No one is laughing now. British-born, Irish-domiciled, US-centric Shire begins this decade with the industry's most diverse ADHD franchise and market-leader status. It has also rapidly diversified into the area of orphan diseases, boldly taking on 800-pound gorilla Genzyme, just as it did J&J, Lilly, and other ADHD competitors in the 2000s.
In other words, during Big Pharma's "lost decade," Shire found itself—big time. From 2004 to 2008, the company's revenue nearly doubled ($1.36 billion to $3.02 billion). More importantly, 2009 is over—the long-feared year when Adderall XR, the extended version of Adderall that for years had delivered more than half of the firm's sales, plunged into its own patent cliff. Although the generics onslaught starting last April has wiped out almost 75 percent of the XR's sales, Shire's canny strategy has saved the firm from the battering usually taken by Big Pharmas when their blockbusters fall. When Russell reports 2009 year-end results on February 19, analysts expecting the worst will get an attitude adjustment.
Shire has prospered with a defiantly quirky business model. Says Gary Nachman, director of specialty pharma at Leerink Swann: "I love this company. Its orphan drug business differentiates it from other specialty shops, most of which have products with short lives and generics competition. Shire did a great job becoming a biotech. And its people are top-notch and passionate."
Nachman isn't Shire's only fan. Double-digit top-line growth and diversified platforms have also caught Big Pharma's lustful eyes. The prospect of a possible takeover casts the shadow over Angus Russell's bright 18-month tenure as CEO—especially because as CFO he spent the past decade as the modest mastermind behind Shire's unique strategy and success. But Russell has fighting words for any possible suitors: "A lot of us here at Shire originated in Big Pharma. None of us want to go back. So, if nothing else happens, on day one after the sale, you're going to see a huge exodus."
Lessons in Facing Facts
"I was blessed in seeing an industry that was once very profitable go through its twilight years," says Russell of his early career in strategic planning in Imperial Chemistry Industries' Petrochemicals and Plastics division in the '80s, as cheaper products from the Middle East petroleum states began flooding the global market.
Strategic planning consisted of trying to alert the ICI board to the treat, "The response was, 'Don't bring us the facts,'" Russell recalls. "Somehow, the board had convinced itself that all this new product was miraculously going to stay in the Middle East, so that the world they had known for many years would continue."
By the early '90s, stock prices of traditional commodity chemicals had collapsed, triggering a panic at ICI. "Their response was to break up the company and sell it off almost at the bottom of the cycle," he says. "After 70 years, ICI no longer exists. The company was a dinosaur, and it became extinct."
The application of this lesson—denial followed by panic—to the pharma industry is all too plain. As CFO at Shire, he fashioned a business model that took change—if not disruption—as the norm. "To adapt to a rapidly changing world, you must have a flexibility in your cost base. It just seemed sensible," he says.
In fact, Shire is run as a kind of holding company, with its leaders essentially managing portfolios. This strategy didn't hatch fully formed in 1999, but took shape in response to market developments, above all, game-changing generics. "We were beset with litigation attacking our patents, and decided that staying in ADHD and specialty was not sustainable," Russell says.
When it came time to diversify, Shire stunned analysts and shareholders alike by making a major acquisition of a biotech with a rare disease–focused platform. In reality, this was just another application of Russell's low-risk, high-margin strategy. Orphan-drug development offers scarce competition, fast FDA approval, extended market exclusivity, intense patient demand, and smooth reimbursement for staggeringly high price tags. It was a perfect fit.