease; Elaprase for Hunter syndrome (Mucopolysaccharidosis II, MPS II); and Replagal for Fabry disease.
Gastrointestinal/Endocrine
Shire's G/E portfolio is built on its 5-ASA products: Lialda and Pentasa for ulcerative colitis, and recent additions of Gattex/Revestive for short bowel syndrome, and Natpara for hypocalcemia in patients with hypoparathyroidism.
HAE
Shire has prophylactic and acute therapies for HAE treatment: Cinryze and Firazyr respectively, and – pending completion of the Dyax acquisition a Phase III prophylactic therapy option.
Ophthalmics
Shire is building an ophthalmology franchise with the 2016 projected launch of Lifitegrast, if approved, for dry eye disease; SHP640 for infectious conjunctivitis entering Phase III in 2016, and SHP607 for the treatment of retinopathy of prematurity, generating results from its Phase II trials which are expected in 2016
Oncology
Baxalta brings a growing oncology business. The portfolio includes Oncaspar (pegaspargase), a marketed biologic treatment for acute lymphocytic leukemia, and late-stage, partnered products such as pacritinib, an investigational oral kinase inhibitor for the treatment of patients with myelofibrosis, and Onivyde (irinotecan liposome injection) for the treatment of patients with metastatic pancreatic cancer.
Last week, Baxalta agreed to pay Danish biotech Symphogen $175m upfront for exclusive option rights to an early stage immune-oncology program.