What Are Shire’s Major Valuation Drivers in Fiscal 2016?



What to expect in 2016

Shire (SHPG) is expecting double-digit sales growth in fiscal 2016. On a constant exchange rate basis, it expects annual product sales growth to be 13%–17%. This number doesn’t include the material change from the Baxalta acquisition that should be completed by mid-2016. After the transaction is completed, the company plans to provide revised numbers.

Shire further anticipates non-GAAP (generally accepted accounting principles) diluted earnings per ADS (American depositary share) to increase from 9% to 13% during fiscal 2016.

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Major events in fiscal 2016

Below are some of the milestones Shire expects to achieve in fiscal 2016:

  • potential FDA approval in 3Q16 of lifitegrast for the treatment of dry eye
  • potential EU approval in 3Q16 of Natpar for the treatment of hypoparathyroidism
  • integration of two acquisitions: Baxalta and Dyax
  • advancement of its drugs in Phase 3 trials

The company plans to expand its manufacturing facility at the cost of ~$300 million in fiscal 2016.

Historically, pharmaceutical and biotechnology giants have acquired companies focused on rare diseases in order to gain access to their key drugs. Examples of this include Sanofi’s (SNY) acquisition of Genzyme, Roche’s (RHHBY) acquisition of Genentech, and Valeant’s (VRX) acquisition of Salix Pharmaceuticals.

Recent success of SHP465

On April 4, 2016, Shire announced positive results for its Phase 3 clinical study of SHP465 for the treatment of ADHD (attention-deficit/hyperactivity disorder) in children and adolescents aged six to 17 years.

Industry-specific factors such as pricing pressure, pipeline approval, and volume uptake are some of the major contributors to Shire’s share price performance. To avoid this risk, investing in ETFs might be a good option. To get exposure to Shire and control excessive company-specific risks, investors could invest in the iShares Nasdaq Biotechnology ETF (IBB). Shire accounts for 1.6% of IBB’s total holdings.

Next, let’s look at how Shire is leading the angioedema space.


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