Pharmaceutical group Shire is outperforming the market as analysts welcomed news that the company is seeking access to a new billion dollar market.
The company has submitted a so-called treatment protocol at the request of the US Food and Drug Administration relating to its velaglucerase therapy for Gaucher Disease. The move follows news of a possible shortfall in Cerezyme, the treatment for the disease made by rival Genzyme, following production problems. The FDA has also approached Israel based Protalix on a similar basis.
Shire's shares have climbed 12p to 849.5p, and Panmure Gordon issued a buy note on the business, saying:
"Shire may soon be able to access a new $1.2bn market sooner than expected. The FDA has requested from Shire all the necessary information available regarding its investigational drug candidate, velaglucerase-alpha, for the treatment of Gaucher disease.
"If the market is accessed whilst the competitor is on the floor, then Shire should be able to convert its volume into long-term business."
Morgan Stanley's Karl Bradshaw - who has an overweight recommendation on the shares - added:
"We expect Shire to hear back from the FDA within 30 days of filing. Should the feedback be positive, this would allow early access to the Gaucher's disease market ahead of commercial availability in the US. Initially, velaglucerase will be offered free of charge to allow quick patient access and hence we expect financial guidance for 2009 to remain unchanged. In terms of drug demand, Genzyme mentioned that Cerezyme supply will be interrupted from August 2009 for around six to eight weeks and Shire confirmed that it has sufficient velaglucerase supply to meet any unmet demand.
"We estimate quarterly US sales of Genzyme's cerezyme are approximately $108m. If we assume that around 50% of patients switch to Shire's product then upside could in theory be $36m during the eight-week shortage period. However, if we assume that 75% of those patients that switched to Shire's drug stay on the drug then this could add around $50m to our current 2014 revenue estimates and around 5% to 2014 earnings per share."
Meanwhile JP Morgan was also positive on the company, repeating its overweight recommendation and £11.20 price target. It said:
"We expect to see substantial growth at Shire after 2010. This strong growth potential remains unreflected in the current price in our view, as investors remain wary of the trajectory of Vyvanse scripts. Our scenario analysis shows that even an unlikely worst-case Vyvanse scenario still offers upside from the current share price."
