(1) See page 4 for assumptions.
(2) Percentages compare to equivalent 2012
period.
(3) Percentage growth on a Constant Exchange Rate
("CER") basis is in line with the reported growth for the
quarter.
(4) US GAAP operating income includes the impact of
goodwill impairment, see page 11 for details.
The Non GAAP financial measures included within this release are
explained on page 21, and are reconciled to the most directly
comparable financial measures prepared in accordance with US GAAP
on pages 18 - 20.
"In Q1 2013 we experienced continued strong performance from
VYVANSE, INTUNIV, LIALDA, VPRIV and FIRAZYR offset by the challenge
of lower sales of DERMAGRAFT and REPLAGAL which we are actively
managing. We generated $257 million
of cash during the quarter and delivered 10% Non GAAP earnings
growth while investing in our R&D pipeline.
Shire has consistently delivered growth significantly above the
industry levels of mid single digit and we intend that this will be
the case in the future. As we look forward to the remainder of the
year, we continue to expect to deliver earnings growth in line with
current consensus earnings expectations for 2013
(1).
On becoming Shire Chief Executive Officer, I am pleased to
confirm the direction we will take, in order to continue to deliver
significantly above industry average growth. We intend to continue
to be a high-growth innovation business providing differentiated
specialist medicines in areas of high unmet need for patients
treated by specialist physicians. Shire's strategic priorities are
to grow sales of our existing portfolio and to bring new innovative
treatments to market through both R&D and Business
Development.
To deliver this we are evolving the way the business works,
introducing a flatter and more scalable structure of initially five
commercially focused business units (Rare Diseases, Neuroscience,
GI, Regenerative Medicine and Internal Medicine) and a single
R&D organization supported by centralized corporate
functions.
In the first quarter we added to our pipeline with three
acquisitions: Lotus Tissue Repair, Premacure and SARcode
BioSciences. The last two provide us with the foundation to build a
potential new business unit in ophthalmology - a growing market
with many unmet patient needs. We're reviewing our pipeline
to prioritize investment in our innovative, late stage pipeline
assets. We also aim to focus our business development on acquiring
later stage assets and to grow our sales in Latin America and Asia.
As the new Chief Executive, I am excited by the potential
opportunities for delivering even greater value to Shire's patients
and shareholders and I look forward to updating you in the many
quarters to come."
Flemming Ornskov, Chief Executive Officer ("CEO") today sets out
his strategy for Shire's future and outlines a re-alignment of its
business structure to drive future growth and innovation. Shire
will continue to grow through focusing on its core strengths of
developing and marketing innovative specialist medicines to meet
significant unmet patient needs.
The growth strategy will be delivered through a sharpened focus
on two key priorities:
These priorities will be underpinned by a simplification of the
business structure in order to drive commercial excellence and
pipeline innovation. Shire will have an "In-Line" marketed product
group and a "Pipeline" group, supported by a single technical
operations group and simplified, centralized corporate
functions.
The newly established "In-Line" marketed products group will
consist of five business units ("BU"s) focused exclusively on
commercial delivery; Rare Diseases, Neuroscience (formerly
Behavioral Health), Gastrointestinal ("GI"), Regenerative Medicine
("RM") and Internal Medicine. More BUs will be formed when
significant assets are either acquired or reach the appropriate
stage of development.
The Pipeline group, consisting of R&D and BD, will
prioritize its activities towards late stage development programs.
Pre-clinical development focus will be primarily in rare diseases.
As part of the delivery of this strategy, Shire's R&D will be
led by a single R&D organization. BD will continue to be a key
activity for Shire, focused on identifying later stage development
programs and in market products in target specialist areas.
Shire will work to increase profitability of its existing
international business while also investing in Asia and Latin
America. Plans are underway for more focused growth in
Japan where Shire recently
announced the establishment of a new office, and in Brazil which is already the 5th
largest country for Shire's rare disease business sales.
China has also been identified as
a priority and Shire is evaluating options for expanding more of
the business into this dynamic market.
- Product sales in Q1 2013 were $1,117
million, up 1% compared against a strong set of comparatives
in Q1 2012.
Five of our top ten products delivered double digit growth:
VYVANSE® (up 15% to $298
million), LIALDA®/MEZAVANT® (up 12% to
$101 million), VPRIV® (up
14% to $82 million),
INTUNIV® (up 13% to $78
million) and FIRAZYR®(up 112% to $42 million).
Total product sales were held back this quarter by
DERMAGRAFT® (down 62% to $19
million), resulting from the ongoing restructuring of the RM
commercial organization; REPLAGAL® (down 15% to
$114 million) due to some shipment
timings and as increased competition outweighed continued growth in
new naïve patients; and ELAPRASE® (down 9% to
$114 million) due to uneven ordering
patterns in Latin America.
The rate of growth in total product sales (Q1 2013: +1%) is
expected to improve to mid-to-high single digit growth for the full
year as our portfolio continues to deliver growth and we benefit
from easing comparatives over the second half of the year.
- Total revenues decreased 1% to $1,162
million (Q1 2012: $1,172
million) as growth in product sales was offset, as expected,
by lower royalties, particularly ADDERALL XR® royalties
received from Impax Laboratories Inc. ("Impax") due to both lower
volumes and a lower royalty rate payable since the launch of a new
generic product.
- On a Non GAAP basis:
Operating income was up 9% to $393
million (Q1 2012: $362
million), as combined total operating costs decreased at a
higher rate (down 5%) than total revenues, driven by lower Selling,
General and Administrative ("SG&A") expenditure (down 16%
reflecting both lower SG&A this year and comparison to high
SG&A in Q1 2012). The effect was moderated by higher R&D
expenditure, which was up 15% as we continue to progress a number
of early and late stage pipeline programs expected to drive future
growth.
