Shire PLC Makes For A Promising Investment

| About: Shire PLC (SHPG)

What is Shire PLC?

Shire PLC (NASDAQ:SHPG), a Dublin-based biopharmaceutical company, was founded in 1986. It typically caters to diverse medical needs through research and development, but it also produces, sells and distributes pharmaceutical products. Shire is most known for the ADHD medication known as Vyvanse. Shire produces many top-selling drugs that would be classified as Specialty Pharmaceuticals (SP), Human Genetic Therapies (HGT), or Regenerative Medicine (RM).

Recent Catalysts For Shire PLC

On November 11th, 2013, Shire PLC acquired rare disease drug maker ViroPharma (VPHM) for $4.2B. Shire agreed to pay $50.00 per share for ViroPharma, which represented a 27% premium on the company's Friday close of $39.38. This has also resulted in ViroPharma increasing to a premium of 64% on September 12, with a share value of $30.47, as well as a sharp increase in those values the day before the transaction. Shire CEO Flemming Ornskov said:

"The acquisition of ViroPharma will immediately benefit Shire and is entirely consistent with our clear strategic objective of strengthening our rare disease portfolio. It brings us a new growth driving product which augments our already strong growth prospects"

ViroPharma Expectations

ViroPharma generated $428 million in international sales in 2012 and is projected to increase sales this year to $445-$465 million. ViroPharma is the drug maker for the treatment Cinryze, which is used by patients with hereditary angioedema. Hereditary angioedema is a rare genetic disease; the disease causes patients to have sudden swelling in the skin or mucous membrane. This can cause a disfiguring, painful and life threatening occurrence. ViroPharma projected the sales of Cinryze to be around $395-$405 million in North America for 2013. Just recently, ViroPharma CEO Vincent Milano stated:

"By joining with Shire, ViroPharma will become part of a larger, more diverse biopharmaceutical company and will benefit from Shire's innovation, scale and global reach"

The Transaction of ViroPharma

Shire PLC stated that they expect this transaction to generate annual cost synergies of about $150 million by 2015. Shire also has stated that the deal will also immediately add to its non-GAAP profits following completion. Shire expects to pay for the transaction with cash on its balance sheet, new and existing bank facilities. The deal is expected to close during the fourth quarter of this year, or at least by the first quarter of 2014, pending an anti-trust clearance. Shares of ViroPharma have rocketed to just $0.53 under its buy out premium as of November 11, 2013 in premarket trading.

Shire PLC's Earnings

Shire PLC recently reported its third quarter earnings showing $1.77 per share, which is a big improvement from the previous year's third-quarter earnings of $1.36 per share. Shire is expecting to earn mid-to-high teens earnings, which is an upgrade from their previous single-digit estimates. Shire has taken a new approach, focusing on simplifying their business structure under one main-source, which will drive the cost benefits. For 2013, Shire is expecting to increase product sales growth for the fourth quarter, which will represent somewhat similar data as the third quarter. Royalties are expected to decline by 35% - 40% from 2012 by the end of 2013. Shire is also expecting to decrease R&D and SG&A expenses to 1%-3% compared to 2012. This is marginally higher when compared to 2012.

Shire's Strong Grip on ADHD Markets

Shire PLC is holding a strong position in the ADHD market, which is currently being driven by key drugs like Vyvanse, Intuniv and Adderall XR. Shire's main growth occurs from Vyvanse, which accounts for approximately 22% of total revenues in 2012. Shire is focused on exploring more markets outside of the U.S. with Vyvanse. In December 2012, Shire pushed Vyvanse into Europe under the trade name Elvanse. Shire plans on obtaining 75% of the total EU market by 2013, which is very encouraging news for Shire's expansion, and will construct a strong path for the brand Vyvanse.

