Investing in Rare Diseases: Shire Makes $32-billion Bid for Baxalta

Shire (NASDAQ:SHPG,LSE:SHP) has kicked off the new year with the first megadeal in the healthcare sector. On Monday, the Dublin-based company announced a bid to acquire American biopharmaceutical company Baxalta (NYSE:BXLT) for approximately $32 billion. 
The news shouldn’t come as much of a surprise to life science investors, as the two companies have been in a back and forth for some time. Still, the combination will no doubt elevate Shire’s position in the sector.
Under the agreement, Baxalta shareholders will receive $18 in cash, and 0.1482 Shire ADS per Baxalta share. Based on Shire’s January 8 closing price, that implies a total current value of $45.57 per Baxalta share. The deal represents an approximate 37.5-percent premium to Baxalta’s unaffected share price on August 3, 2015, the day before the public announcement of Shire’s original bid for Baxalta.

Not Shire’s first attempt

While Shire’s Monday bid for Baxalta was successful, it is not the only bid that it has made for the company. On August 4, 2015 Baxalta confirmed the receipt of a “highly conditional, unsolicited” proposal from Shire, in which Shire aimed to acquire all outstanding shares of Baxalta in an all-stock transaction. Baxalta also noted that it received that same proposal in July 2015.
In both cases, the company rejected the offer, stating that Shire’s proposal “significantly undervalue[d] Baxalta and its attractive prospects for growth and value creation.”
Shire, as The Globe and Mail notes, has been on an acquisition frenzy, with a keen eye on companies developing treatments for rare conditions. Indeed, in November 2015, Shire purchased Dyax for $5.9 billion; earlier in the year, the company acquired NPS Pharmaceuticals for $5 billion.

Deal highlights interest in rare treatments

Some 7,000 known rare diseases — also know as orphan diseases — affect between 25 and 30 million people globally, and in the face of expiring patents and growing competition from generic pharmaceutical firms, established companies like Shire are looking at this arena in order to beef up their pipelines.
As a result, companies — like Baxalta — that are focused on rare diseases are a hot commodity. Essentially, by targeting rare diseases, they are potentially opening themselves up for future growth. Currently, experts are estimating that about 450 orphan drug treatments are under development.

Execs at Shire definitely seem to realize the potential of the rare disease market. In fact, the company has gone as far as to say that the combination of “Baxalta and Shire will create the number one rare diseases platform in revenue and pipeline depth, with best-in-class products.”
Shire’s pipeline of products and experience lies in neuroscience, ophthalmics, lysosomal storage diseases and gastrointestinal and endocrine, as well as hereditary, angiodema. The Baxalta deal will give the company added experience in hematology, immunology and oncology, enabling the company to become a world leader in biotechnology.
“We bring to Shire a strong portfolio and pipeline of market-leading products, high-quality manufacturing capabilities and a talented global workforce that places patients at the center of everything we do. The combined organization will be well positioned to accelerate innovation and deliver enhanced value for all stakeholders,” said Baxalta CEO Ludwig Hanston on Monday.
Still, as FiercePharma points out, not everyone is on board with the merger. For starters, Baxalta is not alone in the field of hemophilia, with competitors rising up to challenge the company’s pipeline. Added to that, Bernstein analyst Ronny Gal said to clients that “the deal looks expensive.”
At close of day Monday, Baxalta’s share price was down 2.27 percent, at $39.10, on the NYSE; meanwhile, Shire’s was down 8.94 percent, at $169.37, on the NASDAQ.

 
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned. 
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