Shire (SHPG) Tops Q1 Earnings, Baxalta Buyout Set for June

Shire plcSHPG reported first-quarter 2016 earnings of $3.19 per American Depositary Share (ADS), up 12% year over year, and comfortably beat the Zacks Consensus Estimate of $3.05.

Revenues surged 15% to $1.7 billion and came in line with the Zacks Consensus Estimate.

Quarter in Detail

Product sales soared 14% to $1.6 billion driven by strong performance of Vyvanse (up 22% to $509 million), Lialda (up 13% to $168 million), Cinryze (up 11% to $164 million), Firazyr (up 39% to $128 million) and Gattex/Revestive (up 97% on to $52 million).

Vyvanse is indicated for Attention-Deficit/Hyperactivity Disorder (ADHD) in patients aged six and above, as well as for moderate-to-severe binge eating disorder (B.E.D.) in adults. The drug witnessed solid growth in the quarter driven by 10% prescription growth in the U.S., which outpaced 7% growth in the ADHD market. Sales of Lialda were strong in the quarter driven by higher demand and price increase in January in the U.S. Lialda exited the quarter with a 38.4% market share, representing an increase of more than 2% from 2015 end.

Sales were hurt as Intuniv sales (down 41% to $10.2 million) suffered due to generic competition. Elaprase and Vpriv sales were hampered by currency headwinds due to a strong dollar.

Royalty income surged 26% to $79.2 million. In the reported quarter, adjusted research & development costs were up 14.1% to $211.2 million, while selling, general & administrative expenses increased 13.9% to $439.2 million.

2016 Outlook

Shire continues to expect earnings per ADS to climb 7-10% in 2016 (9-13% on a CER basis). The company expects product sales to surge 11-14% (including Kalbitor), considering currency impact of 2-3 percentage points.

Shire expects royalties and other revenues to increase 5-10% in 2016 on the back of a benefit from the addition of royalties from Dyax as well as those related to Sensipar.

The full-year guidance includes the impact of the recently completed Dyax acquisition (closed on Jan 22, 2016), but excludes contributions from its recently announced merger with Baxalta, Inc. BXLT , which is expected to close in early June.

Pipeline Update

Shire submitted a New Drug Application (NDA) to the FDA for an alternate formulation of Vyvanse as a chewable tablet. Moreover, Shire announced positive top-line results from a phase III trial on its ADHD candidate, SHP465. The study was conducted as per the FDA's requirement to evaluate its safety and efficacy in children and adolescents prior to filing a Class 2 resubmission for the drug's approval.

The company's efforts on building an ophthalmology portfolio got a boost when the FDA determined that the resubmission of company's New Drug Application (NDA) for its candidate, lifitegrast, was adequate and assigned a six-month review period for the NDA, with a Prescription Drug User Fee Act (PDUFA) date of Jul 22, 2016.

Shire is also working on expanding Cinryze's label and conducting a phase III study for the treatment of acute antibody mediated rejection in renal transplant recipients. The company has initiated patient dosing in a phase III trial on the subcutaneous formulation of Cinryze for hereditary angioedema (HAE) attacks in both teenagers and adults. The Dyax acquisition is well on track and SHP643, which was added through the acquisition, has entered into clinical trials for the prophylactic treatment of HAE.

However, the company suffered a setback when preliminary results from a phase II study, CAMEO, on SHP625 for cholestatic liver disease showed no significant reduction from baseline in serum alkaline phosphatase or other liver parameters. Shire plans to analyze data in detail to determine the path forward.

Our Take

Shire currently carries a Zacks Rank #2 (Buy). The company's first-quarter earnings exceeded expectations on the back of continued strength in Vyvanse, Lialda, Cinrzye and Firazyr, which more than offset the decline in Intuniv sales. Moreover, Shire has a solid presence in the gastrointestinal, neuroscience and rare disease markets.

The impending Baxalta acquisition will diversify its presence in the fields of hematology, immunology and oncology. The company also plans to expand in the transplantation space with maribavir for the treatment of CMV infection and Cinryze for the treatment of antibody-mediated rejection.

Meanwhile, the adult ADHD space is one of the largest and fastest growing segments of the market and a potential approval of SHP465 will further strengthen Shire's franchise.

A couple of other well-placed stocks in the health care sector are Gilead Sciences GILD and Aegerion Pharmaceuticals AEGR . Both the stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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