On a US GAAP basis:
Operating income was down 56% to $129
million (Q1 2012: $295
million) primarily due to an impairment charge for goodwill
($199 million) relating to Shire's RM
business. Following a review of future forecasts for the RM
business unit, management determined in Q1 2013 that future sales
are now expected to be lower than anticipated at the time of
acquisition and consequently in accordance with US GAAP it has been
determined that the goodwill attributable to the RM business unit
is impaired.
- Non GAAP diluted earnings per ADS increased 10% to $1.63 (Q1 2012: $1.48) due to higher Non GAAP operating income
and a lower effective tax rate on Non GAAP income of 19% (Q1 2012:
20%).
- On a US GAAP basis, diluted earnings per ADS decreased 72% to
$0.35 (Q1 2012: $1.24), due to lower US GAAP operating income and
a higher US GAAP effective tax rate of 46% (Q1 2012: 17%) both of
which reflect the impact of the impairment of RM goodwill.
- Cash generation, a Non GAAP measure, decreased by 17% to
$257 million (Q1 2012: $310 million) as higher cash receipts from gross
product sales were more than offset by the payment to settle the
litigation with Impax ($48 million),
lower royalty receipts and higher sales deduction payments in the
quarter.
Free cash flow, also a Non GAAP measure, decreased by 54% to
$113 million (Q1 2012: $248 million) primarily due to the lower cash
generation and the effect of higher cash tax payments in Q1 2013 as
compared to Q1 2012.
On a US GAAP basis, net cash provided by operating activities was
down 38% to $160 million (Q1 2012:
$257 million).
OUTLOOK
We reiterate our confidence in delivering Non GAAP earnings
growth in line with consensus earnings expectations for
2013(1).
For the full year we now anticipate product sales growth in the
mid-to-high single digits. The rate of growth in total product
sales will improve from that seen in the first quarter as our
portfolio continues to deliver growth and we benefit from an easing
of comparatives over the second half of the year.
Specifically we expect ELAPRASE to post double digit growth for
the full year and we expect REPLAGAL sales to recover from the
first quarter decline to be more in line with 2012 for the full
year. We expect DERMAGRAFT to return to growth in the second half
but sales for the full year will still be lower than in 2012.
We continue to expect Royalties and other revenues to be 30-40%
lower than 2012, and our Non GAAP gross margin is expected to
remain at a similar level to 2012.
We expect low-to-mid teens growth in Non GAAP R&D as we
continue to invest increasing amounts in our promising pipeline and
to progress our late stage clinical trials. As a result of lower
Non GAAP SG&A in Q1, and continued careful management of our
cost base, we now expect Non GAAP SG&A for the full year to be
marginally lower than 2012. Taken together, we now expect low
single digit growth in combined Non GAAP R&D and SG&A,
creating operating leverage for the full year.
Our core effective tax rate on Non GAAP income is anticipated to
remain in the range of 18-20%.
As we look forward to the remainder of the year, we continue to
expect to deliver earnings growth in line with current consensus
earnings expectations for 2013 (1).
- Based on the most recent consensus estimates compiled by
Consensus Forecast Ltd, as of the date of this press release, of
$6.67 Non GAAP diluted earnings per
ADS for the year ended 31 December
2013, available on Shire's website
(http://www.shire.com/shireplc/en/investors/forecasts).
FIRST QUARTER 2013 AND RECENT PRODUCT
AND PIPELINE DEVELOPMENTS
Products
VYVANSE - for the treatment of Attention Deficit Hyperactivity
Disorder ("ADHD")
- On May 1, 2013 Shire announced
that the US Food and Drug Administration ("FDA") approved VYVANSE
as a maintenance treatment in children and adolescents with ADHD.
With this new approval, VYVANSE is currently the only stimulant
approved for maintenance treatment in children and adolescents aged
6 to 17 years with ADHD, as well as in adults with ADHD.
DERMAGRAFT - for the treatment of Diabetic Foot Ulcers ("DFU")
in Canada
- On March 25, 2013 Shire announced
that DERMAGRAFT is now available in Canada for the treatment of DFU, following its
approval by Health Canada as a class IV medical device for the
treatment of DFU in September
2012.
VPRIV - for the treatment of Gaucher disease (Type 1)
- On March 21, 2013 the Committee
for Medicinal Products for Human Use of the European Medicines
Agency issued a positive opinion regarding an update to the
clinical efficacy and safety section of the VPRIV Summary of
Product Characteristics to include information on long term
clinical data relating to efficacy and safety in skeletal pathology
from the TKT025 extension study in Type 1 Gaucher patients.
Pipeline
Lisdexamfetamine dimesylate(1) ("LDX") - for the
treatment of negative symptoms of schizophrenia ("NSS")
- Shire has cancelled the NSS Phase 3 program after a review and
prioritization of Shire's development portfolio and taking into
account investment requirements for recent acquisitions. No
patients had been dosed in the studies and this decision was not
due to any safety issues with LDX in any patient
population. Shire remains committed to continuing Phase 3
trials for MDD and BED and these are enrolling as expected.
(1) Currently marketed as VYVANSE in the US and
ELVANSE® in certain territories in the EU for the
treatment of ADHD.
HGT4510 - for Duchenne Muscular Dystrophy ("DMD")
- In April 2013, following analysis
of the results of toxicology studies, Shire discontinued
development of HGT4510 and returned Shire's rights in the asset to
Acceleron Pharma Inc. The development of HGT4510 was placed on
clinical hold in February 2011,
subject to the completion of the toxicology studies.
VASCUGEL® - for the treatment of end-stage renal
disease.
- In March 2013, Shire enrolled the
first patient in its Phase 2 clinical program for VASCUGEL.
OTHER DEVELOPMENTS
Legal Proceedings
INTUNIV patent litigation
- On April 25, 2013, Shire settled
all pending litigation with Actavis, Inc., Actavis LLC, and Actavis
Elizabeth LLC (collectively "Actavis") and Watson Laboratories,
Inc.-Florida, Watson Pharma, Inc.
and ANDA, Inc. (collectively "Watson") in connection with Actavis's
and Watson's Abbreviated New Drug Applications ("ANDAs") for
generic versions of INTUNIV for the treatment of ADHD.
