Shire (SHP LN): Pipeline to deliver 2015 catalysts; PT +17% to 5500p

Rating BUY
Price Target 5,500.00p (from 4,700.00p)
Price 4,760.00p

Key Takeaway

We believe NPS is a solid acquisition and are confident management can extract significant Revenue and operating synergies, with focus on the 24 Jan FDA action on Natpara. The upcoming FDA approval of Vyvanse for binge-eating should also be a key catalyst for the stock. Our +17% PT hike is based on a 1.4x 2016E PEG and reflects updated USD/GBP.

Confident rhetoric on NPS: Our discussions with management suggest a belief NPS is a largely de-risked asset, with marketed product Gattex and Natpara on the cusp of approval. Shire has taken a calculated risk acquiring NPS prior to the 24 January FDA PDUFA decision date as it is comfortable with the likely label and waiting could have significantly altered the bidding dynamics. We still believe NPS is a solid acquisition and note management’s track record integrating deals, plus exacting Revenue synergies. We plan to revise our model to incorporate NPS post the Natpara PDUFA date.

Abundant pipeline catalysts: We expect FDA to approve Vyvanse for binge eating disorder (BED) around its 1 Feb PDUFA date based on impressive Phase III data and a Priority Review, with consensus typically undervaluing this commercial opportunity. Perhaps Shire’s most important pipeline asset lifitegrast for dry eye disease is on-track for US regulatory filing in 1Q15E. Results from numerous Phase II trials of SHP625 in rare cholestatic liver diseases are anticipated during 2015E, with positive paediatric data in Alagille syndrome (ALGS) and progressive familial intrahepatic cholestasis (PFIC) potentially enabling filings by 1H16E. We are also cautiously optimistic on Premiplex (SHP607) to treat retinopathy of prematurity (ROP), with Phase II results in 2H15E possibly sufficient for filing under a “best case” scenario.

Hiking PT +17%: We still assume a 1.4x PEG multiple to derive a c.18x 2016E P/E multiple, given at least a +13% long-term EPS CAGR, which now implies a 5500p/share Price Target, largely reflecting updated USD/GBP. We remain bullish given clear evidence of cost control, outstanding potential for pipeline news, plus desire for synergistic BD deals and accretive acquisitions, which together could accelerate EPS growth.

Valuation/Risks

Our 5500p/share Price Target assumes 1.4x PEG for c.18x 2016E P/E given a +13% long-term EPS CAGR. NPVs suggest fair value c.3800p per share. Risks include: (1) patent challenges to key brands; (2) Vyvanse pricing pressure or loss of market share; (3) slower HGT sales growth; and (4) late-stage pipeline failures.

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