A Combined Shire and Baxalta: Examining the Implications


From DCAT Value Chain Insights (VCI)

By Patricia Van Arnum posted 08-03-2015 10:06

  

Shire's $30 billion proposal to acquire Baxalta, the newly spun-off company from Baxter Healthcare, would give Shire a $6 billion biopharmaceutical company with a rare-disease focus. What would a combined Shire and Baxalta be?

Baxalta, which only launched as an independent company in July 2015, has thus far rejected Shire's acquisition efforts. Shire, which was the company pursued by AbbVie in a terminated nearly $55 billion acquisition last year, sees potential. A combined company of Shire and Baxalta is projected to deliver product sales of $20 billion in 2020 with several $1 billion franchises in rare diseases. It would have more than 30 new product launches planned with approximately $5 billion incremental sales potential by 2020. DCAT Value Chain Insights examines the product and manufacturing positions of the combined company.

Examining the deal
Under the deal, Baxalta shareholders would receive, for each Baxalta share, 0.1687 Shire America depositary receipts (Shire is headquartered in Dublin, Ireland). The proposal implies a value of $45.23 per Baxalta share and represents a premium of 36% over Baxalta’s stock price as of August 3, 2015. The proposed transaction would be structured as an all-stock transaction to maintain the tax-free nature of Baxalta’s July 1, 2015, spinoff from Baxter. Baxalta shareholders would own approximately 37% of the combined Shire group. After the close, Shire would initiate a share buy-back program to repurchase, within two years, up to 13% of the combined post-transaction shares outstanding. Baxalta acknowledged it received Shire's proposal privately on July 10, 2015, and in consultation with Baxalta’s board of directors and with its financial and legal advisors, reviewed the proposal and determined that it was not in the best interests of Baxalta or its shareholders.

If a deal could be reached and completed, a combined Shire and Baxalta would have projected product sales of $20 billion in 2020 with several $1 billion franchises in rare diseases, according to information from Shire. It would have more than 30 new product launches planned with approximately $5 billion incremental sales potential by 2020.

Shire's move to acquire Baxalta comes after AbbVie terminated a proposed acquisition of Shire for approximately $55 billion in October 2014. The proposed acquisition of Shire involved a tax inversion structure by which the New AbbVie was to become a holding company for the combined AbbVie and Shire and to be incorporated in Jersey, the UK, Shire's place of incorporation. Through its incorporation in the UK, the AbbVie board expected the transaction to reduce New AbbVie's effective tax rate to approximately 13% by 2016. A subsequent notice by the US Department of Treasury, however, which signaled a limiting of corporate tax inversions, cast uncertainty as to this practice, so AbbVie decided to terminate the proposed acquisition.

Inside Shire
In seeking to acquire Baxalta, Shire is moving forward with a strategic focus formed in 2013, when the company repositioned itself as a specialty biopharmaceutical company with a primary focus on specialized and rare diseases. The company named a new CEO, Flemming Ornskov, on April 30, 2013. Ornsko set forth a new strategic focus for Shire, which included integrating three separate segments (Specialty Pharmaceuticals, Human Genetic Therapies, and Regenerative Medicine) into four business units based on the therapeutic area of the company’s in-line products (rare disease, neuroscience, gastrointestinal, and internal medicine) and also in ophthalmics to support the development of Shire’s ophthalmic pipeline candidate as well as created a single R&D unit with a focus on rare diseases. In November 2013, Shire announced that its preclinical pipeline would focus only on rare diseases, and it discontinued other programs that were not within that purview. The company also changed the way it managed its businesses internally by reconstituting its Executive Committee (formerly known as the Leadership Team) as well as establishing two new management committees: the In-line Committee and the Pipeline Committee. The Executive Committee manages the business of Shire. The In-line Committee is responsible for ensuring the optimal performance of the company’s current portfolio of marketed products, and the Pipeline Committee is responsible for overseeing and driving the development of the companies’ pipeline and future products.