The settlement provides Actavis with a license to make and market
Actavis's generic versions of INTUNIV in the United States on December 1, 2014, or earlier in certain limited
circumstances. Such sales will require the payment of a royalty of
25% of gross profits to Shire during the 180 day period of
Actavis's exclusivity. The settlement also provides Watson with a
license to make and market Watson's generic versions of INTUNIV in
the United States, 181 days after
Actavis's launch of generic INTUNIV, or earlier in certain limited
circumstances.
Acquisition of SARcode Bioscience Inc.
("SARcode")
- On April 17, 2013 Shire completed
the acquisition of SARcode, a privately held biopharmaceutical
company based in Brisbane,
California. This acquisition brings a new Phase 3 compound,
lifitegrast, currently under development for the signs and symptoms
of dry eye disease, into Shire's portfolio. Shire anticipates
launching lifitegrast in the United
States as early as 2016 pending a positive outcome of the
Phase 3 clinical development program and regulatory approvals.
Shire is acquiring the global rights to lifitegrast and will
evaluate an appropriate regulatory filing strategy for markets
outside of the United States.
After customary closing adjustments, cash consideration paid on
closing amounted to $150 million with
further potential contingent payments upon achievement of certain
clinical, regulatory, and commercial milestones.
Acquisition of Premacure AB
("Premacure")
- On March 8, 2013 Shire completed
the acquisition of Premacure, a privately held biotechnology
company based in Uppsala, Sweden,
developing PREMIPLEX®, a protein replacement therapy in
Phase 2 development for the prevention of retinopathy of
prematurity ("ROP"). Shire purchased Premacure for an up-front
payment of $31 million with further
potential contingent payments based on the achievement of
pre-specified development and commercial milestones.
Shire will continue the ongoing Phase 2 study, the primary goal of
which is to compare the severity of ROP among patients treated with
PREMIPLEX, versus an untreated control population matched for
gestational age.
The acquisition of SARcode and Premacure will provide Shire with
the foundation to build a potential new business unit in
ophthalmology - a growing market with many unmet patient needs.
Acquisition of Lotus Tissue Repair,
Inc. ("Lotus")
- On February 12, 2013 Shire
completed the acquisition of Lotus, a privately held biotechnology
company, based in Cambridge, MA,
with a protein replacement therapy in pre-clinical development
currently being investigated for the treatment of dystrophic
epidermolysis bullosa ("DEB"). DEB is a devastating orphan disease
for which there is no currently approved treatment option other
than palliative care. Shire purchased the company for an up-front
cash payment of $49 million and
further contingent cash payments may be payable in future periods,
depending on the achievement of certain safety and development
milestones.
Share buy-back Program
- In Q4 2012 Shire commenced a share buy-back program, for the
purpose of returning funds to shareholders, of up to $500 million, through both direct purchases of
ordinary shares and through the purchase of ordinary shares
underlying American Depositary Receipts. As of April 30, 2013 Shire had made on-market
repurchases totaling 7,374,182 ordinary shares at a cost of
$222.7 million (excluding transaction
costs).
For the weighted average number of shares used for Non GAAP diluted
earnings per ADS, please refer to the Non GAAP reconciliation
tables on pages 18 - 19.
BOARD AND COMMITTEE CHANGES
- Shire announces that Susan
Kilsby, Non Executive Director of Shire becomes the Chairman
of Shire's Audit, Compliance & Risk Committee with immediate
effect. Susan has been a member of this Committee since
September 2011 when she joined the
Board. She takes over the Chairmanship from David Kappler who remains a member of the
Committee.
- Shire also announces that Dr David
Ginsburg becomes Chairman of Shire's Science &
Technology Committee with immediate effect. Dr David Ginsburg has been a member of the
Committee and the Board since June
2010 and he has more recently been the acting Chairman of
the Science & Technology Committee.
ADDITIONAL INFORMATION
The following additional information is included in this press
release:
Page
Overview of First Quarter 2013 Financial Results 8
Financial Information 12
Non GAAP Reconciliation 18
Notes to Editors 20
Safe Harbor Statement 21
Explanation of Non GAAP Measures 21
Trade marks 22
Dial in details for the live conference
call for investors 13:00
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UK dial in:
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OVERVIEW OF FIRST QUARTER 2013
FINANCIAL RESULTS
1. Product sales
For the three months to March 31,
2013 product sales increased by 1% to $1,117 million (Q1 2012: $1,107 million) and represented 96% of total
revenues (Q1 2012: 94%).
US Exit
Market
Year on year growth Share(1)
Non GAAP
Product sales Sales $M Sales CER US Rx(1)
VYVANSE 298.4 +15% +15% +6% 17%
ELAPRASE 114.3 -9% -9% n/a(2) n/a(2)
REPLAGAL 114.0 -15% -15% n/a(3) n/a(3)
LIALDA/MEZAVANT 100.5 +12% +12% +9% 23%
VPRIV 81.6 +14% +14% n/a(2) n/a(2)
INTUNIV 77.7 +13% +13% +12% 4%
PENTASA(R) 71.0 +8% +8% -3% 14%
FIRAZYR 41.7 +112% +111% n/a(2) n/a(2)
DERMAGRAFT 18.5 -62% -62% n/a(2) n/a(2)
OTHER 99.2 -11% -11% n/a n/a
Excluding ADDERALL XR 1,016.9 +2% +2%
ADDERALL XR 99.8 -10% -10% -20% 5%
Total 1,116.7 +1% +1%
(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 March 31, 2013.
(2) IMS NPA Data not
available.
(3) Not sold in the US in Q1 2013.
