Shire Says Baxalta Combination to Boost Profit; Stock Surges

Updated on
  • Baxalta deal to deliver $700 million in savings over 3 years
  • EPS likely to grow to $12.70-$13.10 this year, Shire says

Shire Plc said the $32 billion takeover of U.S. drugmaker Baxalta Inc. will boost earnings and sales this year, sending its stock surging to the highest level in almost a year.

Earnings per American depositary share excluding some costs will grow to between $12.70 and $13.10 this year including results from Baxalta, the Dublin-based company said in a statement as it reported earnings on Tuesday. That’s more than the $12.77 average of analyst estimates compiled by Bloomberg. The Baxalta combination will probably deliver cost-savings of $700 million over three years, about 40 percent more than initially estimated, it said.

Shire is introducing Xiidra, drops for dry-eye disease that Chief Executive Officer Flemming Ornskov aims to turn into a “global blockbuster,” even as the drugmaker works on integrating Baxalta, bought for its stable of hemophilia medicines. The company aims to pare its dependence on Vyvanse, its top-selling treatment for attention-deficit and hyperactivity disorder.

Shares of Shire rose 2.3 percent to 5,040 pence in London trading. They climbed as much as 4.1 percent after the statement’s release to the highest level since Aug. 18. The full-year guidance published today incorporates Baxalta as of June 3.

Shire is reviewing the allocation of research and development spending for the combined company, Phil Vickers, head of R&D, said on a call with analysts. It discontinued eight research programs, including messenger RNA replacement therapies and SHP 625 in adults, and reinvested funds in higher priority programs. The company decided it will integrate Baxalta’s cancer research, and is reviewing its biosimilars business, Ornskov said.

The CEO, speaking on a conference call, said the drugmaker is committed to cutting debt and would likely consider only licensing deals or small transactions in the near future. “We don’t get easily distracted,” he said, when asked about the Brexit vote’s expected impact on the company’s business.

Dermagraft Settlement

Shire also said earnings per American depositary shares rose to $3.38 in the second quarter on a non-GAAP basis. Sales surged to $2.43 billion. On a GAAP basis, Shire swung to a loss of 71 cents per American depositary share in the quarter, mainly because of costs tied to the Baxalta transaction.

The loss also reflected expenses tied to a preliminary legal settlement of $350 million plus interest that the drugmaker reached with the U.S. Department of Justice and other authorities to end investigations into marketing practices at the Dermagraft business that Shire had sold in January 2014. The settlement accord is subject to further approvals, Shire said on Tuesday.

Revenue from Shire’s key drugs in the quarter:

* Vyvanse sales at $518 million versus estimate of $501 million
* Lialda sales at $194 million versus estimate of $174 million
* Cinryze sales at $173 million versus estimate of $165 million
* Firazyr sales at $137 million versus estimate of $129 million
* Elaprase sales at $154 million versus estimate of $146 million

(Updates shares in fourth paragraph.)
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