Perhaps borrowing from the playbook that Biogen Inc. used to beget the hemophilia and rare blood disease spin-off Bioverativ Inc., Shire plc alerted investors during its second-quarter earnings review that it's considering the same strategy, but in reverse. The Dublin-based company said a formal evaluation of strategic options for its neuroscience franchise is nearly complete – a process Flemming Ornskov, the company's CEO, called "a natural evolution of our strategy post the Baxalta integration." By catapulting its legacy products and pipeline in attention deficit hyperactivity disorder (ADHD), Shire would retain the hemophilia assets gained in last year's $32 billion Baxalta Inc. deal and remake itself as a rare disease specialist.
"This is something we've been discussing internally for quite some time now," Ornskov said on the company's earnings call.
The CEO maintained confidence "in the longevity of our neuroscience franchise," including the ADHD assets and programs in eating disorders and epilepsy, describing the unit as "a critical foundation of Shire's growth." The company's flagship product, Vyvanse (lisdexamfetamine dimesylate), remains the largest contributor to the company's bottom line, with 17 percent sales growth in 2016, 10 years after its launch, and intellectual property protection in the U.S. to 2023. In fact, Vyvanse is the third most prescribed branded drug in the U.S., according to Ornskov.
In all, the neuroscience franchise has seen 12 percent compounded annual growth since 2010, he added, with continued growth expected from the adult ADHD market and from additional penetration into ex-U.S. markets.
"As we have effectively launched our core brands into new markets, we have increased our portfolio of market share from 24 percent in 2014 to 33 percent in 2016," Ornskov said. "And we are now the market leader in six of the top 10 international ADHD markets."
That trend likely will continue, he added, since key products are still in launch phase in most regions. In Japan, for example, which is the third largest ADHD market and growing at more than 20 percent annually, Shire recently launched Intuniv (guanfacine) and filed for approval for Vyvanse with Japanese partner Shionogi and Co. Ltd., of Osaka.
The company's newest ADHD offering, Mydayis (mixed salts of a single-entity amphetamine product), approved by the FDA in June, is expected to launch next month to control symptoms in individuals 13 and older.
"Based on this profile, we'll be optimizing our promotional focus to the largest and fastest-growing segment of the ADHD market, the adult population, where there's the greatest unmet need for a long-acting therapeutic option," Ornskov said.
Mydayis is ideally suited for the $6 billion adult ADHD market in the U.S., he added, since more than half of adult prescriptions are taken more than once per day and nearly 20 percent of those are either combinations of an extended-release and immediate-release product or of two extended-release products.
Ornskov also cited the new chemical entity SHP-680, a prodrug of amphetamine, as "one final potential growth driver" for Shire's neuroscience business. The asset, which has existing patent exclusivity to 2028 and pending applications, will be developed to target "multiple neurological conditions," Ornskov said, declining to provide additional details.
With a vision of positioning Shire as the leader in rare diseases, Ornskov said that "now is the right time to formally assess potential strategic options for the neuroscience business. We are now in a position of much greater long-term financial and strategic flexibility, which could allow us to think about new options for the future."
'We like this strategic action'
Among the strategic options under consideration – and apparently the leading contender, given that it was the only prospect suggested by the CEO – is an independent public listing for a neuroscience spinout, the same route Bioverativ took earlier this year. (See BioWorld Today, Feb. 2, 2017.)
At the time, analysts had a mixed reaction to that move, and their caution might have been justified. Shares of Bioverativ (NASDAQ:BIVV) have gained 36.7 percent since the stock opened at $44.79 on Feb. 2, closing Thursday at $61.21. Over the same period, Biogen (NASDAQ:BIIB) shares have risen only 8.5 percent, falling $1.91 Thursday to close at $286.09.
Ornskov promised an update on Shire's deliberations by year-end but that didn't prevent questions about the strategy right off the bat, including a query about the company's fiscal preparedness for a major divestment so soon after digesting Baxalta. (See BioWorld Today, Jan. 12, 2016.)
"The current priority is to pay down debt, and I think we've made very significant progress and are accelerating the debt pay-down," Ornskov said. He said the company is "totally on track" to meet a ratio of two to three times to EBITDA, adding, "The decision about a strategic review of neuroscience does not change our overall focus on paying down debt."
As part of its second-quarter report, Shire said integration cost synergies from the Baxalta acquisition were ahead of expectations, with $400 million achieved in the first year vs. a target of $300 million.
As to whether the neuro assets should stand alone or should be packaged for sale, Ornskov said both Shire's rare disease and neuroscience lines "are now at critical mass." Nevertheless, the company is evaluating their ability to operate independently and both provide strong growth and profitability.
"Our preliminary assessment is yes, but I think we should wait the outcome of the full assessment," he added.
Shire reported second-quarter top-line growth of 7 percent on a pro forma basis on product sales of $3.6 billion – $1.9 billion excluding legacy Baxalta products. The company achieved $240 million in net income, or 79 cents diluted earnings per American depositary share, on operating income of $399 million.
Cash and equivalents were $263.7 million at June 30 compared to $528.8 million at year-end 2016.
Cowen and Co. analyst Ken Cacciatore called the company's second quarter "solid," adding in his earnings note, "We like this strategic action. We continue to believe that execution of core operations, restructuring of the manufacturing base and debt paydown will reverse the current sentiment."
Cacciatore also described the neuro spinout talk as "consistent with [Shire's] increased focus in rare diseases. The ability to use this entity to de-lever could place Shire in a significantly stronger financial and strategic position than we believe many had previously contemplated. We believe the Street will be relieved that management is seeking to take such a creative action."
In a first glance, RBC Capital Markets analyst Douglas Miehm agreed that Shire's consideration of the spin-off is "a positive, in our view."