VYVANSE - ADHD
VYVANSE product sales showed strong growth (up 15%) in Q1 2013
compared to Q1 2012, primarily as a result of higher prescription
demand (up 6%) and the effect of a price increase taken since Q1
2012. Shire also experienced further destocking in the retail
channel which was offset by the positive impact of some shipment
slippage from Q4 2012.
ELAPRASE- Hunter syndrome
Product sales from ELAPRASE in Q1 2013 were down 9% compared to
Q1 2012 due to the impact of the timing of large orders to certain
markets which order less frequently. The underlying number of
patients being treated with ELAPRASE continues to grow.
REPLAGAL - Fabry disease
REPLAGAL sales for the quarter were down 15% primarily due to
the impact of ordering patterns in Latin
America and lower volumes in Europe, where the impact of increased
competition outweighed the continued growth in new naïve patients.
On a global basis, total patient numbers continue to show good long
term growth.
LIALDA/MEZAVANT - Ulcerative
colitis
Product sales for LIALDA/MEZAVANT increased (up 12%) in Q1 2013
primarily due to higher market share in the US and the effect of a
price increase taken since Q1 2012. These positive factors were to
a lesser extent offset by the effect of higher US sales deductions
and higher destocking at the retail level.
VPRIV - Gaucher disease
Growth in VPRIV product sales (up 14%) in Q1 2013 was driven by
the continued growth in the number of patients on therapy.
INTUNIV - ADHD
The strong growth in INTUNIV product sales (up 13%) in Q1 2013
was driven by growth in US prescription demand (up 12%) and the
effect of price increases taken since Q1 2012. These positive
factors were partially offset by the effect of destocking in Q1
2013 as compared to slight stocking in Q1 2012.
PENTASA - Ulcerative colitis
PENTASA product sales (up 8%) benefited from price increases
taken since Q1 2012, the impact of which was moderated by a small
amount of retail pipeline destocking in Q1 2013.
FIRAZYR - Hereditary Angioedema ("HAE")
The significant growth in FIRAZYR sales (up 112%) reflects the
continued success of the product in the US market.
DERMAGRAFT - DFU
DERMAGRAFT product sales were down 62%, reflecting the impact of
an ongoing restructuring of the RM sales and marketing organization
and the implementation of a new commercial model. Whilst our future
expectations for long term growth of DERMAGRAFT have been revised
downwards, we still expect the product to return to growth over
coming quarters.
ADDERALL XR - ADHD
ADDERALL XR product sales decreased (down 10%) in Q1 2013
primarily as a result of lower US prescription demand (down 20%)
following the introduction of a new generic competitor in Q2 2012
and to a lesser extent the effect of higher sales deductions as a
percentage of sales in Q1 2013 compared to Q1 2012. These negative
factors were partially offset by the benefit of a price increase
taken since Q1 2012.
2. Royalties
Year on year growth
Royalties to
Product Shire $M Royalties CER
3TC(R) and ZEFFIX(R) 1.00 12.5 -8% -8%
FOSRENOL(R) 1.00 9.0 -10% -10%
ADDERALL XR 1.00 8.1 -68% -68%
Other 1.00 8.9 +20% +18%
Total 1.00 38.5 -32% -32%
As expected, royalty income from 3TC and ZEFFIX continued to
decline due to increased competition from other products and the
expiry of patents in certain territories.
Royalties from ADDERALL XR in Q1 2013 were significantly
impacted by reduced sales volume as well as a lower royalty rate
payable on sales of authorized generic ADDERALL XR by Impax, since
the launch of a new generic version in Q2 2012.
3. Financial details
Cost of product sales
% of % of
product product
Q1 2013 sales Q1 2012 sales
$M $M
Cost of product sales (US
GAAP) 155.9 14% 158.4 14%
Depreciation (7.8) (7.2)
Cost of product sales (Non
GAAP) 148.1 13% 151.2 14%
Non GAAP cost of product sales as a percentage of product sales
decreased slightly in Q1 2013, due to improved margins in the ADHD
portfolio which were only partially offset by lower margins on
other products.
Research and Development
("R&D")
% of % of
product product
Q1 2013 sales Q1 2012 sales
$M $M
R&D (US GAAP) 224.2 20% 220.3 20%
Payments in respect of
in-licensed and acquired
products - (23.0)
Depreciation (4.6) (6.4)
R&D (Non GAAP) 219.6 20% 190.9 17%
Non GAAP R&D increased by $28.7
million, or 15%, due to our increased investment in a number
of targeted R&D programs including non-ADHD programs for LDX,
and spend on SPD602 for Iron Overload and SRM003 for Acute Vascular
Repair, acquired since Q1 2012.
US GAAP R&D increased by $3.9
million, or 2%, a lower rate of increase than on a Non GAAP
basis as Q1 2012 included payments in respect of acquired and
in-licensed products, not repeated in Q1 2013.
Selling, General and Administrative
("SG&A")
% of % of
product product
2013 sales 2012 sales
$M $M
SG&A (US GAAP) 438.7 39% 500.0 45%
Intangible asset
amortization (45.9) (45.6)
Legal and litigation
costs(1) (4.2) -
Depreciation (16.7) (13.6)
SG&A (Non GAAP) 371.9 33% 440.8 40%
- In Q2 2012 Shire amended its Non GAAP policy to exclude costs
related to the settlement of litigation, government investigations
and other disputes, together with related external legal costs. Non
GAAP SG&A in Q1 2012 has not been restated as the amounts
incurred in that period were not significant.
Non GAAP SG&A decreased by $68.9
million, or 16%, partly due to the benefit of actions taken
during last year, in addition to careful management of our cost
base. The rate of decline in SG&A in Q1 2013 was accentuated by
the high level of SG&A in Q1 2012 relative to the level of
spend in subsequent quarters in 2012.
US GAAP SG&A decreased by $61.3
million, or 12% primarily due to legal and litigation costs
excluded from Non GAAP SG&A in Q1 2013.
