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Why Takeda may not get to swallow Shire

It's a massive company, by market capitalisation, currently the 17th largest in the FTSE-100.
Yet the proposed €46bn takeover of drug-maker Shire by a smaller Japanese rival, Takeda, has attracted barely any attention, certainly less the outrage that accompanied the bid for engineer GKN, a company less than a fifth of its size.
There is a reason for that. Whereas GKN employed thousands of skilled British workers, Shire employs fewer than 500 people in the UK, out of a global workforce of more than 24,000.Moreover, although Shire is listed in London and has its head office in Paddington, it is, technically, an Irish company.
Why Takeda may not get to swallow Shire

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Shire is Dublin-based but listed in London
It redomiciled to Dublin in 2008 in order to take advantage of Ireland's low rate of corporation tax. This is not a UK drugs giant like GlaxoSmithKline or AstraZeneca with entrenched roots in this country going back many decades.It is, though, a remarkable success story.Shire was founded as recently as 1986 by the pharmaceuticals entrepreneur Harry Stratford and his wife Caroline. The company began life in a single room above an off-licence in Basingstoke, Hampshire, with four desks and a single telephone and the first product it sold was a calcium supplement to treat osteoporosis.In a film released to mark the company's 30th anniversary, Mr Stratford - who was chief executive until 1994 - recalled: "There hadn't been anything like it. We knew how to market products and we knew what mattered - and that's the needs of the patient. We were confident that, if we found the right products, we could be very effective."That ethos has remained with Shire during the last three decades.Shire acquired a batch of product licences in 1995 with the acquisition of Imperial Pharmaceutical Services and, the following year, floated on the London Stock Exchange. It expanded into the US the following year, with the acquisition of Pharmavene, with several further deals following in subsequent years.The deal that really put the company on the map was the 2001 merger with Canadian company BioChem Pharma, a $4bn transaction that catapulted Shire into the FTSE-100 and brought it, what was then, the world's leading HIV/AIDS treatment, with more deals following in subsequent years.While the attraction of Shire to its Japanese suitor Takeda is its specialism in rare drugs, the product for which the company probably remains best known is Adderall, a treatment for attention deficit hyperactivity disorder (ADHD) widely prescribed in the United States.
Why Takeda may not get to swallow Shire

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Takeda's shares fell as much as 9% at one stage in Tokyo on Wednesday
It later developed another treatment for the condition, Vyvanse, which was less addictive and longer lasting than previous ADHD remedies. Bizarrely, Shire's results for a while were influenced by whether it had enjoyed a strong "back to school" effect with sales of the drug at the start of academic terms.
However, during the last decade, it has sought to diversify away from ADHD treatments and more recently it has been in rare drugs and treatments that the company has made its name.These have often come from unusual sources. For example, a dressing for diabetic foot ulcers called Dermagraft was bioengineered from cultures created from the discarded foreskins of circumcised babies.Under chief executive Flemming Ornskov, a Danish doctor who joined in 2012, the emphasis has also been shifted away from early-stage drug discoveries and towards later stage drug development.The logic behind the focus on rare drugs is that these products can often command higher prices from healthcare insurers and providers - sometimes as much as €250,000 a year.Among Shire's products include a treatment for angioedema, a condition that causes painful swelling and that can, in the throat, make it difficult for sufferers to breathe. Other successful treatments include one for Hunter's Syndrome, an inherited condition that can cause organs to swell and lead to mental impairment.Shire came close to merging with US company AbbVie in 2014. That deal, worth a total €32bn, collapsed amid opposition from the Obama administration, which suspected AbbVie was only interested in Shire as a way of "inverting" to the Irish tax regime.It left Shire free to do more deals. The following year it snapped up another rare disease specialist, NPS, for $5.2bn and then, the following year, Shire acquired US haematology specialist Baxalta for $32bn.Now, though, it looks likely to be gobbled up itself.However, assuming 237-year old Takeda can pull off the deal - news of which has antagonised many of its shareholders - the transaction could well spark further consolidation in the drug sector.And Takeda's interest may also spark counter-bids.
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Takeda's offer is in the form of cash and shares. Many of Shire's shareholders will not be allowed to hold shares in a Japanese company or even the US paper with which Takeda proposes to make part-payment. They may be receptive to a rival offer with a larger cash element.So watch this space. Shire's remarkable 32-year story might yet have another twist in it.
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