Shire's Quarterly Revenues Grow by 25% to $1 Billion for the First Time
Shire plc (LSE: SHP, NASDAQ: SHPGY), the global specialty biopharmaceutical company, announces results for the three months to June 30, 2011.
(1) Percentages compare to equivalent period in 2010.
The Non GAAP financial measures included within this release are explained on page 25, and are reconciled to the most directly comparable financial measures prepared in accordance with US GAAP on pages 20 - 24.
Angus Russell, Chief Executive Officer, commented:
"It's been another strong quarter with Shire continuing to perform very well. Total revenues were up 25% and for the first time exceeded $1billion for the quarter and we have reported a 29% increase in Non GAAP diluted earnings per ADS.
Product sales increased by 30%. Our rare disease treatments are performing well around the world; the FDA Advisory Committee recommended approval and self administration of FIRAZYR for acute attacks of Hereditary Angioedema and we're now preparing for a US launch, in anticipation of what we hope will be an FDA approval in August. We're very pleased that the European Medicines Agency has approved the purification of REPLAGAL for Fabry disease at our new facility in Massachusetts, giving us increased manufacturing flexibility.
Sales of our ADHD products increased significantly in the US market, driven by increasing market share and further strong market growth. In our GI franchise, LIALDA performed well and we were pleased to receive US approval for maintenance of remission in patients with ulcerative colitis.
As well as growing our existing business, we're continuing to invest in our portfolio for the future. In our pipeline we're generating data for new indications and new markets, in addition to developing new proprietary technology platforms. During the quarter, we also completed our acquisition of Advanced BioHealing bringing us DERMAGRAFT, a US marketed product and the opportunity to build an important business in the promising field of regenerative medicine.
During the year we have seen market consensus for 2011 earnings increase. Our performance in the first six months of the year has further underpinned our confidence in meeting these increased expectations for 2011. We anticipate that this will be another very good year for Shire as we deliver strong sales and continue our investment for sustained future growth."
FINANCIAL SUMMARY
Second Quarter 2011 Unaudited Results
2011 OUTLOOK
The strong first half performance has further underpinned our confidence in meeting increased market consensus for 2011 earnings. This includes absorbing the marginal dilution of the acquisition of ABH.
For the full year we expect to see strong product sales growth, and royalty and other revenues combined to be down 10% compared to 2010. Taken together, year on year growth of total revenues in the second half is expected to be marginally lower than the rate of 22% seen in the first half.
Gross margins are expected to be marginally diluted in the second half as a result of the inclusion of ABH, although gross margins for the full year should still be in line with those recorded in 2010.
As we have previously indicated, we have identified significant opportunities for future growth by advancing our pipeline and continuing the international expansion of our portfolio. Combined R&D and SG&A, which was set to increase by 13% is now expected to increase in the full year by around 20% year on year. This reflects the inclusion of ABH's cost base (representing an increase in our 2011 full year cost guidance of 5%) and our view of the likely impact of foreign exchange movements on our R&D and SG&A plans in 2011.
We continue to expect our Non GAAP effective tax rate to be between 22 and 24%.
Overall, the operational leverage we expect to achieve for the full year will drive good earnings growth in 2011 and we reiterate our aspirational growth targets.
PLANNED PRODUCT LAUNCHES
Subject to obtaining the requisite regulatory/governmental approvals, planned product launches over the next 12 months include:
SECOND QUARTER 2011 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
Products
FIRAZYR - for the treatment of HAE
REPLAGAL - for the treatment of Fabry disease
VPRIV - for the treatment of Type 1 Gaucher disease
INTUNIV® - for the treatment of ADHD
MEZAVANT - for the treatment of ulcerative colitis
LIALDA - for the treatment of ulcerative colitis
DERMAGRAFT - for the treatment of DFU
Pipeline
DERMAGRAFT - for the treatment of Venous Leg Ulcers ("VLU")
Guanfacine Carrier Wave, for the treatment of various Central Nervous System ("CNS") disorders
OTHER SECOND QUARTER DEVELOPMENTS
Acquisition of ABH
Legal Proceedings
VYVANSE - for the treatment of ADHD
BOARD CHANGES
On July 27, 2011, Shire announced that Susan Kilsby will join the Shire Board of Directors from September 1, 2011. On joining the Board Susan will become a member of the Company's Audit, Compliance and Risk Committee. Susan has a distinguished global career in investment banking, most recently with Credit Suisse, where she was Chairman of the EMEA Mergers & Acquisitions team.