Goodwill impairment charges
For the three months to March 31,
2013 Shire recorded an impairment charge for goodwill of
$198.9 million (Q1 2012: $nil)
relating to Shire's RM business. Following a review of future
forecasts for the RM business unit, management determined in Q1
2013 that future sales are now expected to be lower than
anticipated at the time of acquisition and consequently in
accordance with US GAAP, it has been determined that the goodwill
attributable to the RM business unit is impaired. Whilst our future
expectations for long term growth of DERMAGRAFT have been revised
downwards, we still expect the product to return to growth over
coming quarters.
Gain on sale of product rights
For the three months to March 31,
2013 Shire recorded a gain on sale of product rights of
$6.5 million (2012: $7.2 million) following re-measurement of the
contingent consideration receivable from the divestment of
DAYTRANA®.
Reorganization costs
For the three months to March 31,
2013 Shire recorded reorganization costs of $17.5 million (Q1 2012: $nil) relating to the
collective dismissal and closure of Shire's facility at Turnhout,
Belgium.
Integration and acquisition costs
For the three months to March 31,
2013 Shire recorded integration and acquisition costs of
$4.1 million primarily associated
with the acquisition of Lotus and integration of FerroKin
Biosciences, Inc. ("FerroKin") in addition to charges related to
the change in fair value of deferred contingent consideration. In
Q1 2012 integration and acquisition costs ($5.3 million) primarily related to the
integration of Advanced BioHealing Inc. ("ABH").
Interest expense
For the three months to March 31,
2013 Shire incurred interest expense of $9.1 million (Q1 2012: $10.2 million). Interest expense in Q1 2013
principally relates to the coupon on Shire's $1,100 million 2.75% convertible bonds due
2014.
Taxation
The effective rate of tax on Non GAAP income in Q1 2013 was 19%
(Q1 2012: 20%), and on a US GAAP basis the effective rate of tax
was 46% (Q1 2012: 17%).
The effective rate of tax in Q1 2013 on a Non GAAP basis is
lower than the same period in 2012 due primarily to the recognition
of the 2012 US R&D credit in the first quarter of 2013,
partially offset by adverse changes in profit mix. The US R&D
credit was recognized in Q1 2013 following the enactment of
legislation on January 2, 2013,
approving the extension of the regular R&D credit
retrospectively.
The effective rate of tax in Q1 2013 on a GAAP basis is higher
than the same period in 2012 primarily due to the impact of the
impairment of RM goodwill which is non-deductible for tax purposes,
an increase in unrecognised tax losses and adverse changes in
profit mix but partially offset by the recognition of the 2012 US
R&D credit in the first quarter of 2013.
FINANCIAL INFORMATION
- TABLE OF CONTENTS
Page
Unaudited US GAAP Consolidated Balance Sheets 13
Unaudited US GAAP Consolidated Statements of Income 14
Unaudited US GAAP Consolidated Statements of Cash
Flows 15
Selected Notes to the Unaudited US GAAP Financial
Statements
(1) Earnings per share 16
(2) Analysis of revenues 17
Non GAAP reconciliation 18
Unaudited US GAAP financial position as of March 31, 2013
Consolidated Balance Sheets
March 31, December 31,
2013 2012
$M $M
ASSETS
Current assets:
Cash and cash equivalents 1,450.7 1,482.2
Restricted cash 19.3 17.1
Accounts receivable, net 884.4 824.2
Inventories 471.4 436.9
Deferred tax asset 224.3 229.9
Prepaid expenses and other current assets 283.2 221.8
Total current assets 3,333.3 3,212.1
Non-current assets:
Investments 39.3 38.7
Property, plant and equipment ("PP&E"), net 951.0 955.8
Goodwill 522.8 644.5
Other intangible assets, net 2,657.2 2,388.1
Deferred tax asset 47.3 46.5
Other non-current assets 34.7 31.5
Total assets 7,585.6 7,317.2
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses 1,477.2 1,501.5
Other current liabilities 142.5 144.1
Total current liabilities 1,619.7 1,645.6
Non-current liabilities:
Convertible bonds 1,100.0 1,100.0
Deferred tax liability 607.3 520.8
Other non-current liabilities 476.5 241.6
Total liabilities 3,803.5 3,508.0
Equity:
Common stock of 5p par value; 1,000 million
shares authorized; and 562.8 million shares
issued and outstanding (2012: 1,000 million
shares authorized; and 562.5 million shares
issued and outstanding) 55.7 55.7
Additional paid-in capital 3,002.1 2,981.5
Treasury stock: 11.3 million shares (2012: 10.7
million) (341.6) (310.4)
Accumulated other comprehensive income 49.1 86.9
Retained earnings 1,016.8 995.5
Total equity 3,782.1 3,809.2
Total liabilities and equity 7,585.6 7,317.2
Unaudited US GAAP results for the three months to
March 31, 2013
Consolidated Statements of Income
3 months to March 31, 2013 2012
$M $M
Revenues:
Product sales 1,116.7 1,106.9
Royalties 38.5 56.3
Other revenues 6.7 8.6
Total revenues 1,161.9 1,171.8
Costs and expenses:
Cost of product sales(1) 155.9 158.4
R&D 224.2 220.3
SG&A(1) 438.7 500.0
Goodwill impairment charge 198.9 -
Gain on sale of product rights (6.5) (7.2)
Reorganization costs 17.5 -
Integration and acquisition costs 4.1 5.3
Total operating expenses 1,032.8 876.8
Operating income 129.1 295.0
Interest income 0.7 0.8
Interest expense (9.1) (10.2)
Other income, net (1.1) 1.9
Total other expense, net (9.5) (7.5)
Income from continuing operations before income
taxes and equity in earnings of equity method
investees 119.6 287.5
Income taxes (55.2) (50.0)
Equity in earnings of equity method investees,
net of taxes 0.4 0.9
Net income 64.8 238.4
3 months to March 31, 2013 2012
Earnings per ordinary share - basic 11.7c 43.1c
Earnings per ADS - basic 35.1c 129.3c
Earnings per ordinary share - diluted 11.7c 41.4c
Earnings per ADS - diluted 35.1c 124.2c
Weighted average number of shares:
Millions Millions
Basic 551.5 553.5
Diluted(2) 555.3 595.6
- Cost of product sales includes amortization of intangible
assets relating to favorable manufacturing contracts of $nil for
the three months to March 31, 2013
(2012: $0.2 million). SG&A costs
include amortization of intangible assets relating to intellectual
property rights acquired of $45.9
million for the three months to March
31, 2013 (2012: $45.6
million).
