A 57% jump in sales to $2.3 billion (£1.8 billion)  was not enough to impress investors when Shire (SHP) released second quarter earnings today.

Shares dipped 2.2% to £50.30 following Monday's update reducing the near-30% gains investors have enjoyed on the stock since the European referendum on 23 June.

Defensive and cash-generative, the pharmaceuticals industry has been in hot demand among investors since the referendum.

Stocks within the sector also benefit from sterling weakening against the US dollar.

But expectations ran ahead of reality at Shire and even the promise of better-than-expected cost savings on the back of its acquisition of US pharmaceutical outfit Baxalta was not enough to woo investors.

The $30 billion deal has beefed up Shire's portfolio and development pipeline, while management has lifted expectations for cost savings from the deal by 40% to $700 million over three years.

Web - Shire - 8 August 2016

Another factor clouding the results is the upcoming patent litigation over Lialda, a delayed release tablet treating ulcerative colitis.

‘In our base case, we assume a 5% hit to Lialda in 2017 and a further 10% in 2018 reflecting an assumption of launch of one generic in mid-late 2017,’ Liberum’s analysts said in a commentary.

‘Even in more aggressive scenarios where more than one generic launches and 30% of Lialda earnings are lost as early as 2017, the impact on Shire EPS is manageable with EPS growth still over 7% (higher than the sector average of 5%),’ they added.

Issue Date: 08 Aug 2016