Advertisement
"This was an excellent first quarter performance with our core productsales up 36% and cash generation increasing 19% to $278 million. Despite theimpact of authorised generic ADDERALL XR, total reported revenues in thequarter were at 2009 levels, reflecting our success in replenishing ourportfolio with products providing strong growth and robust intellectualproperty. Across the business we saw significant developments: VYVANSE nowhas approximately a 14% share of the US ADHD market, our two recentlylaunched products VPRIV and INTUNIV are performing well and in the EUREPLAGAL is now the leading Fabry treatment, with an estimated 60% marketshare.
Advertisement
We are investing in our growing international presence and building onour recent product launches. We are also progressing our pipeline and weexpect to deliver further newsflow on our early projects later this year. Ourcore products are leveraging our existing infrastructure and we will continueto expand our operating margins.
Our performance in the first quarter reinforces our confidence in growingboth revenue and earnings in the full year 2010 compared to 2009, and were-iterate our aspirational target of mid-teens revenue growth on averagebetween 2009 and 2015."
The Non GAAP financial measures included within this release areexplained on pages 19 and 20, and are reconciled to the most directlycomparable financial measures prepared in accordance with US GAAP on pages 17and 18.
2010 OUTLOOK
The first quarter's performance has increased our confidence in growingboth revenues and earnings for the full year 2010 compared to 2009, includingthe effect of US Healthcare Reform.
Whilst our core portfolio will continue to deliver strong year on yeargrowth, revenues from ADDERALL XR product sales and from total royalties areanticipated to be lower in the last three quarters of 2010 compared to theirvery strong performance in the first quarter. Given our confidence in ouroutlook, we have decided to make some targeted increases in investment in ourinternational infrastructure, our recent product launches and in progressingour pipeline to support longer-term growth. As a result, we anticipate thatR&D and SG&A spending in 2010 will be at the top end of our previously statedguidance of 5-10% growth year on year.
With the expected growth in 2010 we reiterate our aspirational target ofmid-teens revenue growth on average between 2009 and 2015.
PRODUCT LAUNCHES
Subject to obtaining the relevant regulatory/governmental approvals,future product launches in the next 12 months will include:
HGT-2310 - for the treatment of Hunter syndrome with central nervoussystem symptoms, idursulfase-IT (intrathecal delivery)
Dial in details for the live conference call for investors 14:30 BST/9:30EDT on April 29, 2010:
For the three months to March 31, 2010 product sales decreased by 5% to$718.2 million (2009: $756.0 million) and represented 88% of total revenues(2009: 92%). On a CER basis product sales decreased 7% compared to 2009.
Sales of core products increased by 36% to $626.4 million (2009: $460.2million), up 33% 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 March 26,2010.
(2) IMS NPA Data not available.
(3) Not sold in the US in Q1 2010, or awaiting approval in the US.
VYVANSE - ADHD
The increase in VYVANSE product sales was driven by increased USprescription demand compared to Q1 2009, 10% growth in the US ADHD market andprice increases.
ELAPRASE - Hunter syndrome
The growth in sales of ELAPRASE was driven by increased volumes acrossall regions where ELAPRASE is sold. On a CER basis sales grew by 17% (79% ofELAPRASE sales are made outside of the US).
REPLAGAL - Fabry disease
The growth in REPLAGAL product sales in Q1 2010 over 2009 was driven byan increase in demand due to significant switching of patients to REPLAGAL inthe EU, attributable in part to supply shortages of a competitor product.Sales increased 60% on a CER basis (REPLAGAL is sold primarily in Euros andPounds sterling).
LIALDA/MEZAVANT - Ulcerative colitis
Strong product sales of LIALDA/MEZAVANT continued in Q1 2010 driven byincreased US prescription demand compared to Q1 2009 and price increases. TheUS oral mesalamine market was flat year on year.