- For the weighted average number of shares used for Non GAAP
diluted earnings per ADS, please refer to the Non GAAP
reconciliation tables on pages 18 - 19.
Unaudited US GAAP results for the three months to
March 31, 2013
Consolidated Statements of Cash Flows
3 months to March 31, 2013 2012
$M $M
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 64.8 238.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 75.0 73.0
Share based compensation 16.6 22.0
Goodwill impairment charge 198.9 -
Other (4.6) (5.9)
Movement in deferred taxes 1.4 (20.8)
Equity in earnings of equity method investees (0.4) (0.9)
Changes in operating assets and liabilities:
Increase in accounts receivable (51.3) (65.2)
Increase in sales deduction accrual 44.4 54.5
Increase in inventory (29.1) (25.0)
(Increase)/decrease in prepayments and other
assets (61.8) 17.2
Decrease in accounts and notes payable and
other liabilities (93.5) (30.3)
Net cash provided by operating activities(A) 160.4 257.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Movements in restricted cash (2.2) 5.7
Purchases of subsidiary undertakings and
businesses, net of cash acquired (77.2) -
Purchases of non-current investments (2.8) (4.1)
Purchases of PP&E (47.3) (31.7)
Purchases of intangible assets - (22.0)
Proceeds received on sale of product rights 4.8 5.6
Proceeds from capital expenditure grants 2.7 8.4
Proceeds from disposal of non-current investments
and PP&E 0.7 3.8
Returns from equity investments - 0.1
Net cash used in investing activities(B) (121.3) (34.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to acquire shares under the share
buy-back program (70.6) -
Deferred contingent consideration payments (6.0) -
Excess tax benefit associated with exercise of
stock options 4.4 34.8
Other (0.7) 0.6
Net cash (used in)/provided by financing
activities(C) (72.9) 35.4
Effect of foreign exchange rate changes on cash
and cash equivalents(D) 2.3 1.2
Net (decrease)/increase in cash and cash
equivalents(A) +(B) +(C) +(D) (31.5) 259.4
Cash and cash equivalents at beginning of period 1,482.2 620.0
Cash and cash equivalents at end of period 1,450.7 879.4
Unaudited US GAAP results for the
three months to March 31, 2013
Selected Notes to the Financial
Statements
(1) Earnings Per Share ("EPS")
3 months to March 31, 2013 2012
$M $M
Net Income 64.8 238.4
Numerator for basic EPS 64.8 238.4
Interest on convertible bonds, net of tax(1) - 8.4
Numerator for diluted EPS 64.8 246.8
Weighted average number of shares:
Millions Millions
Basic(2) 551.5 553.5
Effect of dilutive shares:
Share based awards to employees(3) 3.8 8.6
Convertible bonds 2.75% due 2014(4) - 33.5
Diluted(5) 555.3 595.6
- For the three month period ended March
31, 2013 interest on convertible bond has not been added
back as the effect would be anti-dilutive.
- Excludes shares purchased by the EBT and under the share
buy-back program and presented by Shire as treasury stock.
- Calculated using the treasury stock method.
- Calculated using the "if converted" method.
- For the weighted average number of shares used for Non GAAP
diluted earnings per ADS, please refer to the Non GAAP
reconciliation tables on pages 18 - 19.
The share equivalents not included in the calculation of the
diluted weighted average number of shares are shown below:
3 months to March 31, 2013 2012
No. of
No. of shares shares
Millions Millions
Share based awards to employees(1) 5.6 6.1
Convertible bonds 2.75% due 2014(2) 33.6 -
- Certain stock options have been excluded from the calculation
of diluted EPS because (a) their exercise prices exceeded Shire's
average share price during the calculation period or (b) the
required performance conditions were not satisfied as at the
balance sheet date.
- For the three month period ended March
31, 2013 the ordinary shares underlying the convertible
bonds have not been included in the calculation of the diluted
weighted average number of shares, as the effect of their inclusion
would be anti-dilutive.
