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Shire spells out why AbbVie takeover is a bad idea

Talks up its growth prospects as an independent company

ShireShire has taken a leaf out of AstraZeneca's book and issued a bullish statement about its growth prospects as an independent company to help fend off AbbVie's advances.

Shire - which turned down a $46bn takeover offer from AbbVie last week - told shareholders and investors yesterday that it expects to reach $10bn in product sales by 2020, more than double its 2013 turnover. AZ made similarly aggressive sales predictions as part of its defense against Pfizer.

Shire's chief executive Flemming Ornskov said that target was achievable "even without the impact of any additional M&A, licensing and the pipeline development from certain recent transactions", adding that around $7bn of the 2020 total would come from its current portfolio and $3bn from pipeline products.

He also pointed to the improvements in profitability at the company in the last 12 months, with margins up eight points from 37 to 45 per cent, adding that AbbVie's £46.26-a-share offer significantly undervalues the firm.

AbbVie was separated out from Abbott Laboratories last year and sells the arthritis blockbuster Humira (adalimumab) although - notwithstanding a much-touted oral regimen for hepatitis C - questions have been raised about the depth of its pipeline.

"An acquisition by AbbVie may be required to dilute the contribution of Humira over time as well as to prevent AbbVie itself eventually becoming prey to industry consolidation," said analysts at Jefferies in a research note.

Shire would bring an established portfolio of specialty medicines - including a stable of drugs for attention-deficit hyperactivity disorder (ADHD) - plus a well-regarded rare disease therapy business acquired as part of its $4.2bn acquisition of Viropharma in January.

In similar fashion to Pfizer's bid for AZ and Valeant's pursuit of Allergan, Shire's product portfolio and pipeline is not the only draw for AbbVie. Like its peers, AbbVie is offering a cash and stock deal with the lure of domiciling the merged company in a lower tax rate country. Shire is headquartered in Ireland and listed on the UK stock exchange.

Jefferies suggests AbbVie may raise its bid as high as £55 per share, based on the expected tax savings afforded by a merger.

Analysts at William Blair said that, unlike the ongoing hostile bid for Allergan by Valeant, "it will be difficult to argue that new management at Shire has not executed well", adding that the Irish company may be tempted into a defensive acquisition with the likes of Cubist or BioMarin.

Article by
Phil Taylor

24th June 2014

From: Research, Sales



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