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 The Danish doctor running the London-listed drugmaker from offices
in Massachusetts is not taking the easy option with his $30 billion
run at Baxalta.
Rather than selling out at a premium to a bigger drugmaker, as many
investors thought Shire might do, Ornskov is embarking on a risky
battle to create the world's leading rare diseases specialist.
The transaction could vault Shire into the top 20 global drugmakers
by sales, but hazards include Baxalta's formidable anti-takeover
defenses, as well as the risk that new science could upend the
haemophilia market, which accounts for over half its revenue.
With a "poison pill" defense against unwanted suitors, a
hard-to-replace board featuring staggered directors' terms and a
block on shareholders calling special meetings, investors see a
negotiated deal as the only realistic way forward.
And that will likely mean sweetening the current unsolicited
all-share offer, worth $45.23 a share at Aug. 3 market prices, which
Baxalta argued "significantly undervalues" its newly listed
business.
"You know that they (Shire) will have to increase and you know that
any increase has to be substantial,” said one fund manager with a
stake in Baxalta. "You've also got the potential of somebody else
coming in."
He believes Shire's next move would have to involve an offer above
$50 a share.
"It’s not completely clear that would get it done but it would make
it much more achievable. It will be harder for the board to turn
around and say that’s not fair value," he said.
Analysts at Berenberg Bank agree Shire is very likely to increase
its offer as it continues to try to engage with Baxalta.
Ornskov has declined to comment about tactics.
One person familiar with Shire's thinking noted the current offer
was based on public information and having access to Baxalta's books
might change the London-listed group's view on valuation.
Ornskov and Shire's chairwoman Susan Kilsby, a former Credit Suisse
banker, were clearly aware of the anti-takeover defenses before
approaching Baxalta, which was only spun off from Baxter
International five weeks ago.
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Their rationale for the deal includes the industrial logic of
creating a global leader in rare diseases and, importantly, some big
tax benefits that come from Shire's Irish domicile.
But there are risks. While Baxalta's treatments for haemophilia,
such as Feiba and Advate, sell for hundreds of thousands of dollars
and are immensely profitable, they face challenges on two fronts.
Roche is developing a novel monoclonal antibody (mAB) treatment for
haemophilia and various companies are also working on gene therapies
that promise long-lasting or even one-time cures.
Baxalta itself has a foothold in this emerging space, with its own
gene therapy program, but widespread adoption of the new treatments
would undermine its market share.
"The obvious gap in Shire’s strategy is the risk of transformative
change in the haemophilia market," Bernstein analysts said in a
note. "If either the mAb or the gene therapy approaches work as well
as the early studies suggest, than this deal would destroy value."
(Editing by Jane Merriman)
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