DUBLIN, Oct. 23, 2015 /PRNewswire/ -- Shire (LSE: SHP, NASDAQ: SHPG) announces unaudited results for the three months to September 30, 2015.
Financial Highlights | Q3 2015 | Growth(1) | Non GAAP CER(1)(2) |
Product sales | $1,577 million | +2% | +6% |
Product sales excluding INTUNIV® | $1,559 million | +7% | +12% |
Total revenues | $1,655 million | +4% | +8% |
Non GAAP operating income | $725 million | +1% | +6% |
US GAAP operating income from continuing operations | $456 million | -20% | |
Non GAAP EBITDA margin (excluding royalties & other revenues)(3) | 43% | -3pps(4) | |
US GAAP net income margin(5) | 27% | -3pps | |
Non GAAP diluted earnings per ADS | $3.24 | +11% | +15% |
US GAAP diluted earnings per ADS | $2.29 | -6% | |
Non GAAP cash generation | $588 million | -4% | |
Non GAAP free cash flow | $539 million | -6% | |
US GAAP net cash provided by operating activities | $561 million | -5% | |
(1) Percentages compare to equivalent 2014 period.
(2) On a Constant Exchange Rate ("CER") basis, which is a Non GAAP measure.
(3) Non GAAP earnings before interest, tax, depreciation and amortization ("EBITDA") as a percentage of product sales, excluding royalties and other revenues.
(4) Percentage point change ("PPS").
(5) US GAAP net income as a percentage of total revenues.
The Non GAAP financial measures included within this release are explained on pages 30 - 31, and are reconciled to the most directly comparable financial measures prepared in accordance with US GAAP on pages 22 - 28.
Highlights:
- Q3 product sales growth of 7% excluding INTUNIV (12% on a Non GAAP CER basis) driven by strong performance from VYVANSE® and the Hereditary Angioedema ("HAE") portfolio, CINRYZE® and FIRAZYR®.
- NPS Pharmaceuticals' ("NPS") products continue to benefit from Shire's rare disease and gastrointestinal expertise, with the strong US launch of NATPARA® and GATTEX®/REVESTIVE® performing well.
- Strength of intellectual property surrounding VYVANSE affirmed; Court of Appeals for the Federal Circuit upholds lower court's summary judgment ruling that certain claims of the patents protecting VYVANSE are valid and infringed, preventing Abbreviated New Drug Application ("ANDA") defendants from launching generic versions of VYVANSE until patent expirations in 2023.
- Pipeline continues to advance, with European approval for INTUNIV and US Fast Track designation for the study of CINRYZE in antibody-mediated rejection ("AMR") for transplant recipients. Multiple Phase 3 trials expected to start Q4 2015/early-to-mid 2016, including SHP620 for cytomegalovirus ("CMV") infection in transplant patients, SHP621 for Eosinophilic Esophagitis ("EoE"), and CINRYZE in AMR.
- On October 16, 2015, the US Food and Drug Administration ("FDA") issued a complete response letter requesting an additional clinical study to support the new drug application for lifitegrast as a treatment for the signs and symptoms of dry eye disease in adults. An additional Phase 3 study, OPUS-3, has recently been completed, and topline results are expected before year-end; if positive, data from OPUS-3 will be used to support resubmission in the first quarter of 2016.
- Acquisition of Foresight Biotherapeutics further demonstrates Shire's commitment to building a leadership position in ophthalmology, with the potential for SHP640 (formerly FST-100) to become the first agent to treat both viral and bacterial conjunctivitis.
- Shire continues to believe the proposed Baxalta acquisition represents a highly strategic combination to create a global rare diseases leader delivering an expected $20 billion in sales by 2020, with an opportunity to create significant shareholder value.
