Takeda finally snags Shire in $62 billion deal

Ending protracted negotiations, Shire has agreed to be acquired by Takeda Pharmaceutical for nearly $62 billion in cash and stock. The combination of the Irish and Japanese firms will create one of the world’s biggest drug companies.

Japan-headquartered Takeda had been seeking a large transaction to help globalize its business and bridge a period during which patents are expiring on key products. The company had to sweeten its bid for Shire several times before the Irish drug firm’s board of directors finally acquiesced.

In a presentation to investors, Takeda’s CEO, Christophe Weber, touted the combination for bringing “a balanced geographic footprint and scale” that will help the company compete around the globe. Currently, 34% of Takeda’s sales come from the maturing Japanese market; the deal trims that reliance to 19% and puts nearly half of its sales in the more lucrative U.S. “We have here the ability to create a truly R&D-driven biopharmaceutical leader, which will be able to compete with the best of the best,” Weber said.

Weber also talked up the companies’ complementary activities. Takeda’s sales are focused on three areas: gastrointestinal disorders, neuroscience, and oncology. Shire has similar strengths plus a portfolio of rare-disease drugs and a plasma-derived therapy business that came through its 2015 acquisition of Baxalta.

Combined annual sales of more than $30 billion will place Takeda among the largest drug companies in the world, but that wasn’t enough to impress some industry watchers. “The fact is, this is not a deal being done out of strength,” says Erik Gordon, clinical assistant professor at the University of Michigan’s Ross School of Business. “I’m not sure it’s a top 10 pharma company in terms of anything but size.”

Industry experts question the significant debt that Takeda is taking on to fund the deal. Meanwhile, the company will try to carve $1.4 billion out of its annual costs, with about $600 million of the cuts coming from R&D. “It’s a little hard to see how you build a powerhouse when you put two highly indebted companies together” and then proceed to make deep cuts to the innovation engine, Gordon adds.

Takeda is not the only big drug firm under pressure, and industry watchers expect merger and acquisition activity in the life sciences to continue to be strong this year. A handful of sizable deals have already materialized in 2018, most notably, Celgene’s $9 billion buyout of cell-therapy-focused Juno Therapeutics and Sanofi’s $11.6 billion purchase of the rare blood disease firm Bioverativ.

In a typical year, life sciences companies spend about $200 billion on acquisitions, notes Ambar Boodhoo, Americas life sciences transaction advisory leader at Ernst & Young, and the industry should hit that level this year. “Our expectation is that this is not over, and we fully expect to see more transactions of size to happen over the next few months.” However, Boodhoo adds, EY sees future acquisitions as more likely to be “bolt on” deals in the $5 billion to $10 billion range.

Others say the combination could presage more megamergers. In a note to clients, Leerink stock analyst Geoffrey Porges noted that if Takeda can, as a relatively weak and small company, execute the merger in a way that keeps investors happy, “then others in the industry with stronger balance sheets and larger valuations can contemplate transactions that are substantially larger than even Shire.”

“We expect industry management, bankers, and boards will closely monitor the reception of this deal to calibrate their own strategic plans,” Porges added.