AbbVie and Shire: Examining the Proposed Combined Company
AbbVie and Shire agree to combine in an approximate $55-billion deal. A look at the management, product positions, and manufacturing capabilities of the proposed combined company.
AbbVie and Shire finally came to terms and announced last week an approximate $55-billion deal that would combined the two companies. The deal, which is expected to close in the fourth quarter of 2014, would create a company with a focus on several key therapeutic areas: immunology and gastrointestinal, neuroscience, liver disease/virology, oncology, other areas (ophthalmology, renal disease, and women’s health), and rare disease. The proposed combined company would have 30,000 employees, nine research centers, and 14 manufacturing facilities. On a pipeline basis, the combined company would have more than 20 compounds or new indications for existing drugs in Phase III development or in registration and more than 30 drug candidates in early-stage development. DCAT Value Chain Insights takes an in-depth look of what a combined AbbVie and Shire would be.
Terms of the deal
After months of negotiations, the boards of AbbVie and Shire agreed to a recommended combination of the two companies for approximately $54.7 billion. Under the proposed merger, Shire shareholders would receive for each Shire share £24.44 ($41.79) in cash and 0.8960 New AbbVie (i.e., the combined company) shares for an indicative value of £52.48 ($89.74) based on AbbVie’s closing share price of $52.52 on July 17, 2014 and an exchange rate of $1.00 to £0.5848. Upon closing of the deal, Shire shareholders will own approximately 25% of the combined company and AbbVie stockholders 75%.
Both AbbVie and Shire said they will recommend to their respective shareholders to vote in favor of the adoption of the merger agreement. If approved, the deal, which is subject to closing conditions, will be completed in the fourth quarter of 2014. To execute the transaction, AbbVie has formed a new company, New AbbVie, which is incorporated in Jersey, the UK, Shire’s current place of incorporation. Following the completion of the deal, New AbbVie will become the holding company of the Shire Group and the AbbVie Group. Through its incorporation in the UK, the AbbVie board expects the transaction to reduce New AbbVie’s effective tax rate to approximately 13% by 2016. The new company will retain operational headquarters in Chicago with a presence in both the US and UK and be listed on the New York Stock Exchange.
Richard A. Gonzalex, chairman and chief executive officer (CEO) of AbbVie said in a company statement: “By combining AbbVie and Shire, we are creating a unique, diversified biopharmaceutical company. The combined company would benefit from a best-in-class product development platform, a stronger pipeline, and more enhanced R&D capabilities.”
Susan Kilbsy, chairman of Shire, said in a company statement. “We believe that this offer reflects the substantial value that we have already created for Shire’s shareholders and the strength of our future prospects. We believe that the combined group represents an exciting fit of two complementary businesses that will create a market leader in specialty pharmaceuticals with a portfolio of fast-growing products, a promising pipeline, and enhanced growth prospects.”
Kilbsy and Dominic Blakemore, non-executive director of the Shire board and chairman of Shire’s Audit, Compliance & Risk Committee, will join the New AbbVie board following completion of the deal. Fleming Ornskov, CEO of Shire, will lead the integration on behalf of Shire and oversee the creation of a rare disease business unit that will report to Gonzalez. Ornskov will be based in Switzerland.
Examining product positions
In acquiring Shire, AbbVie is looking to diversify its commercial portfolio, which is heavily reliant on Humira (adalimumab), which accounted for nearly $10.7 billion, or 57% of the company’s total revenues of $18.79 billion in 2013 (see Table I). Humira is indicated for treating rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn’s disease, ulcerative colitis, and plaque psoriasis. The United States composition of matter (i.e., the compound) patent covering adalimumab is expected to expire in December 2016, and the equivalent European Union patent is expected to expire in the majority of European Union countries in April 2018.
|Table I: AbbVie’s Top-Selling Products, 2013
(active pharmaceutical ingredient)
|Humira (adalimumab)||$10.659 billion||Rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn’s disease, ulcerative colitis, and plaque psoriasis|
|AndroGel (testosterone gel)||$1.035 billion||Replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone due to primary hypogonadism or hypogonadotropic hypogonadism|
|Kaletra (Iopinavir/ritonavir)||$962 billion||In combination with other antiretroviral agents for the treatment of HIV-1 infection in adults and pediatric patients (14 days and older).|
|Synagis (palivizumab)||$827 million||Prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in children at high risk of RSV disease.|
|Lupron (leuprolide)||$785 million||Palliative treatment of advanced prostate cancer, endometriosis and fibroid tumors in women, and premature puberty in children.|
|Synthroid (levothyroxine)||$622 million||Hypothyroidism|
|Ultane (sevoflurane)||$568 million||Anesthetic|
|Creon (pancrelipase)||$412 million||Exocrine pancreatic insufficiency due to cystic fibrosis, chronic pancreatitis, pancreatectomy, or other conditions.|
|Duodopa (levodopa/carbidopa intestinal gel)||$178 million||Parkinson’s disease|
|Dyslipidema products*||$1.076 billion|
|Other products||$1.667 billion|
| Dylipidema products include TriCor (fenofibrate), Trilipix (fenofibric acid), and Niaspan (niacin).