The addition of Baxalta would be a large acquisition for Shire, which has made several recent bolt-on acquisitions, particularly centered on rare disease drugs. Earlier this year, it acquired NPS Pharma for $5.2 billion. With the acquisition of NPS Pharmaceuticals, Shire acquired Natpara (parathyroid hormone), a new molecular entity approved in the US to control hypocalcemia (low blood calcium levels) in patients with hypoparathyroidism, a rare disease that affects approximately 60,000 people in the United States. Also in 2014, Shire acquired Meritage Pharma, a privately held company, for an upfront fee of $70 million and additional contingent payments based on the achievement of development and regulatory milestones. With the acquisition, Shire acquired the global rights to—and undertook the further development of—Meritage’s Phase III-ready compound, oral budesonide suspension, a drug for treating adolescents eosinophilic esophagitis, a rare, chronic inflammatory gastrointestinal disease. Shire obtained the rights to acquire Meritage in connection with its $4.2 billion acquisition in 2014 of ViroPharma, a company specializing in developing drugs for rare diseases. ViroPharma’s lead product was Cinryze (C1 esterase inhibitor [human])), an injectable prescription medicine that is used to help prevent swelling and/or painful attacks in teenagers and adults with hereditary angioedem. Also, earlier this month, Shire acquired Foresight Biotherapeutics Inc. for $300 million to add to its eye-care business. With the acquisition, Shire acquired the global rights to FST-100 (topical ophthalmic drops combining 0.6% povidone iodine (PVP-I) and 0.1% dexamethasone), a therapy in late-stage development for treating infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye.

Also in 2014, to strengthen its gastrointestinal drug pipeline, Shire acquired Lumena Pharmaceuticals, Inc., a biopharmaceutical company with rare-disease pipeline assets with a focus on liver disease. The move also provided a fit with Shire’s acquisition of Fibrotech, which brought pipeline programs to address unmet patient need in other fibrotic conditions, including renal impairment. Lumena Pharmaceuticals gave Shire two new oral therapeutic compounds; LUM001 and LUM002, both inhibitors of the apical sodium-dependent bile acid transporter (ASBT), which is primarily responsible for recycling bile acids from the intestine to the liver. Blocking bile acid transport with ASBT inhibitors reduces bile-acid absorption and has the potential to improve liver function, relieve disease symptoms (such as extreme itching associated with cholestatic liver diseases), and may slow disease progression.

In 2013, Shire made three key acquisitions (Lotus Tissue Repair, Premacure, and SARcode Biosciences), which also built the company's position in specialized and rare diseases. Lotus Tissue Repair's key product was a preclinical protein-replacement therapy for dystrophic epidermolysis bullosa, a rare, genetic disease characterized by the presence of extremely fragile skin and recurrent blister formation. The Premacure acquisition provided Shire a clinical-stage protein-replacement therapy for the prevention of retinopathy of prematurity, a rare and potentially blinding eye disorder that primarily affects premature infants and is one of the most common causes of visual loss in childhood. With SARcode, Shire further enhanced its position in ophthalmology by gaining lifitegrast (SHP606), a drug to treat dry-eye disease. As part of its efforts to focus on rare disease, Shire divested its Dermagraft assets to Organogenesis in January 2014. Dermagraft is a living skin substitute for treating full-thickness diabetic foot ulcers.

Shire's product and manufacturing positions
Shire posted 2014 revenues of $6.02 billion; product sales accounted for 97% of total revenues, or $5.83 billion. The company’s lead product (see Table I) is Vyvanse (lisdexamfetamine dimesylate), a drug to treat attention deficit hyperactivity disorder (ADHD), which had 2014 revenues of $1.45 billion, and which was also approved earlier this year in the US for treating binge eating. Its other top-selling products (products with sales in excess of $500 million are more) in 2014 were: Lialda/Mezavant (mesalamine) for induction and/or remission of ulcerative colitis (2014 revenues of $633.8 million); Elaprase (idursulfase) for treating Hunter Syndrome (2014 revenues of $592.8 million); Cinryze (C1 esterase inhibitor [human]) for routine prevention of hereditary angioedema, a rare genetic disorder caused by the deficiency of C1 esterase inhibitor, a protein in the blood that helps prevent swelling (2014 revenues of $503.0 million); and Replagal (agalsidase alfa) for treating Fabry disease ($500.4 million) (see Table I ).

