February 10, 2011 – Shire plc (LSE: SHP, NASDAQ: SHPGY) the global specialty biopharmaceutical company, announces results for the year to December 31, 2010.
Angus Russell, Chief Executive Officer, commented:
“2010 was an outstanding year for Shire with the business performing exceptionally well on all fronts. Total product sales exceeded expectations and broke through $3 billion for the first time driven by a 34% increase in our Core Product sales. Both our Specialty Pharmaceuticals and Human Genetic Therapies businesses showed excellent growth.
In our ADHD portfolio, INTUNIV sales were $166 million in the first full year on the market and VYVANSE sales grew 26% to $634 million. VPRIV sales were $143 million in its first year, REPLAGAL sales were up 81% to $351 million and sales of ELAPRASE also grew 14% to $404 million.
Cash generation of almost $1.4 billion during the year has enabled us to invest significantly in the business. The acquisition of Movetis brings our Specialty Pharmaceuticals business the European rights to RESOLOR, a new therapy for chronic constipation, and access to its GI pipeline. Our in-licensing of a Phase 2 compound for Duchenne muscular dystrophy from Acceleron adds a further exciting development project to our Human Genetic Therapies pipeline. That partnership and the recently begun in-house studies for the novel intrathecal delivery of our protein therapies for patients with CNS-manifestations of rare genetic diseases have the potential to become new platform technologies for our Human Genetic Therapies business. Among many other advances in our R&D pipeline, we also completed encouraging signal finding studies for potential new indications for VYVANSE.
We’re expanding internationally through launching products in new countries, having established a new hub in Switzerland, expanding our operations in Latin America and building our business in Asia/Pacific. We now have over 4,000 employees in 28 countries and we’re leveraging this infrastructure to grow our business now and in the future.
Shire has had a great year. With a young and balanced portfolio and a strong pipeline, we look forward to continuing this success as we build on the strength of our business model and plan for further good growth in the year ahead. We’re increasingly confident about achieving our aspirational growth targets and continuing to have a positive impact on patients’ lives.”
? Product sales were up 16% to $3,128 million (2009: $2,694 million). Product sales excluding ADDERALL XR® (“Core Products”) grew strongly through 2010 (up 34% to $2,767 million), more than offsetting the decline in ADDERALL XR product sales (down 42% to $361 million) following loss of market exclusivity in April 2009. On a constant exchange rate (“CER”) basis, which is a Non GAAP measure, Core Product sales were up 35%.
? The growth in Core Products sales was driven by VYVANSE® (up 26% to $634 million), REPLAGAL® (up 81% to $351 million), LIALDA®/MEZAVANT® (up 24% to $293 million), and the recently launched products, INTUNIV® ($166 million) and VPRIV® ($143 million).
? Total revenues were up 15% (CER: up 16%) to $3,471 million (2009: $3,008 million) due to the growth in product sales and higher royalties (up 12% to $328 million), offset by lower other revenues (down 31% to $15 million).
? Non GAAP operating income increased by $183 million, or 20%, to $1,072 million (2009: $889 million). Non GAAP operating income increased due to higher revenues and continued operating leverage, allowing us to absorb the effects of increased investment in our targeted research and development (“R&D”) programs and an increase in selling, general and administrative (“SG&A”) activities to support our recent and future growth. On a US GAAP basis, operating income increased by $174 million, or 28%, to $794 million (2009: $620 million).
? Cash generation, which is a Non GAAP measure, increased by $436 million to $1,353 million (2009: $917 million). Cash generation was higher in 2010 due to higher cash receipts from both product sales and royalties, which more than offset higher sales deduction payments and higher operating costs in 2010. Free cashflow, also a Non GAAP measure, increased by $386 million to $795 million (2009: $409 million) due to higher cash generation and lower capital expenditure, partially offset by higher cash tax payments.
On a US GAAP basis, net cash provided by operating activities increased by $328 million to $955 million (2009: $627 million). For a reconciliation of net cash provided by operating activities to Non GAAP cash generation and free cashflow, see page 25.
? Net debt at December 31, 2010 was $531 million (December 31, 2009: $615 million), a reduction of $84 million. The strong free cashflow in 2010 has funded significant investment in the business, including the acquisition of Movetis NV (“Movetis”) and Lexington Technology Park (“LTP”).
2011 OUTLOOK
We enter 2011 with strong momentum following an outstanding performance in 2010. Good revenue growth will be driven by our young product portfolio and will offset the impact of the sale of DAYTRANA last year and reduced royalties. We anticipate that gross margins in 2011 will be at a similar percentage of product sales as in 2010.
