Shire's Ornskov On Goals And Accomplishments One Year After Baxalta Merger

Shire's CEO says he sees scientific and technological advances as an opportunity to become the leading rare disease company. Ornskov also talked about the firm's debt-reduction and M&A strategy going forward.

Since taking the leadership of Dublin-based Shire PLC early in 2013, Flemming Ornskov has become one of the most visible and outspoken CEOs in the biopharmaceutical sector, boosting his firm as a leader, if not yet the leader, in the rare disease space, and accumulating a string of notable deals, not least last year's merger with Baxalta Inc.

A bit over one year after that transaction was finalized, Ornskov spoke at length with Scrip about his ambitions for Shire going forward, specifically in ophthalmology, hemophilia and hereditary angioedema; the challenges and opportunities in the rare disease space; how his company is paying down the debt from its spate of licensing and M&A efforts; and some recent clinical development successes and setbacks. Below is a lightly edited version of the conversation.

Scrip: Where do things stand one year after the Baxalta merger, in terms of the integration, the synergies and how the combined portfolio and pipeline are coming together?

Ornskov: From a Shire perspective, it was 7,000 Shire employees getting together with 17,000 colleagues from Baxalta and if you just look at some of the numbers today and think about where we came from, today we're at 24,000 [people], we're in 70 countries as we speak – we sell our products in 100 but we have 70 local operating countries – we have 40 marketed products, we have 40 clinical programs in the pipeline, we have 20 that are in the late stage, and we have 180 relationships now with patient advocacy groups around the world.

Seventy-five percent of our pipeline today and 65% of our sales around the world are in rare diseases and we're now in seven therapeutic areas – hematology, immunology, genetic diseases, neuroscience, internal medicine, ophthalmology and oncology, and I would say wow, this is more than I ever thought would be possible when I started as CEO in January of 2013. (Also see "Shire's Ornskov: The Modest Pediatrician With Fierce Corporate Ambition" - Scrip, 21 Dec, 2016.)

I think the two teams have come together incredibly fast. We both shared an ambition to become a leader in rare diseases. It's actually more a merger than an acquisition because there's a very good split of executives on both sides of the organization, a little bit more from the Shire side than the Baxalta side. But in general, I would say today we don't talk too much anymore about legacy Shire and legacy Baxalta. When I just got home from Latin America, I couldn't remember whether someone was Shire or Baxalta and I don't think they present themselves anymore as that, and it's just a mix of good talent from both companies. (Also see "Shire's Ornskov Maps Out Future Prospects Post- Baxalta Merger" - Scrip, 6 Jun, 2016.)

Scrip: How is Shire progressing in paying down the debt from the M&A it's done in recent years? Is that an issue or is it well under control?

Ornskov: When you do credit ratings on individuals, you look at their past history – and I think our past history is just phenomenal. When we have done acquisitions in the past, we have paid them down incredibly fast. At the time we paid $32.5bn for Baxalta, we would not have been in the position to do that if first we hadn't obtained the credit and second started very rapidly paying that down and getting very good rates on the debt and the bonds we had to issue.

People did not believe that we have great cash flow and great discipline in paying down our debt and as we've already stated publicly, we have a clear goal of getting down to two-to-three times the multiple of our EBITDA by the end of this year. That's from a debt that was way over $20bn, so that's a very rapid payoff of debt. It's a very top priority for me personally, first of all because that's we told people we were going to do and, secondly, I think it's the right thing to do because when we borrow money and say we're going to pay it down fast, I want to do that.

It also drives us to continually look at where we can be efficient, where we can use all the excess cash that we have to pay off excess debt. That is absolutely one of my top priorities.

Scrip: Will Shire be doing any new issues of stock as part of its debt-reduction strategy?

Ornskov: We have no strategy currently for doing any of that. We are focused on paying down the debt with the structure we have, and what we want to do is make sure that we maximize the cash flow that we generate out of the company without jeopardizing the investments we have to make in commercialization and the pipeline but [also] that we use the excess cash that we have in a [consistent way] to pay down debt.

