Shire Delivers Excellent Q2 Performance With Total Revenues Up 35%. Full Year Earnings Expectations Raised
(3) Sales growth at CER is computed by restating 2010 results usingaverage 2009 foreign exchange rates.
Angus Russell, Chief Executive Officer, commented:
"This was another excellent quarter with strong performance from coreproduct sales, up 39%, driving increases in operating income and earnings perADS. Shire is performing well on all fronts.
In ADHD, sales of VYVANSE are up 30% and clinical trial enrolment hasprogressed for the European program and for the new indication proof ofconcept studies. Marketing authorization was recently given for VYVANSE inBrazil, our first approval for this product outside North America, and thelaunch is being planned for mid 2011. INTUNIV continues to build share withchild and adolescent psychiatrists and we recently filed an sNDA for itsadjunctive use with long-acting oral stimulants for the treatment of ADHD.
Sales of our Fabry treatment, REPLAGAL are up 84%, and we've seen veryrapid uptake of VPRIV in the Gaucher market place with approximately 850patients now treated globally. We received a positive opinion for VPRIV fromthe Committee for Medicinal Products for Human Use and although we alreadyhave sales on a preapproved basis, the anticipated European Commissiondecision later this year will enable the product's commercial roll out.
LIALDA for ulcerative colitis is also performing well with sales up 27%and a US market share approaching 19%. Phase 3 clinical trials investigatingthe use of the product for the treatment of diverticular disease areprogressing.
With cash generation of $416 million during the quarter and excellentgrowth prospects ahead, we continue to invest in our marketed products, ourpipeline and our international presence.
This year, the pharmaceutical sector has faced the challenges of UShealthcare reform, European pricing pressures and fluctuating foreignexchange levels. Shire is, however, well placed to absorb these macrofactors. Our strong performance in the second quarter reinforces ourconfidence in growing both revenue and earnings in the full year 2010compared to 2009 and we now see Non GAAP earnings trending towards $4.00 perADS for the full year. This includes the financial effect of the proposedacquisition of Movetis NV. We also re-iterate our aspirational target ofmid-teens sales growth on average between 2009 and 2015."
The Non GAAP financial measures included within this release areexplained on page 25, and are reconciled to the most directly comparablefinancial measures prepared in accordance with US GAAP on pages 20 - 23.
Dividend payments will be made in Pounds Sterling to Ordinaryshareholders and in US Dollars to holders of American Depositary Shares("ADS"). A dividend of 1.410 pence per ordinary share (an increase of 8%compared to 2009: 1.302 pence) and 6.750 US cents per ADS (an increase of 5%compared to 2009: 6.441 US cents) will be paid on October 7, 2010 to personswhose names appear on the register of members of the Company at the close ofbusiness on September 10, 2010.
Given our strong performance in the second quarter, we now see Non GAAPearnings trending towards $4.00 per ADS, a 15% increase on 2009. Thisincludes the financial effect of the proposed acquisition of Movetis NV.
The accelerated growth in the first half has increased our confidence ingrowing both revenues and earnings for the full year 2010 compared to 2009,despite the backdrop of the cumulative impact of US healthcare reform,pressure on European pricing and increasingly adverse foreign exchange rates.
Our core portfolio will continue to deliver strong year on year growth in2010. The relative growth rate in the second half will start to moderate aswe compare against tougher comparatives in 2009 and the rate of sales growthof REPLAGAL will also moderate as the continuing increase in patients beingtreated by REPLAGAL will be supported, in part, by product shipped in thesecond quarter.
Revenues both from ADDERALL XR product sales and from total royalties areanticipated to be lower in the last two quarters of 2010 compared to theirvery strong performance in the first half.
Given the strong performance in the first half and our confidence in ouroutlook, we will continue to make targeted increases in 2010 and beyond ininvestment in our international infrastructure, our recent product launchesand in progressing our pipeline to support longer term growth. As a result,combined R&D and SG&A spending in 2010 will be at the top end of our previousguidance of 5-10% growth year on year.
