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Shire (SHPG) Beats on Q4 Earnings, Sales; Gives Upbeat View

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Shire plc (SHPG - Free Report) reported fourth-quarter 2016 earnings of $3.37 per American Depositary Share (ADS), beating the Zacks Consensus Estimate of $3.25 and down from the year-ago tally of $2.97.

Revenues, on the other hand, surged 121.8% to $3.8 billion and beat the Zacks Consensus Estimate of $3.78 billion.

Shire’s shares have performed better the Zacks classified Medical-Drugs industry in the last year. The stock gained 8.9% during this time, which compared favorably to the industry’s 0.2% decline.

Quarter in Detail

Product sales soared 123% year over year to $3.6 billion primarily due to the inclusion of $1.8 billion of legacy Baxalta sales. Excluding Baxalta, product sales were up 13% driven by strong performance of Genetic Diseases (up 17%) and Internal Medicine (up 17%).

Royalties and other revenues were up 101% to $185 million primarily due to the inclusion of contract manufacturing revenues acquired as part of the Baxalta transaction.

The company’s Ophthalmology franchise contributed $40.3 million to total product sales, following the launch of Xiidra in Aug 2016. Xiidra, a twice-daily eye drop solution, is approved in the U.S. for the treatment of dry eye disease.

Vyvanse sales increased 4.6% to $474.4 million. Fourth-quarter sales were negatively impacted by one-time sales deductions. Sales of Lialda came in at $221.8 million, up 10.1% driven by robust demand. Lialda exited the year with a 40% market share in the U.S.

While sales of Firazyr increased 33.5% to $167.2 million on the back of higher number of patients on therapy in both the U.S. and international markets, Cinryze sales increased to $177.6 million from $143.3 million in the year-ago quarter.

Gross margin (adjusted) declined to 75.1% from 85.8% in the year-ago quarter. Research and development (R&D) costs were up 18.1% to $416.8 million, while selling, general & administrative (SG&A) expenses increased 103.6% to $989.4 million.

2016 Results

Revenues came in at $11.4 billion, up 77.6% from 2015 and beat the Zacks Consensus Estimate of $11.3 billion. Earnings per share came in at $13.10, up from $11.68 in 2015 and beat the Zacks Consensus Estimate of $12.97.

2017 Outlook

Shire expects earnings per ADS in the range of $14.60–$15.20. Product sales are projected between $14.5 billion and $14.8 billion. The company forecasts royalties and other revenues of around $600–$700 million, including contract manufacturing revenues from Baxalta. Gross margin is estimated between 74.5% and 76.5%.

Pipeline Update

Shire continues to progress with its pipeline candidates. In Jan 2017, the company announced that the FDA has acknowledged receipt of the Class 2 resubmission of a New Drug Application (NDA) for SHP465, for the treatment of ADHD. The FDA is expected to provide a decision on or around Jun 20.

In Dec 2016, Shire announced positive top-line results from a phase III trial of Vonvendi to treat bleeds in elective surgical settings for adults with severe VWD. These results will form the basis of a supplemental NDA to the FDA. The FDA also approved Adynovate for use in pediatric patients for use in the surgical setting of both adult and pediatric patients with hemophilia A.

Our Take

Shire’s fourth-quarter results were encouraging with the company beating both top- and bottom-line estimates. The company is at a dominant position in the rare diseases market, which is growing faster than the broader biopharmaceutical market. Strong performance of Vyvanse, Lialda and Firazyr should continue to drive its top line in the upcoming quarters.

The approval of Xiidra has boosted the company’s ophthalmology space. The uptake has been strong with over 270,000 prescriptions and roughly 20% of the total market by the end of 2016. The drug will also be filed for approval in Europe in the third-quarter 2017. The Dyax acquisition has integrated well and Shire expects results from the phase III trial on SHP643 in the second-quarter 2017. The label expansion of Vyvanse for the treatment of adults with moderate-to-severe binge eating disorder (BED) should boost the top line.

Meanwhile, the adult ADHD space is one of the largest and fastest growing segments of the market, and a potential approval of SHP465 (expected in Jun) will further strengthen Shire’s franchise. The hematology franchise is also expected to grow, driven by increasing share in prophylaxis uses for key brands Advate, Adynovate, and Feiba even though competition is expected to get tougher in this space. The company discontinued eight programs in its portfolio and exited its biosimilars franchise and also streamlined its oncology business.


Shire PLC Price and EPS Surprise

Shire PLC Price and EPS Surprise | Shire PLC Quote

Zacks Rank & Key Picks

Shire currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the healthcare sector are Sunesis Pharmaceuticals (SNSS - Free Report) , GlaxoSmithKline (GSK - Free Report) and Sucampo Pharmaceuticals . While Sunesis sports a Zacks Rank #1 (Strong Buy), Glaxo and Sucampo carry a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Sunesis’ loss estimates narrowed by 5.06% and 8.80% for 2016 and 2017, respectively, over the past 60 days. The company recorded a positive earnings surprise in three of the last four quarters, the average being 0.54%.

GlaxoSmithKline’s earnings estimates increased from $2.71 to $2.76 for 2017 and from $2.80 to $2.85 for 2018 over the last seven days. The company posted a positive earnings surprise in three of the four trailing quarters with an average beat of 11.03%. Its share price increased 6.4% year to date.

Sucampo’s earnings estimates were stable at $1.22 for 2016 but have increased from $1.69 to $1.74 for 2017 over the last 60 days. The company posted a positive earnings surprise in all the four trailing quarters with an average beat of 35.5%.

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