Human Genome Therapy Markets

Currently Shire's Human Genome Therapy markets are very well placed. Shire's HGT business is looking well-placed, with drugs like Elaprase, Replagal, Vpriv, and Firazyr. Firazyr has shown major growth in 2012, and was competing with ViroPharma's Cinryze. Shire plans on expanding the Firazyr brand into a different drug type known as an ACE inhibitor-induced angioedema. Phase 3 studies will occur later this year. Shire is also changing and updating label brand Vpriv's label in Europe. Vpriv's impact on type 1 Gaucher Patients have astounded the community in battling bone disease. In March of 2013, the Committee for Medicinal Products for Human Use of European Medicines Agency gave Vpriv a positive opinion.

The Pipeline

Shire is always executing and strategizing options to broaden its product portfolio through acquisitions and partnerships. They recently acquired FerroKin Biosciences in 2012, which brought a new drug to the SP portfolio for hematology. Shire has acquired a number of companies including: Pervasis Therapeutics, ABH, Movetis, SARcode and Premacure, which have added many drugs to the overall portfolio of Shire PLC.

The Positive Outlook

Shire PLC has recently obtained a patent for Impax (Adderall XR) as well as Teva and Actavis for Intuniv and Lialda. Delaying generics for these products will create a very profitable growth in the market for having exclusive rights.

Shire has recently authorized a new share repurchasing program of $500.00 million in 2012, and has repurchased share for $143 million. This buyback program significantly highlights the company's loyalty to shareholders. Also, Shire paid $81.5 million dividends in 2012, which boosted value for shareholders as well.

Shire constantly strives to develop business in Asia as well as Latin America. The company opened an office in Japan and has taken a commitment for a Vyvanse launch in Japan. Meanwhile, they continue to concentrate on China, as well as Brazil, for untapped market potential.

The Negative Outlook

Though Shire PLC has many strong standings as far as market placement, acquisitions and growth, it also has some strong negatives. The United States ADHD market is highly genericized, meaning there are many known generic substitutes available to the public as an alternative to Shire's ADHD medications. Shire's overall market share has declined 1.3% from 2012 for generic ADHD medication sales. To make things worse, Pfizer recently launched Quillivant XR in January 2013, further increasing competition. Also, both Teva and Actavis will be launching generic versions of Intuniv, impacting generic sales overall, though Shire will still receive royalties for the sales by generic competitors.

Shire is also receiving some competition for their HGT products. Shire's Vpriv and Replagal compete with Sanofi's Cerezyme and Fabrazyme. Though Sanofi was facing manufacturing issues for about 5 years, they appear to finally be making headway for consistent manufacturing in 2012-2013 with few shortages. Overall, this should affect sales for both Vpriv and Replagal, which have currently posted 20% growth over the past year. Gaucher disease is a very limited market, and existing patients are likely to shift back to Cerezyme. Fabrazyme continues to gain strength in Europe, adversely impacting Replagal sales.

Recently, Shire has faced issues with the FDA pertaining to the Lexington facility. The FDA is concerned about an active ingredient in Vpriv, known as API. Shire has added manufacturing capacity to Lexington to support the rapid growth of Vpriv and Replagal. The company has filed with the European Medicines Agency and the FDA for production of Vpriv API at the newest facility. The EMA's Committee for Medicinal Products for Human Use approved the production Vpriv in Feb of 2012. Shire made a response to the FDA in October of 2012, though this matter is yet to be resolved. A negative outcome will adversely affect Shire's supply of Vpriv and its revenues.

My Recommendation

I am currently supporting any type of long position in Shire PLC. I would highly recommend long calls, or sell-to-open puts. Shire PLC has obtained a very strong portfolio, and has the ability to grow immensely. ViroPharma shareholders will be more interested in Shire PLC as well, now that shares have reached their peak prices. Expect a lot of coverage and popularity for Shire in upcoming market news. I highly recommend this to anyone who takes an interest in the healthcare sector. Zacks currently rates Shire as a #1 strong buy, and Shire PLC has a four star rating by Motley Fool.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SHPG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.