Shire's Ornskov Maps Out Future Prospects Post- Baxalta Merger

Shire's chief executive says completing the Baxalta merger will greatly boost the group's exposure to longer acting orphan drugs, bring critical mass and de-risk its current asset mix with new portfolio products; a view widely shared by investors and analysts.

Shire PLC CEO Flemming Ornskov, MD, could perhaps be forgiven for sounding like the cat that finally got the mouse when commenting on the June 3 completion of the company's combination with Baxalta Inc., creating "the global leader in rare diseases with the number one rare diseases platform based on both revenue and pipeline programs." Gaining Baxalta also gives Shire strength in hematology and immunology and boosts its leading position in angioedema, enzyme replacement therapy, endocrinology and gastrointestinal diseases.

In an interview with In Vivo's sister publication Scrip in early June Ornskov said that "as a combined group we'll be able to cover more technologies now, and that's particularly true in rare diseases, where we'll be able to focus on a vast array of illnesses, be that in the neurological area, the ophthalmic field or the hematological area or more typical genetic protein-based conditions."

He said the Baxalta deal increases the combined company’s scale in R&D and should generate stable cash-flows that can be invested in fresh partnering to expand pipeline prospects. "We already have a large number of partnerships with commercial entities and academics. And with Baxalta we get the opportunity to be located in the innovative hub of Cambridge [MA] . And the company will throw off $6bn in cash, which will allow us to repay debt, but also allow us to make significant investment in-house and for partnered R&D," the CEO said.

Through the combination, Shire expects to deliver double-digit compound annual top-line growth, with more than $20 billion in annual projected revenue by 2020 and about 65% of total annual revenues generated by its rare disease products. The marriage was sealed a week before the deal closed, when shareholders of both companies voted in favor of the transaction. Initially launched as a hostile bid in mid-2015, Shire's acquisition of Baxalta was agreed upon in January at a price of roughly $32 billion, in a transaction that will leave Shire owning 66% of the combined company and Baxalta 34%. [See Deal]

Ornskov, who has led Shire since 2013, outlined during Shire's first-quarter results presentation in April the planned "inverted pyramid approach" for integrating acquired companies – the Baxalta deal and the recent buyout of Dyax Corp. being the two largest acquisitions in the company's history. [See Deal] In the inverted pyramid approach, he explained, customer-facing services are affected the least, including retaining salesforce and patient-support personnel. Shire will prioritize preserving the expertise within Baxalta's manufacturing organization, and will strive to preserve clinical expertise in R&D and to make a top priority of innovative projects targeted at unmet medical needs.

Combined Pipeline To Be Assessed

Asked whether management would now be re-evaluating Baxalta’s presence in biosimilars and oncology, Ornskov said everything in the combined group's pipeline was now going to be assessed, but no decisions have been made yet and the collective R&D team will meet in mid-June to begin that process. "Baxalta brings to us enormous expertise in manufacturing and technical operation, augmenting that of Shire, so naturally it allows us to participate, if we wanted to, in biosimilars. What we're going to do now is look at everything within the combined portfolio – both things that come from Baxalta and things that come from Shire – and prioritize. We won't be able to do everything going forward," he said. "And if there are areas we can't focus on, then there's different ways of dealing with that, such as partnerships or external funding, but no decision has been made."

He noted that Shire now has more than 50 programs in clinical development, with a balanced mix of early, mid and late-stage projects. "So we have enough to choose from and want to ensure we have enough resources to focus on the essential projects that we have," the CEO said.

That evaluation process could in the longer-term see Shire re-evaluate its presence in the ADHD market. The group's key ADHD asset remains Vyvanse (lisdexamfetamine dimesylate), which is continuing to grow in the US, particularly in the adult ADHD market, and which is rolling out slowly outside of the US. The US franchise was boosted by the addition of a binge-eating indication in early 2015 which helped raise the overall growth rate in 2015 to 20%.

"When I came in as Shire CEO in 2013, there was a bit of gloom overhanging the ADHD franchise in terms of growth prospects, notably the pediatric market, so the team put an increased focus on the adult market, which is now the fastest growing part of the market," Ornskov noted, adding: "There's a lot of room still in that franchise and any decision on that franchise would be centered around whether we can add additional, longer-acting compounds.

