Short Attention Spin- Shire To Consider Spinning Off Neurological Division

Shire Pharmaceuticals (SHPG) announced last week that it will be “assessing strategic options” for its Neuroscience franchise. The move would allow the company to focus its efforts on its rare diseases division. From the company’s Q2 statement:

With the acquisition and integration of Baxalta, Shire has solidified its leadership position in rare diseases with an unparalleled inline portfolio, innovative pipeline, and global commercial infrastructure. As part of the Board‘s ongoing commitment to optimize Shire’s portfolio and strategic focus, Shire is assessing strategic options for our Neuroscience franchise to derive even greater value from this franchise. These options may include the independent public listing of the Neuroscience franchise. Shire intends to complete this strategic review by year end.

CEO Flemming Ornskov described the current state of the business as an “exciting inflection point”, citing strong performance and significant growth potential in both the neuroscience and rare diseases divisions. Shire’s focus on simplification is nothing new – Ornskov has mentioned it multiple occasions in his comments on the company’s earnings, and even listed it as one of two goals for the company after being made CEO in early 2013.

According to Bloomberg:

The ADHD business is less of a strategic fit for Shire these days. A spinoff would finally complete the company’s rebranding as a rare-disease-focused biotech. Right now, Shire trades at a major discount to other pharma firms, particularly those making medicines for rare diseases. One hope for a spinoff would be that increased focus and efficiency — along with greater emphasis on the firm’s pipeline over maturing drugs — would translate to a higher valuation.

Even after a spinoff, Bloomberg cautions,

one of Shire’s biggest businesses will still have downside and competitive threats that may continue to distract from the pipeline and newer, growing drugs… Absent a plan to put any proceeds to good use — or a much more detailed justification for why these businesses would run better apart — Shire may be better off just holding on to the still-substantial cash flow from its ADHD business.

Part of the reason mentioned for a possible spinoff is Shire’s acquisition of Baxter (BAX) spinoff Baxalta last year, significantly increasing the company’s size.

A spinoff of the company’s neurological division would include the recently-approved adult ADHD drug Mydayis, set to launch in September of this year. The drug is an improvement on Shire’s existing ADHD drug with the same active ingredient, Adderall, which is not designed for full day effectiveness.

Disclosure: The author holds no position in any security mentioned in the article.