I think you'll see this as a very disciplined, very regulated plan. If you look at the first quarter of this year, you will see that we made very good progress and reiterated our commitment of getting down to two-to-three times EBITDA. And when I interact with investors, that's one of my top messages.

Scrip: On recent investor calls, you've indicated that given Baxalta was the biggest M&A transaction in Shire's history and how big a task the integration was, there is no plan right now to do other large-scale M&A. Is that still the case?

Ornskov: Absolutely. The priority for me and my team has been some portfolio pruning. We exited out of biosimilars, we stopped some oncology collaborations – the other thing we absolutely have continued to do is look at smaller licensing opportunities and we did one which is very attractive in the dry eye space with Parion Sciences Inc. for a Phase II dry eye compound. (Also see "Shire Exits Biosimilars, Streamlines Oncology Business" - Scrip, 1 Nov, 2016.)

So those things we continue to look at, but major M&A for the time being is not something that we are considering or focused on. We are absolutely focused on completing the [Baxalta] integration, driving the synergies, paying down the debt and then progressing the pipeline we have. We have a very rich pipeline right now, so the need to go out and do something significant is not there. I also want to make sure that the team is focused on making the merger with Baxalta be as successful as possible and not be distracted by anything significant.

SCRIP: With Xiidra already in your portfolio, why did you make the Parion deal to bring in another dry eye candidate?

Ornskov: I cannot say to my team I have a favorite area because if they don't work in that area, they probably will be disappointed, but I've spent a significant time during my career leading ophthalmic businesses. I led the ophthalmic business at Novartis AG and during that period had the opportunity to license in the compound Lucentis [ranibizumab], against a lot of skepticism initially but it worked out.

And then when I was at Bayer AG, I had the opportunity to work on Eylea [aflibercept], which was a successful competitor, you could say, to Lucentis, and when I was at Bausch & Lomb Inc., I had the opportunity to be involved both in an antibiotic that we brought to market for ophthalmic infections and then also a glaucoma product [latanoprostene], we licensed that is pending to get on the US market from Nicox Inc.[See Deal]

So, I've always been incredibly focused on that area and one of the first deals I did at Shire was to acquire SARcode Bioscience Inc.[See Deal] I've been involved in some failed attempts in the past at trying to develop a breakthrough compound for dry eye, so being able to bring the first product to market in the US and hopefully globally that has indications for both signs and symptoms of dry eye disease for me is a personal highlight in my career so far. (Also see "Shire To Launch Potential Dry Eye Blockbuster After FDA Backs Xiidra" - Scrip, 12 Jul, 2016.)

But I think there is still a lot of unmet need. There are 16m diagnosed patients alone in the US, 30m estimated sufferers. I think the uptake of Xiidra [lifitegrast] shows the significant unmet need. If we look back at the clinical data, they were outstanding, I think, in terms of the impact it can have on patients' lives and relief of symptoms and signs, but there's still opportunity for developing drugs for the surface of the eye and treatment of dry eye disease.

When I got to know about the Parion compound, which is a so-called ENaC compound – an epithelial sodium channel potassium inhibitor – and looked at the data, I was really impressed and said to the team we need to be the one that develops the pivotal clinical trials for that drug, given the expertise we already have, and I want to have a second entrant into this market. I'm really enthused about the science, the compound and the continued ability to build our ophthalmic and front-of-the-eye dry eye franchise. (Also see "With Parion Deal Done, Shire CEO Looks To Next Bright Ophthalmic Innovation" - Scrip, 2 May, 2017.)

Scrip: Even though there was a competitor on the market, Shire focused on disease awareness with the Xiidra launch last year, including the EyeLove disease-awareness campaign with Jennifer Aniston. Has that campaign made the impact you hoped for?

Ornskov: When I started to look at dry eye together with the team, there was one compound on the market with the indication of increasing tear flow – Restasis [cyclosporine ophthalmic emulsion] – and Allergan PLC basically built this market. They have sales of over $1bn but if you look at the number of patients still either untreated, not treated with Restasis when we came to market or only treated with artificial tears, there remained a significant opportunity.

