BASINGSTOKE, England and PHILADELPHIA, Pennsylvania, April 27 /PRNewswire-FirstCall/ --
Shire plc announces results for the first quarter 2006.
Q1 2006 Financial Highlights - Product sales of US$346.0 million up 28% (includes 10% from TKT) - Royalties of US$61.0 million up 5% - Total revenues of US$411.0 million up 23% (includes 8% from TKT) Matthew Emmens, Chief Executive Officer, said:
“In line with our expectations, Shire has made a good start to the year. Our products are performing well with sales up 28% and we have made excellent progress with our regulatory submissions.
“In Q2, we expect a response from the FDA for ELAPRASE, our treatment for Hunter Syndrome, and later in the year we are expecting the first response from the European Authorities. MESAVANCE, for Ulcerative Colitis is now filed with both the European and the US agencies with the US PDUFA date set for October 2006.
“The US ADHD market is performing as expected, with prescription growth at around 5%. We have now received approval for the US marketing of DAYTRANA, the first transdermal treatment for ADHD, and we are preparing for a mid-year launch.
“A court date is scheduled for October 30, 2006 for the litigation between Barr Laboratories, Inc. (Barr) and Shire in respect of ADDERALL XR. Meanwhile, we continue to negotiate with Barr on a possible settlement.
“We have a strong pipeline and are planning for the roll-out of five new products by mid-2007. There is good momentum in the business and we continue to anticipate revenue growth for 2006 in the low double digit range.”
Business highlights
ELAPRASE, for Hunter Syndrome. Filing of the Biologics License Application (BLA) was accepted for priority review with the US Food and Drug Administration (FDA). The PDUFA date is May 25, 2006.
MESAVANCE for Ulcerative Colitis. Filed with Health Canada in January 2006 and with the European authorities in February 2006.
IDB loan repayment. On February 10, 2006 the Company received notice from ID Biomedical Corporation (IDB) that it intended to repay, in full, all of its loan drawings for injectable flu development of US$70.6 million, together with accrued and capitalized interest of US$8.1 million. The Company received the US$78.7 million outstanding on February 14, 2006. The loan to IDB for pipeline development of US$29.4 million remains outstanding.
ADDERALL XR for Attention Deficit Hyperactivity Disorder (ADHD):
- In January 2006 all litigation with Impax Laboratories, Inc. (Impax) regarding Shire’s patents was settled. Patent litigation and settlement discussions with Barr continue.
- In January 2006 Shire received a third notice letter that Teva Pharmaceuticals, Inc. (Teva) had further amended its initial Abbreviated New Drug Application (ANDA) filed in January 2005, to seek permission to market the 25mg strength generic version of ADDERALL XR prior to the expiration of the Shire US patents, No’s 6,322,819 (“the ‘819 Patent”) and 6,605,300 (“the ‘300 Patent”). On March 2, 2006 Shire filed a lawsuit in the Eastern District of Pennsylvania alleging that all of Teva’s ANDA products infringe both the ‘819 and ‘300 Patents. The lawsuit will trigger a stay of FDA approval of Teva’s 25mg strength product for up to 30 months from the date of Shire’s receipt of Teva’s notice.
CARBATROL for Epilepsy:
- In January 2006 a promotional services agreement for the US market with Impax was signed. The agreement will take effect from July 2006.
- On March 30, 2006 the Company was notified that Corepharma LLC had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths. Shire is currently reviewing the details of the notice letter.
Recent events
- DAYTRANA for ADHD was approved by the FDA on April 6, 2006. As part of the agreement between Shire and Noven Pharmaceuticals, Inc. (Noven) for DAYTRANA, Shire paid US$50 million to Noven upon FDA approval in April 2006.
- ADDERALL XR - Citizen Petition. On April 20, 2006 Shire received correspondence from the FDA informing Shire that the FDA has not yet resolved the issues raised in Shire’s pending ADDERALL XR Citizen Petition. The correspondence states that, due to the complex issues raised requiring extensive review and analysis by the FDA’s officials, a decision cannot be reached at this time. The FDA’s interim response is in accordance with FDA regulations concerning Citizen Petitions.
