Shire tipped as next big pharma takeover target

Shire has been tipped as the next big pharma takeover, causing the company’s shares to rally on the London stock exchange.

The company could be one of many mega-merger to come in 2018: Washington is expected to pass new tax laws in the next few days which will allow US big pharma to spend billions on deals.

According to press reports, led by the Daily Telegraph, several big pharma companies from the US and Europe are rumoured to be eyeing a takeover.

Shares had slipped when Shire revealed that its treatment for cognitive problems associated with the rare disease Hunter syndrome had failed in a late-stage trial.

But they quickly recovered because of the takeover rumours.

There was no suggestion about which company would be a likely bidder – but Pfizer is known to be searching for a big acquisition after attempts to buy AstraZeneca in 2014 and then Allergan last year fell through.

Headquartered in Dublin but listed in London, AbbVie walked away from a $54 billion takeover of Shire in 2014 because of US crackdown on tax inversion deals.

The Obama administration took a strong stance against the deals, where large US companies reverse into a smaller takeover target based in a lower-tax country such as Ireland or the UK.

Shire itself has been highly acquisitive, most notably with its $32 billion takeover of rare diseases firm Baxalta, which concluded last year.

Shire’s share price has been on a downward spiral since then, and CEO Flemming Ornskov has suggested that the market did not appreciate the value of its pipeline of rare disease drugs.

At today’s prices Shire is worth around $35 billion, as investors have been concerned about whether the takeover of Baxalta will prove successful in the longer term.

Ornskov’s plan has been to pay off some of debts inherited through the Baxalta deal in tranches, while also talking up the value of some recently approved drugs.

One example he cited in an interview with the Financial Times earlier this year is Mydayis, approved in the US for people suffering from attention deficit hyperactivity disorder (ADHD).

Shire CEO Flemming Ornskov

“People have not fully understood that a product you can take once a day, that covers you up to 16 hours for adult related ADHD, is probably significantly more attractive than taking several products a day at different times,” he told the FT.

Earlier this year, there were strong rumours that Bristol-Myers Squibb could be taken over, but no deal ever materialised.

The Republican tax reforms are expected to be passed into law before Christmas, and will include a reduction in corporation tax from 35% to 21%, bringing it much closer to comparable advanced economies.

US companies will also no longer have to pay corporate taxes on income earned overseas – these will be taxed between 8 and 15.5% instead of the current 35%, allowing pharma to repatriate billions.  These measures are expected to open the M&A floodgates for pharma in 2018 – even if industry CEOs have complained until now of a paucity of good value companies to acquire.

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