Unaudited US GAAP results for the
three months to March 31, 2013
Selected Notes to the Financial
Statements
(2) Analysis of revenues
3 months to March 31, 2013 2012 2013 2013
% % of total
$M $M change revenue
Net product sales:
Specialty Pharmaceuticals
Behavioral Health
VYVANSE 298.4 260.0 15% 26%
ADDERALL XR 99.8 111.4 -10% 9%
INTUNIV 77.7 68.5 13% 7%
EQUASYM(R) 6.7 7.2 -7% <1%
482.6 447.1 8% 42%
Gastro Intestinal
LIALDA/MEZAVANT 100.5 90.0 12% 9%
PENTASA 71.0 65.8 8% 6%
RESOLOR(R) 3.2 2.4 33% <1%
174.7 158.2 10% 15%
General products
FOSRENOL 42.3 45.5 -7% 4%
XAGRID(R) 23.4 23.2 1% 2%
65.7 68.7 -4% 6%
Other product sales 23.6 32.7 -28% 2%
Total SP product sales 746.6 706.7 6% 64%
Human Genetic Therapies
ELAPRASE 114.3 125.6 -9% 10%
REPLAGAL 114.0 134.4 -15% 10%
VPRIV 81.6 71.7 14% 7%
FIRAZYR 41.7 19.7 112% 3%
Total HGT product sales 351.6 351.4 0% 30%
Regenerative Medicine
DERMAGRAFT 18.5 48.8 -62% 2%
Total RM product sales 18.5 48.8 -62% 2%
Total product sales 1,116.7 1,106.9 1% 96%
Royalties:
3TC and ZEFFIX 12.5 13.6 -8% 1%
FOSRENOL 9.0 10.0 -10% 1%
ADDERALL XR 8.1 25.3 -68% <1%
Other 8.9 7.4 20% 1%
Total royalties 38.5 56.3 -32% 3%
Other revenues 6.7 8.6 -22% <1%
Total revenues 1,161.9 1,171.8 -1% 100%
Unaudited results for the three months
to March 31, 2013
Non GAAP reconciliation
3 months to March 31, Non
2013 US GAAP Adjustments GAAP
(a) (b) (c) (d) (e)
$M $M $M $M $M $M $M
Total revenues 1,161.9 - - - - - 1,161.9
Costs and expenses:
Cost of product sales 155.9 - - - - (7.8) 148.1
R&D 224.2 - - - - (4.6) 219.6
SG&A 438.7 (45.9) - - (4.2) (16.7) 371.9
Gain on sale of
product rights (6.5) - - 6.5 - - -
Goodwill impairment
charge 198.9 (198.9) - - - - -
Reorganization costs 17.5 - - (17.5) - - -
Integration and
acquisition costs 4.1 - (4.1) - - - -
Depreciation - - - - - 29.1 29.1
Total operating
expenses 1,032.8 (244.8) (4.1) (11.0) (4.2) - 768.7
Operating income 129.1 244.8 4.1 11.0 4.2 - 393.2
Interest income 0.7 - - - - - 0.7
Interest expense (9.1) - - - - - (9.1)
Other expense, net (1.1) - - - - - (1.1)
Total other expense,
net (9.5) - - - - - (9.5)
Income before income
taxes and equity in
earnings of equity
method investees 119.6 244.8 4.1 11.0 4.2 - 383.7
Income taxes (55.2) (14.6) (0.5) - (1.5) - (71.8)
Equity in earnings of
equity method
investees, net of tax 0.4 - - - - - 0.4
Net income 64.8 230.2 3.6 11.0 2.7 - 312.3
Impact of convertible
debt, net of tax (1) - 7.6 - - - - 7.6
Numerator for diluted
EPS 64.8 237.8 3.6 11.0 2.7 - 319.9
Weighted average
number of shares
(millions) -
diluted(1) 555.3 33.6 - - - - 588.9
Diluted earnings per
ADS 35.1c 118.8c 1.8c 5.7c 1.5c - 162.9c
- The impact of convertible debt, net of tax has a dilutive
effect on Non GAAP basis.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of
intangible assets relating to intellectual property rights acquired
($45.9 million), impairment of RM
goodwill ($198.9 million), and tax
effect of adjustments;
(b) Acquisition and integration activities: Costs primarily
associated with the acquisition of Lotus and integration of
FerroKin ($2.3 million), charges
related to the change in fair value of deferred contingent
consideration ($1.8 million), and tax
effect of adjustments;
(c) Divestments, reorganizations and discontinued operations:
Re-measurement of DAYTRANA contingent consideration to fair value
($6.5 million), costs relating to the
collective dismissal and closure of Shire's facility at Turnhout,
Belgium ($17.5 million), and tax effect of
adjustments;
(d) Legal and litigation costs: Costs related to litigation,
government investigations, other disputes and external legal costs
($4.2 million), and tax effect of
adjustments; and
(e) Depreciation reclassification: Depreciation of $29.1 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
to March 31, 2012
Non GAAP reconciliation
3 months to March 31, 2012 US GAAP Adjustments Non GAAP
(a) (b) (c) (d)
$M $M $M $M $M $M
Total revenues 1,171.8 - - - - 1,171.8
Costs and expenses:
Cost of product sales 158.4 - - - (7.2) 151.2
R&D 220.3 - (23.0) - (6.4) 190.9
SG&A 500.0 (45.6) - - (13.6) 440.8
Gain on sale of product
rights (7.2) - - 7.2 - -
Integration and acquisition
costs 5.3 - (5.3) - - -
Depreciation - - - - 27.2 27.2
Total operating expenses 876.8 (45.6) (28.3) 7.2 - 810.1
Operating income 295.0 45.6 28.3 (7.2) - 361.7
Interest income 0.8 - - - - 0.8
Interest expense (10.2) - - - - (10.2)
Other income, net 1.9 - - - - 1.9
Total other expense, net (7.5) - - - - (7.5)
Income before income taxes
and equity in earnings of
equity method investees 287.5 45.6 28.3 (7.2) - 354.2
Income taxes (50.0) (13.2) (6.6) - - (69.8)
Equity in earnings of
equity method investees,
net of tax 0.9 - - - - 0.9
Net income 238.4 32.4 21.7 (7.2) - 285.3
Impact of convertible debt,
net of tax 8.4 - - - - 8.4
Numerator for diluted EPS 246.8 32.4 21.7 (7.2) - 293.7
Weighted average number of
shares (millions) - diluted 595.6 - - - - 595.6
Diluted earnings per ADS 124.2c 16.3c 10.9c (3.5c) - 147.9c
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of
intangible assets relating to intellectual property rights acquired
($45.6 million), and tax effect of
adjustments;
(b) Acquisition and integration activities: Up-front payments
made to Sangamo Biosciences Inc. and for the acquisition of the US
rights to prucalopride (marketed in certain countries in
Europe as RESOLOR) ($23.0 million), costs associated with the
acquisition of FerroKin and the integration of ABH ($5.3 million); and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations:
Re-measurement of DAYTRANA contingent consideration to fair value
($7.2 million), and tax effect of adjustments; and
(d) Depreciation reclassification: Depreciation of $27.2 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
to March 31, 2013
Non GAAP reconciliation
The following table reconciles US GAAP net cash provided by
operating activities to Non GAAP cash generation:
3 months to March 31,
2013 2012
$M $M
Net cash provided by operating activities 160.4 257.0
Tax and interest payments, net 97.1 29.8
Up-front payments in respect of in-licensed and
acquired products - 23.0
Non GAAP cash generation 257.5 309.8
The following table reconciles US GAAP net cash provided by
operating activities to Non GAAP free cash flow:
3 months to March 31,
2013 2012
$M $M
Net cash provided by operating activities 160.4 257.0
Up-front payments in respect of in-licensed and
acquired products - 23.0
Capital expenditure (47.3) (31.7)
Non GAAP free cash flow 113.1 248.3
Non GAAP net cash comprises:
March 31, December 31,
2013 2012
$M $M
Cash and cash equivalents 1,450.7 1,482.2
Convertible bonds (1,100.0) (1,100.0)
Other debt (8.8) (9.3)
Non GAAP net cash 341.9 372.9
NOTES TO EDITORS
Shire enables people with
life-altering conditions to lead better lives.
