At the J.P. Morgan Healthcare Conference in San Francisco, Shire announced it will separate its business into two units: neuroscience and rare diseases. The strategic review will be completed by the end of 2018, with the company weighing in on all options for its neuroscience franchise, including a potential spin-off.
The restructuring is not surprising as the two business units are largely different beasts. Its neuroscience franchise has grown organically, mainly through in-house R&D and successful lifecycle management strategies, which has been a key factor behind Shire’s success. In 2001 it switched patients from its largest brand, ADHD drug Adderall (amphetamine) to its follow-up formulation, Adderall XR. Subsequently, in anticipation of the patent expiry of Adderall XR, the company initiated a patient-switching campaign to its novel ADHD brand, Vyvanse (lisdexamphetamine). This is now Shire’s top selling brand, generating just over $2 billion in sales, and positioning Shire as the largest player in the lucrative ADHD market.
As shown in the figure below, Shire’s neuroscience franchise generated nearly 25% of its sales in 2017. This is composed solely of its ADHD drugs, including the recently launched Mydayis, a ultra-long-lasting version of Adderall, which hit the US market in August 2017— around the time when Shire first hinted it could exit the neuroscience business altogether.
Despite its strong position in ADHD, Shire has aimed to diversify its business to a broader therapeutic focus in recent years, seeking “bolt–on” acquisitions to facilitate entry into specialist markets. Its aggressive M&A strategy has resulted in some notable acquisitions, for example those of Transkaryotic Therapies in 2005, Jerini in 2008, NPS Pharma in 2015, and Baxalta in 2016. All of these deals have significantly contributed to Shire’s expansion into the rare disease markets, which now generates approximately 70% of Shire’s sales.
Transkaryotic Therapies brought a portfolio of enzyme-replacement therapies, such as Replagal (agalsidase alfa), Elaprase (idursufase), and Vrip (velaglucerase alfa), constituting its “genetic disorders” franchise in the figure below and generating valuable revenue streams. Jerini brought Firazyr (icatibant), an orphan drug for a rare immunology indication. Through the acquisition of NPS, Shire inherited two rare disease drugs, Gattex (teduglutide) and Natpara (parathyroid hormone), falling under gastrointestinal and metabolic disorders, respectively. Baxalta has contributed products in specialty areas of hematology, immunology, and oncology.
Shire has not been shy to divest non-core assets as well, as exemplified by the divesture of Dermagraft in 2014, seeing Shire abandoning its ambitions to expand in the regenerative medicine segment. History tends to repeat itself, and the industry would not be surprised if Shire decides to divest its neuroscience franchise in a year’s time, although this would represent its most aggressive and radical change to its business. There are several players in the ADHD market which would be well-suited to merge with Shire’s neuroscience franchise, but ultimately a deal of this size would enable Shire to re-invest in other acquisitions to further expand in rare diseases, a sector with less competition and premium-priced brands.