Source: AbbVie (2013 10-K Annual Filing, US Securities and Exchange Commission).
After Humira, other key products for AbbVie are: AndroGel (testosterone gel), a replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone due to primary hypogonadism or hypogonadotropic hypogonadism (2013 revenues of $1.035 billion); the antiretroviral agent Kaletra (Iopinavir/ritonavir) (2013 revenues of $962 billion); Synagis (palivizumab), a drug to prevent of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in children at high risk of RSV disease (2013 revenues of $827 million); and Lupron (leuprolide), a drug for the palliative treatment of advanced prostate cancer and for treating endometriosis and fibroid tumors in women and premature puberty in children (2013 revenues of $785 million) (see Table I).
Shire posted 2013 revenues of $4.93 billion; product sales accounted for 96% of total revenues, or $4.76 billion. The company’s lead product (see Table II) is Vyvanse (lisdexamfetamine dimesylate), a drug to treat attention deficit hyperactivity disorder (ADHD), which had 2013 revenues of $1.23 billion, up 19% over 2012. In addition to Vyvanse, four other Shire’s products posted double-digit growth in 2013: Elaprase (idursulfase) for treating Hunter Syndrome (2013 revenues of $545.6 million, +10% year over year); Lialda/Mezavant (mesalamine) for induction and/or remission of ulcerative colitis (2013 revenues of $528.9 million, +32%); Vpriv (velaglucerase alfa), a long-term enzyme replacement therapy for treating Type 1 Gaucher disease (2013 revenues of $342.7 million, +12%); and Intuniv (guanfacine) for treating ADHD (2013 revenues of $334.9, +16%). Two of the company’s products, Replagal (agalsidase alfa) for treating Fabry disease and Adderall (mixed salts of a single-entity amphetamine product) for treating ADHD, had sales declines. Sales of Replagal declined 6% to $467.9 million due to increased competition, and Adderall sales declined 12% to $375.4 million due to increased generic competition (see Table II).
|Table II: Shire’s Top-Selling Products, 2013|
|Proprietary name (active pharmaceutical ingredient)||2013 sales
|Vyvanse (lisdexamfetamine dimesylate)||$1,227.8||Attention deficit hyperactivity disorder|
|Elaprase (idursulfase)||$545.6||Hunter syndrome (Mucopolysaccharidosis II, MPS II)|
|Lialda/Mezavant (mesalamine)||$528.9||Induction and/or remission of ulcerative colitis|
|Replagal (agalsidase alfa)||$467.9||Fabry disease|
|Adderall XR (mixed salts of a single-entityamphetamine product: dextroamphetamine sulfate,dextroamphetamine saccharate, amphetamine aspartate monohydrate, amphetamine sulfate capsules, CII)||$375.4||Attention deficit hyperactivity disorder|
|Vpriv (velaglucerase alfa)||$342.7||Long-term enzyme replacement therapy for treating Type 1 Gaucher disease|
|Intuniv (guanfacine)||$334.9||Attention deficit hyperactivity disorder|
|Pentasa (mesalamine)||$280.6||Anti-inflammatory agent for gastrointestinal use|
|Firazyr (icatibant)||$234.8||Acute hereditary angioedema|
|Fosrenol (lanthanum carbonate)||$183.4||End-stage renal disease|
|Xagrid (anagrelide)||$99.4||Essential thrombocytosis or overproduction of blood platelets|
|Other product sales||$136.1|
| Source: Shire PLC (2013 10-K Annual Filing, US Securities and Exchange Commission).