Table I: Shire’s Top-Selling Products, 2014

Proprietary name (active pharmaceutical ingredient) 2013 sales
(US$, Millions)


Indication
Vyvanse (lisdexamfetamine dimesylate) $1,449.0 Attention deficit hyperactivity disorder
Lialda/Mezavant (mesalamine) $633.8 Induction and/or remission of ulcerative colitis
Elaprase (idursulfase) $592.8 Hunter syndrome (Mucopolysaccharidosis II, MPS II)
Cinryze (C1 esterase inhibitor [human]) $503.0 Prevention of hereditary angioedema
Replagal (agalsidase alfa) $500.4 Fabry disease
Adderall XR (mixed salts of a single-entityamphetamine product: dextroamphetamine sulfate,dextroamphetamine saccharate, amphetamine aspartate monohydrate, amphetamine sulfate capsules, CII) $383.2 Attention deficit hyperactivity disorder
Vpriv (velaglucerase alfa) $366.7 Long-term enzyme replacement therapy for treating Type 1 Gaucher disease
Firazyr (icatibant) $364.2 Acute hereditary angioedema
Intuniv (guanfacine) $327.2 Attention deficit hyperactivity disorder
Pentasa (mesalamine) $289.7 Anti-inflammatory agent for gastrointestinal use
Fosrenol (lanthanum carbonate) $183.0 End-stage renal disease
Xagrid (anagrelide) $108.5 Essential thrombocytosis or overproduction of blood platelets
Other product sales $128.9
Source: Shire PLC (2014 10-K Annual Filing, US Securities and Exchange Commission).

On the manufacturing front, Shire’s manufacturing facilities are in Cambridge and Lexington Massachusetts. The Cambridge site also includes warehouse facilities. The Lexington site also includes laboratories, warehousing, and distribution operations. The company also has a warehousing and distribution facility in Florence, Kentucky, a warehousing facility in North Reading, Massachusetts, and laboratory and office space in Sao Paulo, Brazil. Its other offices are in: Dublin, Ireland; Wayne, Pennysylvania; Basingstoke, UK; Nyon, Switzerland; and Exton, Pennsylvania (secured through its acquisition of ViroPharma). The prioritization and rationalization of Shire’s development portfolio meant that many of the R&D programs that were being run from Basingstoke, UK ceased, which resulted in R&D roles in Basingstoke being eliminated and some positions being re-located. In addition, in 2013, the company announced plans to re-locate its international commercial hub from Nyon, Switzerland to Zug, Switzerland. In October 2013, Shire also announced that it will discontinue the construction of new manufacturing facility in San Diego and also closed its site in Turnhout, Belgium.

Shire sources active pharmaceutical ingredients (APIs) from third-party suppliers for Vyvanse (lisdexamfetamine dimesylate), Intuniv (guanfacine), Adderall XR (mixed salts of a single-entity amphetamine product), Lialda (mesalamine), Forsenol (lanthanum carbonate), Pentasa (mesalamine), Xagrid (anagrelide), Cinryze (C1 esterase inhibitor [human]), and Firazy (icatibant). Shire has in-house manufacturing capability for Replagal (agalsidase alfa), Elaprase (idursulfase), and Vpriv (veglucerase alfa) at its protein-manufacturing plants in Cambridge and Lexington, Massachusetts. As of its 2014 annual filing, the company had dual sources of API for Vpriv, Vyvanse, Adderall XR, Lialda, and Pentasa and was qualifying a second source for Intuniv. The company has two locations approved for the purification of Replagel drug substance. On the finished product side, Shire sources from third-party manufacturers the following products: Vyvanse, Intuniv, Adderall XR, Lialda, Pentasa, Forsenol, Equasym (methylphenidate), Cinryze, and Xagrid. As of its 2014 annual filing, the company had dual sources for finished product manufacturing for Elaprase, Replagal, Vpriv, and Vyanese and was developing a second source for finished product manufacturing for Lialda.

