After six months of negotiation, Shire has finally convinced Baxalta of the merits of combining the two companies to create a leading rare disease specialist.
The two firms’ $32bn deal will see Baxalta shareholders receive $18 in cash and 0.1482 Shire American Depositary Receipts (ADRs) per Baxalta share.
The addition of the cash component overcame Baxalta’s initial reluctance to accept the all-stock deal first proffered by Shire last July, which came shortly after Baxalta was spun out of Baxter.
Investors had also expressed concerns that despite Shire’s history of bolt-on acquisitions, the Baxalta deal represents a much larger and more complicated transaction that would leave the combined company just outside the top 20 pharma companies.
Shire said the post-merger firm will be able to deliver double-digit sales growth to more than $20bn by 2020, with around two-thirds of its turnover coming from rare disease therapies across haematology, immunology, neuroscience, lysosomal storage disorders, gastrointestinal/endocrine and disease and hereditary angioedema (HAE).
Pharma companies are increasingly drawn to rare diseases as they can generally command very high prices – generally in the order of hundreds of thousands of dollars per year – making them profitable despite having small patient populations. Almost half the new molecular entities (NMEs) approved by the FDA last year were for rare or ‘orphan’ diseases.
The merger will couple Baxalta’s haemophilia franchise – including its big selling Advate product for haemophilia A and long-acting follow-up BAX-855 which is nearing the market- with Shire drugs such as its HAE therapy Cinryze (C1 esterase inhibitor) and Natpara (recombinant parathyroid hormone) for hypoparathyroidism.
There have been questions raised about the sustainability of Baxalta’s haemophilia franchise in the face of competition from the likes of Biogen, Roche and Novo Nordisk, and shares in Shire fell back 8% yesterday.
Meanwhile, eyebrows were raised earlier this month when Baxalta signed a $1.6bn deal with Symphogen in oncology – which is not a major focus of either of the merging companies although Baxalta did buy in cancer drug Oncaspar (pegaspargase) last year.
Nevertheless, Baxalta chief executive Ludwig Hantson – who had dismissed Shire’s initial overture saying there was little overlap between the companies and that rare disease therapies “require focus” – has now warmed to the idea.
Baxalta shareholders “will receive substantial immediate value as well as an ongoing stake in a combined global leader in rare diseases with strong growth prospects”, he said yesterday.
Shire and Baxalta are also predicting $500m a year in annual cost-savings from the merger within the first three years of the deal’s closure, and are confident that Baxalta’s tax-free status – afforded under US law after the spin-off – will not be affected by the deal’s cash component.
The group’s combined tax rate will be in the 16-17% range, according to Shire, compared to a forecast 23% for Baxalta after its tax-free holiday.