Shire Wants to Spend $30 Billion to Acquire More of the World's Priciest Drugs

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Shire Plc’s unsolicited $30 billion offer for Baxalta Inc. shows how drugs for once-neglected diseases have become a pharmaceutical gold mine.

Baxalta has rejected the advance by Shire, which is seeking the deal to help it become the world’s biggest maker of drugs for rare afflictions. Makers of those treatments are growing quickly, benefiting from government incentives and genetic advances.

They’re also able to charge lucrative prices because insurers offer little resistance against such treatments, since they’re for small populations and have few competitors. Regulators offer incentives for rare-disease drugs including tax breaks and seven years of market exclusivity.

Global prescription sales of orphan drugs, defined by the U.S. Food and Drug Administration as those targeting 200,000 patients or fewer, are expected to grow by more than 60 percent over the next five years to $176 billion, according to market researcher EvaluatePharma.

One of Shire’s best-selling drugs is Cinryze, which treats a rare inflammatory disease and is one of the most expensive medicines in the world, costing as much as $630,000 a year. Shire Chief Executive Officer Flemming Ornskov said in April the company was able to raise the price 5 percent from a year earlier.

Baxalta, a recent spinoff of Baxter International Inc., is dominant in hemophilia, which affects only about 20,000 people in the U.S. Baxalta’s drug Advate, for hemophilia A, can cost $200,000 to $500,000 a year and is well reimbursed by insurers.

Shire combined with Baxalta “would be an all-encompassing player” in rare diseases, said Chris Hamblett, a Boston-based analyst at Cowen & Co. “Hemophilia technically is the world’s largest orphan disorder, and they are looking to build the world’s biggest orphan-disease company.”

More Deals

Genzyme Corp. pioneered the market for super-expensive drugs for rare diseases, building a business that was ultimately so successful that Sanofi bought it in 2011 for $20.1 billion. Other companies that have focused on rare diseases include Vertex Pharmaceuticals Inc., valued at $34 billion, and BioMarin Pharmaceutical Inc., whose stock price has more than doubled in the past 12 months to make it a $23 billion company.

In more recent deals demonstrating the attraction to rare diseases, Alexion Pharmaceuticals Inc. agreed to buy Synageva BioPharma Corp. for $8.4 billion in May, and Teva Pharmaceutical Industries Ltd. struck a deal to acquire Auspex Pharmaceuticals Inc. in March for $3.5 billion.

Shire has made a string of acquisitions focused on companies with treatments for rare diseases, including February’s purchase of NPS Pharmaceuticals Inc., which developed a drug for short bowel syndrome.

Baxalta already has more than a dozen approved products and expects to introduce as many as 20 new ones in the next five years, mostly focused on rare diseases. The company is developing treatments in hematology, cancer and immunology.

Its focus on hemophilia and other rare bleeding disorders include an early-stage gene therapy program. It is also aiming to develop a treatment for one of the deadliest malignancies, metastatic pancreatic cancer.

Reluctant Target

Baxalta said it privately rejected Shire’s offer last month because it undervalues the company, which hasn’t had a chance to realize its potential since the July 1 spinoff.

To woo the reluctant target, Ornskov went straight to investors Tuesday, proposing “an opportunity to create significant shareholder value in one of the most attractive and fastest growing segments in health care.”

With the addition of Baxalta’s products, rare-disease drugs will make up 65 percent of the combined companies’ sales by 2020, compared with about 40 percent at the moment, Shire said Tuesday.

“It’s a very attractive market any way you look at it, in terms of innovation, business model and future growth opportunities,” Ornskov told reporters on a conference call.

Small sales forces, along with pricing and reimbursement, also make these drugs attractive, he said.

Baxalta might never have interest in doing a deal, Hamblett said. “I don’t know if they will ever come to the table,” he said. “They may say, ‘Forget this -- it is worth a lot more.’”