Our strategy is to focus on developing and marketing innovative
specialty medicines to meet significant unmet patient needs.
We provide treatments in Neuroscience, Rare Diseases,
Gastrointestinal, Internal Medicine and Regenerative Medicine and
we are developing treatments for symptomatic conditions treated by
specialist physicians in other targeted therapeutic areas.
http://www.shire.com
FORWARD - LOOKING STATEMENTS - "SAFE
HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Statements included in this announcement that are not historical
facts are forward-looking statements. 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, that:
- Shire's products may not be a commercial success;
- revenues from ADDERALL XR are subject to generic erosion;
- the failure to obtain and maintain reimbursement, or an
adequate level of reimbursement, by third-party payors in a timely
manner for Shire's products may impact future revenues and
earnings;
- Shire relies on a single source for manufacture of certain of
its products and a disruption to the supply chain for those
products may result in Shire being unable to continue marketing or
developing a product or may result in Shire being unable to do so
on a commercially viable basis;
- Shire uses third party manufacturers to manufacture many of its
products and is reliant upon third party contractors for certain
goods and services, and any inability of these third party
manufacturers to manufacture products, or any failure of these
third party contractors to provide these goods and services, in
each case in accordance with its respective contractual
obligations, could adversely affect Shire's ability to manage its
manufacturing processes or to operate its business;
- the development, approval and manufacturing of Shire's products
is subject to extensive oversight by various regulatory agencies
and regulatory approvals or interventions associated with changes
to manufacturing sites, ingredients or manufacturing processes
could lead to significant delays, increase in operating costs, lost
product sales, an interruption of research activities or the delay
of new product launches;
- the actions of certain customers could affect Shire 's ability
to sell or market products profitably and fluctuations in buying or
distribution patterns by such customers could adversely impact
Shire's revenues, financial conditions or results of
operations;
- investigations or enforcement action by regulatory authorities
or law enforcement agencies relating to Shire's activities in the
highly regulated markets in which it operates may result in the
distraction of senior management, significant legal costs and the
payment of substantial compensation or fines;
- adverse outcomes in legal matters and other disputes, including
Shire's ability to obtain, maintain, enforce and defend patents and
other intellectual property rights required for its business, could
have a material adverse effect on Shire's revenues, financial
condition or results of operations;
and other risks and uncertainties detailed from time to time in
Shire's filings with the U.S. Securities and Exchange Commission,
including its most recent Annual Report on Form 10-K.
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/(losses) 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/expense; Non GAAP cash
generation; Non GAAP free cash flow and Non GAAP net
cash/(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 when calculating Non GAAP earnings for
both 2013 and 2012, and from our Outlook:
Amortization and asset
impairments:
- Intangible asset amortization and impairment charges; and
- Other than temporary impairment of investments.
Acquisitions and integration
activities:
- Up-front payments and milestones in respect of in-licensed and
acquired products;
- Costs associated with acquisitions, including transaction
costs, fair value adjustments on contingent consideration and
acquired inventory;
- Costs associated with the integration of companies; and
- Noncontrolling interests in consolidated variable interest
entities.
Divestments, re-organizations and
discontinued operations:
- Gains and losses on the sale of non-core assets;
- Costs associated with restructuring and re-organization
activities;
- Termination costs; and
- Income/(losses) from discontinued operations.
Legal and litigation costs:
- Net legal costs related to the settlement of litigation,
government investigations and other disputes (excluding internal
legal team costs).
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 2013 and 2012 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 cash flow 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 18
to 20.
Growth at CER, which is a Non GAAP measure, is computed by
restating 2013 results using average 2012 foreign exchange rates
for the relevant period.
Average exchange rates for Q1 2013 were $1.58:£1.00 and $1.33:€1.00 (2012: $1.57:£1.00 and $1.31:€1.00).
TRADE MARKS
All trade marks designated ® and ™ used in this press
release are trade marks of Shire plc or companies within the Shire
group except for 3TC® and ZEFFIX® which are
trade marks of GlaxoSmithKline, PENTASA® which is a
registered trade mark of FERRING B.V., LIALDA® and
MEZAVANT® which are trade marks of Nogra Pharma Limited
and DAYTRANA® which is a trade mark of Noven
Pharmaceuticals Inc. Certain trade marks 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,
2012.
For further information please
contact:
Investor Relations
- Eric Rojas erojas@shire.com +1-781-482-0999
- Sarah Elton-Farr seltonfarr@shire.com +44-1256-894-157
Media
- Jessica Mann jmann@shire.com +44-1256-894-280
- Gwen Fisher gfisher@shire.com +1-484-595-9836
- Jessica Cotrone jcotrone@shire.com +1-781-482-9538