Q1 2006 Unaudited Results 2006 2005 US Non US Non GAAP Adjustments GAAP(1) GAAP Adjustments GAAP(1) US$M US$M US$M US$M US$M US$M Revenues 411.0 - 411.0 333.7 - 333.7 Income from ongoing operations before income taxes (2) 23.5 75.9 99.4 17.9 52.9 70.8 Net income 61.1 14.0 75.1 15.4 35.0 50.4 Diluted earnings per: Ordinary 12.0c 2.7c 14.7c 3.1c 7.0c 10.1c Share ADS 35.9c 8.2c 44.1c 9.2c 21.0c 30.2c
Note: Average exchange rates for Q1 2006 and 2005 were US$1.75: GBP1.00 and US$1.89: GBP1.00 respectively.
(1) Non GAAP
These are non GAAP financial measures.
For 2006, this measure for net income excludes a net negative amount of US$14.0m as follows:
- Cost of product sales fair value adjustment following the acquisition of TKT: US$23.6m;
- New River milestone payment: US$50.0m; - TKT integration costs: US$2.3m; - Tax allowances on above adjustments: US$(21.3)m; - Income from discontinued operations: US$(40.6)m.
For 2005, this measure for net income excludes a net negative amount of US$35.0m as follows:
- New River upfront payment: US$50.0m;
- Reorganization costs resulting from Shire’s North American site consolidation: US$2.9m;
- Tax allowances on above adjustments: US$(14.8)m;
- Income from discontinued operations: US$(3.1)m.
On a pre-tax basis, excluding discontinued operations, the above non GAAP adjustments relating to ongoing operations total US$75.9m for 2006 and US$52.9m for 2005.
Management believes that the presentation of these non GAAP financial measures provides useful information to investors regarding Shire’s performance, as the excluded items are not indicative of the ongoing business in 2006 and 2005. A reconciliation of these non GAAP financial measures to the most directly comparable US GAAP financial measure can be found on page 23.
(2) Income from continuing operations before income taxes and equity method investees.
2006 Outlook
R&D pipeline and new product launches
Shire has a strong product pipeline to support the medium and long-term future growth of the Company. In 2006 and H1 2007 Shire anticipates that it will:
- Launch DAYTRANA in the US; - Launch ELAPRASE in the US and Europe; - Launch MESAVANCE in the US and Europe; - Launch NRP104 for ADHD in the US; - File SPD503 for ADHD with the FDA; - File SPD465 for ADHD with the FDA;
- Undertake additional pre-launch preparations and activities during Q4 2006 in order to maximize commercial opportunities for DYNEPO, a treatment for anemia in chronic renal failure, with a full European launch of this product during H1 2007;
- Continue the roll-out of FOSRENOL in Europe; and - Continue the launch of FOSRENOL higher strength formulations in the US. These timings are subject to the regulatory/government approvals process. Financial outlook
We reaffirm the previous guidance given as part of the 2005 year-end results, as follows:
The following statements are based on the assumption that there will be no generic launch of ADDERALL XR during 2006 and that prescription growth in the US ADHD market will be 5%.
We expect 2006 revenue growth to be in the low double-digit range.
As previously announced, earnings for 2006 will be impacted by the costs associated with the continued development and launch of five new products in 2006 and H1 2007, in addition to the roll-out of FOSRENOL across Europe and the new higher strengths of FOSRENOL in the US.
- These launches will require additional advertising and promotional spend and, in some cases, additional sales representatives. In addition, Shire will be seeking to maximize ADDERALL XR’s market share. Consequently, SG&A costs are expected to rise during the year to between US$770-800 million. The level of quarterly SG&A expenditure is expected to increase over the Q1 2006 spend as we recruit new US sales forces for GI (to launch Mesavance) and HGT (to launch Elaprase) as well as expanding the CNS sales force (to launch DAYTRANA);
- The planned regulatory filings, Phase 3(b) and Phase 4 studies to support new product launches, the transfer of two HGT projects into pre-clinical development and the commencement of Phase 3 trials on Gene Activated Glucocerebrosidase (GA-GCB), are expected to result in R&D spend in the range of US$310-330 million. The level of quarterly R&D expenditure is expected to increase over the Q1 2006 spend (excluding the NRP payment) as we commence new phase 3(b)/4 studies to support new product launches (including DAYTRANA and FOSRENOL);
- The depreciation and amortization charge for the year will increase by approximately 50% compared to 2005 reflecting the acquisition of TKT and the amortization of anticipated capitalized business development milestone payments; and
- The tax rate is expected to remain at a rate of approximately 28%.
