Shire shares eye all time highs again on drug news

Shares of biopharmaceutical maker Shire are topping the benchmark FTSE 100 index with a gain of more than 5% after it announced one of its drugs would get a speedy review from the US’s FDA.

In fact, Shire stock had already began to show signs of strength in the closing hour of Thursday trading, when news emerged that the Food and Drug Administration, the US’s main drug industry regulator, had granted ‘Priority Review’ to Shire’s application to market Lifitegrast, a new drug for dry eye disease.

Stock of the Dublin-headquartered firm had slipped more than 11% after striking an all-time high in mid-March before bouncing, at the beginning of this month.

The rebound paused yesterday amid news concerning another drug under development by the UK’s third-largest drug maker.

Shire said its SHP625 investigational compound didn’t provide a significant benefit in a clinical trial of children with a rare genetic disorder in a clinical study.

But following news that the FDA is expected to decide on Lifitegrast on 25th October, the market is looking past the experimental setback, and looking instead towards potential returns from the treatment which Shire acquired for a relatively modest $160m.

The broader market for dry eye syndrome was forecast by London-based research and consulting firm GlobalData, in 2013, to grow by $4bn in 10 years.

It’ll be some comfort for investors, who may be beginning to display some unease about Shire’s run of acquisitions.

The company resumed its well-known interest in boosting growth inorganically, in the wake of the collapse of AbbVie’s takeover in 2014.

Shire has spent $5.4bn on buying drug firms already, this year, including $5.2bn on NPS Pharmaceuticals.

It spent a relatively modest $335m acquiring companies last year, during the throes of AbbVie’s courtship.

That was a bit of rest from the frenetic shopping between 1997 and 2013, during which Shire spent more than $8bn.

Still, with a net margin recently above 54% and trailing 5-year EPS growth currently pushing 45%, ‘unease’ might be overstating investors’ view about Shire’s acquisition thirst.

Even if it’s a thirst which CEO Flemming Ornskov said last year the group had “significant firepower” to quench.

Shire therefore remains a bet on that inorganic growth.

Also a wager that net cash, which is expected to halve this year, compared to last year’s $2.5bn, can be replenished at a sufficient rate for this business model to make sense to investors.

For now, there’s little sign Shire’s backers are getting proper cold feet.

The stock is sitting on the door steps of its all-time closing high as I write this, and near to the intraday peak of 5745p established just weeks ago, continuing the uptrend from October that has added about 65% to the stock since.

SHP.L inevitably looks like it needs a rest after all that.

The stochastic indicator’s breach of its upper bound on the daily chart puts the market on notice to expect a correction soon.

Though many will probably wait for the ‘correct’ cross-over (the darker, ‘longer’ moving average line over the ‘shorter’, lighter line).

Still, recent history shows the stock could sustain its technically overbought state in this time frame for up to two working weeks.