Shire’s drugs pipeline could prove pivotal
PHARMACEUTICALS giant Shire delivered a solid set of full year results last Wednesday.
Sales at the rare disease specialist hit $14.4billion, an 8 per cent improvement on a year earlier.
Profits did even better, with earnings per share up 16 per cent. The impressive profit performance partly reflects cost savings since the deal to buy US haematology specialist Baxalta in 2016.
However, the deal was about more than just savings – it also gives Shire options for when the exclusivity on its drugs expires.
Losing patents is a permanent source of concern for pharmaceuticals businesses. Rivals can launch generic alternatives when a drug loses patent protection, and that decimates sales.
Shire isn’t actually facing many patent expiries until the 2020s, so has some years of sales growth left. But when the patents do begin to fall, it’s important that the group has a pipeline of new drugs ready to take up the slack.
The Baxalta deal provided a shot in the arm. Recent products to emerge from the pipeline are growing well – a new dry eye disease treatment delivered $259million (£184million) in sales in its first year.
Additionally, there are around 15 treatments in late-stage trials, which bodes well for the longer term. The drug portfolio is broader, too, with three drugs generating annual sales of more than $2billion.
It’s not all plain sailing, though. Rival Roche recently launched a haemophilia treatment that could eat into Shire’s dominant position in that market, potentially disrupting $3.8billion of sales.
Shire also has a significant amount of debt. We expect repayments to swallow considerable cash in the years ahead – stalling payments to shareholders. Investors should also bear in mind that there are no guarantees where pharmaceutical pipelines are concerned. Trials can, and do, fail at the final hurdle.
Nonetheless, we feel Shire has got itself into the right position.
However, a measly dividend yield of 0.9 per cent means that, unusually, investors are hardly being paid to wait.
“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”