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Shire plc (SHPG) Delivers Double Digit Product Sales Growth And 23% Increase In Non GAAP Earnings Per ADS
2/13/2014 9:57:53 AM
February 13, 2014 – Shire (LSE: SHP, NASDAQ: SHPG) announces unaudited results for the year to December 31, 2013.
Product sales for the full year 2013 including DERMAGRAFT would have been up 10% and Non GAAP diluted earnings per American Depository Share (“ADS”) would have been up 21%.
The Non GAAP financial measures reported in this release are explained on page 27, and are reconciled to the most directly comparable financial measures prepared in accordance with US GAAP on pages 22 - 26, which includes a reconciliation of the Reported results to Memo performance which includes DERMAGRAFT.
Flemming Ornskov, M.D., Chief Executive Officer, commented:
“Shire has delivered excellent financial results in 2013 and now has the foundations in place for further future growth. Our sharpened strategic focus and strong operational discipline have enabled us to deliver double digit product sales growth and Non GAAP earnings per ADS growth in excess of 20%. We’ve generated strong cash flows during the year, which have helped us to strengthen our balance sheet.
We’ve simplified and unified our structure to One Shire, enabling better team working, faster decision-making and tighter cost management to drive improved margins.
Our business development focus has brought us strategically aligned assets mainly in Rare Diseases; we’re particularly excited to have closed the acquisition of ViroPharma and to be progressing well with the integration of this business, which will drive further growth in our Rare Diseases business.
We’ve prioritized our investments, including executing the recent divestment of DERMAGRAFT, and have a promising pipeline of innovative products. We expect further news flow from our pipeline in 2014 from mid and late stage clinical studies.
We’ve achieved strong Non GAAP earnings per ADS growth in 2013 and today announce that we expect to deliver a similar level of Non GAAP earnings per ADS growth in 2014”.
On January 17, 2014 Shire announced that it had sold its DERMAGRAFT business, comprising the key operating assets relating to the development, manufacture and sale of the DERMAGRAFT product, to Organogenesis Inc.
(“Organogenesis”) (refer to page 6 for more details). Shire has therefore reclassified the DERMAGRAFT business as “discontinued operations” for the years ended December 31, 2013 and 2012. The reported results for all the periods presented in this release have been recast to exclude the impact of the DERMAGRAFT business from continuing operations. This press release also includes Non GAAP Memo financial information on pages 22 - 26, which include DERMAGRAFT operations and are intended to help readers reconcile 2013 performance back to previously provided guidance.
Including the DERMAGRAFT business, product sales for the full year 2013 would have been up 10% and Non GAAP diluted earnings per ADS would have been up 21%.
- Product sales from continuing operations in 2013 were up 12% to $4,757 million (2012: $4,253 million).
The strong growth in product sales from continuing operations was driven by VYVANSE® (up 19% to $1,228 million), LIALDA®/MEZAVANT® (up 32% to $529 million), VPRIV® (up 12% to $343 million), INTUNIV® (up 16% to $335 million) and FIRAZYR® (up 102% to $235 million).
- Total revenues from continuing operations were up 9% to $4,934 million (2012: $4,527 million) as the growth in product sales was partially offset, as expected, by lower royalties and other revenues (down 36%).
- On a Non GAAP basis (from continuing operations):
Operating income was up 23% to $1,860 million (2012: $1,509 million), as total operating costs increased at a significantly lower rate (up 2%) than total revenues (up 9%) demonstrating our focus on delivering efficient growth. Research and Development expenditure (“R&D”) was up 6% particularly due to investment in new uses for LDX(1) (the active ingredient in VYVANSE), SHP602 and Lifitegrast. The effect of higher R&D was moderated by a decrease in Selling, General and Administrative expenditure (“SG&A”) (down 6%).
On a US GAAP basis (from continuing operations):
Operating income in 2013 was up 66% to $1,734 million (2012: $1,045 million), a higher rate of increase than on a Non GAAP basis, primarily due to a net credit of $159 million relating to the change in the fair values of contingent consideration liabilities, in particular relating to the acquisition of SARcode Bioscience Inc. (“SARcode”) following the release of top-line Opus-2 data. R&D decreased by 2%. SG&A decreased by 15%.
