The Non GAAP financial measures included within this release are explained on page 20, and are reconciled to the most directly comparable financial measures prepared in accordance with US GAAP on pages 17 - 19.
Angus Russell, Chief Executive Officer, commented:
"Shire delivered a strong first quarter with product sales from our diverse portfolio up 24%. Non GAAP diluted earnings per ADS increased 22% in the quarter. Sales of our ADHD treatments INTUNIV, VYVANSE and ADDERALL XR were all up and the overall ADHD market in the US showed good growth (13%). GI sales performed well in the first quarter, driven by LIALDA.
Our rare disease treatments, particularly VPRIV and REPLAGAL, continued their success around the world with strong growth and represent 30% of our total product sales.
This quarter we were granted FDA approval of INTUNIV as adjunctive therapy to stimulants for ADHD, we filed our US complete response for FIRAZYR and were granted European approval for FIRAZYR self-administration. Our new HGT manufacturing site in Massachusetts is progressing as planned and we've now filed for European approval of REPLAGAL in this facility.
The successful advancement of our pipeline is driving increased investment in research and development. Early data from exploratory clinical trials for VYVANSE in potential new uses is very encouraging, including the most recent findings in negative symptoms of schizophrenia, announced today. We have further plans for a study in binge eating disorder as well as the progression of our phase 3 program in major depressive disorder. Our Carrier Wave Guanfacine program continues to make progress. We anticipate further pipeline news this year.
We have made a strong start to 2011, which underpins our previously stated financial guidance."
- Product sales were up 24% to $889 million (Q1 2010: $718 million), driven by growth from VYVANSE(R) (up 31% to $202 million), LIALDA(R)/MEZAVANT (R) (up 37% to $87 million), REPLAGAL(R) (up 55% to $105 million) and VPRIV (R) (up $53 million to $59 million). On a constant exchange rate ("CER") basis, which is a Non GAAP measure, product sales were up 24%.
- Total revenues were up 19% (CER: up 19%) to $972 million (Q1 2010: $816 million). Increased product sales were partially offset by lower royalties (down 23% to $74 million), due to lower royalty income from Impax Laboratories Inc's ("Impax") authorized generic version of ADDERALL XR(R) (down 59% to $17 million) as Q1 2010 included royalties on launch shipments not repeated in 2011.
- Non GAAP operating income was up 15% to $306 million (Q1 2010: $265 million). Higher total revenues were partially offset by higher operating costs in Q1 2011, as we have chosen to increase investment in research and development ("R&D") to sustain the progression of our pipeline. In the first quarter, we have increased selling, general and administrative ("SG&A") expenditure to support our ongoing international expansion and anticipated future growth, and we also absorbed a full quarter's operating costs for Movetis and our commercial hub in Switzerland. On a US GAAP basis, operating income was up 22% to $267 million (Q1 2010: $218 million).
- Non GAAP diluted earnings per ADS were up 22% to $1.23 (Q1 2010: $1.01), principally due to higher Non GAAP operating income and a lower quarterly Non GAAP effective tax rate of 22%. On a US GAAP basis, diluted earnings per ADS were up 25% to $1.11 (Q1 2010: $0.89).
- Cash generation, a Non GAAP measure, decreased by $68 million to $208 million (Q1 2010: $276 million). Cash generation in Q1 2011 was impacted by the timing and quantum of sales deduction payments, particularly for Medicaid, and lower Impax royalty receipts (Q1 2010 included royalty receipts for Impax's initial Q4 2009 stocking). The effect of these items, together with the increase in operating expenditure, more than offset increased cash receipts from higher product sales in Q1 2011.
Free cash flow, also a Non GAAP measure, increased by $12 million to $155 million (Q1 2010: $143 million) as lower cash generation was more than compensated by lower cash tax payments in Q1 2011 compared to Q1 2010.
On a US GAAP basis, net cash provided by operating activities increased by $16 million to $202 million (Q1 2010: $186 million).
- Net debt at March 31, 2011 was $365 million (December 31, 2010: $531 million), a reduction of $166 million over the quarter.
2011 OUTLOOK
We have made a strong start to 2011, which underpins our previously stated financial guidance.
For the full year 2011 we continue to expect good product sales growth, in line with the growth rate achieved in 2010, driven by our young product portfolio, offsetting the impact of the sale of DAYTRANA last year. We expect total royalty and other revenues to be down 10% compared to 2010. Gross margins we anticipate being at a similar percentage of product sales for the full year 2011 as seen in the first quarter.
We have identified significant opportunities for future growth both by advancing our pipeline and continuing the international expansion of our portfolio. As we support this growth, increase investment behind the positive progression of our pipeline and absorb a full year of Movetis's operating activities and the limited impact of US Healthcare reform, we expect the increase in combined Non GAAP R&D and SG&A compared to 2010 to be at the upper end of the 10 to 13% range. We continue to expect our Non GAAP effective tax rate to be between 22 and 24%.
