Shire’s New CEO Adds Sales Staff, Damps Takeover Talk
Flemming Ornskov, who took over as Shire Plc (SHP)’s chief executive officer six weeks ago, is adding sales jobs and eschewing future share buybacks while cooling speculation that the drugmaker is an imminent takeover target.
Shire cut its U.S. sales force by as much as 150 last year, and Ornskov said he expects to restore a “significant” portion of those jobs in anticipation of widening use for Vyvanse, the company’s top-selling drug for attention deficit hyperactivity disorder, as a therapy for binge-eating and depression. Ornskov said he has no plans to expand a share-repurchasing program started by his predecessor, Angus Russell, who retired in April after 13 years at the company.
Larger rivals such as AstraZeneca Plc and GlaxoSmithKline Plc have cut positions and bought back shares amid sluggish revenue growth. Like those companies, Shire is seeking acquisitions to boost sales. The Dublin-based drugmaker has made three acquisitions this year and spent $50 million on 12 investments in the past two years in startup companies developing new technologies such as antibodies and gene therapy for rare diseases.
“I have a plethora of choices of deals I could be doing,” Ornskov, 55, said in an interview in London. “I would love to find things in the marketplace that fit well into our rare diseases business.”
Shire’s sales growth, which has averaged 17 percent over the past eight years, made it the subject of repeated speculation as a takeover target for companies including AstraZeneca and Bristol-Myers Squibb Co.
“That’s never been a focus of ours inside the company, in terms of being on the receiving end of M&A,” Ornskov said in the interview last week. “I just had a board meeting yesterday. We were only talking about growth, innovation, updates on pipeline, how do we work with patient associations, what’s the political environment, what are we doing to train and retain the best people. No one mentioned incoming M&A.”
Ornskov declined to comment on whether the company has received an acquisition approach.
Shire fell 0.2 percent to 2,103 pence in London today, giving the company a market value of 11.7 billion pounds ($18.2 billion). The stock has gained 19 percent including reinvested dividends since Oct. 25, the day Shire said that Ornskov would succeed Russell, and reached the highest in more than 14 months on May 28, four weeks after he took over.
Shire has repurchased about $300 million of its shares as part of a $500 million buyback, and Ornskov said he has no plans to extend the program, after the Mail on Sunday reported he was weighing whether to return 2 billion pounds to investors, without saying where it got the information.
“I will see that to an end, but I have no plans currently to extend or put another one in place,” he said. “Shire’s investors are best served by me and the leadership team being focused on growth.”
When it comes to acquisitions, size doesn’t matter, Ornskov said.
“We’ve shown we can do small deals, we have a history of doing big deals that were transformational for Shire, but size is not what we discuss with the board,” Ornskov said. “It’s fit with the strategy, it’s unmet need, it’s opportunity for growth.”
Shire has a mixed record of deal-making. In 2005 the company paid $1.6 billion for Transkaryotic Therapies Inc., which it used to build a rare-disease business that brought in $1.4 billion in sales last year. Two years later, Shire gained Vyvanse with a $2.6 billion acquisition of New River Pharmaceuticals Inc.
Other deals have been less fruitful. Advanced BioHealing, purchased less than two years ago for $750 million, brought in a treatment for diabetic foot ulcers called Dermagraft that Russell said may reach $500 million a year in revenue. Nine months later, the U.S. Department of Justice told Shire it was investigating the unit’s sales practices, leading the company to replace most of the product’s sales force and take a $199 million charge in the first quarter of this year.
Dermagraft reaped $154 million last year, and just $19 million in the first quarter of 2013. Ornskov said it may ultimately reach $200 million in annual sales, “which is potentially even a stretch.”
“We’re going to start to see slow growth,” he said. “Not the kind of growth I would find satisfactory, not the growth people would have expected when we bought it.”
Ornskov said he wants to give the business his “best shot.”
“I want to fix this business, then I want to see, are there opportunities around this business to build better critical mass? Are there other products that could be added?” he said. “But if in a year or two, I have to say it didn’t work out, I’ll be honest about it. But hopefully by that time we’ll have created a business that could still have value in other people’s hands.”
Growth in prescriptions for Vyvanse has slowed to 6 percent in the first quarter of this year from 23 percent a year earlier, according to company statements. While Shire is starting to expand sales of Vyvanse in Europe under the brand name Elvanse, Ornskov said he doesn’t expect the product to return to “dramatic” growth as a treatment for ADHD.
Instead, he’s banking on trials of the drug in binge-eating disorder, which afflicts as many as 6 million Americans, and major depressive disorder, which affects about 9 million in the U.S. Success in those studies, for which results are expected early next year, may propel sales of Vyvanse to more than $2 billion from $1.03 billion last year, Ornskov said.
“I am not negative about Vyvanse as a growth trajectory for Shire, if these trials work out,” he said.
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