At the start of the new year I picked out leading global biotechnology firm Shire plc (LSE: SHP) as one of the companies whose shares I expect to post healthy gains during the course of 2017. Since then the FTSE 100 group has announced its full year results for 2016, with details on last year’s performance and, perhaps more importantly, the outlook for the forthcoming year.
So do I still believe in Shire’s long term potential, or have I changed my mind?
Record revenues
The Dublin-based biotech firm focuses on helping people with rare diseases and other specialised conditions. The group strives to develop best-in-class products, many of which are available in more than 100 countries, across core therapeutic areas such as Hematology, Immunology, Neuroscience, Ophthalmics, Lysosomal Storage Disorders, Gastrointestinal / Internal Medicine / Endocrine and Hereditary Angioedema, plus a growing franchise in Oncology.
Full year results for the 2016 financial year were very positive, with the group delivering impressive growth, helped by record levels of revenue. To me, the company looks well positioned for continued strong growth, driven by a best-in-class rare disease pipeline. The integration of Baxalta, the US-based biotech firm it acquired last year, is also progressing ahead of schedule, helping Shire to become the world leader in rare diseases.
Too cheap to miss
Product sales for 2016 increased 78% to $11.9bn, primarily due to $3.9bn of legacy Baxalta sales. Nevertheless, product sales excluding Baxalta were up by 15%, with all legacy Shire franchises exhibiting double-digit growth. Royalties and other revenues grew by 61% to $511m, as the latter half of 2016 benefited from additional revenue acquired with Baxalta.
I expect 2017 to be another strong year for Shire, with a number of new product launches helping the group to deliver both top and bottom line growth. With its shares trading on a forward P/E rating of 12 for the current financial year, dropping to just 10 for 2018, I think Shire is simply too cheap to miss at present levels.
75% rise
Another London-listed healthcare firm that delivered strong growth in the last financial year is NMC Healthcare (LSE: NMC). NMC is the leading integrated private healthcare provider in the United Arab Emirates (UAE), and one of the top global providers of fertility treatments through its Spanish subsidiary Clinica Eugin. The FTSE 250 group performed well in 2016, with revenue rising 38.6% to $1.2bn, and net profit climbing 76.5% to $151.4m.
I believe the group has excellent long term prospects, with one of the key drivers being the increase in patient volumes that should come with the completion of mandatory healthcare insurance in Dubai this year.
However, NMC’s share price has soared 75% over the past 12 months, leaving the shares looking a little expensive at more than 24 times forecast earnings. I would be inclined to wait on the sidelines for a better entry point.