Shire’s proposed $32 billion acquisition of Baxalta, the biopharmaceutical company spun off from Baxter in 2015, would create a leading company specializing in rare diseases. So what is behind a combined Baxalta and Shire?.

The combined portfolio will have an expanded range of therapeutic areas with more than 60 programs in development, including over 50 that will address rare diseases and newly approved Baxalta products. Shire anticipates more than 30 recent and planned product launches from the combined pipeline, contributing approximately $5 billion in annual revenues by 2020. DCAT Value Chain Insights (VCI) examines the combined company.

Examining the deal
The boards of directors of Shire and Baxalta Incorporated have reached an agreement under which Shire will combine with Baxalta in a deal valued at approximately $32 billion. Under the agreement, Baxalta shareholders will receive $18.00 in cash and 0.1482 Shire American depositary shares (ADS) per Baxalta share. Based on Shire's closing ADS price on January 8, 2016, this implies a total current value of $45.57 per Baxalta share, representing an aggregate consideration of approximately $32 billion. This will provide Baxalta shareholders with approximately 34% ownership in the combined company. The parties expect the transaction to close mid-2016. Closing of the transaction is subject to approval by Baxalta and Shire shareholders, certain regulatory approvals, redelivery of tax opinions delivered at signing and other customary closing conditions. The transaction is a Class 1 transaction for Shire for the purposes of the UK Listing Rules requiring the approval of Shire shareholders

Shire Chief Executive Officer Flemming Ornskov, said in a company statement: “This proposed combination allows us to realize our vision of building the leading biotechnology company focused on rare diseases. Together, we will have leadership positions in multiple, high-value franchises and become the clear partner of choice in rare diseases. Our expanded portfolio and presence in more than 100 countries will drive our growth to over $20 billion in anticipated annual revenues by 2020. Our due diligence has reinforced our belief in the combination, and we look forward to welcoming Baxalta colleagues to a shared entrepreneurial, patient-driven culture.”

Baxalta Chief Executive Officer Ludwig N. Hantson, commented: “Today’s announcement marks a new path forward for our organization and is a testament to the significant progress we have made in achieving our strategic business priorities. This transaction presents a unique opportunity for Baxalta shareholders, who will receive substantial immediate value as well as an ongoing stake in a combined global leader in rare diseases with strong growth prospects. 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. The combined organization will be well positioned to accelerate innovation and deliver enhanced value for all stakeholders.”

A combined Shire and Baxalta
The combination of Baxalta and Shire will create the number one rare diseases platform in revenue and pipeline depth, with best-in-class products in each of the following growing, multi-billion-dollar franchises: hematology; immunology; neuroscience; lysosomal storage diseases; gastrointestinal / endocrine; and hereditary angioedema (HAE). The combined company will also possess a growing franchise in oncology, with approved products and innovative compounds in development, as well as a late-stage ophthalmics pipeline.

The combined portfolio will have an expanded range of therapeutic areas with more than 60 programs in development, including over 50 that will address rare diseases and newly approved Baxalta products. Shire anticipates more than 30 recent and planned product launches from the combined pipeline, contributing approximately $5 billion in annual revenues by 2020. The combined company will benefit from expanded geographic reach across more than 100 countries.

Shire anticipates that it will realize more than $500 million in annual cost synergies (expected to be achieved within the first three years post-closing). These annual cost synergies will be achieved by increasing efficiencies, leveraging the scale of the combined business, aligning to Shire’s lean operating model, and optimizing the combined R&D portfolio. Further, Shire expects to generate additional revenue synergies and a combined non-GAAP effective tax rate of 16-17% by 2017.

Product positions
In seeking to acquire Baxalta, Shire is moving forward with a strategic focus formed in 2013, when the company 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) and also in ophthalmics to support the development of Shire's ophthalmic pipeline candidate as well as created a single R&D unit with a focus on rare diseases. 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.

