Shire plc Second Quarter Product Sales Up 16%
Published: Aug 01, 2012
DUBLIN, August 1, 2012 /PRNewswire/ --
On Track to Deliver Double Digit Full Year Earnings Growth
Shire (LSE: SHP, NASDAQ: SHPG) announces results for the three months to June 30, 2012.
Financial Highlights Q2 2012(1) Product sales $1,148 million +16% Total revenues $1,208 million +14% Non GAAP operating income $420 million +23% US GAAP operating income $302 million +7% Non GAAP diluted earnings per ADS $1.68 +26% US GAAP diluted earnings per ADS $1.24 +15% Non GAAP cash generation $520 million +18% Non GAAP free cash flow $433 million +84% US GAAP net cash provided by operating activities $466 million +64%
(1) Percentages compare to equivalent 2011 period.
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:
"Shire delivered strong results in the second quarter, with product sales up 16% and Non GAAP operating income up 23%.
The ADHD market in the US is maintaining healthy growth; our lead products VYVANSE and INTUNIV both increased share and we're advancing our plans for the continued international rollout of both these products. Although of decreasing importance in our ADHD portfolio, we believe that branded ADDERALL XR will remain competitive in the US marketplace despite the approval of a new generic product.
We are delighted with the continued adoption of FIRAZYR by patients in the US, which is driving strong sales growth. We also continue to see new patient demand for all our enzyme replacement therapies ELAPRASE, REPLAGAL and VPRIV.
We benefited from sales of DERMAGRAFT in the quarter, compared to the same period last year, and we have announced our plans to invest in a new campus in the San Diego area, including a second manufacturing facility for our Regenerative Medicine business.
Our diversified and increasingly international business generated higher cash flow during the quarter and we're continuing our disciplined approach to invest in a growing range of exciting late stage opportunities in our pipeline, as well as business development opportunities, to bring further valuable treatments to patients. We're building on our lead positions in our main franchise areas of behavioral health, gastro-intestinal, HGT and regenerative medicine as well as forging alliances and investing in novel technology platforms. We look forward to continued growth across our business.
Based on the market dynamics we are anticipating and the actions we have taken, Shire is on track to deliver double digit full year earnings growth in 2012. Our objective is to deliver sound earnings growth in 2013, and increased growth beyond that, driven by our young and diversified product portfolio and the significant market opportunities we have identified."
Second Quarter 2012 Unaudited Results
Q2 2012 Q2 2011 Non Non US GAAP Adjustments GAAP US GAAP Adjustments GAAP $M $M $M $M $M $M Total revenues 1,208 - 1,208 1,063 - 1,063 Operating income 302 118 420 283 59 342 Diluted earnings per ADS $1.24 $0.44 $1.68 $1.08 $0.25 $1.33
- Product sales were up 16% to $1,148 million (Q2 2011: $993 million). The growth in product sales was driven by VYVANSE® (up 43% to $266 million), VPRIV® (up 31% to $83 million), INTUNIV® (up 16% to $69 million) and FIRAZYR® (up to $32 million from $6 million in Q2 2011). On a constant exchange rate ("CER") basis, which is a Non GAAP measure, product sales were up 18%.
Q2 2012 also included $52 million of DERMAGRAFT® sales (Q2 2011: $2 million). Excluding sales of DERMAGRAFT, which was acquired with Advanced BioHealing Inc. ("ABH") in late Q2 2011, product sales were up 11%.
- Total revenues were up 14%, to $1,208 million (Q2 2011: $1,063 million), as the growth in product sales was partially offset by lower royalties and other revenues.
- On a Non GAAP basis:
Operating income was up 23% to $420 million (Q2 2011: $342 million), as total revenues increased at a higher rate than total operating expenses. Research and development ("R&D") costs increased 20% and selling, general and administrative ("SG&A") costs increased by 5% compared to Q2 2011. The increase in R&D in Q2 2012 reflects our increased investment in VYVANSE for the treatment of Major Depressive Disorder ("MDD"), costs on the new programs acquired with FerroKin Biosciences, Inc. ("FerroKin") and from Pervasis Therapeutics, Inc. ("Pervasis") and the inclusion of a full quarter's R&D costs for ABH. The impact of foreign exchange was slightly negative for operating income, as the adverse impact of weaker European currencies on reported product sales was only partially offset by a corresponding benefit for reported costs.