In 2013, Shire repositioned itself as a specialty biopharmaceutical company with a primary focus on specialized and rare diseases. The company named a new CEO, Flemming Ornskov, on April 30, 2013. Ornsko set forth a new strategic focus for Shire, which included integrating three separate segments (Specialty Pharmaceuticals, Human Genetic Therapies, and Regenerative Medicine) into four business units based on the therapeutic area of the company’s in-line products (rare disease, neuroscience, gastrointestinal, and internal medicine) as well as creating a single R&D unit. In November 2013, Shire announced that its preclinical pipeline would focus only on rare diseases, and it discontinued other programs that were not within that purview. The company also changed the way it managed its businesses internally by reconstituting its Executive Committee (formerly known as the Leadership Team) as well as establishing two new management committees: the In-line Committee and the Pipeline Committee. The Executive Committee manages the business of Shire. The In-line Committee is responsible for ensuring the optimal performance of the company’s current portfolio of marketed products, and the Pipeline Committee is responsible for overseeing and driving the development of the companies’ pipeline and future products.
To strengthen its pipeline and in-line products, Shire announced four acquisitions in 2013. In January 2014, it closed on its $4.2-billion acquisition of ViroPharma, a company based in Exton, Pennsylvania, and specializing in drugs to treat orphan diseases. ViroPharma’s lead product is Cinryze (C1 esterase inhibitor [human])), an injectable prescription medicine that is used to help prevent swelling and/or painful attacks in teenagers and adults with hereditary angioedema. Shire’s other three acquisitions in 2013 (Lotus Tissue Repair, Premacure, and SARcode Biosciences) also focused on building the company’s position in specialized and rare diseases. Lotus Tissue Repair’s key product is a preclinical protein-replacement therapy for dystrophic epidermolysis bullosa, a rare, genetic disease characterized by the presence of extremely fragile skin and recurrent blister formation. The Premacure acquisition provided Shire a Phase II protein-replacement therapy for the prevention of retinopathy of prematurity, a rare and potentially blinding eye disorder that primarily affects premature infants and is one of the most common causes of visual loss in childhood. With SARcode, Shire further enhanced its position in ophthalmology by gaining lifitegrast (SHP606), a drug in Phase III development to treat dry-eye disease. As part of its efforts to focus on rare disease, Shire divested its Dermagraft assets to Organogenesis in January 2014. Dermagraft is a living skin substitute for treating full-thickness diabetic foot ulcers.
In 2014, to strengthen its GI pipeline, Shire acquired Lumena Pharmaceuticals, Inc., a biopharmaceutical company with rare-disease pipeline assets. In acquiring Lumena, Shire is gaining experience in liver disease with the opportunity to leverage its existing gastrointestinal commercial infrastructure. The move also provides a good fit with Shire’s recent pending acquisition of Fibrotech, which has brought pipeline programs to address unmet patient need in other fibrotic conditions, including renal impairment. Lumena Pharmaceuticals brings to Shire two new oral therapeutic compounds; LUM001, in Phase II development with four potential orphan indications and LUM002, ready to enter Phase II trials later in 2014. LUM001 and LUM002 are both inhibitors of the apical sodium-dependent bile acid transporter (ASBT), which is primarily responsible for recycling bile acids from the intestine to the liver. Blocking bile acid transport with ASBT inhibitors reduces bile-acid absorption and has the potential to improve liver function and relieve disease symptoms (such as extreme itching associated with cholestatic liver diseases), and may slow disease progression.
The proposed combined company brings together AbbVie’s and Shire pipelines. AbbVie’s pipeline includes more than 20 compounds or indications in Phase II or III development individually or under collaboration or license agreements, as of March 31, 2014. Its research and development (R&D) is focused on therapeutic areas that include immunology, virology, oncology, renal disease, neurological diseases, and women’s health. The company’s key pipeline product is an all-oral, interferon-free regimen for the treatment of adult patients with chronic genotype 1 (GT1) hepatitis C virus (HCV) infection. The AbbVie investigational regimen consists of the fixed-dose combination of ABT-450/ritonavir co-formulated with ombitasvir (ABT-267) and dasabuvir (ABT-333) with or without ribavirin. The combination of three different mechanisms of action interrupts the HCV replication process with the goal of optimizing sustained virologic response rates across different patient populations. The drug is under accelerated assessment by the European Medicines Agency and priority review by the US Food and Drug Administration. The company expects US commercialization in 2014 and European approval in early 2015. Two other key products in the registration phase are Humira for an additional indication for treating pediatric Crohn’s disease and Duopa/Duodopa (levodopa-carbidopa intestinal gel) for treating advanced Parkinson’s disease.
