Shire Deepens Push Into Biotech After Suitor Drops Bid

In the Boston-area offices of Shire PLC last October, Chief Executive Flemming Ornskov stood in the company cafeteria after a startling turn of events. Several days earlier, AbbVie Inc. had abruptly abandoned a $54 billion takeover, and Dr. Ornskov was trying to find the right words for his first live address to employees.

When a song by breast-cancer survivor Kylie Minogue began to play, the CEO walked up to a lectern and looked out. Then he pumped his fist and shouted, "We're back!"

The new lease on life cheered Shire staffers, who stood and applauded Dr. Ornskov. But it hasn't ended the changes—and disruptions—at the drug company.

After AbbVie walked away, Shire took steps to soothe the rattled workforce, including rewriting severance benefits to better protect employees in the event of another takeover. At the same time, Dr. Ornskov doubled down on the mission he began after taking Shire's helm in 2013: remaking a traditional drug maker into a biotech.

That has meant pushing Shire into new directions treating brain, eye and stomach diseases, and saying goodbye to hundreds of employees at a Philadelphia-area site he is downsizing. It has also meant pursuing deals, such as the $5.2 billion acquisition earlier this year of rare-disease drug maker NPS Pharmaceuticals.

More deals are likely. Within days of the AbbVie deal falling apart, Dr. Ornskov was pressuring employees to resume their hunt for NPS and other acquisitions, says Mark Enyedy, Shire's head of business development.

Acquisitions will help Shire fulfill a pledge to nearly double sales to $10 billion in 2020, as well as further the company's transformation into a biotech. Deals may also be needed, some analysts say, to bulk up enough to avoid further takeover interest. Yet Shire faces a dwindling set of takeover targets that grew costlier while grappling with AbbVie for months.

"From the AbbVie situation, I understand that one opportunity cost is time. The longer something takes, the longer you wait, the greater the likelihood that you may not get it done," Dr. Ornskov says.

Upon becoming CEO, Dr. Ornskov had identified two cures for the ills he saw afflicting Shire: Replace aging attention-deficit-hyperactivity-disorder drugs such as Adderall that had led company sales for years, and eliminate the independent fiefdoms that had developed as a result of Shire's acquisitions over the years.

He targeted rare-disease treatments for long-term growth, because there was a strong need for the treatments; the Food and Drug Administration was speeding approval of more of the drugs; and the best-performing stocks in recent years were biotechs.

To reorganize the company into "One Shire," Dr. Ornskov sold a unit based in San Diego and began making plans to centralize the company's U.S. operations in Lexington, Mass. And he had begun signing deals: By early 2014, Shire had acquired two biotechs, SARcode Bioscience and ViroPharma, for a total of more than $4.3 billion.

Dr. Ornskov believed Shire was making good progress toward its transformation, despite some unease in the company's workhorse attention-deficit business, when AbbVie came calling in June 2014.

Taking over Shire, incorporated in the island of Jersey and officially headquartered in Ireland, would help U.S.-based AbbVie lower its effective tax rate to about 13% from 22% in a year.

Shire initially resisted, but relented after AbbVie increased its offer to $54 billion.

In July 2014, the companies announced a deal.

Staffers were shaken. Erin Robison, then a regional sales manager for Shire's neuroscience business, recalls driving in Portland, Ore., with one of her representatives and having to pull into a Starbucks parking lot to comfort him as he worried aloud about his job.

She was among many Shire employees worried whether AbbVie would honor Shire's severance benefits if she were let go.

Shire set up a training program for managers about directing employees during the takeover transition, and called it "Leading through Ambiguity."

Adding to the jitters, employees and investors began wondering about the status of the takeover itself when the U.S. Treasury issued new rules in September to curb tax-lowering inversion deals such as AbbVie's. Shire executives noticed that AbbVie was taking longer than normal to respond to Securities and Exchange Commission questions regarding the potential impact of the new rules.

On Oct. 14, word came: AbbVie had called off the deal. Shire offered an opportunity for AbbVie to enter a new market and contribute long-term strategic growth to AbbVie's existing strong outlook," says an AbbVie spokeswoman. "We wish Shire and its employees continued long-term success."

The news roiled the halls of Shire. "People were faced with another big change," recalls Mark Rus, who was heading the company's overseas neuroscience business, based in Switzerland, when he got the texts and phone calls from colleagues relating the news.

Dr. Ornskov, 57 years old, a physician by training who has held management roles at companies including Novartis AG and Bayer AG, flew back to Boston from a family vacation in Mallorca to deal with the news.

One of his first orders of business after addressing the staff was to step up the pursuit of acquisitions, including NPS Pharmaceuticals, which the team had been interested in before AbbVie stepped in. Shire also took various employee-friendly steps, including handing out $625,000 in recognition awards and extending stock grants deeper into the organization.

"I tried to go to as many holiday parties as I could," Dr. Ornskov says, to thank employees for their work during the months tied up with AbbVie.

Dr. Ornskov says he is feeling "extremely optimistic" about Shire's future.

The company's pipeline has more than 20 new drugs in human testing. Recent approvals of Natpara, a drug netted in the NPS deal that treats a rare hormone condition, and of a new binge-eating indication for Shire's attention-deficit drug Vyvanse, will add hundreds of millions of dollars in new revenue, according to analysts.

In addition, Shire is awaiting word whether the FDA will approve dry-eye treatment lifitegrast, which came in the deal for SARcode Bioscience and which analysts say could top $1 billion in yearly sales.

It is still far from smooth sailing. Dr. Ornskov also moved to downsize the Chesterbrook, Pa., offices of Shire's once-flagship attention-deficit business. Only 20% of the 500 Chesterbrook employees asked to relocate to Shire's Boston-area headquarters agreed to do so; the Pennsylvania site will still have 326 workers, according to a Shire spokeswoman.

While it was occupied with AbbVie's planned takeover, Shire lost out on one of its deal targets and rivals raised the price for the kinds of biotechs Dr. Ornskov was aiming to buy. As a result, Dr. Ornskov says Shire is now casting a wider net for targets in disorders that may not be truly rare but share certain qualities, such as a limited number of patients treated at very specialized centers.

Dr. Ornskov says he is interested in adding drugs and companies that are in Shire's focus on diseases of the brain, stomach, eyes, hormones and metabolism. He wants to move quickly.

"We still have to catch up," he says. "We did lose six months."

Write to Jonathan D. Rockoff at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires