Shire's Appeal Doesn't Rest on Takeover Attention
Every U.S. pharmaceuticals company seems keen to run away and join the traveling circus. It is hard to believe one isn't eyeing Shire SHP.LN +1.75% for its trapeze.
American health-care companies are venturing overseas to pull off a so-called inversion, whereby they acquire a foreign company and restructure themselves to reduce their tax rate. Shire, the U.K.-listed specialty pharma firm, looks a natural target. Allergan, AGN +2.39% the maker of Botox which is fighting a hostile takeover from Valeant Pharmaceuticals International, VRX.T +2.03% has been named as one potential buyer.
Bid speculation is nice. Shire's business looks more than capable of a good solo performance, though.
The appeal for U.S. suitors of flipping into a lower-tax jurisdiction is clear. And with its 19% tax rate and a market value of about £20 billion ($33.74 billion), Ireland-domiciled Shire is attracting attention in a market with few sizable targets. Pfizer's PFE -0.43% $100 billion approach to buy AstraZeneca AZN.LN +0.45% has braved fears of a U.S. political backlash.
Shire, whose stock rose nearly 50% last year, is doing well in driving the price up for any would-be buyer. The company said Thursday it now expects earnings per share to grow in the "mid to high twenty percent range" this year. Research and development spending could fall as much as 11% thanks to the conclusion of late-stage clinical trials, estimates Barclays. BARC.LN +1.59% And Shire's drugs treating attention deficit hyperactivity disorder, seen as off-putting to some buyers, did well: First-quarter sales of Vyvanse, Shire's biggest seller, rose by 18%, helped by price increases.
Chief Executive Fleming Ornskov is proving adept at managing worries about Shire's longer-term growth. Concerns persist about potential generic competition for Lialda, a bowel drug. But Mr. Ornskov wants to double Shire's neuroscience sales by the end of the decade, helped by a long-acting adult ADHD treatment that could be launched as soon as next year.
Meanwhile, even after last year's $4.2 billion purchase of ViroPharma, there is plenty of scope to boost Shire's growth and pipeline with more deals. The company could throw off annual free cash flow of $2 billion a year from 2015, according to Citigroup. C +0.04%
Shire, buoyed by takeover talk, is trading at about 16.5 times forecast 2015 earnings, roughly a 10% premium to the slower-growing European pharma sector. It deserves that advantage, whether or not the clowns come to town.