Flemming Ornskov, M.D. Chief Executive Officer, commented:
"In the third quarter, Shire maintained momentum while advancing the pipeline and investing for the future. VYVANSE again performed strongly in the adult market and we continued to demonstrate leadership in rare diseases, with the growth of our HAE assets, CINRYZE and FIRAZYR, and the strong performance of the recently launched NPS products NATPARA and GATTEX/REVESTIVE. These recent launches and our ongoing success enable us to invest in future growth drivers, including several programs that are preparing to enter Phase 3 in the months ahead. As we progress our ambition to be a rare diseases leader, we continue to believe the proposed acquisition of Baxalta represents a highly strategic combination, delivering an expected $20 billion in sales by 2020 and a world-leading rare diseases portfolio. Based on the strength of our core business, we are reiterating our recently upgraded full year Non GAAP diluted EPS guidance of mid-to-high single digit growth."
FINANCIAL SUMMARY
Third Quarter 2015 Unaudited Results
Q3 2015 |
Q3 2014 | |||||||||||||
US GAAP | Adjustments | Non GAAP | US GAAP | Adjustments | Non GAAP | |||||||||
$M | $M | $M | $M | $M | $M | |||||||||
Total revenues | 1,655 | - | 1,655 | 1,597 | - | 1,597 | ||||||||
Operating income | 456 | 269 | 725 | 572 | 145 | 717 | ||||||||
Diluted earnings per ADS | $2.29 | $0.95 | $3.24 | $2.43 | $0.50 | $2.93 | ||||||||
- Product sales excluding INTUNIV were up 7% (up 12% on a Non GAAP CER basis), with strong growth from VYVANSE[1] (up 20% to $427 million), CINRYZE (up 29% to $188 million) and FIRAZYR (up 25% to $123 million). Products acquired with NPS continued to gain positive momentum with $43 million of GATTEX/REVESTIVE sales and $7 million of NATPARA sales.
As anticipated, product sales growth in Q3 2015 was also held back by approximately 4 percentage points due to foreign exchange headwinds from the strong US dollar, primarily affecting sales of ELAPRASE®, REPLAGAL® and VPRIV®. Sales of ELAPRASE and REPLAGAL were further negatively impacted by the timing of large shipments to markets which order less frequently. - Total product sales including INTUNIV were up 2% on Q3 2014 (up 6% on a Non GAAP CER basis) at $1,577 million (Q3 2014: $1,552 million), as total product sales in Q3 2015 were held back by significantly lower INTUNIV sales (down 81% to $18 million) following the introduction of generic competition from December 2014.
- Total revenues were up 4% to $1,655 million (Q3 2014: $1,597 million), as Q3 2015 benefited from higher royalties, primarily due to the inclusion of SENSIPAR® royalties acquired with NPS.
- On a Non GAAP basis:
Operating income increased 1% to $725 million (Q3 2014: $717 million) as a result of higher total revenues, partially offset by higher combined R&D and SG&A costs (up 5%). Compared to Q3 2014, R&D costs increased by 11% due to continued investment in existing pipeline programs including lifitegrast and the inclusion of NPS operating costs. SG&A costs increased by 3% due to the inclusion of NPS operating costs.
Non GAAP EBITDA margin (excluding royalties and other revenues) was 43%, down 3 percentage points compared to Q3 2014 (Q3 2014: 46%).
On a US GAAP basis (from continuing operations):
Operating income was down 20% to $456 million (Q3 2014: $572 million), as a result of higher net charges of approximately $60 million on the re-measurement of contingent consideration liabilities primarily in relation to the acquisition of Lumena Pharmaceuticals, Inc. ("Lumena"), and higher intangible asset amortization charges relating to assets acquired with NPS. - Non GAAP diluted earnings per American Depository Share ("ADS") increased 11% to $3.24 (Q3 2014: $2.93) primarily due to the higher Non GAAP operating income and a lower effective tax rate on Non GAAP income.