He said the company has big hopes for its longer acting SHD465, which works in ADHD for up to 16 hours and will be submitted to the FDA later this year. "So there's a lot going on in that space and it's too early to make a decision about the longevity of that franchise, but so far the picture is very positive."

Ornskov, a physician by training, played down concerns voiced by some analysts over Shire-Baxalta's prospects for retaining a market leadership role in hemophilia as novel new therapies loom, notably Chugai Pharmaceutical Co. Ltd.'s hemophilia A treatment emicizumab (ACE910/RG6013/RO5534262), which is currently in a Phase III multinational study program. Instead, he welcomed the competition, while noting that Baxalta is positioned with its own pipeline of novel agents including a once-weekly factor VIII therapy BAX826, which analysts believe could launch in 2020. "Baxalta has a wide array of products in this area and will just be stimulated by new entrants and it will continue to have a leadership position there," he added.

Partnering and bolt-on acquisitions of promising compounds will also be part of the new company's strategy. But Ornskov expects more emphasis to be placed on in-house R&D going forward. "The model that Shire has is a mix where external innovation has been a bit more prioritized than internal innovation. Now we have the opportunity to increase our R&D base to also focus a bit more on internal innovation, but I am agnostic with regards to where the compounds come from, whether it's home-grown or an externally acquired compound," he said.

"We will continue to look for acquisitions at the product level so that we can continue to bring innovative medicines to patients, but after this Baxalta merger we will not be in the business of big deals. But, we will continue to be in the business of partnerships and business development." Flemming Ornskov

The enlarged R&D group will continue looking at compounds in various stages of development. "One of the key strengths that this combined company will have is that with our depth of expertise in crucial areas – clinical development, clinical operations, regulatory process and product development and manufacturing – it makes us a partner of choice to help compounds navigate clinical development and bring it over the finish line and into the marketplace."

But another big acquisition is not in the cards. "We will continue to look for acquisitions at the product level so that we can continue to bring innovative medicines to patients, but after this Baxalta merger we will not be in the business of big deals. But, we will continue to be in the business of partnerships and business development," Ornskov said.

He did show interest in the product offerings and scientific focus of one company - Intercept Pharmaceuticals Inc. – but declined to comment on media reports that the company was a target. Intercept's novel therapy Ocaliva (obeticholic acid) recently was approved in the US to treat primary biliary cholangitis (PBC), but it also is in development for the much larger indication of non-alcoholic steatohepatitis (NASH).

"I will not comment on Intercept's being a potential takeover target, but will say how pleased I am that they have been a trailblazer in an area that often has scientific interest here at Shire. We have two rare disease compounds – SHP625 and SHP626 – [and] SHP626 is being investigated in NASH, where there is a significant opportunity and I hope Shire can continue to contribute in this area," he said.

Confident Deal Poses No Tax Risk

Ornskov also played down potential risk that the Baxalta transaction will trigger a tax obligation for Shire. He said Shire and its tax counsel are confident that a merger with the proposed cash consideration of $18 per Baxalta share will not jeopardize the tax-free status of the Baxalta spinoff from Baxter International Inc.[See Deal] "The Shire team has gotten all the relevant tax information and options that are needed to ensure we can bring this over the finish line correctly, so I remain confident. We've answered all the relevant questions and done all the relevant diligence that we need to do," he said.

With the Baxalta deal done, the focus should shift back to the advancement of Shire's pipeline. Scrip asked Ornskov which assets he gets most excited about and he pointed to lifitegrast for dry eye disease. "Lifitegrast has a special place, in my view, and has a lot going for it, such as phenomenal clinical trials, innovative mode of action, good safety profile and [it] addresses a market with significant unmet need and is in late stages of review at the FDA. It's had lots of ups and downs, like most innovative products – it never goes in a straight line," he said. The company's guidance is for lifitegrast sales of more than $1 billion by 2020. Some analysts believe shares in Shire could be given higher ratings with the expected US approval on July 22 for its dry eye therapy, and potentially mark a first step toward a broader ophthalmic franchise.

Ornskov said the general opinion regarding the Shire/Baxalta merger "has had its ups and downs – like lifitegrast – but people eventually came around to our thinking. The support this deal got from our shareholders is also testimony of the merger's innate logic. There are still skeptics out there, but I'm sure but the group's pipeline will speak for itself."

This article is adapted from Scrip." In Vivo brings selected complementary coverage from sister publications to subscribers.