Takeda Pharmaceutical has won its two-month quest to acquire Shire, with the boards of both companies coming to terms on an approximately £46 billion ($62 billion) purchase of the Dublin-headquartered biotech giant by the Japanese pharma.
The acquisition will create a combined company to be half owned by Shire shareholders upon completion of the deal, which is subject to approval by shareholders of both companies and expected to close in the first half of 2019.
The combined company plans to complement Takeda’s areas of therapeutic focus—namely oncology, gastroenterology, and neuroscience therapeutic areas plus vaccines—with Shire’s strengths in rare diseases and other areas.
Shire’s areas of therapeutic focus include neuroscience, hematology, immunology, internal medicine, and opthalmics—and until now, oncology. Takeda’s offer excludes Shire’s oncology business—which Shire on April 16 agreed to sell to Servier for $2.4 billion. That deal, Shire said today, is expected to close in the second quarter or third quarter, with the net proceeds intended to be used to repay debt.
Takeda had previously said that expanding its oncology business was a significant reason why it was considering a bid for Shire, along with the desire to expand in along with gastrointestinal medicine and neuroscience.
In a separate statement today, Takeda said it will continue to focus on growing its oncology portfolio, which along with its hematology holdings expanded last year when Takeda acquired Ariad Pharmaceuticals for $5.2 billion.
“Shire's highly complementary product portfolio and pipeline, as well as experienced employees, will accelerate our transformation for a stronger Takeda,” Christophe Weber, Takeda CEO, said in a statement. “Together, we will be a leader in providing targeted treatments in gastroenterology, neuroscience, oncology, rare diseases, and plasma-derived therapies. We are looking forward to the benefits this combination will bring to patients worldwide, the opportunities it will bring for our employees, and the returns it will deliver for our shareholders.”
The combined company will be headquartered in Japan, with an expanded presence in the U.S.—where Shire and Takeda both maintain significant R&D operations that have grown in recent years—and “major” regional locations in Japan and the U.S., as well as in Singapore and Switzerland.
Reaching $1.4B in Annual Cost Cuts
However, the companies plan to generate cost cuts or “synergies” expected to reach $1.4 billion a year by the end of the third fiscal year following completion of the acquisition. Of that total:
- Approximately 53% or $742 million will come from sales, marketing, and administrative expenses, which Shire detailed as: “Reduction of overlapping marketing presence in gastroenterology (GI) and neuroscience, consolidation of overlapping office locations, the elimination of duplicated IT systems, the optimization of marketing and sales employee and nonemployee costs, and the reduction of duplicate costs across central support functions.”
- Approximately 43% or $602 million will come from R&D cuts, including: “Removal of duplicated R&D costs, through rationalizing ongoing research and early-stage pipeline programs to optimize value of R&D spend and reducing overlapping resources.
- Approximately 4% or $56 million will come from manufacturing and supply cost reductions as the combined company insources its Oral Solid Dose manufacturing “through Takeda excess capacity, efficiencies in operational procurement spend, and reduced overheads.”
Takeda estimated it will incur approximately $2.4 billion in cash one-off costs in the first three years after completion of the deal toward achieving its projected savings.
It won’t be the first time Takeda will have swung the proverbial job axe after an acquisition. The pharma giant sliced the workforce of Ariad at its onetime Cambridge, MA, headquarters, after acquiring the company, eliminating 180 of roughly 300 jobs—though 50 of the eliminated jobs were created, and the employees moved, to Takeda’s CRO partner PRA Health Sciences.
Under Weber, Takeda has increasingly sought to grow through mergers and acquisitions, in light of the shrinking population in its home market of Japan, as well several patent expirations, including that of blood cancer treatment Velcade® (bortezomib). Before snapping up Ariad, Takeda tried to acquire the Salix Pharmaceuticals unit from Valeant Pharmaceuticals International, but talks collapsed when the companies couldn’t agree on a price.
Driving Up the Price
Shire helped drive up the price of the Takeda deal by rejecting three Takeda proposals to acquire the company for a price that started at approximately £41 billion ($55 billion) and grew to approximately £44 billion ($59 billion).
Takeda would become the only pharma listed on both the Tokyo Stock Exchange in Japan, where it will continue to have its primary listing, and the New York Stock Exchange.
Shares of Takeda on the Tokyo Stock Exchange climbed 3.99% by the close of trading early today, to ¥4638 ($42.45) per share, though the price is still 16% below the ¥5532 ($50.64) close of March 28, the day Takeda disclosed its intent to acquire Shire. Shares of Shire, however, climbed 4.67% in trading today as of 9:32 a.m. ET to £40.36 ($54.50), or 15% above Shire’s closing price of £35.00 ($47.27) on March 28.
As Takeda’s share price slid in recent weeks, so too did the value of the deal, which the companies said was equivalent to:
- £48.17 ($65.06) per Shire share based on the closing price of ¥4535 per Takeda share on May 2, and exchange rates of £:¥ of 1:147.61 and £:$ of 1:1.3546 on May 4, the “latest practicable date” before today’s announcement.
- £49.01 ($66.19) per Shire share based on the closing price of ¥4923 ($45.07) per Takeda Share and the exchange rates of £:¥ of 1:151.51 and £:$ of 1:1.3945 on April 23, the day before Shire’s board set the stage for being acquired by Takeda by agreeing in principle to an acquisition deal.
Shire shareholders will be entitled to receive, for each Shire share they own, $30.33 in cash and either 0.839 new Takeda shares or 1.678 Takeda American Depositary Shares.
Takeda has agreed to add to its board three Shire directors.
“With this combination, Shire helps create an even stronger biopharmaceutical company, with a robust R&D pipeline and expanded global footprint,” added Shire chairman Susan Kilsby. “We firmly believe that this combination recognizes the strong growth potential of our leading products and innovative pipeline and is in the best interests of our shareholders, our patients, and the communities we serve.”