Shire ($SHPG) may have clinched its $32 billion deal to buy Baxalta ($BXLT), but not everyone is breaking out the confetti. Some analysts aren't sold on the tie-up, saying they expected more in the way of savings and still are perplexed by what Baxalta brings to the table.
In announcing the deal, Shire targeted annual cost cuts of $500 million. That is $100 million lower than analysts' estimates of $600 million, Leerink analyst Jason Gerberry wrote in a note to clients--a worrisome number, as cost cuts could play a key role in making the deal pay off.
Shire CEO Flemming Ornskov says analysts don't need to worry on that score. His style is to underpromise and overdeliver, the helmsman said on Tuesday at the J.P. Morgan Healthcare Conference. And Shire's "internal synergy goals are much higher," Ornskov said, as quoted by Reuters.
Still, "the deal looks expensive" in light of growing competition to Baxalta's hemophilia business, Bernstein analyst Ronny Gal said on Monday. Analysts are "assuming larger risk" to that business than either management team, Gal said. And the "success of alternative approaches could devastate" Baxalta's hemophilia business, Gal said last year, estimating that about 40% of sales could come under fire.
Overall, the deal "is a growth play" for Shire, Ornskov said, rather than a bid to cut costs or lower taxes. Ornskov has long said that he wants to hit his $20 billion sales goal by 2020, and Baxalta could give Shire a boost along the way. The Baxter ($BAX) spinoff will give the Dublin-based drugmaker products to flesh out its rare disease business, which is expected to yield 65% of combined-company revenues in the future. And Shire will also get its hands on Baxalta's new oncology meds, potentially helping the company make moves in cancer.Baxalta CEO Ludwig Hantson
"We bring to Shire a strong portfolio and pipeline of market-leading products, high-quality manufacturing capabilities and a talented global workforce that places patients at the center of everything we do," Baxalta CEO Ludwig Hantson said when the deal was announced.
Now, with Baxalta in the bag, all eyes are on Shire's next move. The company said that it isn't planning to divest certain specialty pharma products, but also said that its deal with Baxalta "creates 'optionality' and it will consider selling off certain assets at a later date," Gerberry said. With the deal set to close by mid-2016, analysts "would expect investor discussion to increase around divestitures," Gerberry said. And analysts are also looking at a possible deal between Shire and BioMarin ($BMRN), which is developing a drug for Duchenne muscular dystrophy.
- here's the Reuters story
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