PENTASA - Ulcerative colitis
Product sales of PENTASA increased in Q1 2010 compared to Q1 2009primarily due to price increases.
FOSRENOL - Hyperphosphatemia
Product sales increased as FOSRENOL grew its share of existing marketsoutside the US. Product sales also grew in the US due to price increases andgrowth in non-retail demand which offset the decline in US retailprescription demand.
INTUNIV - ADHD
In line with Shire's revenue recognition policy for launch shipments,initial stocking shipments in November 2009 were deferred and are beingrecognised into revenue in line with end-user prescription demand. At March31, 2010 deferred revenues on the balance sheet represented gross sales of$18.8 million.
VPRIV - Gaucher disease
Product sales were primarily generated on a pre-approval basis viapatient early access programs in the EU throughout Q1 2010 and in the USafter February 26, 2010 when approval was received from the FDA.
FIRAZYR - HAE
Product sales of FIRAZYR increased as volumes grew across Europeanmarkets. 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
ADDERALL XR product sales decreased in 2010 compared to 2009 as Q1 2009represented the final quarter of exclusivity prior to the launch ofauthorized generic versions by Teva and Impax in April and October 2009,respectively. The launch of authorized generic versions resulted in a lowerprescription demand in 2010 compared to 2009 resulting in a correspondingreduction in ADDERALL XR's share of the US ADHD market (8% for Q1 2010compared to 21% in Q1 2009).
Royalty income increased by 88% in Q1 2010 compared to 2009 due toroyalties received on sales of Impax's authorized generic version of ADDERALLXR, which commenced in October 2009. This increase more than offset thedecline in royalties received from GlaxoSmithKline ("GSK") on 3TC, down 9%,due to competition from other treatments. Royalties received from GSK onZEFFIX were slightly increased over 2009. Other royalties increased by 52%,principally due to higher royalties on sales of FOSRENOL in Japan.
Non GAAP cost of product sales as a percentage of product sales increasedin Q1 2010 compared to the same period in 2009 due to changes to the productmix following the launch of authorized generic versions of ADDERALL XR byTeva and Impax in April and October 2009, and the inclusion of lower marginsales of the authorized generic to Teva and Impax which depressed grossmargins for ADDERALL XR.
Non GAAP R&D increased in absolute terms by $10.4 million in 2010 over2009 due to continued increased investment in R&D programs, in part as aresult of acceleration of the REPLAGAL and VPRIV programs. As a percentage ofcore product sales, Non GAAP R&D decreased by 5 percentage points to 20%(2009: 25%).
Non GAAP SG&A increased in 2010 compared to 2009 due in part to increasedselling and marketing costs incurred in support of recently launchedproducts. As a percentage of core product sales, Non GAAP SG&A decreased by10 percentage points to 49% (2009: 59%).
Reorganization costs
For the three months to March 31, 2010 Shire recorded reorganizationcosts of $5.0 million (2009: $2.2 million) principally relating to thetransfer of manufacturing from its Owings Mills facility.
Interest expense
For the three months to March 31, 2010 the Company incurred interestexpense of $9.0 million (2009: $11.0 million). Interest expense principallyrelates to the coupon and deferred issue costs on Shire's $1,100 million2.75% convertible bonds due 2014.
Non GAAP other expense, net in 2010 was lower than the same period in2009 due to foreign exchange losses in 2009 that were not repeated in 2010.
In the first quarter of 2010 Shire recognised a gain of $11.1 million(2009: $55.2 million) relating to the disposal of its investment in VirochemPharma Inc. ("Virochem") in March 2009. At the time of the disposal, anelement of the consideration was held in escrow for twelve months pending anywarranty claims and breaches of representations made by Virochem and by allselling shareholders, including Shire. The remaining consideration wasreleased from escrow in March 2010, resulting in a gain of $11.1 millionbeing recognized in Q1 2010.
