Analyst: Shire Shares Should Rebound, But Sustained Rally Unlikely

Following a 14-percent pullback in shares of Shire PLC (ADR) SHPG since May 26, Bernstein said it expects a rebound, although expressed skepticism regarding a sustained rally.

Analyst Aaron Gal is of the view the hemophilia market is likely to come under long-term pressure. While data on Roche Holding Ltd. (ADR) RHHBY's hemophilia treatment candidate was already known, the analyst is of the view that Roche did a solid job presenting the data at ISTH.

The analyst clarified that the impact of ISTH on Shire's stock is more of a cumulative effect of Roche's ACE910 data, solid results from Alnylam Pharmaceuticals, Inc. ALNY's Fitusiran and BioMarin Pharmaceutical Inc. BMRN's gene therapy.

Accordingly, Gal believes Shire's hemophilia business will likely enter long-term decline as a standard of care. Therefore, the analyst valued Shire without its hemophilia business.

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Valuing With & Without Hemophilia

Bernstein estimates Shire's hemophilia business is worth $46 per share. Excluding hemophilia, Shire's DCF value is $184 per share, based on 2025 sales of 2.3 billion euros in the non-inhibitor market and inhibitor sales of 0.35 billion euros.

However, with hemophilia in its model, Bernstein assumes a gradual drop in total hemophilia sales to 0.3 billion euros in 2025, giving the business a value of $21. Thus, the firm said the downside of a sharp decline is about 10 percent of the DCF.

"In short, it seems the recent decline in Shire stock essentially reflects 'worst case' scenario on DCF valuation," the firm said.

"However, DCF valuation is not the be-all, end-all of stock price."

Sustainability Of Rally In Doubt

Bernstein thinks there could be a rebound, going into the second-quarter results because, among other reasons, its valuation is more compelling now than it was before the ISTH.

Bernstein, however, thinks any potential rally is unlikely to be sustainable, given the challenging news flow in the second half of 2017, aggressive launch of Haegarda by CSL, the risk of potential generic Restasis and the stock lacking a long-term narrative.

While suggesting that Shire needs to address the use of cash concerns, Bernstein said Shire should consider a share buyback or dividend.

"If it does, the argument for re-valuation will become more potent and we suspect there will be more comfort with its business model but we are not quite sure the company is willing to go there," the firm added.

As such, Bernstein rates Shire a Market Perform with a $210 price target.