Sales of “$17bn to $18bn by 2020” has less of a pleasing ring to it than “$20bn by 2020”, but at least Shire’s (SHP) updated long-term guidance looks manageable. The pharma giant was forced to cut its forecast in January due to the unexpected rise in competition to some big-selling medicines. The announcement topped off a poor year for Shire’s investors, which has seen the share price fall by nearly a third.
Full-year results reveal the extent to which competitive pressures are hurting Shire’s sales. Lialda and Adderall XR – its second- and third-highest selling drugs, respectively – both suffered sizeable revenue declines in the 12 months to December 2017, a trend that is forecast to continue in the coming years. The numbers also demonstrated the extent to which Shire relies on attention deficit hyperactivity disorder (ADHD) drug Vyvanse, which contributed $2.2bn (£1.58bn) of revenue, or 15 per cent of overall product sales. Vyvanse isn’t due to lose patent protection until 2023, but rising competition and regulation in the ADHD market could dampen its growth prospects before then.
That said, Shire has a very strong pipeline of new drugs that should offset these concerns. Six of its medicines have been granted approval in the last three months alone, 15 of its programs are in the late stages of development and its newest genetic illness medicine, Lanadelumab, is forecast to generate over $1bn of sales by 2021. The group has also been given approval for a new plasma facility in the US, which is expected to increase its manufacturing capacity by 30 per cent.
Investment in this facility is expected to put pressure on gross margins, but analysts at Deutsche Bank expect this to be offset by cost savings and synergies from the continued integration of Baxalta International Inc. The broker has forecast pre-tax profit of $5.8bn in the year to December 2018, giving adjusted earnings per share of 529ȼ (up from $5.5bn and 502ȼ in 2017). More importantly, borrowings are expected to keep coming down. Shire reduced its net debt position by $3.4bn in 2017, thanks to a big recovery in free cash flows, and Deutsche Bank thinks the group could be back in a net cash position by 2021.
| SHIRE (SHP) | ||||
| ORD PRICE: | 3,249p | MARKET VALUE: | £29.56bn | |
| TOUCH: | 3,248-3,249p | 12-MONTH HIGH: | 5,067p | LOW: 3,034p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 3,975ȼ* | NET DEBT: | 53% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (ȼ) | Dividend per share (ȼ) |
| 2013 | 4.90 | 1.69 | 257 | 19.93 |
| 2014 | 6.00 | 3.34 | 560 | 22.92 |
| 2015 | 6.40 | 1.39 | 227 | 26.37 |
| 2016 | 10.89 | 0.49 | 78 | 30.33 |
| 2017 | 14.45 | 1.89 | 469 | 34.88 |
| % change | +33 | +290 | +501 | +15 |
| Ex-div: | 8 Mar | |||
| Payment: | 24 Apr | |||
| *Includes intangible assets of $52.9bn, or 5811ȼ a share £1=$1.38 | ||||