On a US GAAP basis diluted earnings per ADS decreased 6% to $2.29 (Q3 2014: $2.43) primarily due to lower US GAAP operating income. - Cash generation, a Non GAAP measure, was 4% lower at $588 million (Q3 2014: $612 million). Cash generation was lower due to the timing and quantum of operating expense payments including costs relating to integration and reorganization activities. Cash generation in Q3 2014 included payments of $59 million in respect of the final agreement with the US Government relating to previously disclosed civil investigations.
Free cash flow, a Non GAAP measure, was down 6% to $539 million (Q3 2014: $575 million) due to the effect of lower cash generation and higher interest and tax payments in Q3 2015 as compared to Q3 2014.
On a US GAAP basis, net cash provided by operating activities was down 5% to $561 million (Q3 2014: $593 million). - Net debt, a Non GAAP measure, at September 30, 2015 was $2,045 million (December 31, 2014: Net cash of $2,119 million) reflecting the use of cash and cash equivalents and borrowings incurred to fund the acquisition of NPS.
On a US GAAP basis, cash and cash equivalents were $45 million at September 30, 2015 (December 31, 2014: $2,982 million).
[1] Lisadexamfetamine dimesylate ("LDX") currently marketed as VYVANSE in the US & Canada, VENVANSE® in Latin America and ELVANSE® in certain territories in the EU for the treatment of Attention Deficit Hyperactivity Disorder ("ADHD") and in the US for the treatment of moderate to severe Binge Eating Disorder ("BED") in adults.
OUTLOOK
Following our performance in the first nine months of this year, we are reiterating our expectation that we will deliver Non GAAP diluted earnings per ADS growth in the mid-to-high single digits in 2015.
On a Non GAAP CER basis we continue to expect product sales growth in the high single digits. When excluding INTUNIV, we expect product sales to increase in the low teens on a Non GAAP CER basis.
On a reported basis, product sales are expected to grow 4-5%. The exchange rate impact is expected to be approximately 3-4% for the full year, most significantly impacting ELAPRASE, REPLAGAL and VPRIV sales.
We expect royalties and other revenues growth to end the year towards the upper end of our 45-55% guidance.
We continue to expect that our Non GAAP gross margin will be in line with 2014 (2014: 85.8%).
We continue to expect combined Non GAAP R&D and SG&A to increase in the high single digits.
We expect our Non GAAP net interest and other expense to be broadly in line with 2014 levels.
We continue to expect our effective tax rate on Non GAAP income to be in the range of 15-17%, before reverting to the 17-19% range in 2016 and beyond.
Taken together, we reiterate our full year Non GAAP diluted earnings per ADS guidance of mid-to-high single digit growth in 2015 (low double digit growth on a CER basis).
THIRD QUARTER 2015 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
Products
INTUNIV for the treatment of ADHD in the European Union
- On September 21, 2015 Shire announced that the European Commission granted Marketing Authorization for once-daily, non-stimulant INTUNIV (guanfacine hydrochloride prolonged release tablets) for the treatment of ADHD in children and adolescents 6 to 17 years old for whom stimulants are not suitable, not tolerated or have been shown to be ineffective. INTUNIV must be used as a part of a comprehensive ADHD treatment program, typically including psychological, educational and social measures.
Pipeline
SHP606 (lifitegrast) for the treatment of dry eye disease ("DED")
- On October 16, 2015 the FDA requested an additional clinical study as part of a complete response letter ("CRL") to the Company's new drug application for lifitegrast for the signs and symptoms of DED in adults. Shire has recently completed a Phase 3 study of lifitegrast, OPUS-3, that is expected to be the basis of Shire's response to the CRL. The FDA also requested more information related to product quality, which Shire will address in the CRL response. Topline results of OPUS-3 are expected before year-end and, if positive, the Company plans to submit these data as part of a resubmission to the FDA during the first quarter of 2016.
CINRYZE for the treatment of subcutaneous administration in HAE
- On October 16, 2015 Shire submitted an Investigational New Drug application for CINRYZE subcutaneous administration in HAE to the FDA. If accepted, Shire plans to initiate a Phase 3 program in Q4 2015.