- Non GAAP diluted earnings per ADS from continuing operations increased 23% to $7.66 (2012: $6.21) primarily due to the higher Non GAAP operating income.
On a US GAAP basis diluted earnings per ADS from continuing operations increased 74% to $7.36 (2012: $4.23) primarily due to the higher US GAAP operating income from continuing operations and a lower effective US GAAP tax rate of 16% (2012: 20%).
- Cash generation, a Non GAAP measure, was 9% higher at $1,781 million (2012: $1,637 million) as higher cash receipts from product sales more than offset payments made in relation to the One Shire reorganization (approximately $42 million) and costs incurred on the closure of Shire’s facility at Turnhout in Belgium (approximately $24 million). The growth in cash generation was also held back compared to the growth in Non GAAP operating income due to a payment to Impax Laboratories Inc. (“Impax”) of $48 million which was accrued in 2012 but not paid until 2013 and higher cash outflows from discontinued operations in 2013.
Free cash flow, also a Non GAAP measure, increased by 4% to $1,306 million (2012: $1,256 million) due to the higher cash generation, partially offset by higher cash tax payments in 2013.
On a US GAAP basis, net cash provided by operating activities was up 6% to $1,463 million (2012: $1,383 million).
- Net cash (also a Non GAAP measure) at December 31, 2013 was $2,231 million (December 31, 2012: $373 million) reflecting our strong cash generation and the impact of conversion and redemption of our $1.1 billion convertible bond.
On a US GAAP basis, cash and cash equivalents were $2,239 million at December 31, 2013 (December 31, 2012: $1,482 million).
- After paying for the ViroPharma acquisition Shire’s Non GAAP net debt will be approximately $1.5 billion.
After a strong performance in 2013, and the completion of the ViroPharma acquisition, we are well positioned in 2014 to deliver further growth.
We now expect Non GAAP earnings per ADS in 2014 to grow at a similar level to 2013 (2013: up 23%). This growth in 2014 benefits from ViroPharma’s earnings, with estimated accretion of approximately 7% for the eleven months post closing.
We anticipate mid-to-high teens product sales growth in 2014, including ViroPharma’s product sales.
Royalties and other revenues are expected to be 10-15% lower than 2013.
Our Non GAAP gross margin is expected to be approximately 1 percentage point lower than in 2013, due to slight dilution from ViroPharma.
In 2014 we will continue to see the benefits from the reset of our cost base, and we expect underlying (excluding ViroPharma) combined Non GAAP R&D and SG&A to be slightly lower than 2013. After including ViroPharma’s operating costs, we anticipate combined Non GAAP R&D and SG&A to grow by 6-8% compared to 2013.
We expect net interest expense to be at a similar level to 2013.
Our core effective tax rate on Non GAAP income is expected to remain in the range of 18-20%.
Taken together, we expect to deliver a similar level of Non GAAP earnings per ADS growth in 2014 as 2013 (2013: up 23%).
Fourth Quarter 2013 Unaudited Results from Continuing Operations
Product sales for Q4 2013 including DERMAGRAFT would have been up 19% and Non GAAP diluted earnings per ADS would have been up 40%.
- Product sales from continuing operations grew strongly in Q4 2013 (up 19% to $1,280 million).
Growth in product sales from continuing operations was driven by VYVANSE (up 29% to $330 million), LIALDA/MEZAVANT (up 34% to $149 million), VPRIV (up 17% to $91 million) and FIRAZYR (up 134% to $81 million).
- Total revenues from continuing operations were up 12% to $1,326 million (Q4 2012: $1,182 million) as the growth in product sales was partially offset by lower royalties and other revenues (down 56%).
- On a Non GAAP basis (from continuing operations):
Operating income was up 29% to $510 million (Q4 2012: $396 million), as total operating costs in Q4 2013 increased at a lower rate (up 4%) than total revenues (up 12%) demonstrating our focus on delivering efficient growth. R&D decreased 4% and SG&A increased 1%. SG&A was up 14% compared to Q3 2013 as we invested behind the continued growth of our products.
