UPDATED: Shire goes public with a $30B bid to acquire Baxalta, expand rare-disease pipeline

Shire CEO Flemming Ornskov

After getting stiff-armed by the newly independent management at Baxter's ($BAX) biotech spinoff Baxalta, Shire ($SHPG) is going public with its offer to acquire the company for $30.6 billion in shares. The deal marks Shire CEO Flemming Ornskov's play to make a landmark acquisition that can vault the company into the big leagues, after being left at the altar last year by AbbVie ($ABBV).

Coming in at a value of $45.23 a share, the deal now on the table marks a 36% increase over Baxalta's Monday share price close. Ornskov tried to start M&A talks just days after Baxalta ($BXLT) completed its spinout July 1. But Shire also disclosed that Baxalta's CEO quickly rejected the offer and has shown little interest in resuming talks. Lexington, MA-based Shire styled the all-stock offer as a strategy that would allow Baxalta's shareholders to retain the tax-free structure of their spinoff from Baxter.

If Baxalta changes its minds--which will require a bigger number than what's on the table now--Ornskov is promising to create a company with $20 billion in sales by 2020, essentially doubling down on its growth projections for investors. Such an acquisition would create "the leading global biotech company in rare diseases," Ornskov noted. And Shire is offering to mount a share buyback program to help sweeten the deal. But Ornskov is not spelling out what kind of cuts he has in mind if he gets a chance to merge the two groups together.

"It is our strong preference to immediately enter into a negotiated transaction to explore the full potential of the proposed combination and finalize the terms of an agreement," Ornskov said in a statement. By making the terms public, Shire is hoping that Baxalta's shareholders will rally around the deal.

Shire, which is likely to reignite the debate over biotech valuations with today's bid, saw its share price drop more than 5% after the news hit. Baxalta's shares jumped more than 20%.

Baxalta CEO Ludwig Hantson

"We have sought to engage with you regarding such a combination since early July," Ornskov wrote in a letter to Baxalta CEO Ludwig Hantson. "Other than a brief meeting on July 10th at which we outlined our proposal and its benefits, your lack of engagement has been surprising. On July 31st, weeks after receiving our written proposal and without any meaningful interaction, you stated that you had concluded it was not a basis for discussions. As a result, you have left us with no choice but to make our proposal known to your shareholders. We believe they deserve an opportunity to consider it."

It's been clear for months now that Shire has been focused on completing a major M&A deal that could significantly boost the value of the company. AbbVie decided to walk away from their deal to buy Shire last year after the federal government changed the tax rules that once made a Shire acquisition an appealing prospect for any big player that wanted to trade their relatively high U.S. rate for Shire's U.K. tax tab.

Up to now, Ornskov has been primarily interested in snapping up relatively small bolt-on deals, like yesterday's $300 million buyout of Foresight Biotherapeutics, adding a Phase III-ready eye drug to the pipeline. Baxalta is another story altogether.

Baxalta is built on a foundation of hemophilia drugs now on the market. But it's been hustling along next-gen therapies in the field aimed at keeping up with a competitive group of rivals in the field. Their late-stage assets include BAX 855, a long-acting hemophilia A therapy now under FDA review. BAX 111 has been submitted for rare cases of von Willebrand disease. There have been licensing deals for Merrimack's ($MACK) pancreatic cancer treatment MM-398, CTI BioPharma's ($CTIC) myelofibrosis drug pacritinib and Onconova's ($ONTX) rigosertib, all in late-stage development. And Baxalta's $225 million deal to buy SuppreMol added a mid-stage drug for lupus and idiopathic thrombocytopenic purpura.

In a call with analysts this morning, Ornskov highlighted his interest in Baxalta's new cancer drug pipeline, its biosimilars effort and its marketed drugs. Shire spotlighted plans to assemble a group of up to 30 new drugs ready for approval by 2020, adding up to $5 billion in added annual sales, with an effective tax rate for the combined operation at 16% to 17% per year by 2017.

Shire, meanwhile, has been working at building a pipeline of new ophthalmology drugs while building on its foundation of rare disease treatments. Gaining control of Baxalta's pipeline would satisfy Ornskov's desire for rapid growth in the field. One big unanswered question today is where Ornskov would cut following a deal.

Ornskov has been engineering some big changes in the R&D organization at Shire since he took over in 2013. Most recently, he's been cutting hundreds of jobs in Pennsylvania as he concentrated R&D in Lexington, MA. In a call with reporters Tuesday morning, the CEO noted that he would find significant savings on the tax front, improve revenue and benefit from reduced costs, but he carefully steered clear of discussing any specific cuts to R&D or other operations after a merger with Baxalta. Baxalta has been in the process of establishing an R&D center in Cambridge, MA, but Ornskov backed away from reviewing how he would manage that project in the future. 

- here's the release

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