The financial outlook for the full year stated above excludes the accounting impact under US GAAP of the following items, as previously announced:
- The milestone payment of US$50 million paid to New River Pharmaceuticals, Inc. (New River) in February 2006 following the FDA’s acceptance of the filing of NRP104. This has increased R&D expense in Q1 2006;
- A US GAAP adjustment of approximately US$50 million to reflect the difference between the accounting fair value and book value of acquired REPLAGAL inventory, of which US$23.6 million was charged in Q1 2006. This will increase cost of product sales;
- Shire HGT integration costs estimated at US$10 million in 2006, of which US$2.3 million was incurred in Q1 2006. This will increase SG&A costs; and
- The adoption from January 1, 2006 of US GAAP accounting standard SFAS 123R for share based compensation. This is expected to give rise to additional charges estimated at approximately US$45 million, which will be split between costs of product sales, R&D and SG&A in approximate ratios of 10%, 15% and 75% respectively. US$9.0 million was charged across these categories in Q1 2006 (2005: US$5.1 million adjusted retrospectively).
Including these items would result, under US GAAP, in an estimated increase in cost of product sales of US$50 million, R&D spend in the range of US$370-390 million and SG&A costs between US$810-840 million.
Any launch of a generic version of ADDERALL XR during 2006 would have a material impact on the Company’s performance and would materially impact the revenue growth guidance given above.
New Accounting Standard - SFAS 123R
Shire’s primary basis of financial reporting is US GAAP. From January 1, 2006 Shire has been required to adopt SFAS 123R in accounting for share-based compensation. This accounting standard applies a fair value methodology in quantifying the accounting charge associated with the grant of share-based compensation.
The Company has adopted SFAS 123R according to the modified retrospective method. As a result, comparatives including the accounting period for the year to December 31, 2005 have been retrospectively adjusted.
Notes to Editors
SHIRE plc
Shire’s strategic goal is to become the leading specialty pharmaceutical company that focuses on meeting the needs of the specialist physician. Shire focuses its business on central nervous system (CNS), gastrointestinal (GI), human genetic therapies (HGT) and general products (GP). The structure is sufficiently flexible to allow Shire to target new therapeutic areas to the extent opportunities arise through acquisitions. Shire believes that a carefully selected portfolio of products with a strategically aligned and relatively small-scale sales force will deliver strong results.
Shire’s focused strategy is to develop and market products for specialty physicians. Shire’s in-licensing, merger and acquisition efforts are focused on products in niche markets with strong intellectual property protection either in the US or Europe.
For further information on Shire, please visit the Company’s website: www.shire.com.
“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire’s results could be materially affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of pharmaceutical research, product development, manufacturing and commercialization; the impact of competitive products, including, but not limited to the impact of those on Shire’s Attention Deficit and Hyperactivity Disorder (ADHD) franchise; patents, including but not limited to, legal challenges relating to Shire’s ADHD franchise; government regulation and approval, including but not limited to the expected product approval dates of SPD503 (ADHD), SPD465 (ADHD), MESAVANCE (SPD476) (ulcerative colitis), ELAPRASE (idursulfase) (Hunter syndrome) and NRP104 (ADHD), including its scheduling classification by the Drug Enforcement Administration in the United States; Shire’s ability to benefit from the acquisition of Transkaryotic Therapies Inc.; Shire’s ability to secure new products for commercialization and/or development; and other risks and uncertainties detailed from time to time in Shire’s and its predecessor registrant Shire Pharmaceuticals Group plc’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2005.