Taxation
The effective rate of tax for the three months to March 31, 2010 was 24%(2009: 19%), and the effective tax rate on Non GAAP income was 26% (2009:24%).
The Non-GAAP effective tax rate in 2010 is higher than the same period in2009 due to unfavourable changes in profit mix and the recording of valuationallowances in 2010 in relation to loss carry forward amounts which were notrecorded in Q1 2009.
Unaudited US GAAP results for the three months to March 31, 2010Consolidated Statements of Operations
(1) Cost of product sales includes amortization of intangible assetsrelating to favorable manufacturing contracts of $0.4 million for the threemonths to March 31, 2010 (2009: $0.4 million). Selling, general andadministrative costs include amortization of intangible assets relating tointellectual property rights acquired of $34.6 million for the three monthsto March 31, 2010 (2009: $32.5 million).
Unaudited US GAAP results for the three months to March 31, 2010Consolidated Statements of Operations (continued)
Unaudited US GAAP results for the three months to March 31, 2010Consolidated Statements of Cash Flows
(2) Excludes shares purchased by the Employee Share Ownership Trust("ESOT") and presented by Shire as treasury stock.
(3) Calculated using the treasury stock method.
The share equivalents not included in the calculation of the dilutedweighted average number of shares are shown below:
(1) For the three month periods ended March 31, 2010 and 2009, certainstock options have been excluded from the calculation of diluted EPS becausetheir exercise prices exceeded Shire plc's average share price during thecalculation period.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($34.6 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 ($6.1 million), dual running costs ($1.1 million) andreorganization costs ($5.0 million) primarily for the transfer ofmanufacturing from Owings Mills; gain on disposal of investment in Virochem($11.1 million); and tax effect of adjustments; and
(d) Depreciation: Depreciation of $22.5 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 ($32.5 million), and taxeffect of adjustment;
(b) Acquisitions & integration activities: Integration and transactionrelated costs in respect of the acquisition of Jerini and EQUASYM ($1.4million) and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Costsassociated with agreement to terminate development of Women's Health productswith Duramed ($65.0 million); reorganization costs for the transition ofmanufacturing from Owings Mills ($2.2 million); gain on disposal of theinvestment in Virochem ($55.2 million); discontinued operations in respect ofJerini businesses held for sale ($2.6 million); and tax effect ofadjustments; and
(d) Depreciation: Depreciation of $22.4 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 three months to March 31, 2010
Non GAAP reconciliation
The following table reconciles US GAAP net cash provided by operatingactivities to Non GAAP cash generation:
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, Shire'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 ofShire's Specialty Pharmaceutical and Human Genetic Therapies products, aswell as the ability to secure new products for commercialization and/ordevelopment; government regulation of Shire's products; Shire's ability tomanufacture its products in sufficient quantities to meet demand; the impactof competitive therapies on Shire's products; Shire's ability to register,maintain and enforce patents and other intellectual property rights relatingto its products; Shire's ability to obtain and maintain government and otherthird-party reimbursement for its products; and other risks and uncertaintiesdetailed from time to time in Shire's filings with the Securities andExchange 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 Q1 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 17 and18.
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 Q1 2010 were $1.56:GBP1.00 and $1.38:EUR1.00(2009: $1.44:GBP1.00 and $1.31:EUR1.00).
TRADEMARKS
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.
1 REMINYL(R) and REMINYL XL(TM) are both trademarks of Shire in the UKand Republic of Ireland.Financial Highlights Q1 2010(1) Product sales $718 million -5% Product sales from core products(2) $626 million +36% Total revenues $816 million - Non GAAP operating income $265 million -19% US GAAP operating income $218 million -4% Non GAAP diluted earnings per ADS $1.01 -21% US GAAP diluted earnings per ADS $0.89 -23% (1) Percentages compare to equivalent 2009 period. (2) Core products represent Shire's products excluding ADDERALL XR. Angus Russell, Chief Executive Officer, commented:
SOURCE Shire plc
