Shire Tops Q4 Earnings, Baxalta Buyout & Lifitegrast in Focus

Shire plcSHPG reported fourth-quarter 2015 earnings of $2.97 per American Depositary Share (ADS), up 12.8% year over year and ahead of the Zacks Consensus Estimate of $2.82.

Revenues climbed 9% to $1.7 billion, in line with the Zacks Consensus Estimate.

Quarter in Detail

Product sales grew 8% from the year-ago period to $1.6 billion driven by the strong performance of Vyvanse (up 18% to $453 million), Lialda (up 9% to $201 million) and Firazyr (up 23% to $125 million).

Vyvanse demonstrated solid growth in 2015 (over $1.7 billion in sales) driven by 8% prescription growth in the U.S., which outpaced the 6% growth in the ADHD market. The label expansion of the drug to include binge-eating disorder further drove sales. Consequently, Vyvanse ended 2015 with a market share of 16.7%, up half a share point from Dec 2014, while that of Lialda in the U.S. was approximately 36%, reflecting a three-point increase from 2014.

Meanwhile, combined sales of Gattex/Revestive and Natpara came in at $58 million.

Sales growth was dampened by lower Intuniv sales (down 58% to $20 million) due to generic competition. Elaprase, Vpriv and Replagal sales were impacted by currency headwinds due to a strong dollar.

Royalty income surged 39% from the year-ago period to $82.3 million. In the reported quarter, adjusted research & development costs shot up 46.2% to $353.2 million. Selling, general & administrative expenses increased 9.7% to $632.3 million.

2015 Results

Revenues came in at $6.4 billion, up 11% from a year ago and in line with the Zacks Consensus Estimate. Products from the Feb 2015 acquisition of NPS contributed $166 million to the top line, thereby contributing 3% to the sales growth rate. Earnings came in at $11.68 per ADS, up 14% and ahead of the Zacks Consensus Estimate of $11.51 on the back of a lower effective tax rate.

2016 Outlook

Shire continues to expect earnings per ADS to grow 7-10% in 2016. The company expects product sales to grow 11-14% (including Kalbitor), considering that currency impact will hurt sales by 2 to 3 percentage points.

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

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

Pipeline Update

Shire's efforts to build an ophthalmology portfolio got a boost recently 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 and a Prescription Drug User Fee Act (PDUFA) date of Jul 22, 2016. In addition, SHP640 is being evaluated for the treatment for infectious conjunctivitis. The candidate will enter phase III trials later in 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 experiencing antibody-mediated rejection. The company expects to begin dosing patients soon. Recently, it 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.

Shire also expects to initiate patient dosing of SHP643 (added via the Dyax acquisition) in Mar 2016 for the prophylactic treatment of HAE.

Meanwhile, Shire expects top-line data from several studies in the first half of 2016. These include a phase III study on SHP465 for the treatment of ADHD in adults; a phase IIB trial on SHP610 for the treatment of the rare lysosomal storage disease, SanFilippo A; and a phase II study on SHP607 for the prevention of retinopathy of prematurity.

On the other hand, the Committee for Medicinal Products for Human Use (CHMP) requires additional time to assess Shire's marketing authorization application for Natpara in the EU. A decision by the CHMP is expected by the third quarter of 2016 (a potential launch in 2017 upon approval).

Our Take

Shire currently carries a Zacks Rank #2 (Buy). Shire's fourth-quarter earnings were well above expectations driven by continued strength in Vyvanse, Cinrzye and Firazyr, along with the positive impact of a lower tax rate, which more than offset the impact of headwinds like the decline in Intuniv sales (exclusivity lost in Dec 2014) and currency impact due to a strong dollar.

We expect 2016 to be a data-rich year for Shire, with investor focus primarily on the potential approval of lifitegrast (expected in Jul 2016). Moreover, the recently announced acquisition of Baxalta will add key products to Shire's hematology, oncology and immunology franchises, and boost results further.

Nevertheless, currency rates are projected to continue being a major headwind in 2016.

A couple of top-ranked stocks in the health care sector are Gilead Sciences GILD and Pacira Pharmaceuticals PCRX . 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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