Big biopharma mergers have been out of favor in the industry for close to a decade now, soured by the large scale destruction that attended deals like the 2009 Wyeth buyout by Pfizer, which was followed by slash and burn tactics that played havoc with research teams.
Now, years after the bolt-on acquisition became a standard feature at the largest biopharmas, which largely swore off major mergers, Takeda’s executive team has set a goal for itself to see if a 237-year-old biopharma company based in Japan can integrate two large research groups into a single global network focused heavily in the Cambridge/Boston hub — and use the bigger operation to catapult them into the league of global heavyweights.
Slash-and-burn is not on the table in R&D, says research chief Andy Plump.
“We wouldn’t have done this if we didn’t truly believe this would be a transformative act for us,” Plump tells me on Tuesday. “We believe it’s highly strategic for us.” Later in our conversation he noted that “it’s very exciting for us. We’re not doing this because we need to do, we’re doing really well,” and the buyout is intended to accelerate their progress.
Plump and his crew face some extraordinarily deep skepticism from analysts and investors fretting over the debt and aspects of the company they’re buying. And even with a careful approach, there will be some big changes needed to make it happen.
Takeda’s $62 billion Shire buyout deal — if completed — will deliver an R&D group that’s been in transition for several years. Soon after Flemming Ornskov took over as CEO, he began to concentrate Shire’s research forces primarily in Lexington, MA, then vaulting into Cambridge after the $32 billion buyout of Baxalta, which had grabbed a big chunk of space for itself in the heart of one of the biggest biohubs on the planet.
Takeda spent about $2.85 billion on research in the past year, while Shire racked up $1.7 billion in costs during 2017. Together, Plump will be handed a group with collective costs of a little more than $4.5 billion, with a goal to cut that by about $600 million. Based on their layoff plans outlined today, that will cost roughly 1,000 jobs. (All of these numbers are based on the release from Takeda this morning and public records. Plump did not outline any specific numbers in our discussion.) Even after the cuts, at close to $4 billion in annual spending, the newly expanded Takeda would catapult up from the bottom of our top 15 list to about the 12th or 13th spot, just ahead of Gilead and perhaps behind AbbVie.
But that’s not happening overnight. The deal itself won’t close until next year, and there’s time to start considering how to manage the process.
Plump has already undertaken an overhaul of R&D at Takeda, where they scaled back and began to engage in more of the externalization strategy that has become common in the industry. Right now Plump estimates that the R&D spend is split 60/40 between external and internal.
They’re most excited about adding Shire’s rare disease drugs to the pipeline.
“We still want to stay focused,” says Plump, who’s been lasered on oncology, CNS and GI, “essentially add rare diseases.”
Where Takeda has been focused on small molecules, Shire has been adding new drug technologies that diversify their work, adding to the complementary aspects of the deal. Plump loves the early-stage gene therapy work he’s been seeing at Shire. And he’s quick to cite lanadelumab, Shire’s top late-stage asset now under FDA review, with analysts looking for blockbuster returns.
It becomes a natural follow to look at areas that lie inside their strategic interest and what lies outside their strategic interest — think ophthalmology here — where Takeda can see what it wants to keep and what it needs to move out.
Again, that doesn’t mean slash and burn. Plump’s group has established 10 different spinout companies, in addition to a string of outlicensing pacts, that can keep anything of value moving forward.
And the same approach works in geography. Adding Shire greatly expands their presence in Boston/Cambridge, which Plump sees as a big benefit, with operations in Japan and a biotech group in San Diego. Anything that Shire has outside of those areas, he says, are also going to get the closest scrutiny to see if they should remain.
“We will treat people with deep respect,” emphasizes Plump, who’s arranged deals in Japan that transferred researchers to CROs the company is aligned with, rather than simply cut jobs.
The expanded Takeda wont have to strain around profit margins, the R&D chief adds. Yes, it will take a few years to bring debt down, but he doesn’t believe that will take long with the margins they have. The deal “gives us a lot of optionality in investing in pipeline partnerships,” he says. And while they’d be planning to slow down on the deal side in any case, “our focus will always be in looking at opportunities.”
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