Select key products in Phase III development for AbbVie include three oncology drugs: ABT-199 for treating chronic lymphocytic leukemia; veliparib being developed to treat non-small-cell lung cancer and breast cancer; and elotuzumab to treat multiple myeloma. Also, the company is advancing two additional indications for Humira: to treat hidradenitis suppurativa, a chronic skin disease also known as acne inversa, and uveitis, or inflammation of the uvea, the middle layer of the eye. Also in Phase III development are: elagolix, an oral gonadotropin-releasing hormone antagonist to treat endometriosis; daclizumab for treating multiple sclerosis; and atrasentan for treating diabetic nephropathy.
For Shire, select key late-stage drug candidates include: SHP-465, a drug to treat attention deficit hyperactivity disorder under registration; a further indication for Vyvanse to treat binge eating in Phase III development; an additional indication for Firazyr (icatibant) for treating ACE angioedema in Phase III development; and lifitegrast in Phase III development to treat dry eye.
On the manufacturing front, earlier this year, AbbVie announced it is investing $320 million to establish operations in Singapore for small-molecule and biologics drug-substance manufacturing. The completed facility will provide manufacturing capacity for emerging compounds within AbbVie’s oncology and immunology pipeline to serve markets globally. The investment will establish the first manufacturing presence in Asia by AbbVie. AbbVie anticipates that the new facility will be fully operational by 2019.
In May 2014, AbbVie opened the company’s newly expanded manufacturing facility in Sligo, Ireland. The expansion provides increased manufacturing capacity for the company’s existing product portfolio as well as new therapies within the company’s pipeline, including its HCV treatment. Since the initial announcement of the expansion in 2012, AbbVie has invested EUR 85 million ($116 million) in the Sligo facility. AbbVie’s current global manufacturing network includes sites across the United States (including Puerto Rico) and Europe as well as strategic partnerships with third-party manufacturers. Its principal US manufacturing sites are in: Abbott Park and North Chicago Illinois; Barceloneta and Jayuya, Puerto Rico; and Worcester, Massachusetts. In Europe, the company’s principal manufacturing sites are in: Cork and Sligo, Ireland; Campoverde di Aprilia, Italy; and Ludwigshafen, Germany. AbbVie also has four US R&D facilities located at: Abbott Park, Illinois; North Chicago, Illinois; Redwood City, California; and Worcester, Massachusetts. Outside the United States, AbbVie’s principal R&D facilities are located in Shanghai, China and Ludwigshafen, Germany (1).
Shire’s major manufacturing facilities are in Cambridge and Lexington Massachusetts. The Cambridge site also includes warehouse facilities. The Lexington site also includes laboratories, warehousing, and distribution operations. The company also has a warehousing and distribution facility in Florence, Kentucky, a warehousing facility in North Reading, Massachusetts, and laboratory and office space in Sao Paulo, Brazil. Its other offices are in: Dublin, Ireland; Wayne, Pennysylvania; Basingstoke, UK; Nyon, Switzerland; and Exton, Pennsylvania (secured through its acquisition of ViroPharma). The prioritization and rationalization of Shire’s development portfolio meant that many of the R&D programs that were being run from Basingstoke, UK ceased, which resulted in R&D roles in Basingstoke being eliminated and some positions being re-located. In addition, in 2013, the company announced plans to re-locate its international commercial hub from Nyon, Switzerland to Zug, Switzerland. In October 2013, Shire also announced that it will discontinue the construction of new manufacturing facility in San Diego and also closed its site in Turnhout, Belgium (2).
On a sourcing basis, Shire sources active pharmaceutical ingredients (APIs) from third-party suppliers for Vyvanse (lisdexamfetamine dimesylate), Intuniv (guanfacine), Adderall XR (mixed salts of a single-entity amphetamine product), Lialda (mesalamine), Forsenol (lanthanum carbonate), Pentasa (mesalamine), Xagrid (anagrelide), and Firazy (icatibant). Shire has in-house manufacturing capability for Replagal (agalsidase alfa), Elaprase (idursulfase), and Vpriv (veglucerase alfa) at its protein-manufacturing plants in Cambridge and Lexington, Massachusetts. To support the growth of Vpriv and Replagal and clinical development, the company added manufacturing capacity at its Lexington site. Both the US Food and Drug Administration and the European Medicines Agency have approved the Lexington facility for the purification of Replagal and the manufacture and purification of Vpriv (2).
1. AbbVie, 10-K Annual Filing 2013, US Securities and Exchange Commission.
2. Shire, 10-K Annual Filing 2013, US Securities and Exchange Commission.