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If you follow this column on even a semi-regular basis, you know that I stand on the axiom that “cause and effect are not necessarily closely related in time and space.” Were it not for the single word “necessarily,” Shire Plc (LSE:SHP) would have resoundingly proven me wrong today. Shire released it Q3 financials at noon. All morning long Shire share price was bobbing along at 2,500.00. As soon as the report was published, Shire shares blasted upward like a cruise missile breaking above the water, reaching an altitude of 2,712, which, apparently is going to be near its cruising altitude for the remainder of the day.
SHP shares are currently cruising along at 2,705, up 180.00 pence, for a 7.13% increase within about an hour. I have to admit that rise in value of Shire shares was very closely related in time and space to the release of the Q3 report.
Shire CEO, Dr. Fleming Ornskov, said in the report that “We’re demonstrating execution of our strategy, which is putting Shire on a path of sustainable growth. Our focus on commercial excellence is improving product sales and we’re excited about the opportunities in our pipeline.”
You’d be excited too if you were the CEO of a company that reported a 12% increase in total revenues, a 25% increase in operating income, a 23% increase in diluted earnings per ADS, and a 50% increase in net cash from operating activities (as measured using US GAAP). Total revenues were $1.2 billion. Operating income was $341 million. Earnings per ADS were $1.46, and cash from operating activities was $434 million. Yessiree, Bob, I’d be happy to report those kind of numbers.
Speaking of “sustainable growth,” the company said that “We anticipate a similar level of product sales growth in the fourth quarter as we delivered in the third quarter.” Dr. Ornskov’s comments were further underscored by the report that “investment [is] prioritized behind our promising pipeline and our late stage clinical trials.” Everyone knows that a pharmaceutical company’s life is sustained by it’s pipeline, and it appears that Shire’s pipeline will be full for some time to come.
Ornskov is citing the restructuring of the company into the catchphrase “One Shine” as the mitigating force behind the company’s performance and its record-setting share price which is now almost 100.0 pence higher that October 2012.
“One Shire” is a corporate restructuring program intended to reduce costs by combining the three divisional operations into one synergistic organization. If I had a concern about Shire, “One Shire” might be it. I agree that, at least in the short term, the strategy will generate immediate cost reductions, but looking at long-range sustainability, this kind of restructuring may often cost more in the long run and may, in fact, have the unintended consequence of hurting the company’s systemic efficiency by trying to force three distinctly different operations (a square peg) into one (a round hole). And that is what I mean about cause and effect not necessarily being closely related in time and space.
They’ve proven me wrong once. Perhaps they do it again. Only time will tell. At least I can hold my head high knowing that this was only the second time this year that I have been wrong. The other time was back in February. I had thought that I had been wrong, but I really wasn’t.
I’m still right about cause and effect not necessarily being closely related in time and space. Shire share price is an exception to the rule.
