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Less than a year after it was spun off from Baxter International (NYSE: BAX), pharmaceutical company Baxalta (NYSE: BXLT) has agreed to be acquired by Irish drug giant Shire (NASDAQ: SHPG) in a $31 billion deal that will create a pharmaceutical powerhouse that makes a collection of treatments for rare and not-so-rate diseases, from hemophilia to rare cancers to chronic constipation.
The Shire-Baxalta merger is intriguing for a couple of reasons.
First, the combination of an American and an Irish company that are taxed at significantly different rates was structured in a way that will effectively lower Baxalta’s tax rate. This adds a note of uncertainty to the deal ultimately winning regulatory approval, but the tax benefits resulting from the proposed combination would be favorable to Baxalta, whose stock has risen sharply in line with its strong product line and portfolio.
But, can you really make money by developing treatments for rare diseases? That’s a question subject to considerable debate in an industry that has typically focused on blockbuster treatments for common ailments such as high cholesterol and depression.
The proposed Baxalta acquisition would combine two businesses with strong balance sheets that would seem to have the resources to stretch the often narrow approach to drug development and deliver treatments for diseases that are less common but still in need of remedies. The proposed strategy could be a winning one for both investors and patients.
Baxalta and Biotech Assets
The proposed Baxalta acquisition by Shire is the latest in a series of purchases by the Irish company, which just this month completed its purchase of Dyax Corp., a maker of treatments for several relatively rare disorders such as hereditary angiodema; and has made multiple acquisitions over the past five years.
Baxalta has been a standalone company for less than a year, but its spinoff from Baxter International left it with a collection of biotech assets focused on the rarer disease part of the market while Baxter kept the diabetes and high blood pressure drugs.
A Collection of Treatments
It’s a story of one business (Baxter International) shedding certain assets and another (Shire) picking them up. Value, it would seem, is in the eye of the beholder. And while there may never be great value in treating a single rare disease, Shire’s approach of cornering the rare disease market with a collection of treatments could work. While Shire’s stock has come under pressure recently, falling more than 20% over the past year, it has more than doubled over the past five years, underscoring how this company has built value.
We’ll have to wait on the final regulatory approval but if the deal goes through it could be a successful new model for treating often overlooked diseases.
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