A sharp decline in Shire plc (LSE:SHP) share price dragged the FTSE 100 average down this morning. When the company announced that it would have competition from a new generic drug, shares fell 250.00 pence to 1,716.00, a drop of 12.7%
Adderall Market Share under Attack
The decline in price this morning came in response to an announcement that the US FDA had issued a ruling in favour of allowing a generic form of Adderall produced by rival Actavis. There is a general tendency for shareholders to react adversely to any apparent bad news. The underlying facts seem to support this theory, as the news of generic competition may not be as bad as the headlines make it appear.
Adderall XR has been a mainstay of Shire’s product line for so long, the thought of a competitor’s generic version taking a bite out of Shire’s market share is understandable. However, the cycle of development and marketing of pharmaceuticals, well known to the industry, may elude investors or overly intimidate them in uncertain economic times. Every manufacturer understands that the day will come when generics will be approved and that they will suffer some degree of market share loss following that point.
A Shire spokesperson said, “We have prepared for this event and have a variety of options, which we can and will consider, to offset any downward pressure on profitability.” Panmure’s announcement that they “now expect this (Adderall) business to shrink precipitously,” only added fuel to the fire, which otherwise might have remained an ember.
Shire is More than Adderall
Although Adderall accounts to more than £300 million in sales annually, it is not the only product in the Shire line, a product array that yielded total revenue of £4,263.4 million in 2011. Shire has already been shifting its strategic focus to Vyvanase, a next-generation treatment for ADHD, an improvement on and replacement for Adderall. Vyvanase sales are growing over twice as fast as the overall US market for hyperactivity drugs. At least one analyst had a realistic perspective on the announcement, realizing that the drug has been subject to generic competition for more than three years from other sources, saying that “The importance of Adderall XR to Shire’s long-term financial health is diminishing as other franchises grow rapidly.”
Dermagraft, Shire’s regenerative skin therapy is helping to gain market share in this critical need area. The outlook also appears to be strong to Shire’s treatment for acute hereditary angioedema and for the company’s human genetic therapies. A company spokesman said that “Shire continues to deliver good, full-year 2012 earnings growth.”
Shire is an FTSE 100 pharmaceutical company and one of the world’s leading specialty biopharmaceutical manufacturers. The company’s primary foci are on small molecule medications, human genetic therapies, and tissue repair and regeneration therapies.
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