Each company will contribute to the product positions of the combined company. Baxalta has a well-established hematology portfolio, which includes Adynovate (antihemophilic factor (recombinant), PEGylated, an extended circulating half-life recombinant factor VIII (rFVIII) treatment for hemophilia A which was recently approved in the US and is focused on introducing new treatments for hemophilia and other rare chronic bleeding disorders to further reduce patient burdens. Baxalta is also contributing a portfolio of immunoglobulin (IG) products, most notably the recently launched Hyqvia, a subcutaneous IG treatment for patients with primary immunodeficiency, as well as a pipeline of products across a broad range of potential new indications.

In neuroscience, Shire has a focus on treatments for attention deficit hyperactivity disorder (ADHD), which includes a new indication for Vyvanse (lisdexamfetamine dimesylate) for adults with moderate-to-severe binge eating disorder. Shire also brings products to treat lysosomal storage diseases, including Vpriv for long-term enzyme replacement therapy (ERT) for patients with Type 1 Gaucher disease, Elaprase for patients with Hunter syndrome (Mucopolysaccharidosis II, MPS II), and Replagal for long-term ERT in patients with a confirmed diagnosis of Fabry disease.

Shire's gastrointestinal / endocrine portfolio is built on its 5-ASA products, Lialda for the treatment of mild to moderate ulcerative colitis, and Pentasa, for the treatment of mildly to moderately active ulcerative colitis, and recent additions of Gattex/Revestive for adults with short bowel syndrome who are dependent on parenteral support, and Natpara as an adjunct to calcium and vitamin D to control hypocalcemia in patients with hypoparathyroidism. In HAE, Shire has prophylactic and acute therapies, Cinryze and Firazyr, respectively, and-pending completion of the Dyax acquisition-a Phase III, potentially prophylactic therapy. Shire is focused on building its franchise ophthalmology with the 2016 projected launch of Lifitegrast, contingent upon regulatory approval, for dry eye disease; SHP640 for infectious conjunctivitis entering Phase III trials in 2016, and SHP607 for the treatment of retinopathy of prematurity, generating results from its Phase III trials which are expected in 2016. In oncology, Shire's portfolio includes Oncaspar (pegaspargase), a marketed biologic treatment for acute lymphocytic leukemia, and late-stage, partnered products such as pacritinib, an investigational oral kinase inhibitor for the treatment of patients with myelofibrosis, and Onivyde (irinotecan liposome injection) for the treatment of patients with metastatic pancreatic cancer.

Shire’s product and manufacturing positions
On the manufacturing front, Shire's 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.

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), Cinryze (C1 esterase inhibitor [human]), 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. As of its 2014 annual filing, the company had dual sources of API for Vpriv, Vyvanse, Adderall XR, Lialda, and Pentasa and was qualifying a second source for Intuniv. The company has two locations approved for the purification of Replagel drug substance. On the finished product side, Shire sources from third-party manufacturers the following products: Vyvanse, Intuniv, Adderall XR, Lialda, Pentasa, Forsenol, Equasym (methylphenidate), Cinryze, and Xagrid. As of its 2014 annual filing, the company had dual sources for finished product manufacturing for Elaprase, Replagal, Vpriv, and Vyanese and was developing a second source for finished product manufacturing for Lialda.

Baxalta building through acquisitions
Baxalta has enhanced its product positions through targeted acquisitions and collaborations. In March 2015, Baxalta acquired SuppreMol GmbH, a biopharmaceutical company based in Germany with an early-stage development portfolio of treatment options for autoimmune and allergic diseases, focusing on the modulation of Fc receptor signaling pathways, an immune target that could have broad applications in autoimmune disorders. SuppreMol's pipeline includes its lead candidate, SM101, an investigational immunoregulatory treatment that has completed Phase IIa studies in idiopathic thrombocytopenic purpura (ITP), a disorder causing low platelet levels and systemic lupus erythematosus (SLE), a disorder in which the immune system attacks healthy tissue.

In June 2014, Baxalta acquired AesRx, LLC , obtaining AesRx's program related to the development and commercialization of treatments for sickle cell disease (SCD), including BAX 555 (f/k/a Aes-103), an investigational prophylactic treatment for SCD currently in a Phase II clinical trial as part of an ongoing collaboration with the National Institute of Health (NIH)'s National Center for Advancing Translational Sciences (NCATS) through its Therapeutics for Rare and Neglected Diseases (TRND) program. In April 2014, Baxalta acquired Chatham Therapeutics, gaining broad access and intellectual property rights to its gene-therapy platform for the treatment of hemophilia B (BAX 335, currently in Phase I clinic trials) as well as a preclinical hemophilia A program, and the potential future application to additional hemophilia treatments.

