Shire Beats on Earnings in Q1 - Analyst Blog

Shire SHPG reported first quarter 2014 earnings (excluding special items and amortization) of $2.36 per American Depositary Share ADS, up from $1.72 per ADS in the year-ago quarter and beating the Zacks Consensus Estimate of $2.22.

Quarterly revenues increased 18% to $1.3 billion, in line with the Zacks Consensus Estimate. The increase in revenues was driven by a robust growth in product sales.

Quarter in Detail

Product sales went up 19% to $1.3 billion. The growth was driven by attention deficit hyperactivity disorder ADHD drug Vyvanse (up 18% to $351 million) ulcerative colitis drug Lialda (up 28% to $129 million), Hunter syndrome drug Elaprase (up 13% to $129 million) and hereditary angioedema HAE drug Firazyr (up 80% to $75 million). The addition of Cinryze from the erstwhile ViroPharma contributed $86 million to product sales.

We remind investors that Shire acquired all of the outstanding shares of erstwhile ViroPharma in Jan 2014 for $50 per share in cash or approximately $4.23 billion.

Royalties declined 16% to $32.3 million in the first quarter primarily due to lower Adderall XR royalties.

Adjusted research & development (R&D) costs declined 13.0% to $188.7 million in the reported quarter. Selling, general & administrative (SG&A) expenses increased 4.0% to $350.0 million.

2014 Outlook Updated

The integration of ViroPharma is progressing well and Shire expects to achieve the previously estimated cost synergies of over $150 million by 2015 end.

Shire continues to expect mid-to-high teens product sales growth in 2014 driven by addition of ViroPharma business. Royalties and other revenues are expected to decline by 10%–15% in 2014 from 2013 levels.

Shire now expects earnings in 2014 to grow at mid-to-high 20% range as compared to the previous guidance range of a similar growth rate as in 2013 (23%).

Pipeline Update

Shire was evaluating the efficacy and safety of Vyvanse for the indication of binge eating disorder (BED) and expects to submit a Supplemental New Drug Application (sNDA) to the U.S. Food and Drug Administration (FDA) later in the year.

Another ADHD drug, Intuniv has been filed for approval in Europe. To further strengthen its ADHD portfolio, Shire is reviving plans to resubmit its New Drug Application (NDA) for ADHD candidate SHP465 based on a positive feedback from FDA in Apr 2014.

Shire is also evaluating lifitegrast for the treatment of dry eye disease. However, lifitegrast did not meet its prespecified co-primary endpoint in a phase III study. Hence, Shire intends to investigate the full data from the study and plans to further discuss with the FDA in the first half of 2014 on the future development program.

The acquisition of ViroPharma also added a phase II candidate, maribavir, to Shire's pipeline. Maribavir is being evaluated for treating cytomegalovirus infection in transplant patients.

Meanwhile, Shire entered into a definitive agreement to acquire a privately held, biotechnology company, Fibrotec which focuses on the development of small molecules for the treatment of renal diseases and fibrosis. The acquisition of Fibrotech has added another candidate, FT011, to Shire's pipeline, which is being developed for patients suffering from renal impairment.

Our Take

We are impressed by the strong first quarter results and subsequent increase in earnings guidance. Shire is well placed in the ADHD market driven by key drug Vyvanse. The company continues to strengthen is ADHD portfolio.

The acquisition of ViroPharma is expected to boost the bottom line by 7% in 2014. The addition of ViroPharma's lead drug, Cinryze, will enable it to build a rare disease business (estimated at $2 billion). Cinryze is approved in the U.S. for routine prophylaxis against angioedema attacks in adolescent and adults with hereditary HAE.

We are positive on Shire's acquisition of ViroPharma which will strengthen its HAE franchise as Cinryze and Firazyr are two complementary therapies for the treatment of HAE.

Meanwhile, Shire's efforts to realign its business structure to drive growth and innovation are noteworthy. The realignment is expected to drive improved operating leverage in 2014 and 2015.

Shire currently carries a Zacks Rank #3 (Hold). Investors looking for better-ranked stocks may consider companies like Impax Laboratories Inc. IPXL, Alexion Pharmaceuticals, Inc. ALXN and Gilead Sciences Inc. GILD. All three stocks carry a Zacks Rank #1 (Strong Buy).