In addition, current Board Directors Bill Burns and David Stout will join the Nomination Committee and Remuneration Committee respectively with immediate effect.
DIVIDEND
In respect of the six months ended June 30, 2011, the Board resolved to pay an interim dividend of 2.48 US cents per Ordinary Share (2010: 2.25 US cents per Ordinary share).
Dividend payments will be made in Pounds Sterling to ordinary shareholders and in US Dollars to holders of ADSs. A dividend of 1.52 pence per ordinary share (an increase of 8% compared to 2010: 1.41 pence) and 7.44 US cents per ADSs (an increase of 10% compared to 2010: 6.75 US cents) will be paid on October 6, 2011 to persons whose names appear on the register of members of Shire at the close of business on September 9, 2011.
ADDITIONAL INFORMATION
The following additional information is included in this press release:
Dial in details for the live conference call for investors 14:00 BST/9:00 EDT on July 28, 2011:
UK dial in: 0800-077-8492 or 0844-335-0351
US dial in: 1-866-8048688 or 1-718-3541175
International dial in: +44-208-974-7900
Password/Conf ID: 818608
Live Webcast: http://www.shire.com/shireplc/en/investors
OVERVIEW OF SECOND QUARTER 2011 FINANCIAL RESULTS
1. Product sales
For the three months to June 30, 2011 product sales increased by 30% to $993.3 million (Q2 2010: $764.3 million) and represented 93% of total revenues (Q2 2010: 90%).
Product Highlights
(1) Data provided by IMS Health National Prescription Audit ("IMS NPA"). Exit market share represents the average monthly US market share in the month ended June 30, 2011.
(2) IMS NPA Data not available.
(3) Not sold in the US in Q2 2011.
VYVANSE - ADHD
The growth in VYVANSE product sales resulted from higher prescription demand, due to growth in the US ADHD market and increases to VYVANSE's share of that market, in addition to the effect of price increases taken since Q2 2010. These positive factors were partially offset by higher sales deductions in Q2 2011 compared to Q2 2010, primarily due to a change in the estimate of VYVANSE inventory in the US retail pipeline, which increased sales rebates in the quarter.
ADDERALL XR - ADHD
Product sales grew at a faster rate than US prescription demand due to the effect of significantly lower sales deductions as a percentage of branded gross sales together with the effect of a price increase taken since Q2 2010. Sales deductions were at 59% in Q2 2011 compared to 74% in Q2 2010, which was notably above the average sales deduction levels experienced in other quarters in 2010.
Sales deductions as a percentage of gross product sales decreased in Q2 2011 primarily due to the mix of customer sales affecting the rebate calculation. We expect ADDERALL XR's sales deductions to be closer to the 65-70% range for the remainder of the year.
ELAPRASE- Hunter syndrome
The growth in sales of ELAPRASE was driven by increased volumes across all regions in which ELAPRASE is sold and the timing of large orders from certain markets which order less frequently falling in Q2 2011 rather than Q1 2011. Reported ELAPRASE sales also benefited from favorable foreign exchange, due to the weaker US dollar in Q2 2011 compared to Q2 2010.
REPLAGAL - Fabry disease
The growth in REPLAGAL product sales was driven by the treatment of new patients, being both naïve patients and switches from the competing enzyme replacement therapy product. Reported REPLAGAL sales also benefited from favourable foreign exchange, due to the weaker US dollar in Q2 2011 compared to Q2 2010.
