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Shire finalizes deal to buy Baxalta for $32 billion

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Shire has 2,300 workers at its US base in Lexington.REUTERS

SAN FRANCISCO – Shire PLC unveiled a $32 billion agreement Monday to buy Baxalta Inc., marking a continuation of the aggressive dealmaking that has underpinned the drug industry in recent years.

The goal is to become the biggest provider of therapies for rare diseases, a major league drug company with $20 billion in combined sales by 2020. To succeed, Shire will have to achieve the substantial tax savings and charge the premium prices that are increasingly being challenged at a time of more intensive scrutiny by governments and health insurers.

Shire chief executive Flemming Ornsov, in an interview at the J.P. Morgan Healthcare Conference here, said he expects the takeover will be completed by mid-year after winning approval of regulators in multiple countries and shareholders of both companies.


Market watchers said the Dublin-based Shire, which operates from its US headquarters in Lexington, Mass., is agile enough to adapt to regulatory and cost-containment pressures as it maneuvers to build a trans-Atlantic powerhouse company.

"Shire has made its name over the years as one of the fastest-growing, nimble success stories in the global biotech industry," said Gustav Ando, research director for IHS Life Sciences in London. "But with this announcement, it is signaling its intent to join the big boys club and be taken seriously as a major Big Pharma company."

Ando noted, however, that it took six months of often fractious negotiations and a sweetened bid to bring Baxalta – spun out as an independent company last summer by health care giant Baxter International Inc. — into the Shire fold. "The market continues to have question marks over how this merger will pan out," he said.

Remaining to be seen, among other things, is how Shire's promise of $500 million in annual cost savings will affect the work forces of Shire and Baxalta in Massachusetts, Illinois, and Europe.


Shares of Shire fell 8.9 percent to $169.37, while Baxalta dropped 2.3 percent $39.10.

The biopharma industry has been a hotbed of takeovers, with mergers and acquisitions climbing to $329 billion last year from $220 billion in 2014, according to the consulting firm Ernst & Young. That included the largest drug deal on record, the $160 billion tie-up of Pfizer Inc. and Allergan PLC.

But the action has been fueled in part by a boom market for biotech stocks, which some analysts worry may be nearing an end. Meanwhile, high-priced prescription medicines, a driver of profit growth, are coming under intense scrutiny and criticism.

Ornskov said there could be some initial consolidation, especially of overlapping administrative functions, but after that he company will continue to grow.

"We are inundated with people who would like to work for us," he said.

The deal joins two companies with a strong presence in Massachusetts and pipelines of drugs treating a variety of problems, including cancers, bleeding disorders, and enzyme deficiencies such as Gaucher's and Fabry disease. Together they have 30 recently launched or experimental drugs in clinical trials with a combined sales potential of $5 billion in the next five years.

"Today we're creating the global leader in rare diseases," Ornskov said in conference calls with reporters Monday morning. "We will deliver more commercial medicines to more people with rare diseases. ... These companies are stronger together."

The deal represents a 37.5 percent premium over Baxalta's share price on Aug. 3, when Shire's first bid for the company was publicly disclosed. Under terms of the deal, Baxalta shareholders will receive $45.57 per share, in a combination of stock and cash.


Analysts said the higher pricetag was roughly in line with Wall Street expectations. They cited Shire's plans to save roughly half a billion dollars a year by combining some operations and lowering the combined company's tax rate to 16 percent to 17 percent by moving US-based Baxalta to Ireland, which has a more favorable corporate rate. Baxalta's current tax rate is 23.5 percent.

The deal is "strategically important" important to Shire, biotech analyst Jason Gerberry of Leerink Partners in Boston wrote in a note to investors, because it boosts the share of rare disease drugs in the companies' combined portfolio to about 65 percent. Such drugs are "less susceptible to managed care pressure," Gerberry wrote, meaning drug makers can charge health insurers more because there are fewer patients.

Among other products, Baxter's pipeline includes treatments for hemophilia and rare immune diseases.

Shire has more than 2,300 employees and 1.1 million square feet of office and lab space in Lexington. Its top executives are scheduled to present its annual financial outlook at the J.P. Morgan conference here Tuesday afternoon.

Baxalta, formerly the biopharma arm of Baxter, is based outside Chicago but recently opened a Cambridge, Mass., research center that employs more than 500 people working on cancer and immune therapies and business development functions. Worldwide it has about 16,000 employees. Its executives are scheduled to address the J.P. Morgan conference Wednesday afternoon.


Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.