We have identified significant opportunities for future growth both by advancing our pipeline and through the ongoing international expansion of our portfolio. Based on this we expect to generate total product sales growth for 2011 in line with the growth achieved in 2010. As we support this continued growth and also absorb a full year of Movetis’s operating activities, our current plans are for combined Non GAAP R&D and SG&A spending in 2011 to increase by between 10 and 13% compared to 2010.
After investing in the business and absorbing the limited impact of US Healthcare reform, further operational leverage is expected to drive good earnings growth in 2011 and we reiterate our aspirational growth targets.
PRODUCT LAUNCHES AND SIGNIFICANT LABEL CHANGES
Subject to obtaining the requisite regulatory/governmental approvals, product launches and significant label changes planned over the next 12 months include:
PRODUCT LAUNCHES
? VYVANSE/VENVANSETM for the treatment of Attention Deficit Hyperactivity Disorder (“ADHD”) in children in Brazil;
? EQUASYM® for the treatment of ADHD in certain European countries;
? RESOLOR® for the symptomatic treatment of chronic constipation in women for whom laxatives fail to provide adequate relief, in certain European countries;
? VPRIV for the treatment of type 1 Gaucher disease in certain European and Latin American countries; and
? FIRAZYR® for the symptomatic treatment of acute attacks of hereditary angioedema (“HAE”) in the US and certain European and Latin American countries.
SIGNIFICANT LABEL CHANGES
? INTUNIV as adjunctive treatment to long acting oral stimulants for the treatment of ADHD in children and adolescents in the US;
? LIALDA/MEZAVANT for the maintenance of remission of ulcerative colitis in the US; and
? FIRAZYR for self-administration in patients who are experiencing acute attacks of HAE in the EU.
Fourth quarter product sales were up 10% to $851 million (2009: $777 million). After adjusting Q4 2009 for the effect of the change in best estimate of the Medicaid rebate liability for ADDERALL XR which related to Prior Quarters, product sales for the fourth quarter increased by 21%.
Continued strong growth from Core Products (up 30% to $763 million - notwithstanding the divestment of DAYTRANA® on October 1, 2010) more than offset lower ADDERALL XR product sales (down 54% to $89 million). Core Products sales were up 33% on a CER basis.
? Core Products continued to generate strong sales growth in the fourth quarter, particularly VYVANSE (up 25% to $181 million), REPLAGAL (up 80% to $109 million), LIALDA/MEZAVANT (up 27% to $84 million), and the recently launched products, INTUNIV (up $38 million to $43 million) and VPRIV (up $57 million to $59 million).
? Fourth quarter total revenues increased by 4% (CER: up 6%) to $931 million (2009: $893 million) with higher product sales being offset by lower royalty income. ADDERALL XR royalties were significantly lower in Q4 2010 (down 73% to $14 million), as Q4 2009 benefited from royalties on launch shipments of Impax Laboratories Inc’s (“Impax”) authorized generic version of ADDERALL XR.
? Fourth quarter Non GAAP operating income decreased by $74 million, or 24%, to $239 million (2009: $313 million). After adjusting Q4 2009 for the effect of the change in best estimate of the Medicaid rebate liability for ADDERALL XR which related to Prior Quarters, Non GAAP operating income remained constant in 2010, as the increase in gross profit was offset by higher Non GAAP R&D and SG&A. This was primarily due to the inclusion of Movetis’s operating costs for the first time and targeted increases to investment in R&D programs and SG&A activities to support future growth. On a US GAAP basis, operating income decreased by $72 million, or 27%, to $196 million (2009: $268 million).
? Cash generation, which is a Non GAAP measure, increased by $125 million in the fourth quarter to $394 million (2009: $269 million), with higher cash receipts from product sales more than offsetting higher sales deduction payments and higher operating costs. Free cashflow, which is also a Non GAAP measure, increased by $126 million to $278 million (2009: $152 million) due to higher cash generation and lower capital expenditure offset by higher cash tax payments.
On a US GAAP basis, net cash provided by operating activities increased by $106 million to $343 million (2009: $237 million). For a reconciliation of net cash provided by operating activities to Non GAAP cash generation and free cashflow, see page 25. 5
FOURTH QUARTER 2010 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
Products
VYVANSE – for the treatment of ADHD
? On November 10, 2010 Shire announced that the U.S. Court of Appeals for the District of Columbia Circuit affirmed the ruling of the U.S. District Court for the District of Columbia and the US Food and Drug Administration Authority (“FDA”) to grant five-year New Chemical Entity (“NCE”) exclusivity to lisdexamfetamine dimesylate. The five-year exclusivity period for VYVANSE expires on February 23, 2012. VYVANSE is further protected by United States patents, the first of which expires on June 29, 2023. Generic manufacturers cannot submit an Abbreviated New Drug Application (“ANDA”) to the FDA until February 23, 2011 at the earliest.
