Shire's (SHPG) - Get Report shares rose sharply in the European morning after the pharmaceuticals company announced that the U.S. Food and Drug Administration had approved its Xiidra eye drops.

The eye solution is indicated for the treatment of dry eye signs and symptoms in adults. It is the only prescription eye drop to be indicated for both the signs and symptoms of dry eyes in the U.S.

Dublin, Ireland-based Shire expects to launch the drug in the third quarter of 2016.

This is Shire's first FDA-approved medication in eye care. "We have a robust ophthalmics pipeline, and we look forward to leveraging Xiidra as our entree into the space as we continue to develop additional innovative eye care treatment options," Shire CEO Flemming Ornskov said in a statement.

Shire said growth in the eye care market is being driven by strategic acquisitions and organic growth looking at treatment options for rare diseases and for treatment for anterior and posterior eye conditions.

Over the past three years, Shire has bought Foresight Biotheapeutics, SARcode Bioscience, Premacure and Bikam Pharmaceuticals to strengthen its eye care pipeline.

Analysts at Jefferies expect sales of Xiidra to be $25 million in 2016 and $152 million in 2017, with peak sales of $1 billion. However, a survey of the U.S. dry eye market shows that it could expand three times to $4 billion over the next decade, which could potentially result in peak of Xiidra of $2 billion in the U.S.

Jefferies estimated this could result in sales of $1.5 billion five years after the launch of the drug, $600 million above consensus. They estimate that sales can add 264 pence per share to Shire's share price. Shire was recently trading at 4,972 pence ($65.38), up 3.2%.

Shire is releasing its second-quarter earnings on Aug. 2. It is expected to update the financial outlook for the integrated company after the Baxalta acquisition. Jefferies noted that there might be cost synergies of at least $600 million.

Shire completed the $32 billion takeover of Baxalta in early June. This was the biggest acquisition done by Shire.

AbbVie (ABBV) - Get Report attempted a £32 billion takeover of Shire in 2014, but the acquisition was derailed by changes in the U.S. tax treatment of so-called inversions, or M&A in which U.S. companies change their domicile.

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