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Shire finds the savings

TIP UPDATE: Shire raised the guidance for its earnings this year after remoulding its business
October 28, 2013

Investors piled into Shire Pharmaceuticals (SHP), sending the share price up by 9 per cent at one point at the end of last week, after the specialist pharma company reported an excellent third quarter. The better than expected results allowed management to raise its full-year earnings growth guidance to the mid-to high teens, compared with the low double-digit growth that was previously forecast.

IC TIP: Hold at 2,800p

Shire can point to some notable growth in its core products, particularly the portfolio of rare disease medicines. For example, sales of angioedema drug Firazyr nearly doubled to $63m (£38m) in the quarter in a sign that the product, which Shire acquired from Jerini for €328m (£280m) in 2008, is starting to reach sales maturity. However, the rationalisation of the company's business units also contributed to higher-than-expected cost savings - costs are now expected to fall by between 1 per cent to 3 per cent this year, with further improvements next year and into 2015. On the downside, Deutsche Bank analysts noted that investors face share dilution of around 6 per cent next year as the company's $1.1bn (£680m) convertible bond looks set to convert into equity - it had been assumed that Shire would pay the bond off.