Shire's Q3 Earnings Grow, Ups Guidance - Analyst Blog
October 25 2013 - 12:00PM
Zacks
Shire (SHPG)
reported third quarter 2013 earnings (excluding special items and
amortization) of $1.77 per American Depositary Share (ADS), up from
$1.36 per ADS in the year-ago quarter.
The Zacks Consensus Estimate was
$1.64. Excluding special items but including amortization expense,
earnings were $1.61 per ADS.
Quarterly revenues increased 12% to
$1.2 billion, in line with the Zacks Consensus Estimate driven by a
robust growth in product sales.
Quarter in
Detail
Product sales went up 13% to $1.2
billion. The growth was driven by attention deficit hyperactivity
disorder (ADHD) drugs Vyvanse (up 21% to $299 million) and Intuniv
(up 17% to $80.8 million), Hunter Syndrome drug Elaprase (up 17% to
$129.1 million), ulcerative colitis drugs Lialda (up 36% to $141.9
million) and Pentasa (up 5% to $70.6 million), and hereditary
angioedema drug Firazyr (up 106% to $62.6 million).
However, Dermagraft (indicated for
diabetic foot ulcers) sales were down 29% to $23.9 million
primarily due to the ongoing restructuring of the Regenerative
Medicine sales and marketing organization. Moreover, sales of Fabry
disease drug Replagal (down 10% to $108.5 million) were impacted by
increased competition from the return of Sanofi’s
(SNY) Fabrazyme. Adderall XR, indicated for ADHD, also decreased
20% to $81.4 million, due to generic competition.
Royalties declined 10% to $37.6
million in the third quarter primarily due to lower Adderall XR
royalties.
Adjusted research & development
(R&D) costs climbed 2% to $222.8 million in the reported
quarter. Increased investments in R&D programs contributed to
the rise. Selling, general & administrative (SG&A) expenses
increased 1% to $371.7 million.
In the fourth quarter of 2012,
Shire initiated a share repurchase program of up to $500 million.
As of Oct 22, 2013, Shire had repurchased 9.8 million shares for
$299 million.
Earnings Outlook
Upgraded
Shire now expects to achieve
mid-to-high teens earnings growth in 2013 as compared to the
earlier estimate of double-digits earnings growth. Shire is
currently focusing on simplifying its business structure under one
head which is driving cost benefits, resulting in a second
consecutive increase in guidance. The Zacks Consensus Estimate
currently stands at $6.87.
For 2013, Shire continues to expect
product sales growth in the mid-to-high single digits while sales
growth in the fourth quarter is expected to be at a similar level
as in the third quarter. Royalties and other revenues are expected
to decline by 35% – 40% in 2013 from 2012 levels.
Shire now expects combined R&D
and SG&A expenses to be 1%-3% lower than 2012 as compared to
the previous expectation of being marginally higher versus
2012.
Pipeline
Update
Shire had discontinued the
development of Dermagraft for the additional indication of
epidermolysis bullosa.
The acquisition of Premacure in Mar
2013 has added a potential protein replacement therapy, SHP607, for
the prevention of retinopathy of prematurity (ROP) to Shire’s
pipeline. A phase II multicenter trial is ongoing in Sweden and
Shire expects headline data from this trial in the first half of
2015.
Our Take
We are impressed by strong third
quarter results and consecutive increase in earnings guidance.
Shire is well placed in the ADHD market driven by key drug Vyvanse,
which is now being developed for additional indications as
well.
Meanwhile, Shire’s efforts to
realign its business structure to drive growth and innovation are
noteworthy. The realignment is expected to drive improved operating
leverage in 2014 and 2015.
Investors reacted positively to the
results as shares gained 11.71% in regular trading.
Shire currently carries a Zacks
Rank #3 (Hold). Right now, ViroPharma (VPHM) and
Forest Laboratories (FRX) look attractive. While
ViroPharma carries a Zacks Rank #1 (Strong Buy), Forest Labs is a
Zacks Rank #2 (Buy) stock.
FOREST LABS A (FRX): Free Stock Analysis Report
SHIRE PLC-ADR (SHPG): Free Stock Analysis Report
SANOFI-AVENTIS (SNY): Free Stock Analysis Report
VIROPHARMA (VPHM): Free Stock Analysis Report
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