Shire Says Shareholders Deserve Higher Price as AbbVie Looms

Jun 23, 2014 12:48 pm ET

(Updates with closing share price in sixth paragraph.)

June 23 (Bloomberg) -- Shire Plc shareholders deserve a higher price than AbbVie Inc is offering given the company’s growth prospects, Shire’s chief executive officer said as he began making the case to investors for spurning the $46.5 billion takeover offer.

Product sales will increase at a double-digit rate as Shire expands in drugs for rare diseases and eye maladies, rising to $6.5 billion by 2016, and the board needs to keep that in mind as it considers the company’s future, CEO Flemming Ornskov said.

“I just want to say to the board you have a very strong independent future, and if you were to give that up, you should certainly consider being compensated for what you gave up,” Ornskov said in an interview in London today. Shire is a unique, high-growth asset, he said, and “I would imagine that’s going to command a premium of some significance.”

The comments kick off Shire’s campaign to convince investors that the unsolicited cash-and-stock offer undervalued the drugmaker. Responding to the bid, Shire briefed investors on a call today about the company’s pipeline of experimental drugs, highlighting the dry-eye treatment Lifitegrast and medicines for childhood genetic disorders.

Shire rejected three offers from North Chicago, Illinois- based AbbVie, the companies disclosed June 20. AbbVie is considering raising its bid again and also is weighing whether to present its case directly to Shire shareholders, said people with knowledge of the matter who asked not to be named because the preparations are private. Other companies such as Bristol- Myers Squibb Co. and Allergan Inc. may be interested in pursuing Shire, analysts have said.

Stock Move

Shire shares fell 1.6 percent to close at 43.03 pounds in London after the stock surged to a record on June 20. AbbVie’s last offer valued Shire at about 46.11 pounds a share in cash and stock when it was announced. AbbVie climbed 1.1 percent to $53.88 at 12:45 p.m. in New York.

The AbbVie proposal undervalues Shire, the company said June 20 after its board unanimously rejected the approach. No talks are occurring and there can be no certainty a new offer will be made, AbbVie said separately the same day.

“I only have one defense that I can go to the board with, together with my team,” Ornskov said in today’s interview. “That’s my track record and the company’s track record and the strategic plan that I’ve laid out.”

Ornskov’s Strategy

The drugmaker has made at least six acquisitions since Ornskov’s appointment was announced in October 2012. The biggest was the purchase of ViroPharma Inc., valued by Shire at about $4.2 billion, which added the treatment Cinryze for a rare swelling disease.

The 56-year-old CEO, who took over in May 2013, declined to comment on whether he expected AbbVie to raise its price further or take its offer directly to shareholders in a hostile bid. He also wouldn’t say whether Shire had been approached by other interested parties.

Buying Shire would allow AbbVie to redomicile in a country with a much lower tax rate than the U.S. and give it access to Shire’s roster of treatments for rare diseases.

Shire is domiciled in Dublin for tax purposes, its main executive offices are in Basingstoke, England, and Ornskov works in Lexington, Massachusetts. AbbVie’s plan to move its tax domicile out of the U.S., a so-called tax inversion, raises concern about the risk of the deal, Ornskov said.

Rare Diseases

In addition to a lower tax rate, buying Shire offers access to the fast-growing market for treatments against rare diseases. Shire’s top sellers in that area are Elaprase for a genetic disorder called Hunter syndrome and Replagal to treat Fabry disease. In its statement rejecting the offer, Shire forecast product sales of $10 billion by 2020, more than double last year’s total.

This would help AbbVie, split off last year from Abbott Laboratories, branch out beyond its top drug, the arthritis medicine Humira, which generated 57 percent of its 2013 sales, according to data compiled by Bloomberg. The U.S. company raised its full-year outlook today, citing positive trial results from certain experimental products in its pipeline, in areas such as cancer and multiple sclerosis.

Ornskov and his management team dramatically transformed Shire since he took over as CEO, and the company will outperform other drugmakers as a result, he said on the call with analysts.

‘Strong Journey’

“‘Shire is on a very strong journey,’ Ornskov said in the interview. ‘‘We have a high-growth operation that is delivering for shareholders and for patients. I would hope that our investors will still see that that’s a journey worth taking with us, at least because the alternative on the table does not compensate them appropriately for what they would be giving up.’’

Besides rare disease treatments, Shire makes drugs for attention deficit hyperactivity disorder including Vyvanse and Adderall XR. ADHD treatments accounted for about 39 percent of Shire’s revenue last year.

Cross-border deals are accelerating as U.S. companies seek lower taxes and ways to spend almost $2 trillion protected from U.S. taxes in overseas cash. Pfizer Inc. failed this year in a $117 billion bid for London-based AstraZeneca Plc.

Shire was the second European health-care company to draw acquisition interest last week. On June 16, Medtronic Inc. agreed to buy Covidien Plc, a maker of hospital supplies and medical devices, for $42.9 billion.