As I mentioned, there are 16m patients that are diagnosed and 30m sufferers in the United States, so we thought that there was a significant opportunity to activate more patients and make them aware that there were now other options available. I think [that strategy] has been proven right. Before we came to market, the market was flat. After that, we saw growth in the market on a weekly basis, so I think we've contributed significantly to the growth of the overall market and, of course, to the growth of Xiidra. (Also see "Shire Plays Up Xiidra Launch, Downplays Missed Sales Expectations" - Scrip, 1 Nov, 2016.)

Over time as Xiidra became available in managed care and on formulary, we had to shift more focus to promotion of the actual benefits of Xiidra, as opposed to just general disease awareness. But we'll continue to run general disease awareness, and we're also getting into ex-US markets, where there's a significant opportunity, whether you talk about Europe or Japan. We plan to file later in the year in Europe, we have filed in Canada and could get approval potentially later this year, we've filed in Israel and we've started negotiations about what is needed to get approval in Japan, where we'll probably have to do an additional study.

We also have a compound in Phase III for viral conjunctivitis [SHP640], where we have both viral and bacterial studies ongoing, and we also have earlier-stage products in other indications, so ophthalmology is very important for us and this is an area where I want to build out. I have a great team, I know the area and I think there's significant unmet need for bringing innovative medicines to ophthalmic medicine.

Scrip: Staying on the subject of eye care, how big a setback was last year's clinical disappointment with your candidate for retinopathy of prematurity (SHP607)?

Ornskov: I spent several years of my life working in a neonatology unit in Denmark, so neonatology is close to my heart. The second deal I did when I came to Shire was to acquire the rights to an insulin-like growth factor 1 which was in clinical trials for retinopathy of prematurity (ROP) but also for a pulmonary indication [severe bronchopulmonary dysplasia] and severe intraventricular hemorrhage. [See Deal] It is true that the Phase II study had mixed results and did not meet the primary endpoint of retinopathy of prematurity [but] it had encouraging data both on the pulmonary side and on the intraventricular hemorrhage side. We have ongoing negotiations with both European and US regulators about the path forward.

I still think that it's a very attractive compound. In neonatology, there's a significant unmet need for a compound that affects those three areas. Whether we can go straight into Phase III with a revised protocol or we have to do Phase II and then Phase III is still a discussion, but I think there's dramatic unmet need given the high mortality and the increased number of premature babies. Even though blindness is devastating to the families, there is still more morbidity and mortality associated with the pulmonary and CNS aspects, which this product may also have an impact on. We will continue this development and maybe the ophthalmic part won't be the primary part, but maybe a secondary part. I can give you many reasons why maybe we didn't hit the primary endpoint, but that's all speculative. (Also see "Shire Sees Future For Premature Baby Drug Despite PhII Disappointment" - Scrip, 30 Jun, 2016.)

I said to Shire when I got here, 'I don't want slam-dunk, me-too development programs.' I like to go into areas where there is significant unmet need. When you go into respiratory distress or intraventricular hemorrhage or ROP in very premature kids, you're basically plowing a new field – there are not products for these three indications. You're going to have a higher risk profile but also potentially a higher reward profile. I don't know how many failures there have been in dry eye disease but we were the first one to get approval for the signs and symptoms of dry eye disease. So, I'm not afraid of risk because I think if you want some reward, you have to take some risk. And if you want to be a truly innovative company, you're going to have some setbacks.

Scrip: In the hemophilia space, Shire recently decided to terminate the Xenetic Biosciences Inc. long-acting Factor VIII program in hemophilia A, which was acquired in the Baxalta merger. How does that affect Shire's plans going forward in hemophilia?

Ornskov: Again, here, the truth is a bit more mixed than talking about a failure. The predefined criteria for developing SHP656 was whether it was clearly differentiated from Adynovate [antihemophilic factor [recombinant], pegylated], which is a so-called enhanced half-life compound. And the data did not show a clear differentiation. When it did not meet that criteria, we needed to have the scientific and medical rigor to say ok, we're not continuing this program. Of course, as with other programs, you go back and see if there are other opportunities, but in this particular situation, we want to bring truly differentiated products to market versus products we already have. (Also see "Competition Coming For Hemophilia Franchises, But Will Patients And Payers Embrace New Drugs?" - Scrip, 15 Mar, 2017.)

