Dive Brief:
- Shire said it would cut an additional $200 million in operating costs following its June acquisition of Baxalta, to achieve $700 million in total "synergies" by 2020. The company aims to cut $300 million within the next 12 months.
- The company announced the updated estimate in its second quarter earnings report on Tuesday: 50% of the cuts will apply to marketing and administrative costs; 30% will be applied for optimization of the company's R&D portfolio; and the remaining 20% will come from slashing management and manufacturing redundancies.
- Shire will halt eight drug development programs as part of their $210 million R&D cost cuts. The halted programs consist of four from each company, including Shire's phase 2 adult alagile syndrome program and Baxalta's phase 1/2 gene therapy for hemophilia B.
Dive Insight:
Shire's second quarter financial results revealed the company benefited greatly from its $32 billion acquisition of Baxalta, which closed in June.
The rare disease pharmaceutical company recorded a $559 million boost in product sales from the one month of Baxalta product sales, boosting its year-over-year growth to 57%. Independently, Shire product sales grew 19% from the same period last year, meanwhile Baxalta's product sales grew by a pro-forma 12%.
But operations cost reductions, or "synergies," are also a key part of any acquisition. When Pfizer acquired Hospira for $15.2 billion last year, for example, the company announced an expected $800 million in synergies.
And while research and development cost cuts are not uncommon, Shire's decision to cut the eight programs reflect the company's desire to focus on the most promising indications within their rare-disease drug pipeline in order to ensure leadership in specific markets.
"We thought the best use of our resources was to streamline the franchise continual with the ongoing launches, and make the business as profitable and high-growth as possible," said Flemming Ornskov, Shire's CEO.
For that reason, the company decided to nix three phase two programs aimed at indication broadening, including the previously mentioned SHP 625 trials for adult alagile syndrome. The company's SHP 625 drug candidate is performing better as a pediatric drug, so the company chose to focus their R&D resources on that indication.
Meanwhile, the decision to cut Baxalta's hemophilia B gene therapy candidate (BAX 355) was made in order to develop a more consistent gene therapy candidate based on the data gathered from BAX 355.
"[BAX 355's] expression was good but it was a little inconsistent between different patients, and with time for some patients, the level of expression decreased," said Jeff Poulton, Chief Financial Officer for Shire.
"We have some factors that we think could account for that and we're building those in to the design and the constructs that we're using for the gene therapy," Poulton added. "So it's really not any decrease in our commitment to the program. It's just that we're going to change the molecule and move forward for the compound that's now in preclinical."