On a US GAAP basis (from continuing operations):
Operating income was up 389% to $598 million (Q4 2012: $122 million), a higher rate of increase than on a Non GAAP basis as Q4 2012 included impairment charges not repeated in Q4 2013 and Q4 2013 included the impact of a net credit of $188 million relating to the change in fair values of contingent consideration liabilities, in particular relating to the acquisition of SARcode. R&D was down 17% and SG&A was down 28% as compared with Q4 2012.
- Non GAAP diluted earnings per ADS from continuing operations increased 36% to $2.26 (Q4 2012: $1.66) primarily due to the higher Non GAAP operating income and a lower effective tax rate on Non GAAP income of 12% (2012: 17%).
On a US GAAP basis, diluted earnings per ADS from continuing operations increased 666% to $2.80 (Q4 2012: $0.37), primarily due to the higher US GAAP operating income and a lower effective tax rate of 7% (2012: 38%).
- Cash generation, a Non GAAP measure, increased by 48% to $668 million (Q4 2012: $452 million) due to higher cash receipts from product sales including significant cash receipts from factored European receivables, which more than offset lower royalty receipts and higher operating expenses in the quarter.
Free cash flow, also a Non GAAP measure, increased by 80% to $564 million (Q4 2012: $314 million) due to higher cash generation in addition to lower cash tax and capital expenditure payments in the quarter.
On a US GAAP basis, net cash provided by operating activities was up 64% to $610 million (Q4 2012: $372 million).
ADDERALL XR® – for the treatment of ADHD
- On December 2, 2013 Shire announced that it had entered into a new agreement to supply an authorized generic version of ADDERALL XR. Under the agreement, Sandoz Inc. (“Sandoz”) will market an authorized generic version of ADDERALL XR beginning July 1, 2016. From the December 1, 2013 effective date of the agreement through the end of the agreement’s five-year term, Sandoz has agreed to exclusively sell the authorized generic version of ADDERALL XR supplied by Shire. Shire will manufacture and supply Sandoz with all dosage strengths of the authorized generic product. Sandoz will distribute the product in the United States and Shire will receive a royalty based on Sandoz’s sales of the product.
Teva Pharmaceutical Industries, Ltd. (“Teva”) commenced commercial shipment of their authorized generic versions of ADDERALL XR in April 2009. Shire has extended its supply agreement with Teva until September 30, 2016.
FIRAZYR – for the treatment of Acute Angiotensin Converting Enzyme Inhibitor-Induced Angioedema (“ACE-I AE”)
- In the fourth quarter of 2012, following the completion of a small investigator sponsored trial (“IST”), Shire submitted a supplemental Marketing Authorization Application (“MAA”), to the European Medicines Agency seeking approval for FIRAZYR for the treatment of ACE-I AE in Europe. In February 2014, following the review and discussion of the data from this IST with the EU agencies, Shire expects to withdraw its supplemental MAA and to resubmit it with the data from the ongoing Shire sponsored Phase 3 trial which was initiated in the fourth quarter of 2013. This trial will now serve for both EU and US registrations.
LDX – for the treatment of Major Depressive Disorder (“MDD”)
- On February 6, 2014 Shire announced top-line results from two pivotal Phase 3 investigational studies evaluating the efficacy and safety of LDX versus placebo as an adjunctive treatment for MDD in adults who inadequately responded to antidepressant monotherapy with selective serotonin reuptake inhibitors or serotonin and norepinephrine reuptake inhibitors. LDX did not meet the primary efficacy endpoint versus placebo for either study. The safety profile for LDX in these two studies appears to be generally consistent with the known profile established in studies in adults with ADHD. Based on these clinical trial results, Shire will no longer pursue this clinical development program.