The following are trademarks of Shire or companies within the Shire Group, which are the subject of trademark registrations in certain territories:
ADDERALL XR(R) (mixed salts of a single-entity amphetamine) ADDERALL(R) (mixed salts of a single-entity amphetamine) AGRYLIN(R) (anagrelide hydrochloride) CALCICHEW(R) range (calcium carbonate with or without vitamin D3) CARBATROL(R) (carbamazepine extended-release capsules) COLAZIDE(R) (balsalazide) DAYTRANA(TM) (methylphenidate transdermal system) ELAPRASE(TM) (idursulfase) EQUETRO(TM) (carbamazepine extended-release capsules) FOSRENOL(R) (lanthanum carbonate) GENE-ACTIVATED(R) (glucocerebrosidase) LODINE (R) (etodolac) MESAVANCE(TM) (mesalamine) REMINYL(R) (galantamine hydrobromide) (UK and Republic of Ireland) REMINYL XL(TM) (galantamine hydrobromide) (UK and Republic of Ireland) REPLAGAL(R) (agalsidase alfa) SOLARAZE(R) (3%, gel diclofenac sodium (3%w/w)) XAGRID(R) (anagrelide hydrochloride)
The following are trademarks of third parties referred to in this press issue:
3TC (trademark of GlaxoSmithKline (GSK)) DYNEPO (trademark of Aventis Pharma Holdings GmbH) PENTASA (trademark of Ferring AS) RAZADYNE (trademark of Johnson & Johnson) RAZADYNE ER (trademark of Johnson & Johnson)
REMINYL (trademark of Johnson & Johnson, excluding UK and Republic of Ireland)
REMINYL XL (galantamine hydrobromide) (trademark of Johnson & Johnson, excluding UK
and Republic of Ireland) ZEFFIX (trademark of GSK) OVERVIEW OF US GAAP FINANCIAL RESULTS 1. Introduction Summary of Q1 2006
Revenues from continuing operations for the three months to March 31, 2006 increased by 23% to US$411.0 million (2005: US$333.7 million), of which US$25.8 million was derived from the sales of REPLAGAL which was acquired with TKT.
Income from continuing operations (before income taxes and equity method investees) for the three months to March 31, 2006 was US$23.5 million (2005: US$17.9 million). Included in this amount was a US$50 million milestone payment to New River on acceptance of the filing of NRP104 with the FDA (2005: included an upfront payment to New River of US$50 million on initial signing of the in-licensing agreement).
Cash inflow from operating activities for the three months to March 31, 2006 increased by US$117.1 million to US$123.4 million (2005: US$6.3 million). Cash inflow between the two periods was affected by the timing of working capital payments. Cash and cash equivalents, restricted cash and short-term investments at March 31, 2006 totaled US$874.8 million (December 31, 2005: US$694.0 million).
This increase results mainly from positive cash flows from Shire’s operations during the quarter, and US$78.7 million received from IDB, being the repayment of US$70.6 million of the loan for injectable flu development out of the total US$100.0 million development loan provided to IDB as part of their acquisition of Shire’s vaccine business, plus interest of US$8.1 million.
2. Product sales
For the three months to March 31, 2006 product sales increased by 28% to US$346.0 million (2005: US$269.4 million) and represented 84% of total revenues (2005: 81%). Product Highlights Sales Sales US Rx US Market US$M Growth (2) Growth (1) (2) Share (1) Product ADDERALL XR 206.1 +42% +10% 26% CARBATROL 14.1 -17% -13% 42% PENTASA 28.1 +7% -1% 17% REPLAGAL (3) 25.8 n/a n/a n/a AGRYLIN and XAGRID North America (4) 1.4 -93% -90% 2% Rest of World 12.1 (5) 0% n/a n/a FOSRENOL 7.8 +59% +128% 9% (1) IMS Prescription Data-Product specific (March 2006) (2) Compared to Q1 2005
(3) REPLAGAL was acquired as part of the TKT acquisition in July 2005 and therefore there are no Shire comparatives. Sales of REPLAGAL by TKT in the 3 months ended March 31, 2005 were US$22.5 million
(4) Includes US and Canada
(5) The impact of foreign exchange movements contributed -6% to the reported growth
ADDERALL XR for the treatment of ADHD
ADDERALL XR is the leading brand in the US ADHD market with a market share of 26% in March 2006 (2005: 25%). The US ADHD market grew 5% overall compared to the same period in 2005. These factors contributed to a 10% growth in US prescriptions for ADDERALL XR for the three months to March 31, 2006 compared to the same period in 2005.
Sales of ADDERALL XR for the three months to March 31, 2006 were US$206.1 million, an increase of 42% compared to the same period in 2005 (2005: US$145.6 million). Product sales growth was higher than prescription growth due mainly to the impact of price increases in August 2005 and significantly lower levels of pipeline de-stocking compared with Q1 2005.