FIRAZYR for the treatment of ACE inhibitor-induced Angioedema ("ACE-I AE")
- In September 2015, the CAMEO study which compared FIRAZYR versus placebo in patients with moderate-severe ACE-I AE did not meet its primary or key secondary endpoints. The primary efficacy endpoint, Time to Meeting Discharge Criteria, was not statistically different between treatment groups. The key secondary efficacy endpoint, Time to Onset of Symptom Relief, was not statistically different between treatment groups. Subgroup analysis demonstrated no significant treatment differences by age, race, attack severity, weight, body mass index, and geographic region. Based upon this data, Shire does not plan on pursuing further development of FIRAZYR in this indication.
OTHER THIRD QUARTER 2015 DEVELOPMENTS
Acquisition of Foresight Biotherapeutics Inc. ("Foresight")
- On August 3, 2015 Shire announced that it acquired New York-based, privately held Foresight for $300 million. With the acquisition, Shire acquired the global rights to FST-100 (now known as SHP640), a therapy in late-stage development for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. If approved FST-100 has the potential to become the first agent to treat both viral and bacterial conjunctivitis. This acquisition further strengthens Shire's late-stage pipeline and further demonstrates Shire's commitment to building a leadership position in ophthalmics.
Agreement with Sanquin Blood Supply
- On August 25, 2015 Shire announced it has entered into an agreement with Sanquin Blood Supply, the manufacturer of CINRYZE (C1 esterase inhibitor [human]), providing Shire access to its manufacturing technology and allowing Shire to source additional manufacturers to meet the growing demand for CINRYZE.
Agreement with Lumena
- On September 25, 2015 Shire reached agreement with the former shareholders of Lumena to terminate all future contingent milestone payments or obligations contemplated by the original share purchase agreement in exchange for $90 million. Shire is currently analyzing the results of Phase 2 trials for SHP625 in Primary Biliary Cirrhosis, Progressive Familial Intrahepatic Cholestasis and Alagille Syndrome as well as a Phase 1b multiple dose study in SHP626 for the treatment of nonalcoholic steatohepatitis and continues to assess a path forward for these programs.
Agreement with Sangamo
- On September 1, 2015 Shire and Sangamo BioSciences, Inc. ("Sangamo") agreed to revise the collaboration and license agreement originally entered into in January 2012 to expedite the development of ZFP Therapeutics for hemophilia A and B and Huntington's disease. Under the revised terms, Shire has returned to Sangamo the exclusive world-wide rights to gene targets for the development, clinical testing and commercialization of ZFP Therapeutics for hemophilia A and B, and has retained rights and will continue to develop ZFP Therapeutic clinical leads for Huntington's disease and a ZFP Therapeutic for one additional gene target. Each company will be responsible for expenses associated with its own programs and will reimburse the other for any ongoing services provided. Sangamo has granted Shire a right of first negotiation to license the hemophilia A and B programs. No milestone payments will be made on any program and each company will pay certain royalties to the other on commercial sales up to a specified maximum cap.
Proposed combination with Baxalta Incorporated
- On August 4, 2015 Shire announced that on July 10, 2015 it made a proposal to Baxalta Incorporated (NYSE: BXLT) to combine the companies. Shire continues to support this highly strategic combination to create a global rare disease leader delivering an expected $20 billion in sales by 2020, with an opportunity to create significant shareholder value.
Legal Proceedings
Appeals Court Affirms Shire's VYVANSE (lisdexamfetamine dimesylate) Patents Are Valid Until 2023
- On September 24, 2015 Shire announced that the Court of Appeals of the Federal Circuit had upheld the summary judgment ruling of the US District Court for the District of New Jersey that certain claims of the patents protecting VYVANSE (lisdexamfetamine dimesylate) are valid.
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