Subject to obtaining the relevant regulatory/governmental approvals,future product launches in the next 12 months include:
With the accelerated adoption of VPRIV worldwide, and the earlier thananticipated US approval and EU positive opinion, Shire expects continued highdemand and currently has approximately 850 patients on therapy, with capacityto support approximately 1,000 patients in 2010. As a result, Shire is nowimplementing a program with physicians and patients to monitor demand andmanage requests from new patients carefully in order to ensure long-term,uninterrupted treatment with VPRIV.
This proposed acquisition will significantly broaden Shire's global GIportfolio and adds growing revenues from RESOLOR(R) (prucalopride), a newchemical entity indicated for the symptomatic treatment of chronicconstipation in women in whom laxatives fail to provide adequate relief.Movetis has the rights to RESOLOR in the EU, Iceland, Lichtenstein, Norwayand Switzerland and is entitled to royalties on sales of RESOLOR outside ofEurope from Johnson & Johnson.
The acquisition also brings to Shire world-class research and developmenttalent and a promising GI pipeline.
On June 16, 2010 Dr David Ginsburg and Ms Anne Minto OBE were appointedto Shire's Board of Directors with immediate effect. Dr Ginsburg was alsoappointed to Shire's Science & Technology Committee. Ms Minto was appointedto Shire's Remuneration Committee and assumed the Chair of that Committee onthe retirement of Ms Kate Nealon from the Shire Board at the end of MsNealon's term of office on July 26, 2010.
For the three months to June 30, 2010 product sales increased by 37% to$764.3 million (2009: $558.4 million) and represented 90% of total revenues(2009: 89%).
Core product sales increased by 39% to $683.9 million (2009: $491.0million), up 42% on a CER basis.
(1) Data provided by IMS Health National Prescription Audit ("IMS NPA").Exit market share represents the US market share in the week ending June 25,2010.
(2) IMS NPA Data not available.
(3) Not sold in the US in Q2 2010.
VYVANSE - ADHD
The increase in VYVANSE product sales was driven by higher USprescription demand, price increases taken since Q2 2009 and the launch ofthe product in Canada during 2010, partially offset by higher salesdeductions principally due to US Healthcare Reform.
ELAPRASE - Hunter syndrome
The growth in sales of ELAPRASE was driven by increased volumes acrossall regions in which ELAPRASE is sold. On a CER basis sales grew by 20% (77%of ELAPRASE sales are made outside of the US).
REPLAGAL - Fabry disease
The growth in REPLAGAL product sales was driven by an increase in demanddue to an acceleration of patients switching to REPLAGAL in the EU,principally due to the disruption to supply of a competitor product. Thegrowth was, in part, attributable to sales of products that will be used forthe treatment of patients in the second half of 2010. Sales increased 93% ona CER basis (REPLAGAL is sold primarily in Euros and Pounds sterling).
LIALDA/MEZAVANT - Ulcerative colitis
Product sales growth for LIALDA/MEZAVANT continued in Q2 2010, driven byincreased US prescription demand and price increases, partially offset byhigher sales deductions. The US oral mesalamine market was broadly flat yearon year.
PENTASA - Ulcerative colitis
Product sales of PENTASA increased due to price increases taken since Q22009, which more than offset lower US prescription demand.
INTUNIV - ADHD
Product sales of INTUNIV included both revenue from initial stockingshipments in 2009, which were deferred in accordance with Shire's accountingpolicy, and shipments made during Q2 2010. At June 30, 2010 all initialstocking shipments have been recognised as revenue and no deferred revenueremains.
FOSRENOL - Hyperphosphatemia
Product sales of FOSRENOL in the EU decreased primarily due to mandatoryprice reductions taken in 2010. Product sales of FOSRENOL in the US decreaseddue to lower US prescription demand and higher sales deductions in Q2 2010compared to 2009, which more than offset the effect of price increases takensince Q2 2009.