Lifitegrast – for the treatment of Dry Eye disease
- On December 5, 2013 Shire announced top-line results from OPUS-2, a Phase 3 efficacy and safety study. OPUS-2 compared Lifitegrast to placebo administered twice daily for 84 days (12 weeks) in dry eye patients with history of active artificial tear use within 30 days prior to screening. Lifitegrast met the prespecified co-primary endpoint for the patient-reported symptom of eye dryness (change in Eye Dryness Score from baseline to week 12) (p-value<0.0001). Lifitegrast did not meet the prespecified co-primary endpoint for the sign of inferior corneal staining score (change from baseline to Week 12) using fluorescein staining compared with placebo (p-value=0.6186). Shire intends to investigate the full data from OPUS-2 and is planning further interactions with the US Food and Drug Administration (“FDA”) in the first half of 2014 in order to advance this program.
LDX – for the treatment of Binge Eating Disorder (“BED”) in Adults
- On November 5, 2013 Shire announced positive top-line results from two identically designed randomized placebo-controlled Phase 3 studies evaluating the efficacy and safety of LDX versus placebo in adults with BED. In both studies LDX was found to be statistically superior to placebo on the primary efficacy analysis of the change from baseline at weeks 11 to 12 in terms of number of binge days per week. The safety for LDX in these two studies appears to be generally consistent with the known profile established in studies in adults with ADHD. Shire expects to file a Supplemental New Drug Application with the FDA in the third quarter of 2014.
SHP609 – for the treatment of Hunter syndrome with CNS symptoms
- Shire initiated a pivotal Phase 2/3 trial for SHP609 in the fourth quarter of 2013. SHP609 is in development as an enzyme replacement therapy delivered intrathecally for Hunter syndrome patients with CNS symptoms.
XAGRID® – for the treatment of essential thrombocythaemia in Japan
- In the fourth quarter of 2013, Shire submitted a Marketing Authorisation to the Ministry of Health, Labour and Welfare (“MHLW”) in Japan, seeking approval for XAGRID in adult essential thrombocythaemia patients treated with cytoreductive therapy who have become intolerant to their current therapy or whose platelet counts have not been reduced to an acceptable level.
VPRIV – for the treatment of Gaucher disease in Japan
- In the fourth quarter of 2013, Shire submitted a Marketing Authorisation to the MHLW in Japan, seeking approval for VPRIV for the treatment of adult and pediatric patients with Gaucher disease.
VPRIV manufacturing approval at Lexington, Massachusetts
- On February 11, 2014 Shire received approval from the FDA to produce VPRIV drug substance at Shire’s manufacturing facility in Lexington, Massachusetts.
Acquisition of ViroPharma Incorporated (“ViroPharma”)
- On January 24, 2014 Shire acquired all the outstanding shares of ViroPharma for $50 per share in cash, for a total consideration of approximately $4.23 billion. The $50 per share price in the transaction represents a 27% premium to ViroPharma's closing share price of $39.38 on Friday, November 8, 2013, the last trading day prior to the announcement of the acquisition, and a 64% premium to ViroPharma's unaffected share price of $30.47 on September 12, 2013. Shire secured a $2.6 billion fully underwritten short term bank facility, which was reduced to $1.75 billion on December 13, 2013 following the conversion of our $1.1 billion convertible bond. This, in addition to Shire’s cash and cash equivalents ($2.2 billion held at December 31, 2013) and its existing $1.2 billion revolving credit facility is being used to finance the transaction and pay the related fees and expenses. In connection with the completion of the acquisition, on January 24, 2014 ViroPharma commenced a tender offer to repurchase, at the option of each holder, any and all of ViroPharma’s outstanding 2.00% Convertible Senior Notes Due 2017 (the “Convertible Notes”) and notified the holders of their separate right to convert the Convertible Notes at any time until March 10, 2014. The repurchase and payment for conversion of the Convertible Notes forms part of the total consideration.
- On January 17, 2014 Shire announced that it had sold its DERMAGRAFT business to Organogenesis comprising the key operating assets relating to the development, manufacture and sale of the DERMAGRAFT product. These assets include intellectual property relating to DERMAGRAFT including patents, trademarks and know-how; regulatory filings and registrations relating to DERMAGRAFT; certain manufacturing plant, equipment and materials; DERMAGRAFT product inventory and accounts receivable. These assets had a net book value of $668.5 million at December 31, 2013 before recognizing an impairment of $636.9 million. Shire has generally retained legacy liabilities relating to the DERMAGRAFT business, including the previously announced Department of Justice investigation relating to the sales and marketing practices of Advanced Biohealing, Inc. (now known as Shire Regenerative Medicine, Inc.).
