Shire Pharmaceuticals says it is open to takeover at right price

Company aims to show it was right to reject current AbbVie offer

Lab test: the company is building one of the industry’s most promising portfolios of rare disease treatments, according to chief executive Flemming Ornskov

Shire has made clear it is open to a takeover at the right price while insisting that the £27bn approach from AbbVie of the US falls far short of an acceptable offer.

Flemming Ornskov, Shire’s chief executive, said he had no philosophical objection to a deal but argued that the company had the potential to emulate the success of standalone US biotech companies such as Biogen Idec and Gilead Sciences if it remained independent.

“I’m not someone who is entrenched,” he told the Financial Times. “If the board decides that [a sale] is the best option I will make it happen with my management.”

However, he insisted that AbbVie’s £46.11-a-share cash and stock offer “substantially undervalued” one of the fastest-growing companies in the pharmaceuticals sector.

“This is a premium asset and if someone wants to shorten the life of this company they will have to pay a price that reflects that,” he said.

His comments were in contrast to the more confrontational attitude adopted by AstraZeneca, another UK-listed drugmaker, in its successful battle to resist a near-£70bn takeover by Pfizer last month.

Whereas Pascal Soriot, AstraZeneca chief executive, made clear his scepticism about the merits of big pharmaceutical deals, Mr Ornskov said he felt “no hostility” towards the idea of a takeover.

“Everybody can show up and bid for Shire,” he said. “It is an open capitalist market. I’m an acquirer myself.”

Shire has long been seen as one of the most attractive acquisition targets among midsized European drugmakers because of its growing portfolio of treatments for rare diseases and the low tax rate that comes with its Irish headquarters.

Mr Ornskov said the company was on course for double-digit sales growth from slightly less than $5bn in revenues last year to $6.5bn by 2016 and $10bn by 2020.

The bullish defence echoed the aggressive sales targets set by AstraZeneca as it sought to shake-off Pfizer. Mr Ornskov said Shire’s were more reliable because, whereas AstraZeneca’s growth is still years away, his company was already expanding rapidly and had a more advanced pipeline of new products.

Of the $10bn of sales forecast by 2020, 70 per cent would come from existing drugs and only 30 per cent from unproven products, Mr Ornskov said.

However, as with AstraZeneca, some analysts said the targets looked over-optimistic and lacking in detail. “There were some areas where the assumptions were aggressive versus our estimates,” said Ronny Gal at Bernstein, describing the forecasts as a “missed opportunity” to win over investors.

Shire is best known for its Vyvanse medicine for attention deficit hyperactivity disorder among children, which accounted for a quarter of sales last year.

But Mr Ornskov has focused on diversifying into treatments for rare diseases – defined as conditions affecting fewer than one in 2,000 people.

Such treatments have emerged as one of the hottest areas of drug development, as the small patient populations are offset by strong pricing power and high unmet need.

Shire has made a series of acquisitions to strengthen its rare disease portfolio, including the $4.2bn takeover of ViroPharma last year and a $260m deal with Lumena last month.

Mr Ornskov said the company had undergone a “dramatic step-change” since he took over a year ago, producing total shareholder returns of 99 per cent.

This compared with an average of 44 per cent for its biotech peers and 10 per cent for the FTSE 100 index. “We believe this is only the start in our long-term growth profile,” Mr Ornskov said. People close to AbbVie pointed out that much of Shire’s share price increase had come since April, when takeover speculation intensified.

The full benefits of this transformation are yet to be delivered and we do not think they are fully reflected in the current share price or AbbVie’s proposal

Flemming Ornskov, chief executive of Shire

Mr Ornskov said the company would continue hunting for acquisitions and pointed out that the 2020 revenue targets did not include the potential benefit of further deals.

AbbVie’s offer represented a 23 per cent premium over Shire’s share price the day before news of its interest became public last week, although the stock is up 60 per cent since takeover speculation intensified in April.

Shire shares closed down almost 1.6 per cent at £43.03 on Monday.

AbbVie, based in Chicago, is the latest among US drugmakers and medical device companies to attempt an overseas acquisition motivated in part by potential tax savings.

According to Shire, AbbVie would move its tax domicile to the UK in the event of a takeover – a move that would allow it to shelter offshore cash from high US corporate tax rates.

Acquiring Shire would also help AbbVie reduce its dependence on its Humira rheumatoid arthritis drug, which accounts for almost 60 per cent of sales and loses patent protection at the end of 2016.

Analysts have predicted that AbbVie could face competition for Shire, with Pfizer, Allergan and Bristol-Myers Squibb among those touted as rival bidders.

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