It's been a tough year for the pharmaceutical industry. Although it certainly emerged a winner from political upsets on both side of the pond, sentiment is still poor due to negative drugs-pricing rhetoric and a dearth of new product launches. Indeed, the MSCI World Pharma and Biotech Index is down 14 per cent since the start of the year. However, we think 2017 could bring clarity on some key issues aiding a recovery, and UK-listed rare-disease specialist Shire looks in a prime position to benefit.
- Incredibly strong drugs pipeline
- Recent earnings-enhancing acquisitions
- 'Blockbuster' drug potential
- Low rating
- Drugs pricing controversy
- Baxalta acquisition costs
Shire (SHP) has been one of the casualties of the year, which we think also makes it one of the stocks most likely to benefit from a recovery in sentiment. Even as 2016 got under way, the acquisitive company faced negative sentiment based on concerns over its mega $32bn Baxalta takeover. More recently, the company's high proportion of US earnings, exposure to areas of medicine that have attracted extensive pricing negativity and an uncharacteristic quarterly earnings miss have come at a cost. But we see share price weakness as an excellent buying opportunity for a company with great long-term prospects. With its shares trading at just 11 times 2017 forecast earnings, it is cheaper than all but AstraZeneca (AZN) and AbbVie (us: ABV) in the US. And yet forecasts by a number of city analysts suggest Shire can achieve a double-digit compound annual earnings growth rate all the way out to 2020.