Overall, the further operational leverage we expect to achieve will 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
- EQUASYM(R) for the treatment of ADHD in certain European countries;
- RESOLOR(R) 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(R) for the symptomatic treatment of acute attacks of hereditary angioedema ("HAE") in the US and certain European and Latin American countries.
SIGNIFICANT LABEL CHANGES
- LIALDA(R) for the maintenance of remission of ulcerative colitis in the US.
FIRST QUARTER 2011 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
Products
VYVANSE/VENVANSETM - for the treatment of ADHD
- On April 18, 2011 Shire launched VENVANSE for the treatment of ADHD in children in Brazil, the first launch of lisdexsamfetamine dimesylate (marketed as VYVANSE in the US) outside of North America.
LIALDA - for the treatment of ulcerative colitis
- On February 10, 2011 Health Canada granted approval of LIALDA for the maintenance of remission of ulcerative colitis.
INTUNIV(R) - for the treatment of ADHD
- On February 28, 2011 Shire announced that the US Food and Drug Administration ("FDA") had approved the use of once-daily INTUNIV extended-release tablets as adjunctive therapy to stimulants for the treatment of ADHD in children and adolescents aged 6 to 17 as part of a total treatment program.
REPLAGAL - for the treatment of Fabry disease
- REPLAGAL remains the global market leader for the treatment of Fabry disease. Shire expects to have manufacturing capacity to continue uninterrupted treatment for all patients currently on REPLAGAL and to continue to meet anticipated demand from new and switch patients in 2011.
- In April 2011, Shire filed for approval in Europe of the new manufacturing facility in Lexington, MA for the production of REPLAGAL. Approval will allow greater manufacturing flexibility. Shire has already cleared an important milestone with the successful inspection of the facility by European authorities in support of this submission.
VPRIV - for the treatment of Type 1 Gaucher disease
- Shire has seen rapid adoption of VPRIV worldwide, with market share of 34% in the US and 18% globally, and patients continue to initiate treatment. Approval of the new manufacturing facility in Lexington for VPRIV will provide substantial additional capacity; process validation runs are currently ongoing. Shire's continuing priority is to ensure long-term, uninterrupted treatment for patients on VPRIV.
FIRAZYR - for the treatment of HAE
- On March 3, 2011 Shire announced that the European Commission had approved FIRAZYR for self-administrated subcutaneous injections. FIRAZYR is the first and only treatment for acute Type I and Type II HAE attacks licensed for self-administration in Europe.
- On March 21, 2011 Shire announced that the FDA had assigned a Prescription Drug User Fee Act date of August 25, 2011 for the review of the New Drug Application ("NDA") for FIRAZYR. This followed Shire's submission of a complete response to the not approvable letter issued by the FDA regarding the NDA for FIRAZYR submitted by Jerini AG.
Pipeline
VYVANSE - for the treatment of other non-ADHD indications
- Data from a recently completed Phase 2 proof-of-concept clinical trial indicates a statistically significant improvement in negative symptoms of schizophrenia. In this 14-week, flexible dose, multi-center study with open-label and double-blind components, VYVANSE was administered as adjunctive therapy to clinically stable patients with predominant negative symptom schizophrenia and taking established maintenance doses of atypical antipsychotic medications, using an open-label, rater-blinded design. VYVANSE was well tolerated, and not associated with notable worsening of positive symptoms, or new vital sign, laboratory or ECG findings. No rebound or negative or withdrawal symptoms were found in the subsequent placebo-controlled, double-blind withdrawal portion of the study.
RESOLOR - for the treatment of opioid-induced constipation
- A Phase 3 clinical program has been initiated to assess the safety and efficacy of RESOLOR in the treatment of opioid-induced constipation in patients with chronic, non-cancer pain.
OTHER FIRST QUARTER DEVELOPMENTS
Paragraph IV Notice Letter for ADDERALL XR
- In February 2011, Shire was notified by Watson Laboratories, Inc. ("Watson") that it had submitted an Abbreviated New Drug Application ("ANDA") under the Hatch-Waxman Act seeking permission to market a generic version of all approved strengths of ADDERALL XR. This new ANDA is not covered under the existing settlement agreements entered into in November 2007 between Shire and Watson (the "Settlement Agreements"). The Settlement Agreements cover a different ANDA and do not provide any license for Watson to sell the products covered in Watson's new ANDA. On April 5, 2011 Shire filed a lawsuit in the U.S. District Court for the Southern District of New York against Watson and its subsidiaries for infringement of certain of Shire's ADDERALL XR patents and also for breach of contract in connection with the Settlement Agreements. The filing of the lawsuit triggered a stay of approval of this ANDA for up to 30 months. No trial date has been set.
