Tuesday newspaper share tips: Hikma Pharmaceuticals and Shire under the microscope

Pharmaceuticals were on the newspaper pundits’ agenda on Tuesday after Hikma Pharmaceuticals caused a bit of pain.

The FTSE 100 company warned on Monday that its generics division is performing below expectations due to slower-than-expected growth in sales for its gout treatment Mitigare. As a result, Hikma lowered guidance for that side of the business with projected revenues of around $150m, down from a previous range of $175m to $200m.

The Times’ Tempus said the drug has had delays in getting to market, and the company has faced a legal challenge and aggressive pricing action from competitor Takeda. It noted that the delays push sales into the next financial year so it’s not a disaster for the company, but the market doesn’t like profit warnings.

However Tempus said that the trading update as a whole was positive, with two more products being rolled out. Analysts didn’t help matters by moving down earnings forecasts by around seven percent, and the shares are selling on 23 times earnings. For that reason, it’s advising traders avoid it for now.

Over in the Financial Times, Lex focussed on FTSE 100 drug group Shire which agreed to buy Dyax Corporation for $5.9bn.

Lex noted that valuations had been pushed up by competition for attractive targets, with the deal being worth a 37% premium to acquire the US-based biotech company in cash.

However the company will see debt rise as a result of the transaction, and Dyax’s key product DX-2930 won’t generate cashflow until at least 2018. Lex highlighted that while investors are prepared to cut the company some slack, each new acquisition seems to cost more than the last.