3% sales miss (hematology orders phasing), 4% EPS miss ($3.17). All vs Axis consensus, 3Q sales came in 3% below ($3,315m, up 111% CER) mostly due to BXLT (7% miss) hurt by the timing of large International orders - c 50% of sales - in hematology (10% miss) and to a much lesser genetic diseases (2% below; 12% miss for Cinryze with destocking and supply constraint) despite solid Internal medicine (10% beat) and neuroscience (2% beat)
Shire PLC (SHP.L)
3Q 16 1st Take: a soft quarter
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Europe
Stock Rating Overweight
Price Target 5,600p
Nicolas Guyon-Gellin, Vincent Meunier, Patrick Chen
November 1, 2016
First full quarter of BXLT combination impacted by hematology one-offs, limited synergies and dilution as expected. Fast growing rare disease platform with self-help, yet at a 20% sector P/E discount; Overweight.
3% sales miss (hematology orders phasing), 4% EPS miss ($3.17). All vs Axis consensus, 3Q sales came in 3% below ($3,315m, up 111% CER) mostly due to BXLT (7% miss) hurt by the timing of large International orders - c 50% of sales - in hematology (10% miss) and to a much lesser genetic diseases (2% below; 12% miss for Cinryze with destocking and supply constraint) despite solid Internal medicine (10% beat) and neuroscience (2% beat). Adjusted EBIT came in 6% below ($1,254m, 37.8% margin, 120bp miss) despite good cost containment (lower COGS/R&D, higher SG&A) and EPS 4% below ($3.17; lower financials and tax rate). Of note, encouraging Xiidra (dry eye) sales ($14m vs cons $10m) reflected strong uptake despite the distortion from 30-day free promotion and inventory building.
FY16 guidance reiterated (consensus in line), focus on hemophilia market access and Xiidra. As anticipated, Shire reiterated guidance of $10.8-11bn sales (MS $10.8bn; consensus $10.9bn) and $12.70-13.10 core EPS (MS $13.04; consensus $12.97). During the conference call we expect investors to focus on 1/ pricing risk in hemophilia after Express Scripts comments yesterday 2/ Xiidra early days feedback and 3/ Cinryze US supply constraints expected to be fixed by early 2017. Of note, as widely anticipated after a bumpy development, Shire terminated high risk SHP610 for Sanfilippo A after p2b failed and confirmed SHP643 (angioedema) p3 results in 2Q 17.
A unique fast growing rare disease platform with self help, yet at a 20% sector P/E discount. The Baxalta transaction significantly increased Shire's exposure to long-duration orphan drugs (c ⅔ of revenues), adding critical mass, and de-risking current white-pill cash cows with further portfolio optimisation optionality. While Shire's superior growth profile (12% revenue/EPS 5-year CAGR) derives partly from BXLT synergies and deleveraging, we find the current 20% 12-month forward sector P/E discount inappropriate in light of Shire's proven track record at integrating companies, leadership in rare diseases and attractive risk-reward. Next major catalyst will be 10th Nov investor day.
Conference call at 2.00pm GMT, UK 0808 237 0030; US 1 866 928 7517; password 42020034
3Q results variance table vs MS and consensus
Source: Axis consensus, Company data, Morgan Stanley Research estimates
FY 16 guidance vs MS and consensus
Source: Axis consensus, Company data, Morgan Stanley Research estimates