Shire lifts earnings and Baxalta cost saving targets

* Q2 sales rise by a better-than-expected 57 pct

* Upgrades annual Baxalta (Berlin: 9BX.BE - news) synergy targets to $700 mln

* Raises full-year EPS guidance

* Shares (Berlin: DI6.BE - news) up 3 pct (Adds further CEO quotes on cost savings, pipeline)

By Paul Sandle

LONDON, Aug 2 (Reuters) - Drugmaker Shire upgraded its profit guidance for 2016 on Tuesday, after it hiked the predicted cost saving target for its $32 billion acquisition of rare disease drugs specialist Baxalta and beat forecasts for the second quarter.

The company now expects annual synergies of more than $700 million in three years, up from the $500 million it forecast before the acquisition closed in June.

Shire (Xetra: S7E.DE - news) , which makes drugs to treat hyperactivity as well as rare diseases, reported second-quarter revenue of $2.43 billion while non-GAAP earnings per American Depositary Receipt, its preferred earnings measure, rose 29 percent to $3.38, beating analyst forecasts of $2.23 billion and $3.12, respectively.

Chief Executive Flemming Ornskov said total product sales were up 57 percent, reflecting the contribution of Baxalta, and a 19 percent rise in Shire's own products.

"We are now positioned as a clear global leader in rare disease," he told reporters.

"We continue to grow efficiently and we are very pleased today to have upgraded both our 2016 guidance and also our long-term operating cost synergy target."

Dublin-based Shire said it now expected earnings per share for the year to come in at $12.70-$13.10, which at the midpoint represents growth just above the upper end of its previous 7-10 percent target.

Investors welcomed the new profit and synergy guidance, and shares in Shire were up 3 percent at 5,066 pence by 13.24 GMT.

Deutsche Bank (LSE: 0H7D.L - news) said the earnings upgrade reflected better-than-expected legacy sales from both Shire and Baxalta, and implied a 1-4 percent upside to analysts' consensus forecast.

Noting the higher synergy target, it said there was likely to be room for greater cost optimisation in the longer term. "All in all, a strong start post the Baxalta transaction closure," it said.

Ornskov signalled higher cost savings from the combination with Baxalta, a U.S (Other OTC: UBGXF - news) .-based maker of drugs for rare blood conditions, cancers and immune system disorders, in an interview with Reuters last month.

"We feel confident with the $700 (million), there's a little plus behind it, so we hopefully can do better than that," he said on Tuesday. "But the $700 (million), which is already a significant increase over the initial estimate, we feel very good about."

Shire has grown mainly through acquisitions, but Ornskov also highlighted the strength and depth of the drugs being developed by its scientists.

Notably, it will launch Xiidra, the first medicine approved by the FDA to treat dry eye disease, in the United States this quarter. "By 2020, we think this could be at least a $1 billion in sales from the U.S. alone," he said.

(Editing by Mark Potter and Adrian Croft)