As Baxalta Merger Closes, Shire Talks Job Cuts Worth $700 Million

As Baxalta Merger Closes, Shire Talks Job Cuts Worth $700 Million August 12, 2016
By Mark Terry, Breaking News Staff

As Shire announced its second-quarter financials this week, including the results of its merger with Baxalta , the company also discussed job cuts.

Overall, topline growth was good. Shire’s legacy product sales jumped by 19 percent in the second quarter and legacy Baxalta product sales increased by 12 percent.

“The second quarter marked an important milestone in Shire’s history,” Flemming Ornskov, Shire’s chief executive officer, said in a statement, “as we completed the combination with Baxalta to create the leading global biotechnology company focused on serving people with rare diseases and other highly specialized conditions.”

The company also touted the 40 pipeline programs, the recent approval by the U.S. Food and Drug Administration (FDA) of Xiidra to treat dry eye disease, and a positive CHMP opinion on Onivyde, for immunology. The company also recently launched Vonvendi, to treat the hereditary bleeding disorder, von Willebrand’s disease.

The FDA granted the company Fast Track Designation for SHP626 to treat NASH with liver fibrosis. The company announced positive topline results of SHP465 for the treatment of Attention Deficit Hyperactivity Disorder (ADHD), which will allow the company on schedule to file a Class 2 Resubmission of the New Drug Application (NDA) with the FDA by the end of the year. And the FDA gave Breakthrough Therapy Designation for SHP626 in June for progressive familial intrahepatic cholestasis type 2.

But at the conference call, Jeffrey Poulton, Shire’s chief financial officer, indicated the plan was for $700 million in “operating cost synergies,” the typical business euphemism for job cuts. This is an increase from $500 million that was indicated in January regarding the merger agreement. It also accounts for about 9 percent of the combined companies’ operating expenses.

About 4 percent of those cuts, the first $300 million, are expected by June 2017.

Poulton indicated that half of the savings will be the result of general and administrative costs, “with the majority of savings from streamlining our central corporate functions and reducing overhead.” The expectation is those cuts will occur at Baxalta’s former headquarters in Bannockburn, Illinois. There’s also a possibility they will affect jobs in Lexington, Massachusetts, where there are currently about 2,600 employees.

Another 30 percent of the job cuts will be in research and development. Shire has a research facility in Lexington, and two in Cambridge, Massachusetts. Baxalta’s research-and-development headquarters are at 650 East Kendall Street in Cambridge, and Ornskov has indicated he plans to retain that facility.

Poulton went on to say that about 20 percent of the cuts will be in manufacturing, “as we eliminate above site redundancies.” Shire and Baxalta’s manufacturing sites are global, with sites in Georgia and California in the U.S., but also in Austria, Belgium, Italy, Singapore and Switzerland. Shire also has manufacturing in Lexington and Cambridge, and Baxalta ran a site in Milford, Massachusetts.

“Baxalta integration activities continue to progress very well and, with our new operating structure in place, we are raising our operating cost synergy expectations by 40 percent to at least $700 million in year three post close,” Ornskov said in a statement. “This would not have been possible without the commitment of all our employees, who have worked tirelessly in recent months to help drive efficiencies across the business, so that we can continue to deliver best-in-class therapies to patients around the world. We remain resolutely focused on achieving our goals, and I am very confident that Shire will continue to deliver strong growth as we integrate Baxalta and advance our combined portfolio of products.”

Shire also announced that it plans to pay a dividend of $4.63 (U.S.) per Ordinary Share.

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