Inside Baxalta
Baxalta Incorporated, the spin-off of Baxter, launched as a separate, independent $6 billion biopharmaceutical company on July 1, 2015. Baxter announced in March 2014 that it was separating into two independent companies, one focused on biopharmaceuticals and a second on medical products. Baxalta is headquartered in Bannockburn, Illinois, and the Baxalta Global Innovation and R&D Center is located in Cambridge, Massachusetts. Baxalta’s therapies are available in more than 100 countries and it has advanced biological manufacturing operations across 12 facilities, including recombinant production and plasma fractionation. Baxalta employs 16,000 employees worldwide and is led by Ludwig N. Hantson, PhD, as president and chief executive officer of Baxalta and who also serves on the company’s board of directors. Prior to Baxalta’s separation from Baxter in July 2015, he was corporate vice president and president of Baxter BioScience, having served in that capacity since October 2010. Ludwig joined Baxter in May 2010 as corporate vice president and president, international. From 2001 to May 2010, Dr. Hantson held various positions at Novartis Pharmaceuticals Corporation, the last of which was chief executive officer, Pharma North America. Prior to Novartis, Dr. Hantson spent 13 years with Johnson & Johnson in roles of increasing responsibility in marketing and clinical research and development. 

The therapeutic focus of Baxalta is in hematology, immunology, and oncology .Baxalta’s portfolio includes a variety of additional differentiated therapies for the treatment of bleeding disorders and chronic and acute medical conditions, including hemophilia A, hemophilia B, acquired hemophilia, inhibitor treatments, primary immunodeficiency (PID) and alpha-1 antitrypsin deficiency. Baxalta is also investing in new disease areas, including oncology, as well as emerging technology platforms, including gene therapy and biosimilars. Baxalta said it plans to launch 20 new products by 2020. Over the past two years, Baxalta has received seven new approvals and currently has four products under regulatory review across its three areas of focus. Overall, Baxalta has more than 40 programs in development, 13 of which are in late-stage development.

Baxalta's product positions
Baxalta’s core disease therapies include: Advate (antihemophilic factor [recombinant]), a recombinant factor VIII (rFVIII) therapy for the treatment of children and adults with hemophilia A; Feiba (anti-inhibitor coagulant complex), an inhibitor management therapy; Gammagard liquid (immune globulin intravenous [human]), a liquid formulation of the antibody-replacement therapy for the treatment of immune deficiencies and certain neurological disorders; and Hyqvia (immune globulin infusion 10% [human]) with recombinant human hyaluronidase), an immune globulin with a recombinant human hyaluronidase for the treatment of PID in adults.

In hematology, the company is advancing its position with on-market products, including Advate (antihemophilic factor [recombinant]) and Feiba [anti-inhibitor coagulant complex (human)]. Key pipeline products of Baxalta are BAX 855, an investigational extended half-life recombinant factor VIII (rFVIII) treatment for hemophilia A to be marketed in the United States under the brand name Adynovate (antihemophilic factor [recombinant], pegylated). In immunology, Baxalta if focused on its differentiated immune globulin portfolio with key products being Hyqvia (immune globulin infusion 10% [human] with recombinant human hyaluronidase), for treating adults with primary immunodeficiency.

In oncology, the company’s late-stage pipeline is focused in rare diseases and complex therapeutics to address patients with high unmet need and difficult-to-treat cancers, including myelofibrosis, a rare blood cancer, and metastatic pancreatic cancer. In addition, Baxalta recently announced the acquisition of the Oncaspar (pegaspargase) product portfolio for acute lymphoblastic leukemia, a deal that is expected to close in the second half of 2015.

Key recent acquisitions and partnerships of Baxalta
Baxalta has enhanced its product positions through targeted acquisitions and collaborations. In March 2015, Baxalta acquired SuppreMol GmbH, a biopharmaceutical company based in Germany with an early-stage development portfolio of treatment options for autoimmune and allergic diseases, focusing on the modulation of Fc receptor signaling pathways, an immune target that could have broad applications in autoimmune disorders. SuppreMol’s pipeline includes its lead candidate, SM101, an investigational immunoregulatory treatment that has completed Phase IIa studies in idiopathic thrombocytopenic purpura a disorder causing low platelet levels and systemic lupus erythematosus, a disorder in which the immune system attacks healthy tissue.

In June 2014, Baxalta acquired AesRx, LLC , obtaining AesRx’s program related to the development and commercialization of treatments for sickle cell disease, including BAX 555 (f/k/a Aes-103), an investigational prophylactic treatment for SCD currently in a Phase II clinical trial as part of an ongoing collaboration with the National Institute of Health National Center for Advancing Translational Sciences through its Therapeutics for Rare and Neglected Diseases program. In April 2014, Baxalta acquired Chatham Therapeutics, gaining broad access and intellectual property rights to its gene-therapy platform for the treatment of hemophilia B (BAX 335, currently in Phase I clinic trials) as well as a preclinical hemophilia A program, and the potential future application to additional hemophilia treatments.