VPRIV - Gaucher disease
Product sales in the US were generated on an approved basis afterFebruary 26, 2010 when approval was received from the FDA, and in the EU on apre-approval basis via patient early access programs.
FIRAZYR - HAE
The product sales growth was driven by increased volumes across marketsin Europe. FIRAZYR is the first new product for HAE in Europe in 30 years andhas orphan exclusivity for acute attacks of HAE in adults in the EU until2018.
ADDERALL XR - ADHD
Non GAAP cost of product sales as a percentage of product sales decreasedin Q2 2010 compared to the same period in 2009 as a result of changes insales mix towards higher margin products.
Non GAAP R&D increased in absolute terms in 2010 compared to 2009 due tocontinued investment across a number of R&D programs, principally VYVANSEinternational, INTUNIV, LIALDA and other early stage development programs.
Non GAAP SG&A increased in part due to selling and marketing costsincurred to support recently launched products and growth into new markets.
Gain on sale of product rights
For the three months to June 30, 2010 Shire recorded a gain of $4.1m(2009: $nil) on the sale of product rights. This gain had been deferredpending the transfer of the relevant consents following the disposal of theproducts concerned to Laboratorios Almirall S.A. in 2007.
For the three months to June 30, 2010 Shire recorded reorganization costsof $8.6 million (2009: $2.9 million) relating to the transfer ofmanufacturing from its Owings Mills facility and the establishment of a Swisscommercial hub.
For the three months to June 30, 2010 the Company incurred interestexpense of $8.3 million (2009: $10.1 million). Interest expense principallyrelates to the coupon and deferred issue costs on Shire's $1,100 million2.75% convertible bonds due 2014.
The effective rate of tax for the three months to June 30, 2010 was 25%(2009: -78%), and the effective tax rate on Non GAAP income was 25% (2009:2%).
The Non GAAP effective tax rate in the second quarter of 2009 wassignificantly reduced by the recognition of Massachusetts State tax creditsand losses, which reduced the effective tax rate on Non GAAP income by 23percentage points in Q2 2009.
Unaudited US GAAP results for the three months and six months to June 30,2010 Consolidated Balance Sheets
Unaudited US GAAP results for the three months and six months to June 30,2010 Consolidated Statements of Income
(1) Cost of product sales includes amortization of intangible assetsrelating to favorable manufacturing contracts of $0.4 million for the threemonths to June 30, 2010 (2009: $0.4 million) and $0.9 million for the sixmonths to June 30, 2010 (2009: $0.9 million). Selling, general andadministrative costs include amortization of intangible assets relating tointellectual property rights acquired of $33.8 million for the three monthsto June 30, 2010 (2009: $34.3 million) and $68.4m for the six months to June30, 2010 (2009: $66.8 million).
Unaudited US GAAP results for the three months and six months to June 30,2010 Consolidated Statements of Income (continued)
Unaudited US GAAP results for the three months and six months to June 30,2010 Consolidated Statements of Cash Flows
Unaudited US GAAP results for the three months and six months to June 30,2010 Consolidated Statements of Cash Flows (continued)
Unaudited US GAAP results for the three months and six months to June 30,2010
(1) For the three and six month periods ended June 30, 2009 interest onthe convertible bond has not been added back as the effect would beanti-dilutive.
(2) Excludes shares purchased by the ESOT and presented by Shire astreasury stock.
(3) Calculated using the treasury stock method.
(4) Calculated using the "if converted" method.
The share equivalents not included in the calculation of the dilutedweighted average number of shares are shown below:
(1) For the three and six month periods ended June 30, 2010 and 2009,certain stock options have been excluded from the calculation of diluted EPSbecause their exercise prices exceeded Shire plc's average share price duringthe calculation period.
