Shire CEO Says Baxalta Deal Isn't About Cost Savings, Taxes

  • Company seeks to be `undisputed leader' in rare diseases
  • CEO Ornskov doesn't rule out selling some units in future

Shire Plc Chief Executive Officer Flemming Ornskov, who built up his drug company with serial acquisitions and announced a $32 billion deal to buy Baxalta Inc. this week, said the proposed purchase isn’t about cost savings or tax advantages but about becoming “the undisputed leader in rare diseases.”

In an interview with Bloomberg Television on Friday, Ornskov reiterated that Shire expects to get at least $500 million in annual cost savings from the Baxalta transaction. That number has left some investors wanting more.

“I like to be a manager that under-promises and over-delivers, so I think we can say it’s a fairly conservative number, but this is not about cost synergies,” Ornskov said. “There will be revenue synergies and there will also be tax synergies, but that did not drive the deal.” 

The market for rare disease treatments is projected to grow by more than 60 percent over the next five years to $176 billion, according to market researcher EvaluatePharma. With the planned Baxalta acquisition, Dublin-based Shire will add “a great franchise in hematology, a great franchise in immunology,” Ornskov said. The company expects to generate more than $20 billion in sales by 2020.

Tax Ruling

When it comes to taxes, Shire faces the challenge of preserving the tax-free status of Baxalta’s 2015 spinoff from parent Baxter International Inc. Bank of America Corp. analyst Graham Parry noted that Baxalta doesn’t have a private letter ruling from the U.S. Internal Revenue Service confirming that there wouldn’t be any liability. Still, Ornskov is confident that the tax-free status will be preserved, from what he learned through the due diligence process.

“We got the world’s experts to deliver a so-called opinion about this and they gave the board of directors the highest opinion you can achieve, which is rare in this area,” he said.

Shire has completed seven acquisitions in the past two years and is close to adding an eighth, the $5.4 billion purchase of biotechnology company Dyax Corp. That deal was announced in November and is expected to close by June.

Digesting the Baxalta acquisition, assuming it’s completed, isn’t likely to stop Ornskov from pursuing more acquisitions.

“We will be a bit busy with closing these deals, but we will be scouting if there are interesting assets out there,” he said.

Possible Sales

Other pharmaceutical companies have been busy growing through acquisitions in recent years, and some are looking at opportunities to sell, too. GlaxoSmithKline Plc CEO Andrew Witty said in an interview this week that he’s willing to consider suggestions made by investors to break up the company -- although it may not happen for at least a year or two.

Ornskov didn’t entirely rule out the possibility of divesting some businesses in the future. While there’s no current plan to sell Shire’s gastrointestinal products or attention deficit disorder drugs, he said the company will continually review various lines of business to make sure they deliver value.

“It’s an optionality we have,” he said. “We always have the same criteria for our franchises, which is all about innovation and growth. As long as they deliver innovation and growth, they stay. If they fail to do that, we take a look at them.”

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