Investors Binge on Shire after positive results from trials of its drug Vyvanse in treating binge-eating disorder

November 6, 2013 Leave a comment

Investors Binge on Shire

U.K. Pharma Company Now Must Sustain Excitement

HELEN THOMAS

Nov. 5, 2013 10:58 a.m. ET

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Shire SHP.LN +1.35% PLC has certainly got investors’ attention. Positive results from trials of its drug Vyvanse in treating binge-eating disorder gave shares in the U.K. specialty pharma company their latest boost Tuesday. The stock is up 17% this year, hitting all-time highs. The next challenge for Shire, best known for its attention deficit hyperactivity disorder drugs, is to sustain the excitement.Chief Executive Flemming Ornskov seems to have shored up Shire’s core business. Helped by the U.S. “back-to-school” season, U.S. prescriptions of Vyvanse for ADHD grew 7% in the third quarter while revenues rose 21%. Moreover, a corporate restructuring should mitigate an expected period of slower sales growth, as some of Shire’s older drugs face generic competition: Shire last month reduced its guidance for operating costs and research and development spending for the next two years.

But Shire’s pipeline is what seems to have captured investors’ imagination. The binge-eating data should be followed in the next six months by late-stage trial data on Shire’s dry-eye disease drug, Lifitegrast, and on using Vyvanse, an amphetamine, to treat depression. The company’s near-term pipeline represents a sizable opportunity, offering peak sales potential of $2 billion to $3 billion, estimates Morgan Stanley. MS -1.19%

That doesn’t come without risks. Drugs to treat disorders of the central nervous system have a lower success rate in getting to market than other categories, notes Bank of America BAC -0.78% Merrill Lynch. Moreover, Shire is heading into some new territory. Binge eating isn’t well understood or easily diagnosed. With Vyvanse likely to be the first treatment filed for approval, regulators’ approach remains untested. And other treatments associated with obesity have had limited success, struggling to win over doctors.

Shire trades at about 16 times forecast 2014 earnings, a premium to most European pharmaceuticals companies and in line with U.S. peer Allergan. AGN -0.97% That suggests the company may be vulnerable to a pipeline setback, notably around Lifitegrast.

But the company is a rarity in the sector in offering double-digit earnings growth. And with no debt and substantial free cash flow, Shire could yet bolster its pipeline or products through deal-making. That should be enough to maintain investors’ interest for now.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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