Shire weighs spin-off for ADHD drugs division

Shire, the Dublin-based, London-listed drugmaker, is considering spinning off its neuroscience division, as Flemming Ornskov, chief executive, continues to reshape the company after four years in charge. Mr Ornskov on Thursday said a strategic review of the division would be completed by the end of the year as he delivered second-quarter results in line with, or slightly above expectations, including pro forma sales growth of 7 per cent to $3.6bn. The group posted net income of $240m for the three months to June 30, compared with a $162m loss a year earlier because of costs related to its purchase of US biotech Baxalta last year. The potential public listing of the neuroscience business, centred on products to treat attention deficit hyperactivity disorder (ADHD), reflected his belief that while both it and the rare diseases businesses were performing strongly, they had “evolved in two very distinct ways”, Mr Ornskov told the Financial Times. Mr Ornskov, who disposed of a third business focused on cell-based therapies and wound healing shortly after taking the helm in 2013, said the rare diseases franchise had grown mainly through acquisitions, with Baxalta as the latest example. He trumpeted the achievement of $400m in cost synergies from the Baxalta integration, $100m ahead of the company’s original first year target. In part because of these greater savings, Shire has raised the midpoint of the guidance range for non-GAAP earnings per share, by 10 cents to $15.00.

In contrast to the rare diseases business, the neuroscience division had grown through the development of new products, or finding new indications for existing products, Mr Ornskov said. This included Mydayis, an ADHD drug to treat adults and for which Shire recently received regulatory approval. He said Shire would “complete a formal evaluation of the full range of strategic options for the neuroscience franchise, including the potential for its independent public listing”. Analysts broadly supported the move, but questioned whether any money raised would be used for further acquisitions, or to pay down debt.

Shire’s $32bn takeover of Baxalta was financed through a $12.1bn bond issuance that took the company’s debt to 4.5 times its earnings before interest, tax, depreciation and amortisation. Shire said its second-quarter performance had resulted in operating cash flow of $1.2bn that had enabled it to reduce non-GAAP net debt by $880m in the quarter. It said it was on track to meet its debt reduction target, which Mr Ornskov has previously said would reduce debt to between two and three times ebitda by the end of the year. Analysts at Deutsche Bank said the review of the neuroscience business should not “shock investors but is likely to raise a debate over possible use of proceeds should any cash be generated and management of any earnings dilution [ie deleveraging v M&A]”. Goldman Sachs, meanwhile, said it expected the neuroscience division to contribute about $2.7bn in sales in 2017, close to a fifth of overall group sales. It estimated that the ADHD business was worth about $13bn-$14bn.