(2) For the three and six month periods ended June 30, 2009 the ordinaryshares underlying the convertible bonds have not been included in thecalculation of the diluted weighted average number of shares, as the effectof their inclusion would be anti-dilutive.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($33.8 million) and taxeffect of adjustment;
(b) Divestments, reorganizations and discontinued operations: Accelerateddepreciation ($6.0 million) and dual running costs ($1.4 million) on thetransfer of manufacturing from Owings Mills, gain on sale of product rightsrelating to the disposal of non core products to Laboratorios Almirall S.A.($4.1 million) and reorganization costs ($8.6 million) on the transfer ofmanufacturing from Owings Mills and establishment of a Swiss commercial hub,and tax effect of adjustments; and
(c) Depreciation: Depreciation of $23.9 million included in Cost ofproduct sales, R&D costs and SG&A costs for US GAAP separately disclosed forthe presentation of Non GAAP earnings.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($34.3 million), and taxeffect of adjustment;
(b) Acquisitions & integration activities: Inventory fair valueadjustment related to the acquisition of Jerini AG ($1.4 million); payment onamendment of INTUNIV in-licence agreement ($36.9 million); costs associatedwith the integration and acquisition of Jerini AG and EQUASYM from UCB ($2.3million) and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerateddepreciation ($3.0 million) and reorganisation costs ($2.9 million) for thetransition of manufacturing from Owings Mills; discontinued operations inrespect of non-core Jerini AG operations ($9.8 million) and tax effect ofadjustments; and
(d) Depreciation: Depreciation of $24.6 million included in Cost ofProduct Sales, R&D costs and SG&A costs for US GAAP separately disclosed forthe presentation of Non GAAP earnings.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($68.4 million) and taxeffect of adjustment;
(b) Acquisitions and integration activities: Costs associated with theacquisition of EQUASYM ($0.6 million) and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerateddepreciation ($12.1 million) and dual running costs ($2.6 million) on thetransfer of manufacturing from Owings Mills, gain on sale of product rightsrelating to the disposal of non core products to Laboratorios Almirall S.A.($4.1 million), reorganization costs ($13.6m) on the transfer ofmanufacturing from Owings Mills and the establishment of a Swiss commercialhub, gain on disposal of the investment in Virochem ($11.1 million) and taxeffect of adjustments; and
(d) Depreciation: Depreciation of $46.4 million included in Cost ofproduct sales, R&D costs and SG&A costs for US GAAP separately disclosed forthe presentation of Non GAAP earnings.
Unaudited results for the six months to June 30, 2009
Non GAAP reconciliation
The following table reconciles US GAAP net cash provided by operatingactivities to Non GAAP cash generation:
Notes to Editors
SHIRE PLC - registered in Jersey, No. 99854, 22 Grenville Street, StHelier, Jersey JE4 8PX
Shire's strategic goal is to become the leading specialtybiopharmaceutical company that focuses on meeting the needs of the specialistphysician. Shire focuses its business on attention deficit and hyperactivitydisorder, human genetic therapies and gastrointestinal diseases as well asopportunities in other therapeutic areas to the extent they arise throughacquisitions. Shire's in-licensing, merger and acquisition efforts arefocused on products in specialist markets with strong intellectual propertyprotection and global rights. Shire believes that a carefully selected andbalanced portfolio of products with strategically aligned and relativelysmall-scale sales forces will deliver strong results.
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATIONREFORM ACT OF 1995
Statements included herein that are not historical facts areforward-looking statements. Such forward-looking statements involve a numberof risks and uncertainties and are subject to change at any time. In theevent such risks or uncertainties materialize, the Company's results could bematerially adversely affected. The risks and uncertainties include, but arenot limited to, risks associated with: the inherent uncertainty of research,development, approval, reimbursement, manufacturing and commercialization ofthe Company's Specialty Pharmaceutical and Human Genetic Therapies products,as well as the ability to secure new products for commercialization and/ordevelopment; government regulation of the Company's products; the Company'sability to manufacture its products in sufficient quantities to meet demand;the impact of competitive therapies on the Company's products; the Company'sability to register, maintain and enforce patents and other intellectualproperty rights relating to its products; the Company's ability to obtain andmaintain government and other third-party reimbursement for its products; andother risks and uncertainties detailed from time to time in the Company'sfilings with the Securities and Exchange Commission.