LIALDA/MEZAVANT - Ulcerative colitis
LIALDA/MEZAVANT product sales continued to grow in Q2 2011, driven primarily by increased US prescription demand due to higher US market share, the effect of price increases taken since Q2 2010 and stocking in Q2 2011 compared to destocking in Q2 2010.
VPRIV - Gaucher disease
VPRIV has seen significant growth since its approval in the US in Q1 2010 and in Europe in Q3 2010. Growth in patients being treated with VPRIV continues and we are progressing with our launch plans in countries across Europe. Reported VPRIV sales also benefited from favourable foreign exchange, due to the weaker US dollar in Q2 2011 compared to Q2 2010.
INTUNIV - ADHD
INTUNIV prescription demand continues to grow strongly, up 88% compared to Q2 2010. The growth in product sales was less than US prescription demand due to higher sales deductions in Q2 2011 compared to Q2 2010, and the inclusion in Q2 2010 product sales of previously deferred revenues relating to launch stocking shipments made in 2009.
FOSRENOL - Hyperphosphatemia
Product sales of FOSRENOL were flat as the effect of price increases taken since Q2 2010 and positive foreign exchange offset lower US prescription demand due to a fall in market share. On a CER basis sales were down quarter on quarter by 5%.
2. Royalties
Royalty income decreased in Q2 2011 compared to Q2 2010 as higher royalties on FOSRENOL were more than offset by lower royalties from 3TC and Zeffix.
Royalty income from 3TC and Zeffix continues to be adversely impacted by increased competition from other products. Additionally, for certain territories in the second quarter of 2011 Shire did not recognise 3TC royalties for the current quarter, and reversed 3TC royalty income recognised in the prior two quarters, due to a difference of opinion between GlaxoSmithKline ("GSK") and Shire about how the relevant royalty rate should be applied given the expiry dates of certain patents. GSK and Shire are holding discussions in order to clarify this discrepancy.
FOSRENOL royalties increased in Q2 2011 due to higher demand for the product by Shire's Japanese partner given supply issues of a competitor resulting from the Japanese earthquakes earlier in 2011.
3. Financial details
Cost of product sales
Cost of product sales as a percentage of product sales decreased in Q2 2011 compared to the same period in 2010, due to product sales growth from higher margin products and improved margins from Shire's ADHD products.
R&D
Non GAAP R&D costs increased by $27.3 million, or 19%, due to continued increased investment in a number of targeted R&D programs, including Sanfilippo A and other early stage development programs, continued investment in new uses for VYVANSE and the inclusion of a full quarter's spend on RESOLOR which was not incurred in Q2 2010. Non GAAP R&D costs in Q2 2011 were also impacted by adverse foreign exchange compared to 2010 of approximately $7 million. On a CER basis Non GAAP R&D costs increased by approximately 15%.
On a US GAAP basis, R&D costs in Q2 2011 increased by $29.9 million, or 20% compared to Q2 2010.
SG&A
Non GAAP SG&A increased by $84.5 million, or 28%, as we support our continued growth and planned product launches. Additionally, Non GAAP SG&A increased in Q2 2011 due to the inclusion of costs for Movetis and our international commercial hub in Switzerland which were not incurred in Q2 2010. Non GAAP SG&A costs in Q2 2011 were also impacted by adverse foreign exchange compared to 2010 of approximately $20 million. On a CER basis Non GAAP SG&A increased by approximately 21%.
On a US GAAP basis, SG&A costs in Q2 2011 increased by $85.9 million, or 24%, compared to Q2 2010.
Reorganization costs
For the three months to June 30, 2011 Shire recorded reorganization costs of $7.5 million (Q2 2010: $8.6 million) relating to the transfer of manufacturing from its Owings Mills facility and the establishment of an international commercial hub in Switzerland.
Integration and acquisition costs
For the three months to June 30, 2011 Shire recorded integration and acquisition costs of $9.0 million (Q2 2010: $nil), relating to the acquisition and integration of ABH ($6.9 million) and the integration of Movetis ($2.1 million).