In September 2014, Baxalta entered into an exclusive license and collaboration agreement with Merrimack Pharmaceuticals, for the development and commercialization of nanoliposomal irinotecan injection, or nal-IRI (MM-398), an investigational drug candidate for the treatment of patients with metastatic pancreatic cancer previously treated with a gemcitabine-based therapy, for all potential indications outside the United States and Taiwan. A Phase III trial has been completed, and Baxalta filed for approval for second-line pancreatic cancer in the European Union (EU) in May 2015. In November 2014, FDA granted nal-IRI fast track designation for the treatment of patients with metastatic pancreatic cancer who have been previously treated with gemcitabine-based therapy. Fast track designation is designed by the US Food and Drug Administration (FDA) to facilitate and expedite the development and review of drugs that treat serious conditions and fill an unmet medical need.

Baxalta also has several pacts in biosimiars. It has a collaboration with Coherus BioSciences, Inc. to develop and commercialize CHS-0214/BAX 2200, a biosimilar product candidate for Enbrel (etanercept), indicated for the treatment of certain autoimmune deficiencies, in Europe, Canada, Brazil, and other markets. This is Baxalta’s most advanced biosimilar, currently in Phase III clinical trials for rheumatoid arthritis and psoriasis. In early-stage clinic trials, Coherus has demonstrated pharmacokinetic equivalence versus the innovator molecule, according to information from the company.

Baxalta is also collaborating with Momenta Pharmaceuticals, Inc. on the development and commercialization of M923/BAX 2923, a biosimilar product candidate for Humira (adalimumab), which is currently in early-stage development. In December 2014, a European clinical trial application for M923/BAX 2923 was accepted. In June 2015, Baxalta entered into an agreement with SFJ Pharmaceuticals Group relating to M923/BAX 2923, whereby SFJ will fund up to $200 million of specified development costs related to Baxalta’s M923/BAX 2923 program in exchange for payments in the event the product obtains regulatory approval in the United States and/or Europe. The contingent success payments, which would total approximately 5.5 times the incurred development costs, would be paid in installments over several years following the date(s) of regulatory approval.

On the innovator side. Baxalta acquired rights under a worldwide licensing agreement with CTI BioPharma Corp. (f/k/a Cell Therapeutics, Inc.) to develop and commercialize pacritinib (BAX 2201), a an investigational JAK2/FLT3 inhibitor that recently completed Phase III trials for myelofibrosis, a chronic, malignant bone marrow disorder, and is currently in Phase II trials for acute myeloid leukemia. Baxalta has exclusive commercialization rights for all indications outside the United States, and will jointly commercialize pacritinib in the United States with CTI BioPharma. Positive top-line results from the Phase III trials were announced in March 2015.

In 2013, Baxalta acquired the investigational hemophilia compound and related assets from Inspiration BioPharmaceuticals, Inc. (Inspiration), as well as certain other assets, including manufacturing operations, from Ipsen Pharma S.A.S. in conjunction with Inspiration’s bankruptcy proceedings. In October 2014, Obizur was approved for the treatment of acquired hemophilia A in the United States and is currently under regulatory review in Europe and Canada.

In established products in 2010, Baxalta acquired exclusive distribution and licensing rights in the United States, Australia, New Zealand, and Canada to Glassia, a ready-to-use liquid alpha1-proteinase inhibitor used to treat alpha-1 antitrypsin deficiency, through an agreement with Kamada Ltd., together with a technology transfer allowing Baxalta to implement Kamada’s related production technology.

Another pact involves Hyqvia, a product consisting of human normal immunoglobulin (IG) and recombinant human hyaluronidase (licensed from Halozyme Therapeutics, Inc. in 2007). Hyqvia was approved in Europe in 2013 for adults with PID syndromes and myeloma or chronic lymphocytic leukemia (CLL) with severe secondary hypogammaglobulinemia and recurrent infections, and also in the United States in 2014 for adults with PID.

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