Thursday, September 20, 2007

Shire's Portfolio Solution

Big Pharma management could do worse than take a look at Shire when trying to figure out how to get out of their mess. This specialty pharma turned biopharmaceutical firm has seen its market cap quadruple over the last five years, and just upped 2007 revenue growth guidance to at least 25%. It’s also managed to buy biologics and turn them into a future growth driver—as most Big Pharma are attempting to do.

Now granted, Shire still has a size benefit relative to Big Pharma: it takes less to move the needle. But eager to avoid becoming a top-heavy bureaucracy mired by politics and dulled creativity, CEO Matt Emmens and his team are thinking in terms of portfolio management as the company grows. “We see ourselves [at the corporate level] as a sort of holding company with portfolio businesses sitting under that structure,” Emmens tells IN VIVO Blog.

In other words, top management stays at arm’s length (where possible) with the bigger picture in mind. Beneath are a series of portfolio companies, each run by a separate head and with some degree of independence, steered by the top team. “The primary function of the top group is new business—what to be in and what not to be in. They are not involved in the day to day running of the business,” illustrates CFO Angus Russell. Business development folk sit in each of the units, but they report directly to the corporate BD head, not the head of the unit. That in theory avoids internal squabbles around resource allocation.

For now Corporate sits above two broad divisions, Specialty Pharma and Human Genetic Therapies (ex-TKT, acquired in 2005 for $1.6 billion, shocking the market at the time). It’s a logical split given the fundamentally different nature of biologics versus small molecules. But the fact that TKT has barely changed since it was acquired--“If you went to Cambridge [MA, HGT's main site] now and compared it with four years ago it would probably be the same,” says Emmens, except for the 50% more people—best illustrates the hands-off approach. And the principle applies to the ADHD, GI and renal business units within Spec Pharma too.

Apparently the arm’s length strategy isn’t just helping internal productivity, it’s helping win licensing deals, too. Shire in June won a competitive auction for ex-EU rights to Renovo’s Phase II scar treatment Juvista, a human form of TGF beta 3, for $75 million up front and a $50 million equity stake. Shire beat the Big Pharma, in Renovo CEO Mark Ferguson’s eyes, because it could point to TKT as proof that it was not about to grab the asset and run (not that Shire would have wanted or been able to do so). Renovo’s team will continue development of Juvista, with Shire funding trials relevant to US approval.

Juvista may yet form the seed of Shire’s newest portfolio company—in cosmetic medicine. It’s still specialist, low-ish-risk, with good IP, but provides Shire with a foot in the private market—not a bad thing given the pressure on reimbursement. (And look what Allergan did with Botox, say analysts.) Portfolio management again, then, this time balancing risk across different pricing mechanisms.

So what about Big Pharma? Stop the M&A and start managing a portfolio—which includes selling as well as buying.

1 comment:

insider said...

Great post!

The irony will be nearly perfect when a Big Pharma takes Shire over!