Interest expense
For the three months to June 30, 2011 the Company incurred interest expense of $9.9 million (Q2 2010: $8.3 million). Interest expense principally relates to the coupon and amortization of issue costs on Shire's $1,100 million 2.75% convertible bonds due 2014.
Taxation
The effective rate of tax for the three months to June 30, 2011 was 25% (Q2 2010: 25%), and the effective rate of tax on Non GAAP income was 23% (Q2 2010: 25%).
The Non GAAP effective tax rate in Q2 2011 is lower than Q2 2010 due to favourable changes in profit mix, an increase in US tax incentives (notably the domestic production deduction), and the effect of changes to the estimated effective US State tax rate on existing US deferred tax assets following the acquisition of ABH in the quarter.
FINANCIAL INFORMATION
Unaudited US GAAP financial position as of
June 30, 2011
Consolidated Balance Sheets
Unaudited US GAAP results for the three months and six months to
June 30, 2011
Consolidated Statements of Income
(1)Cost of product sales includes amortization of intangible assets relating to favorable manufacturing contracts of $0.4 million for the three months to June 30, 2011 (2010: $0.4 million) and $0.9 million for the six months to June 30, 2011 (2010: $0.9 million). SG&A costs include amortization of intangible assets relating to intellectual property rights acquired of $36.7 million for the three months to June 30, 2011 (2010: $33.8 million) and $72.7 million for the six months to June 30, 2011 (2010: $68.4 million).
Unaudited US GAAP results for the three months and six months to
June 30, 2011
Consolidated Statements of Income (continued)
Unaudited US GAAP results for the three months and six months to
June 30, 2011
Consolidated Statements of Cash Flows
Unaudited US GAAP results for the three months and six months to
June 30, 2011
Consolidated Statements of Cash Flows (continued)
Unaudited US GAAP results for the three months and six months to June 30, 2011
Selected Notes to the Financial Statements
(1) Earnings per share
(1) Excludes shares purchased by ESOT and presented by Shire as treasury stock.
(2)Calculated using the treasury stock method.
(3) Calculated using the "if converted" method.
The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:
(1)Certain stock options have been excluded from the calculation of diluted EPS because (a) their exercise prices exceeded Shire plc's average share price during the calculation period or (b) satisfaction of the required performance/market conditions cannot be measured until the conclusion of the performance period.
Unaudited US GAAP results for the three months to June 30, 2011
Selected Notes to the Financial Statements
(2) Analysis of revenues
Unaudited US GAAP results for the six months to June 30, 2011
Selected Notes to the Financial Statements
(2) Analysis of revenues
Unaudited results for the three months to June 30, 2011
Non GAAP reconciliation
(Continued)
The following items are included in Adjustments:
Unaudited results for the three months to June 30, 2010
Non GAAP reconciliation
(Continued)
The following items are included in Adjustments:
Unaudited results for the six months to June 30, 2011
Non GAAP reconciliation
(Continued)
The following items are included in Adjustments:
Unaudited results for the six months to June 30, 2010
Non GAAP reconciliation
(Continued)
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($68.4 million), and tax effect of adjustment;
(b) Acquisitions and integration activities: Costs associated with the acquisition of EQUASYM ($0.6 million), and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerated depreciation ($12.1 million) and dual running costs ($2.6 million) on the transfer of manufacturing from Owings Mills, gain on sale of product rights relating to the disposal of non core products to Laboratorios Almirall S.A. ($4.1 million), reorganization costs ($13.6m) on the transfer of manufacturing from Owings Mills and the establishment of an international commercial hub in Switzerland, gain on disposal of the investment in Virochem ($11.1 million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $46.4 million included in Cost of product sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the three months and six months to June 30, 2011
Non GAAP reconciliation
The following table reconciles US GAAP net cash provided by operating activities to Non GAAP cash generation:
The following table reconciles US GAAP net cash provided by operating activities to Non GAAP free cashflow:
(1) Capital expenditure for the three months and six months ended June 30, 2010 excludes capital expenditure relating to the acquisition of Lexington Technology Park.