Conversion and redemption of $1.1 billion 2.75 per cent convertible bonds due 2014 (“Bonds”)
- On November 26, 2013 Shire announced that, in accordance with the terms and conditions of the Bonds, the Company had exercised its option to redeem all outstanding Bonds on December 27, 2013 at par together with interest accrued to that date. As an alternative to the redemption of the Bonds, each Bond holder had the right to exercise conversion rights. On December 16, 2013 Shire announced that an aggregate principal amount of $1,099,050,000 had been voluntarily converted into 33,806,464 Ordinary Shares of the Company and on December 27, 2013 the remaining Bonds in the aggregate principal amount of $950,000 were redeemed. On January 17, 2014 the listing of the Bonds on the Official List of the UK Listing Authority and the admission of the Bonds to trading on the Professional Securities Market of the London Stock Exchange were cancelled.
Share buy-back program
- On November 11, 2013 following the announcement of the acquisition of ViroPharma, Shire also announced that it was ceasing its share buyback program. The program commenced in October 2012. Since then approximately $300 million has been returned to shareholders, through the purchase of 9,823,536 shares at an average price of £19.46.
BOARD AND COMMITTEE CHANGES
- Shire announces in a separate press release issued today that Graham Hetherington, Chief Financial Officer (“CFO”), has notified the Board of Directors of his decision to step down. The Board has agreed that Graham will step down from Shire’s Board of Directors on March 1, 2014. Shire’s Senior Vice President and Group Financial Controller, James Bowling, who joined Shire in 2005, will be appointed as interim Shire CFO on Graham’s stepping down. Shire will start immediately a global search for Graham’s successor.
- On January 23, 2014 Shire announced that Matthew Emmens will retire as Non-Executive Chairman and Susan Kilsby, Chairman of Shire’s Audit, Compliance & Risk Committee will succeed him following the conclusion of Shire’s annual general meeting on April 29, 2014. On becoming Chairman of the Board, Ms Kilsby will step down as Chairman of Shire’s Audit, Compliance & Risk Committee and Dominic Blakemore will become Chairman of that Committee. It was also announced that Ms Kilsby will become a member of Shire’s Nomination Committee with effect from 1 February 2014.
In respect of the six months ended December 31, 2013 the Board has resolved to pay an interim dividend of 16.93 US cents per Ordinary Share (2012: 14.60 US cents per Ordinary Share).
Dividend payments will be made in Pounds Sterling to holders of Ordinary Shares and in US Dollars to holders of ADSs. A dividend of 10.21 pence per Ordinary Share (2012: 9.39 pence) and 50.79 US cents per ADS (2012: 43.80 US cents) will be paid on April 8, 2014 to shareholders on the register as at the close of business on March 7, 2014.
Together with the first interim payment of 3.00 US cents per Ordinary Share (2012: 2.73 US cents per Ordinary Share), this represents total dividends for 2013 of 19.93 US cents per Ordinary Share (2012: 17.33 US cents per Ordinary Share), an increase of 15% in US Dollar terms.
For further information please contact:
- Eric Rojas
+1 781 482 0999
- Sarah Elton-Farr
+44 1256 894 157
- Jessica Mann
+44 1256 894 280
- Gwen Fisher
+1 484 595 9836
- Jessica Cotrone
+1 781 482 9538
Dial in details for the live conference call for investors at 14:00 BST / 09:00 EDT on February 13, 2014:
UK dial in: 0808 237 0030 or 0203 139 4830
US dial in: 1 866 928 7517 or 1 718 873 9077
International Access Numbers:
Password/Conf ID: 46031093#
Live Webcast: Click here
The quarterly earnings presentation will be available today at 13:00 BST / 08:00 EDT on:
- Shire.com Investors section
- Shire's IR Briefcase in the iTunes Store
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