You can call it a setback but we learned a lot, it's a good compound but it did not meet the criteria for what we would like to have seen to put the investment behind it. We'll continue to evaluate it. We want to continue to bring innovation to hemophilia and we have other things that we're working on that we hope will contribute to innovation. One of the areas we are very interested in investing in is the promising area of gene therapy for hemophilia A and B. (Also see "Shire Discontinues Development Of Once-Weekly SHP656 For Hemophilia A" - Scrip, 22 May, 2017.)

Scrip: One recent clinical success for Shire was the positive data for your long-acting hereditary angioedema candidate, lanadelumab. Do you view those results not only as good news for the program, but also as a validation of Shire's purchase of Dyax Corp.?

Ornskov: Yes, you can imagine that when you go out and pay $5.9bn for a compound, which is in Phase I/II and you have limited clinical trial data, people may have questions about it. [See Deal] But I think it validated our acquisition, and also validated our ability to spot data from clinical trials and project them to what they could be in Phase III.

It was clear to me – and I was intimately involved – when I looked at the molecule, the data that the Dyax team had achieved with lanadelumab [DX2930] [showed significant promise]. The platform – remember that we get significant royalties from the companies that are developing antibodies based on the Dyax platform – along with some of the other compounds we acquired that we are developing or considering developing, [enable me to] feel extremely good about Dyax.

With lanadelumab, [the positives include] the data that we saw both in terms of the efficacy overall, the infrequent dosing, whether it was once every month or every two weeks, the small volume, subcutaneous [administration] and the length of time that people were attack-free, along with the fact that 96% of the patients continued voluntarily into the extension trial. It's one of the compounds I'm most enthused about because I think we have high unmet need in the market for a highly efficacious, convenient product and outstanding clinical data. It met all of its primary and secondary endpoints at the level of 0.0001. That's pretty impressive, I think. (Also see "Shire CEO Says Lanadelumab Results Vindicate Dyax Buy, M&A Strategy" - Scrip, 19 May, 2017.)

Scrip: If you successfully bring lanadelumab to market, what will that mean for the HAE market overall, including Shire's existing franchise?

Ornskov: It will build out our global leadership in hereditary angioedema, it will bring a potential breakthrough product to patients. We will continue to expand the market. We will take market share away from other compounds in the market … it will mean some cannibalization of Cinryze [C1 esterase inhibitor (human)] and other C1 esterase inhibitors, but it's not one size fits all. There will always be patients that need some of these [therapeutic options]. This also will take share away from Firazyr [icatibant], which is going to lose patent protection in the US in 2019 anyway, so we're cannibalizing something, but it goes generic anyway.

Scrip: In seeking to become the leader in rare diseases, what are the challenges Shire will face? What benefit does Shire get from its relationships with 180 patient advocacy groups?

Ornskov: We don't face any challenges – the word I would use is opportunity. There are so many opportunities. I'm more focused on research and development and innovation, so when I look at what's in our pipeline, when I look at other companies, when I talk to physicians, this is almost a field in explosion just in terms of applying all of the increased understanding of diseases and what the genome project has driven in terms of understanding the genetic constitution of these diseases much better.

When I recently spent time at the Broad Institute and heard about gene editing and what that's going to do, when I see what we and other companies are doing in gene therapy, and then when I learn about IBM Watson and application of tailored use of artificial intelligence to identify rare conditions and to apply the best treatment, I think we're at a crossroads where we can just continue to build out our leadership globally.

With Baxalta and Shire coming together, we are now in 70 countries. We have the most unique platform around the globe, so not only short-term but mid- to long-term, I think we're in an outstanding space to be the leader in driving innovation and commercial execution of these diseases. Whether we work with academic institutions, the NIH, hospitals like Children's Hospital in Boston or Pittsburgh or around the world, or have collaborations with patient associations or physician associations, I just look at this as the most unique opportunity I've experienced in my career. The biggest challenge we face is to make some choices about what to focus on because there is so much we could be doing.