Non GAAP net debt comprises:
NOTES TO EDITORS
THE "SAFEHARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire's results could be materially adversely affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of research, development, approval, reimbursement, manufacturing and commercialization of Shire's Specialty Pharmaceuticals and Human Genetic Therapies products, as well as the ability to secure new products for commercialization and/or development; government regulation of Shire's products; Shire's ability to manufacture its products in sufficient quantities to meet demand; the impact of competitive therapies on Shire's products; Shire's ability to register, maintain and enforce patents and other intellectual property rights relating to its products; Shire's ability to obtain and maintain government and other third-party reimbursement for its products; and other risks and uncertainties detailed from time to time in Shire's filings with the Securities and Exchange Commission.
Non GAAP Measures
This press release contains financial measures not prepared in accordance with US GAAP. These measures are referred to as "Non GAAP" measures and include: Non GAAP operating income; Non GAAP net income; Non GAAP diluted earnings per ADS; effectivetax rate on Non GAAP income 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 and administrative; Non GAAP other income; Non GAAP cash generation; Non GAAP free cashflow and Non GAAP net debt. These Non GAAP measures exclude the effect of certain cash and non-cash items, that Shire's management believes are not related to the core performance of Shire's business.
These Non GAAP financial measures are used by Shire's management to make operating decisions because they facilitate internal comparisons of Shire's performance to historical results and to competitors' results. Shire's Remuneration Committee uses certain key Non GAAP measures when assessing the performance and compensation of employees, including Shire's executive directors.
The Non GAAP measures are presented in this press release as Shire's management believe that they will provide investors with a means of evaluating, and an understanding of how Shire's management evaluates, Shire's performance and results on a comparable basis that is not otherwise apparent on a US GAAP basis, since many non-recurring, infrequent or non-cash items that Shire's management believe are not indicative of the core performance of the business may not be excluded when preparing financial measures under US GAAP.
These Non GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP.
Where applicable the following items, including their tax effect, have been excluded from both 2011 and 2010 Non GAAP earnings, and from our 2011 Outlook:
Amortization and asset impairments:
Acquisitions and integration activities:
Divestments, re-organizations and discontinued operations:
Depreciation, which is included in Cost of product sales, R&D and SG&A costs in our US GAAP results, has been separately disclosed for the presentation of 2010 and 2011 Non GAAP earnings.
Cash generation represents net cash provided by operating activities, excluding up-front and milestone payments for in-licensed and acquired products, tax and interest payments.
Free cashflow represents net cash provided by operating activities, excluding up-front and milestone payments for in-licensed and acquired products, but including capital expenditure in the ordinary course of business.
A reconciliation of Non GAAP financial measures to the most directly comparable measure under US GAAP is presented on pages 20 to 24.
Sales growth at CER, which is a Non GAAP measure, is computed by restating 2011 results using average 2010 foreign exchange rates for the relevant period.
Average exchange rates for the six months to June 30, 2011 were $1.62:£1.00 and $1.40:€1.00 (2010: $1.53:£1.00 and $1.33:€1.00). Average exchange rates for Q2 2011 were $1.63:£1.00 and $1.44:€1.00 (2010: $1.49:£1.00 and $1.27:€1.00).
TRADEMARKS
All trademarks designated ® and ™ used in this press release are trademarks of Shire plc or companies within the Shire group except for 3TC® and ZEFFIX® which are trademarks of GSK and PENTASA® which is a registered trademark of Ferring B.V. Certain trademarks of Shire plc or companies within the Shire group are set out in Shire's Annual Report on Form 10-K for the year ended December 31, 2010 and the Quarterly Report on Form 10-Q for the three months ended March 31, 2011.
For further information please contact:
Investor Relations
Eric Rojas ([email protected]) +1-781-482-0999
Sarah Elton-Farr ([email protected]) +44(0)1256-894-157
Media
Jessica Mann ([email protected]) +44(0)1256-894-280
Jessica Cotrone ([email protected]) +1-781-482-9538
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