One to watch: Shire

1,280p +11pScotsman says BUY

SHIRE is a speciality pharmaceutical company that is best known for its products used to treat attention deficit hyperactivity disorder (ADHD), such as the "blockbuster" drug Adderall. The company also has a strong presence in gastroenterology and enzyme replacement therapies (HGT) used to treat genetic disorders.

At a time when many large pharmaceutical companies have weak production pipelines, Shire has continually managed to bring new drugs to the market. Since 2006, the company has launched six new products and has the potential to launch a further 15 before 2015.

In addition, unlike the majority of its peers, none of Shire's major patents are set to expire for a number of years. The company has combated the generic versions of Adderall by continuing to deliver new products for the ADHD market.

The success of new products in the HGT division will prove a key driver of Shire's earnings over the next decade. This division focuses on "orphan" markets, which are typically neglected by big pharma as a result of the limited number of patients affected by the respective conditions. This relative lack of competition provides Shire with a certain degree of pricing power in this market. In late 2009, this division received a boost as Genzyme, a key competitor, suffered severe manufacturing issues at its production facilities. As a result, Shire managed to gain market share and is likely to benefit further as a result of the blow to Genzyme's reputation amongst clinicians.

Shire's stock is trading on 14x 2011 earnings, which values it at a slight premium to its peer group. However, this does not fully reflect the superiority of Shire's short and mid-term product pipeline and likely earnings growth over the next few years.

• This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.