Shire will shine alone

Third-quarter results, which came out shortly after the deal fell through, were, in the words of City analysts, "exceptional". Sales rose 32 per cent and EPS jumped 60 per cent during the period. And management upgraded its EPS expectations for the full financial year to the "high 30 per cent range". This prompted broker Deutsche Bank to lift its EPS forecasts by 4 to 6 per cent annually, which means it now expects a hearty EPS compound annual growth rate of 18 per cent to 2018.

Clearly, Shire's management did well not to lose its focus during the AbbVie bid. Instead, the group's goal remains unchanged: to be the market leader in rare diseases. This business model has been unique from the start, setting the company apart from rivals such as AstraZeneca (AZN), GlaxoSmithKline (GSK) and Pfizer (US:PFE), whose focus has leant towards the more traditional respiratory and cardiac fields.

Shire's third-quarter sales growth was strong across the existing product portfolio, and its blockbuster ADHD drug Vyvanse is still a star performer having extended its patent expiry date until at least 2020. Sales of the drug rose 19 per cent during the period. Gastrointestinal drug Lialda also did well, coming back from a poor second quarter, with sales up 24 per cent. Overall, sales from the rare disease unit grew 66 per cent, although this number was boosted by the acquisition of angioedema treatment Cinryze. Strip this out however, and sales from the unit still rose 30 per cent.

Post-AbbVie, there is also renewed excitement about Shire's pipeline of future products. A full update on research and development (R&D) plans is not due to be given to investors until 10 December in New York, but analysts at Deutsche Bank believe the current pipeline could deliver revenues of $4bn for those product due to hit the market before 2018 - that's equivalent to roughly 70 per cent of the group's current sales.

At present, analysts believe new product lifitegrast - a dry eye treatment - has the largest commercial potential in the near term. By 2018, analysts believe the drug could fetch up to $450m in sales. If that proves the case, Shire will be well on its way to targeting a planned $10bn in sales by 2020.

What's more, they believe future acquisitions could expand the pipeline significantly. And Shire should have added motivation to do a deal of its own following the AbbVie bid. For years, Shire rebuffed the advances of multiple suitors before finally giving way to AbbVie. Changes to tax inversion laws in Washington wiped that deal off the table, and now Shire must re-establish itself as the acquirer rather than the target - a narrative it had previously stuck to for years.

Just prior to the AbbVie bid, Shire set up a sizeable credit facility worth $5bn. At the time, speculation mounted that Shire was preparing to buy New-Jersey-based NPS Pharmaceuticals (US: NPSP). But AbbVie's offer put that plan to rest. Now that Shire is going it alone one more, M&A is almost certainly back on the agenda.

In the past, Shire has been criticised for over-paying for acquisitions. But given that most deals have turned out to be earnings-enhancing, investors should have confidence in management's decisions. Some of Shire's senior executives may well have planned their individual exit strategies in reaction to the AbbVie deal, but it will be up to chief executive Flemming Ornskov to emphasise his 'One Shire' initiative and establish a united front going forward.