It looks like Baxalta ($BXLT) and Shire ($SHPG) may be the first to keep pharma's red-hot M&A streak going in 2016, with a deal between the two rumored for as early as this week. But not everyone's convinced it's the right move.
For Baxalta, it could be; the two drugmakers are reportedly discussing a price between $46.50 and $48 per share, and that upper limit may be the highest price the Baxter spinoff can secure from Shire or anyone else, Bloomberg Intelligence analyst Sam Fazeli told Bloomberg. And according to the Financial Times, the Illinois drugmaker has checked out alternatives to its longtime suitor to make sure it gets the best possible price.
But for Shire? $48 per share would mean coughing up about 6 times Baxalta's projected 2015 revenue, Bloomberg Gadfly points out, which is more or less in line with what large pharma and biotech targets have commanded in recent years. But Baxalta's growing more slowly than those companies were, which could put this deal on the pricey side.
And what about Baxalta's prospects for growth in the future? Not everyone's sold on those, either. As Bernstein analysts laid out in a note to shareholders last month, new approaches to treating hemophilia are on the horizon for several companies, and they'll threaten Baxalta's key moneymakers. The drugmaker is "heavily reliant" on the hemophilia market for its operating profits, with about 70% coming from its products in the field. And that means "success of alternative approaches could devastate its business," Gal wrote, predicting that 40% or so could take a direct hit.
Of course, Baxalta is working to diversify its revenue stream. Right before the spinoff, Baxter ($BAX) inked a pact to add leukemia treatment Oncaspar from Italy's Sigma-Tau. And Baxalta made further inroads into the oncology field Monday, announcing a deal with Denmark's Symphogen to collaborate on a new pipeline of checkpoint cancer therapies.
Still, Gadfly notes, $35 billion-plus is a hefty chunk of change for a tie-up that may end up looking just so-so--especially if Shire ends up having to shell out more later to protect its acquired assets, a situation it's been in before. Take the Dublin drugmaker's 2013 ViroPharma buy, which cost it $4.2 billion. Fast-forward about two years, and it's agreed to pay $6.5 billion to buy Dyax, which boasts the main competitor to the hereditary angioedema drug Shire gained through the ViroPharma purchase.
- get more from Bloomberg Gadfly
- see FierceBiotech's take on the Symphogen deal
Special Report: The 25 most influential people in biopharma in 2015 - Flemming Ornskov - Shire