? On November 15, 2010 Shire announced that the FDA approved VYVANSE for the treatment of ADHD in adolescents aged 13 to 17.
? On November 25, 2010 Health Canada granted approval for VYVANSE for the treatment of ADHD in adolescents and adults.
REPLAGAL – for the treatment of Fabry disease
? REPLAGAL is the global market leader for the treatment of Fabry disease. Shire’s continuing priority is to ensure long term, uninterrupted treatment with REPLAGAL at the approved dose. New patients added in Q4 were a combination of treatment naïve patients and those who switched from the competing enzyme replacement therapy (“ERT”). The rate of addition was lower than Q3 2010, reflecting Shire’s high market share. Shire expects to have manufacturing capacity to continue uninterrupted treatment for all patients currently on REPLAGAL and to meet all anticipated demand from new and switch patients in 2011. Approval of the new manufacturing facility at LTP for REPLAGAL will allow greater inventory flexibility and Shire is working closely with the authorities toward approval.
VPRIV – for the treatment of Type 1 Gaucher disease
? Shire has seen rapid adoption of VPRIV worldwide. There are currently over 1,000 Gaucher patients being treated with VPRIV and initiation of treatment continues. Shire anticipates being able to accommodate additional Gaucher patients at a rate that takes into consideration the return of the competitor ERT product to the market in 2011. Approval of the new manufacturing facility at LTP for VPRIV will provide substantial additional capacity. Shire’s continuing priority is ensuring long-term, uninterrupted treatment for patients on VPRIV.
FIRAZYR – for the treatment of HAE
? In January 2011, the Committee for Medicinal Products for Human Use of the European Medicines Agency issued a positive opinion for a change in the FIRAZYR label in the EU to include self- administered subcutaneous injections in patients who are experiencing acute attacks of HAE.
Pipeline
VYVANSE – for the treatment of other non-ADHD indications
? On January 10, 2011 Shire announced results from a study of VYVANSE (lisdexamfetamine dimesylate (or SPD 489)) assessing its effect in a model for Excessive Daytime Sleepiness (“EDS”). In this investigational, single dose, single-site, randomized, placebo- and active-controlled study, VYVANSE was found to be statistically superior to placebo on both objective and subjective sleep measures. Statistical superiority to the active comparator 250 mg armodafinil was also found at higher VYVANSE doses. Shire plans to review potential development pathways with health authorities for VYVANSE as a possible EDS treatment option.
SPD 557 – for the treatment of refractory gastroesophageal reflux disease (“GERD”) ? SPD 557 (or M0003) is an orally active, potent, selective 5-HT4 receptor agonist. An exploratory Phase 2 program to investigate the effect of the product on reflux episodes in patients currently treated with proton pump inhibitors was initiated in Q4 2010. 6
FIRAZYR – for the treatment of HAE
? Prior to its acquisition by Shire, Jerini AG (“Jerini”) received a not approvable letter for FIRAZYR for use in the US from the FDA in April 2008. Shire agreed with FDA that an additional clinical study would be required before approval could be considered and that a complete response to the not approvable letter would be filed after completion of this study. Shire has now completed a Phase 3 study in patients with acute attacks of HAE, known as the FAST-3 trial, and anticipates submitting a complete response to the FDA in early 2011.
OTHER FOURTH QUARTER AND RECENT DEVELOPMENTS
Acquisition of Movetis NV
? On November 9, 2010 Shire announced that its wholly-owned subsidiary, Shire Holdings Luxembourg S.à.r.l., had finalized the acquisition of Movetis, and had acquired all of the issued shares and warrants of Movetis. Shares in Movetis have been delisted from Euronext Brussels.
DIVIDEND
For the six months to December 31, 2010 the Board has resolved to pay an interim dividend of 10.85 US cents per ordinary share (an increase of 17% over 2009: 9.25 US cents per ordinary share). Dividend payments will be made in Pounds Sterling to ordinary shareholders and in US Dollars to holders of American Depositary Shares. A dividend of 6.73 pence per ordinary share (2009: 5.91 pence) and 32.55 US cents per ADS (2009: 27.75 US cents) will be paid on April 7, 2011 to persons whose names appear on the register of members of the Company at the close of business on March 11, 2011. Together with the first interim payment of 2.25 US cents per ordinary share (2009: 2.147 US cents per ordinary share), this represents total dividends for 2010 of 13.10 US cents per ordinary share (2009: 11.397 US cents per ordinary share), an increase of 15% in US Dollar terms.