On a US GAAP basis:
Operating income was up 7% to $302 million (Q2 2011: $283 million), as Q2 2012 included impairment charges in respect of certain in-process research and development ("IPR&D") assets and costs related to the settlement of litigation, which were not incurred in Q2 2011.
- Non GAAP diluted earnings per American Depository Share ("ADS") were up 26% to $1.68 (Q2 2011: $1.33), due to the higher Non GAAP operating income and a lower Non GAAP effective tax rate of 20% (Q2 2011: 23%).
US GAAP diluted earnings per ADS were up 15% to $1.24 (Q2 2011: $1.08) due to higher US GAAP operating income and a lower US GAAP effective tax rate of 18% (Q2 2011: 25%).
- Cash generation, a Non GAAP measure, was up 18% to $520 million (Q2 2011: $440 million) as higher cash receipts from product sales, including significant cash receipts from government-supported healthcare providers in Spain in Q2 2012, more than offset increased payments for operating expenses and sales deductions.
Free cash flow, also a Non GAAP measure, was up 84% to $433 million (Q2 2011: $235 million), due to higher cash generation and lower cash tax payments in Q2 2012 compared to Q2 2011.
On a US GAAP basis, net cash provided by operating activities was up 64% to $466 million (Q2 2011: $284 million).
- Reflecting our strong cash generation, net cash at June 30, 2012 was $18 million (December 31, 2011: net debt of $468 million).
We have made a strong start to the year and Shire is on track to deliver double digit full year earnings growth in 2012, while continuing to invest in our business to support sustained future growth from the significant market opportunities that we have identified.
For the full year we now expect product sales growth to be in the low teens. This reflects the fact that foreign exchange movements are impacting the reported growth of some of our products, but also our expectation that ADDERALL XR® will remain competitive in the US market following the approval of a generic competitor.
Full year royalties and other revenues are now expected to be 25% to 35% lower year on year, a change from previous guidance as a result of lower royalties from Impax Laboratories Inc.
Taken together, we expect that total revenues will still show double digit growth in 2012.
We still anticipate marginal dilution of Non GAAP gross margins in the full year.
We will continue to invest in the longer term growth prospects of the business but we are reducing the 2012 rate of year on year growth of combined Non GAAP R&D and SG&A expenditure to between 10% and 12%.
Influenced by changing profit mix, we now expect our full year Non GAAP effective tax rate to be in the range of 18% to 20% in 2012. We believe this now represents a good planning range for our core effective tax rate until at least the end of 2014.
Overall, we are on track to deliver double digit full year earnings growth in 2012.
In 2013, the total revenues from ADDERALL XR will reduce following the recent launch of a generic competitor. We are monitoring the impact of this and other dynamics, prioritizing our investments and carefully managing our cost base. Our objective is to deliver sound earnings growth in 2013, and increased growth beyond that, driven by our young and diversified product portfolio and the significant market opportunities we have identified.
SECOND QUARTER 2012 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
ADDERALL XR - for the treatment of Attention Deficit Hyperactivity Disorder ("ADHD")
- On June 22, 2012 the US Food and Drug Administration ("FDA") responded to Shire's ADDERALL XR citizen petition. The FDA's response requires that all abbreviated new drug applications ("ANDAs") must establish bioequivalence using partial area under the curve measurements at five hours and beyond five hours, for both d- and l- amphetamine.
The FDA also approved the ANDA for generic ADDERALL XR filed by Actavis Elizabeth LLC ("Actavis"). Shire is not aware of the FDA having approved any other ADDERALL XR ANDAs.
