Shire: New Products Filling Holes

While the loss of exclusivity of Shire’s (SHPGY - Snapshot Report) Adderall XR will result in revenue falling in 2009 relative to 2008, we believe Vyvanse will be able to continue to post strong sales growth due to its strong differentiating characteristics.

We believe the drug is much more than just an Adderall XR substitute, which should allow continued share gains despite significant generic competition. The adult indication should provide an additional catalyst to growth.

The recent launch of Mezavant in Europe and Canada and the continued ramp of Fosrenol in Europe should make a healthy positive impact on the top-line going forward. Eleprase should ramp very quickly with the recent approvals in Canada, Europe, Japan, Mexico, Russia and Brazil, and should be a big contributor to sales growth.

Lialda uptake has been very impressive and we expect additional market share penetration, despite Takeda no longer co-promoting the product. And while we were mildly disappointed with the ramp of Vyvanse through 2008, first quarter 2009 sales were inline with our forecast, and we expect strong sales growth in the remainder of 2009.

For 2009 we expect a foreign exchange headwind for some of Shire’s products. This along with Adderall XR sales dramatically falling should result in 2009 revenues down by about 6% versus 2008. Gross margins will contract in 2009 due to generic competition to Adderrall XR, and operating costs will remain near 2008 levels as Shire continues its strong promotion of Vyvanse and new product launches/indications and funds its late-stage pipeline.

We expect the net result to be EPADR falling 22% in 2009 to $3.02. We expect modest revenue and EPADR growth in 2010 but for deterioration in Adderall XR sales to continue to crimp gross margins.

Beyond 2010 we expect significant sales and EPADR growth to again materialize as stronger sales from Vyvanse, Elaprase, Lialda and newer products such as Intuniv, Firazyr and Equasym to fill the revenue hole left by Adderall XR going generic.

Shire’s very strong ADHD franchise (Shire’s drugs account for 34% of ADHD U.S. prescription share) should also help operating margins recover through economies of scale in marketing and promotional costs once Vyvanse reaches a certain level of sales -- likely around 2011.

Shire has also been very acquisitive in the recent past and we expect that theme to continue going forward. This should also help the company fill the revenue hole left by Adderall XR and grow revenue and EPADR for the long-term.

For 2009, we look for EPADR of $3.02, representing a 22% decrease from 2008. We currently model EPADR to average a CAGR of 4% over the next 5 years through 2013. We note, however, that further near-term acquisitions are likely, which would potentially provide upside to our longer-term growth expectations.

We maintain our Hold rating with a price target of $45 per ADR share. This is 15x our 2009 estimate of $3.02 per ADR share.

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