Japan’s Takeda Pharmaceutical this week agreed to buy Ireland’s Shire for $65 billion. The deal adds a 60% premium to Shires market value before Takeda first declared its interest six weeks ago.

Questions are now turning to how the tie-up will affect drug development.

The merged company will be the ninth largest in the world in terms of sales. Takeda is currently in the 29th spot, while Shire ranks 22nd.

GlobalData neurology and ophthalmology director Maura Musciacco said: “As with any merger or acquisition, the main risk is the inability to successfully integrate the acquired company, resulting in a large but inefficient company.

“In addition, some remain sceptical about large-scale mergers and acquisitions given their record of creating long-term value, as this strategy may be too disruptive to the business, impacting especially research and devlopment productivity.”

Shire rejected four previous offers from Takeda, forcing it to up its offer.

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By GlobalData

What the Takeda-Shire deal means for drug development

Takeda currently has 35 assets in clinical development, 13 of these have orphan drug designation. Shire currently has 27 assets in clinical development, 15 of these have orphan drug designation.

Musciacco said:

Shire will add three segments to Takeda’s pipeline: rare diseases, plasma-derived therapies, and ophthalmology. On the other hand, both companies have pipeline drugs, as well as marketed drugs, in gastro-intestinal disorders and neurology, as such, these two therapy areas are expected to see some drugs being terminated in order to facilitate costs cuts.

Takeda has stated it is aiming for $1.4 billion in cost savings by the end of the three year after completion – of these $1.4 billion, 43% will come from research and  cuts, rationalising ongoing research and early stage programs, and reducing overlapping resources.

Shire has been a hot takeover target for many years thanks to its innovative pipeline, so it was only a question of when another pharmaceutical company would make the move.

The takeover will allow Takeda to grow in rare disease treatment, specifically for genetic diseases such as haemophilia, Hunter syndrome and Fabry disease, where there is “limited competition”, according to the company.

The financial implications of the deal

For the deal to go through, it needs the approval of both companies’ shareholders, although the acquisition is expected to close in the first half of 2019.

Takeda entered a bridge loan financing agreement of $30.85 billion, which will see this loan replaced with long-term debt, available cash prior to completion and hybrid capital.

Musciacco added:

The last time the industry saw something of these proportions was back when Astra and Zeneca merged for $67 billion, or when Pfizer took over Pharmacia for $64 billion, so perhaps a concern for all other pharmaceutical companies now is that this deal will trigger other pharmaceutical companies to turn to merger and acquistions in order to fill gaps in the pipeline, expand geographically, and even take out competition.

A new wave of M&A is on the horizon.