The approval of Actavis' ANDA has resulted in a significant reduction to the royalty rate payable on sales of authorized generic ADDERALL XR by Impax Laboratories Inc. ("Impax"). This reduction will be partially offset by a small royalty payable by Actavis, and Shire now expects lower ADDERALL XR royalty income in future periods. There are other variables which could also affect the future revenue stream from ADDERALL XR, including, but not limited to, the amount of finished product each party can manufacture (as determined by the US Drug Enforcement Agency), any increase or decrease in market share and / or product discounts on branded and non-branded versions of ADDERALL XR. Whilst there is one generic entrant Shire believes that it will remain competitive in the ADDERALL XR marketplace through the distribution of branded ADDERALL XR and through its two authorized generic partners, Teva Pharmaceuticals Industries Ltd and Impax.
VPRIV - for the treatment of Type 1 Gaucher disease
- Shire has received a complete response letter from the FDA regarding production of VPRIV drug substance at Lexington. Shire continues to work closely with the FDA to address their questions and resolve any outstanding issues to their satisfaction.
Notwithstanding the ongoing discussions with the FDA, Shire continues to supply VPRIV to US patients through its existing approved US manufacturing facilities and has the capacity to meet the anticipated demand for VPRIV from existing and new patients both in the US and globally.
Lisdexamfetamine dimesylate ("LDX") for the treatment of ADHD (currently marketed as VYVANSE in the US for the treatment of ADHD)
- On May 23, 2012 Shire presented results of a Phase 3 study which demonstrated the long-term maintenance of efficacy of LDX in children and adolescents aged 6 to 17 years with ADHD. Results showed maintenance of efficacy in children and adolescents who continued to receive LDX, as demonstrated by a significantly lower proportion of ADHD treatment failures (13.5%) in this group, compared with placebo (65.8%). The majority of placebo-treated subjects who met protocol-defined ADHD symptom relapse criteria did so within two weeks following randomisation. Long-term maintenance therapy plays an important role in the treatment of ADHD. There are however, few long-term controlled studies in children and adolescents assessing the maintenance of efficacy and long-term safety of stimulant medication versus placebo. The study is a central element to the EU submission package for LDX. A European Marketing Authorisation Application for LDX was accepted for review in January 2012.
Regenerative Medicine campus
- On June 11, 2012 Shire announced that its Regenerative Medicine business had entered into a lease agreement with BioMed Realty Trust, Inc. for a new campus site in Sorrento Mesa, CA, which will provide increased capacity for DERMAGRAFT and additional space and infrastructure to manufacture new regenerative medicine products. Shire expects to begin construction of the new campus in 2013, with initial occupancy targeted for 2014. Shire plans to maintain its current DERMAGRAFT manufacturing facility in La Jolla, CA.
- On June 29, 2012 Shire and GlaxoSmithKline ("GSK") settled the litigation relating to Shire's termination of the co-promotion agreement for VYVANSE. The terms of the settlement are confidential.
In respect of the six months ended June 30, 2012 the Board resolved to pay an interim dividend of 2.73 US cents per Ordinary Share (2011: 2.48 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 1.74 pence per ordinary share (an increase of 14% compared to 2011: 1.52 pence) and 8.19 US cents per ADSs (an increase of 10% compared to 2011: 7.44 US cents) will be paid on October 4, 2012 to shareholders on the register as at the close of business on September 7, 2012.
The following additional information is included in this press release:
Page Overview of Second Quarter 2012 Financial Results 7 Financial Information 11 Non GAAP Reconciliations 20 Notes to Editors 25 Safe Harbor Statement 25 Explanation of Non GAAP Measures 25 Trademarks 26
Dial in details for the live conference call for investors 14:00 BST/9:00 EDT on August 1, 2012:
UK dial in: 0808 237 0030
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Live Webcast: http://www.shire.com/shireplc/en/investors
OVERVIEW OF SECOND QUARTER 2012 FINANCIAL RESULTS
1. Product sales
For the three months to June 30, 2012 product sales increased by 16% to $1,148 million (Q2 2011: $993 million) and represented 95% of total revenues (Q2 2011: 93%).
