Shire's Strong Growth to Moderate in Second Half

Shire’s cash generation to remain steady while the company awaits expansion of its product line and production capacity

Karen Andersen, CFA 6 August, 2010 | 11:15AM
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Shire reported strong second-quarter results, as several drugs showed impressive sales growth, and the firm's relatively small exposure to Europe helped reduce the impact of pricing pressure and adverse exchange rate swings. We expect revenue growth to moderate in the second half of the year (due to easier comparative results for the second half of 2009) and full-year sales growth to be in the midteens, and we're not making any changes to our fair value estimate. (Review our full analysis here and access our credit rating.)

Revenue grew 35% to $849 million, and non-GAAP diluted earnings per ADS were $1.03, a 71% jump from the second quarter of 2009. Sales growth was mostly driven by four of Shire's eight main products: two ADHD drugs (Vyvanse and Intuniv) and two genetic disease therapies (Vpriv and Replagal). Vyvanse sales rose 30% to $148 million, and the recently launched Intuniv has grown rapidly to reach $51 million in the quarter. Both drugs are poised to receive expanded FDA approval within the next year; Vyvanse for adolescents, and Intuniv (a non-stimulant therapy) in combination with stimulants. Replagal sales grew 84% to $82 million, and Shire now has 2,000 patients (70% share of patients in Europe) on therapy. Vpriv saw sales of $29 million in its first full quarter on the market, and 850 patients are now on therapy. While Shire has made significant inroads during Genzyme's shortage of Fabrazyme and Cerezyme, Shire has limited capacity to add new patients until more product is available from a new facility (2011 at the earliest), at which point we expect Genzyme to improve Fabrazyme supply and fully satisfy Cerezyme demand.

Shire also recently announced its intended EUR 428 million acquisition (roughly EUR 328 million or $430 million, net of cash) of Movetis, a Belgian spin-off of Johnson & Johnson that received European approval for its first product, Resolor for chronic constipation, in 2009. We think Resolor will be a nice addition to Shire's existing gastrointestinal drug portfolio, complementing ulcerative colitis products Pentasa and Lialda. We think Shire is paying a fair price, and we would expect the firm to regain its $400 million net debt position by the end of the year; Shire generated $470 million in operating cash flow in the first half of the year, and we forecast similar cash generation in the second half.

 

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Security NamePriceChange (%)Morningstar
Rating
Johnson & Johnson146.22 USD-0.41Rating

About Author

Karen Andersen, CFA  Karen Andersen, CFA, is a senior stock analyst with Morningstar.

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