In September 2014, Baxalta entered into an exclusive license and collaboration agreement with Merrimack Pharmaceuticals, for the development and commercialization of nanoliposomal irinotecan injection, or nal-IRI (MM-398), an investigational drug candidate for the treatment of patients with metastatic pancreatic cancer previously treated with a gemcitabine-based therapy, for all potential indications outside the United States and Taiwan. A Phase III trial has been completed, and Baxalta filed for approval for second-line pancreatic cancer in the European Union (EU) in May 2015. In November 2014, FDA granted nal-IRI Fast Track designation for the treatment of patients with metastatic pancreatic cancer who have been previously treated with gemcitabine-based therapy. Fast track designation is designed by the US Food and Drug Administration (FDA) to facilitate and expedite the development and review of drugs that treat serious conditions and fill an unmet medical need.

Baxalta also has several pacts in biosimiars. It has a collaboration with Coherus BioSciences, Inc. to develop and commercialize CHS-0214/BAX 2200, a biosimilar product candidate for Enbrel (etanercept), indicated for the treatment of certain autoimmune deficiencies, in Europe, Canada, Brazil, and other markets. This is Baxalta's most advanced biosimilar, currently in Phase III clinical trials for rheumatoid arthritis and psoriasis. In early-stage clinic trials, Coherus has demonstrated pharmacokinetic equivalence versus the innovator molecule, according to information from the company.

Baxalta is also collaborating with Momenta Pharmaceuticals, Inc. on the development and commercialization of M923/BAX 2923, a biosimilar product candidate for Humira (adalimumab), which is currently in early-stage development. In December 2014, a European clinical trial application for M923/BAX 2923 was accepted. In June 2015, Baxalta entered into an agreement with SFJ Pharmaceuticals Group relating to M923/BAX 2923, whereby SFJ will fund up to $200 million of specified development costs related to Baxalta's M923/BAX 2923 program in exchange for payments in the event the product obtains regulatory approval in the United States and/or Europe. The contingent success payments, which would total approximately 5.5 times the incurred development costs, would be paid in installments over several years following the date(s) of regulatory approval.

On the innovator side. Baxalta acquired rights under a worldwide licensing agreement with CTI BioPharma Corp. (f/k/a Cell Therapeutics, Inc.) to develop and commercialize pacritinib (BAX 2201), a an investigational JAK2/FLT3 inhibitor that recently completed Phase III trials for myelofibrosis, a chronic, malignant bone marrow disorder, and is currently in Phase II trials for acute myeloid leukemia. Baxalta has exclusive commercialization rights for all indications outside the United States, and will jointly commercialize pacritinib in the United States with CTI BioPharma. Positive top-line results from the Phase III trials were announced in March 2015.

In 2013, Baxalta acquired the investigational hemophilia compound and related assets from Inspiration BioPharmaceuticals, Inc. (Inspiration), as well as certain other assets, including manufacturing operations, from Ipsen Pharma S.A.S. in conjunction with Inspiration's bankruptcy proceedings. In October 2014, Obizur was approved for the treatment of acquired hemophilia A in the United States and is currently under regulatory review in Europe and Canada.

In established products in 2010, Baxalta acquired exclusive distribution and licensing rights in the United States, Australia, New Zealand, and Canada to Glassia, a ready-to-use liquid alpha1-proteinase inhibitor used to treat alpha-1 antitrypsin deficiency, through an agreement with Kamada Ltd., together with a technology transfer allowing Baxalta to implement Kamada's related production technology.

Another pact involves Hyqvia, a product consisting of human normal immunoglobulin (IG) and recombinant human hyaluronidase (licensed from Halozyme Therapeutics, Inc. in 2007). Hyqvia was approved in Europe in 2013 for adults with PID syndromes and myeloma or chronic lymphocytic leukemia (CLL) with severe secondary hypogammaglobulinemia and recurrent infections, and also in the United States in 2014 for adults with PID.