US Exit Market Product Highlights Year on year growth Share(1) Product Sales $M Sales CER US Rx(1) VYVANSE 266.2 +43% +43% +19% 16% ADDERALL XR 133.9 -9% -9% -13% 6% REPLAGAL(R) 123.2 +3% +11% n/a(3) n/a(3) ELAPRASE(R) 122.2 -4% +2% n/a(2) n/a(2) LIALDA/MEZAVANT(R) 94.1 -5% -4% +6% 22% VPRIV 82.7 +31% +35% n/a(2) n/a(2) INTUNIV 69.1 +16% +16% +39% 5% PENTASA(R) 63.9 -3% -3% -5% 14% DERMAGRAFT 52.4 n/a n/a n/a(2) n/a(2) FOSRENOL(R) 43.2 -5% -1% -19% 5% FIRAZYR 31.7 +466% +482% n/a(2) n/a(2) OTHER 65.1 -10% -4% n/a n/a Total product sales 1,147.7 +16% +18% (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, 2012. (2) IMS NPA Data not available. (3) Not sold in the US in Q2 2012.
VYVANSE - ADHD
VYVANSE product sales grew strongly in Q2 2012, up 43% compared to Q2 2011, as a result of higher prescription demand (up 19% compared to Q2 2011) due to an increase in VYVANSE's market share and growth in the US ADHD market, the effect of a price increase taken since Q2 2011 and lower sales deductions as a percentage of gross product sales in Q2 2012.
ADDERALL XR - ADHD
ADDERALL XR product sales decreased by 9% due to the effect of lower prescription demand and destocking in Q2 2012 compared to stocking in Q2 2011. These negative factors were partially offset by lower sales deductions as a percentage of gross product sales in Q2 2012 compared to Q2 2011.
REPLAGAL - Fabry disease
REPLAGAL product sales growth was driven by the treatment of new patients, being both naïve patients and switches from FABRAZYME®. Reported REPLAGAL sales were impacted by unfavorable foreign exchange, due to the stronger US dollar in Q2 2012 compared to Q2 2011.
The reduction in REPLAGAL product sales between Q1 2012 and Q2 2012 was driven by the timing of certain large orders from markets which order less frequently.
ELAPRASE - Hunter syndrome
Reported ELAPRASE sales in Q2 2012 were impacted by unfavorable foreign exchange and also the timing of shipments, in Q2 2011 and Q1 2012, to markets which order less frequently. On a CER basis ELAPRASE product sales increased and patients on therapy continue to grow across all regions in which ELAPRASE is sold.
LIALDA/MEZAVANT - Ulcerative colitis
Product sales for LIALDA/MEZAVANT decreased in Q2 2012 as the effects of higher US prescription demand and a price increase taken since Q2 2011 were more than offset by destocking in Q2 2012 compared to stocking in the US market in Q2 2011, and the effect of lower priced imports into certain European markets.
VPRIV - Gaucher disease
VPRIV product sales growth was driven by the treatment of new patients, being both naïve patients and switches from CEREZYME®. Reported VPRIV sales were also impacted by unfavorable foreign exchange.
INTUNIV - ADHD
INTUNIV product sales were up 16% compared to Q2 2011, primarily driven by significant growth in US prescription demand, due to an increase in INTUNIV's market share and growth in the US ADHD market, and the effect of a price increase taken since Q2 2011. These positive factors were partially offset by higher sales deductions in Q2 2012 and the effect of destocking in Q2 2012 compared to stocking in Q2 2011.
PENTASA - Ulcerative colitis
Product sales of PENTASA decreased as the benefit of price increases taken since Q2 2011 was more than offset by lower US prescription demand in Q2 2012 and the effect of destocking in Q2 2012 compared to stocking in Q2 2011.
DERMAGRAFT - Diabetic Foot Ulcers ("DFU")
DERMAGRAFT product sales were up 14% compared to Q2 2011(1) due to the effect of price increases taken since Q2 2011 and growth in the number of patients treated. Product sales in Q2 2012 were up 7% compared to Q1 2012, a lower rate of growth than compared to Q2 2011, due to the effect of an on-going restructuring of the sales and marketing organization. The restructuring is expected to position DERMAGRAFT for future sales growth.
