Friday, September 11, 2009


Focus on long-term value – boost from short-term catalysts
Despite Shire’s strong (17%) run since 2Q results, we maintain our Buy rating. We expect the market to continue refocus away from short-term earnings risks and towards the long-term value in Shire driven by its 17% ‘10-13E EPS CAGR and DCF valuation of 1271p. With believe upside to earnings is now possible from: 1) The recent acceleration in Vyvanse Rx share gains; 2) Faster growth/US approval of Velaglucerase (Gaucher’s disease) due to Genzyme’s production
problems; and 3) Faster rollout of recently approved Intuniv (ADHD) vs conservative street estimates. Reiterate Buy.

Investors refocus on long-term growth – PO raised to 1200p
Investors continue to refocus on the long-term value in Shire in our view. From 2010, with the launch of generic Adderall XR behind it, we expect Shire to enjoy superior to growth to its industry peers with a ‘10-13E EPS CAGR of 17% vs the EU sector average of 5%. On a DCF basis, Shire’s strong cash generation yields a DCF valuation of 1271p. Our increased price objective of 1200p (from 1100p) assumes the stock trades closer this following recent positive newsflow (below).

Upside opportunities emerging
We now see several areas of upside to forecasts; 1) Vyvanse Rx market shares have reaccelerated over the last four weeks adding 1% share (more than in the previous 6 months) as we enter the back to school period and likely due to some potential lag effect from a co-promotion agreement in adult ADHD with GSK; 2) Velaglucerase (Gaucher's disease) could benefit from accelerated access to the US market due to competitor Genzyme's manufacturing problems. Approval is likely by March 2010 and would see c10% upside to our 2015E EPS; 3) Intuniv, Shire's non-stimulant ADHD drug, approved last week, could exceed conservative estimates (BAS-MLe 2015: $345m) and offer a further 10% 2015E EPS upside.