Non GAAP Measures
This press release contains financial measures not prepared in accordancewith US GAAP. These measures are referred to as "Non GAAP" measures andinclude: Non GAAP operating income; Non GAAP net income; Non GAAP dilutedearnings per ADS; effective tax rate on Non GAAP income from continuingoperations before income taxes and earnings of equity method investees("Effective tax rate on Non GAAP income"); Non GAAP cost of product sales;Non GAAP research and development; Non GAAP selling, general andadministrative; Non GAAP other income; and Non GAAP cash generation. TheseNon GAAP measures exclude the effect of certain cash and non-cash items, bothrecurring and non-recurring, that Shire's management believes are not relatedto the core performance of Shire's business.
These Non GAAP financial measures are used by Shire's management to makeoperating decisions because they facilitate internal comparisons of Shire'sperformance to historical results and to competitors' results. Shire'sRemuneration Committee uses certain key Non GAAP measures when assessing theperformance and compensation of employees, including Shire's executivedirectors.
The Non GAAP measures are presented in this press release as Shire'smanagement believe that they will provide investors with a means ofevaluating, and an understanding of how Shire's management evaluates, Shire'sperformance and results on a comparable basis that is not otherwise apparenton a US GAAP basis, since many one-time, infrequent or non-cash items thatShire's management believe are not indicative of the core performance of thebusiness may not be excluded when preparing financial measures under US GAAP.
These Non GAAP measures should not be considered in isolation from, assubstitutes for, or superior to financial measures prepared in accordancewith US GAAP.
The following items, including their tax effect, have been excluded fromboth 2010 and 2009 Non GAAP earnings, and from our 2010 outlook:
Depreciation, which is included in Cost of product sales, Research anddevelopment and Selling, general and administrative costs in our US GAAPresults, has been separately disclosed for the presentation of 2009 and 2010Non GAAP earnings. A reconciliation of Non GAAP financial measures to themost directly comparable measure under US GAAP is presented on pages 20 to 23.
Sales growth at CER, which is a Non GAAP measure, is computed byrestating 2010 results using average 2009 foreign exchange rates for therelevant period.
Average exchange rates for the six months to June 30, 2010 were$1.53:GBP1.00 and $1.33:EUR1.00 (2009: $1.49:GBP1.00 and $1.33:EUR1.00).Average exchange rates for Q2 2010 were $1.49:GBP1.00 and $1.27:EUR1.00(2009: $1.55:GBP1.00 and $1.36:EUR1.00).
All trademarks defined as (R) and (TM) used in this press release aretrademarks of Shire plc or companies within the Shire group except for 3TC(R)and ZEFFIX(R) which are trademarks of GSK, PENTASA(R) which is a trademark ofFerring A/S Corp, and REMINYL(R), REMINYL XL(TM), RAZADYNE(R) and RAZADYNE(R)ER which are trademarks of J&J outside the UK and Republic of Ireland1.Certain trademarks of Shire plc or companies within the Shire group are setout in Shire's Annual Report on Form 10-K for the year ended December 31,2009 and the Quarterly Report on Form 10-Q for the three months ended March31, 2010.
1 REMINYL(R) and REMINYL XL(TM) are both trademarks of Shire in the UKand Republic of Ireland.Financial Highlights Q2 2010(1) Product sales $764 million +37% Product sales from core products(2) $684 million +39% Product sales from core products on a CER basis(3) +42% Total revenues $849 million +35% Non GAAP operating income $270 million +134% US GAAP operating income $224 million +547% Non GAAP diluted earnings per ADS $1.03 +71% US GAAP diluted earnings per ADS $0.86 +253% (1) Percentages compare to equivalent 2009 period. (2) Core products represent Shire's products excluding ADDERALL XR.
SOURCE Shire plc
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