(1)Shire acquired DERMAGRAFT through its acquisition of ABH on June 28, 2011 and reported revenues from DERMAGRAFT of $2 million relating to the post acquisition period in Q2 2011.
FOSRENOL - Hyperphosphatemia
Product sales for FOSRENOL decreased by 5% as the benefits of a price increase taken since Q2 2011 and lower sales deductions in Q2 2012 were more than offset by lower US prescription demand. Product sales of FOSRENOL outside the US were lower than Q2 2011 primarily due to the effect of unfavorable foreign exchange.
FIRAZYR - Hereditary Angioedema
FIRAZYR sales growth was driven by the US market, following the launch in Q4 2011, where we continue to see both good growth in new patients starting treatment and promising levels of repeat usage by existing patients. The more established markets in Europe also continue to grow following the approval of self administration in Q1 2011.
Year on year growth Royalties to Product Shire $M Royalties CER ADDERALL XR 1.00 25.7 -5% -5% FOSRENOL 1.00 13.0 5% 5% 3TC(R) and ZEFFIX(R) 1.00 10.6 -6% -7% Other 1.00 7.0 -45% -42% Total 1.00 56.3 -11% -11%
3. Financial details
Cost of product sales
% of % of product product Q2 2012 sales Q2 2011 sales $M $M Cost of product sales (US GAAP) 152.5 13% 143.7 14% Transfer of manufacturing from Owings Mills - (2.8) Depreciation (7.0) (8.3) Cost of product sales (Non GAAP) 145.5 13% 132.6 13%
Non GAAP cost of product sales as a percentage of product sales remained constant as the effect of slightly higher gross margins from our Behavioral Health ("BH") products were marginally diluted by the addition of lower margin DERMAGRAFT following the acquisition of ABH in Q2 2011.
% of % of product product Q2 2012 sales Q2 2011 sales $M $M R&D (US GAAP) 238.6 21% 176.9 18% Impairment of intangible assets (27.0) - Depreciation (6.4) (6.1) R&D (Non GAAP) 205.2 18% 170.8 17%
Non GAAP R&D grew by $34.4 million, or 20%, due to increased investment in a number of targeted R&D programs including the VYVANSE MDD program, new programs acquired with FerroKin and from Pervasis, and the inclusion of a full quarter's R&D costs for ABH. On a CER basis Non GAAP R&D increased by approximately 25% as Q2 2012 benefited from favorable foreign exchange compared to Q2 2011.
US GAAP R&D increased by $61.7 million, or 35%, as Q2 2012 included impairment charges relating to certain IPR&D intangible assets.
% of % of product product Q2 2012 sales Q2 2011 sales $M $M SG&A (US GAAP) 511.0 45% 440.3 44% Intangible asset amortization (51.0) (36.7) Legal and litigation costs (35.9) - Depreciation (14.5) (15.1) SG&A (Non GAAP) 409.6 36% 388.5 39%
Non GAAP SG&A increased by $21.1 million, or 5%, principally due to the inclusion of a full quarter's SG&A costs for ABH in Q2 2012. On a CER basis Non GAAP SG&A costs grew by approximately 8%.
During 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. Comparative Non GAAP SG&A in Q2 2011 has not been restated as the amounts incurred in that period were not significant.
US GAAP SG&A increased by $70.7 million, or 16%, as Q2 2012 included the settlement of litigation and external legal costs, together with higher intangible asset amortization.
For the three months to June 30, 2012 Shire incurred interest expense of $9.6 million (Q2 2011: $9.9 million). Interest expense in Q2 2012 principally relates to the coupon on Shire's $1,100 million 2.75% convertible bonds due 2014.
The effective rate of tax on Non GAAP income for the three months to June 30, 2012 was 20% (Q2 2011: 23%), and on a US GAAP basis the effective rate of tax was 18% (Q2 2011: 25%). The effective rate of tax in Q2 2012 on both a Non GAAP and US GAAP basis is lower than the same period in 2011 due primarily to favorable changes in profit mix.