During October 2005 Shire filed a Citizen Petition with the FDA requesting that the FDA require more rigorous bioequivalence testing or additional clinical testing for generic or follow-on drug products that reference ADDERALL XR before they can be approved. Shire believes that these requested criteria will ensure that generic formulations of ADDERALL XR or follow-on drug products will be clinically effective and safe. In January 2006 Shire chose to file a supplemental amendment to its original Citizen Petition, which included additional clinical data in support of the original filing. On April 20, 2006 Shire received correspondence from the FDA informing Shire that the FDA has not yet resolved the issues raised in Shire’s pending ADDERALL XR Citizen Petition. The correspondence states that, due to the complex issues raised requiring extensive review and analysis by the FDA’s officials, a decision cannot be reached at this time. The FDA’s interim response is in accordance with FDA regulations concerning Citizen Petitions.
On February 9, 2006 an FDA Advisory Committee recommended to the FDA that risk information about cardiovascular events be included in a “black box warning” for all stimulant medicines used to treat ADHD. In making its recommendation, the Advisory Committee recognized that the reported incidence rates of the rare serious cardiovascular adverse events that were discussed by the Committee are generally within the rates that would be expected from the untreated general population. ADDERALL XR and ADDERALL already include a “black box warning” in their labels for safety concerns related to amphetamine abuse or misuse and also warn of the risk of sudden death in patients with structural cardiac abnormalities. On March 22, 2006 another FDA Advisory Committee met and discussed the same issue, as well as psychiatric adverse events for all medicines used to treat ADHD. This second Advisory Committee determined that a “black box warning,” as recommended at the February 9, 2006 meeting, was not warranted. In addition, this second Advisory Committee recommended that increased warnings for certain psychiatric events should be incorporated as class labeling for all ADHD medicines. The FDA is not obligated to follow the recommendations of the Advisory Committees. Shire will work with the FDA to continue to ensure that the prescribing information for ADDERALL and ADDERALL XR is appropriate and takes into account the available safety data.
In October 2005 Shire announced that it had filed a lawsuit against Barr and Impax with respect to US patent No. 6,913,768 (‘768). Shire believes that both Barr’s and Impax’s generic ADDERALL XR products infringe the ‘768 patent claims. The case was filed in the Southern District of New York. On January 19, 2006 Shire settled all of its ADDERALL XR patent infringement lawsuits with Impax. There will be no 30-month stay associated with the filing of the ‘768 patent case. The ‘768 patent is directed to pharmaceutical compositions comprising a once-a-day sustained release formulation of at least one amphetamine salt for the treatment of ADHD. Barr has moved to dismiss the ‘768 lawsuit action asserting that there is no subject matter jurisdiction. A hearing on this motion was held on February 17, 2006. No decision has yet been made. The earlier filed case against Barr involving the ‘819 and ‘300 patents is scheduled to go to trial on October 30, 2006.
Further information can be found in our filings with the US Securities and Exchange Commission, including our Annual Report on Form 10-K for the year to December 31, 2005.
CARBATROL for the treatment of Epilepsy
US prescriptions for the three months to March 31, 2006 were down 13% compared to the same period in 2005. This was primarily due to limited promotion of the product and supply constraints during 2005 leading to a 3% decrease in Shire’s market share of the total US extended release carbamazepine prescription market to 42% in March 2006 (2005: 45%) and a 6% decrease in that market as a whole.
Sales of CARBATROL for the three months to March 31, 2006 were US$14.1 million, a decrease of 17% compared to the same period in 2005 (2005: US$16.9 million). The difference between the decrease in sales and the lower levels of prescriptions is due to higher sales deductions in Q1 2006.
Patent litigation proceedings with Nostrum Pharmaceuticals, Inc. (Nostrum) relating to CARBATROL are ongoing. No trial date has been set. Nostrum’s 30-month stay under the Hatch-Waxman Act expired on February 6, 2006. Accordingly, the FDA may approve Nostrum’s ANDA.
On March 30, 2006 the Company was notified that Corepharma LLC had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths. Shire is currently reviewing the details of the notice letter.
Further information can be found in our filings with the US Securities and Exchange Commission, including our Annual Report on Form 10-K for the period ended December 31, 2005.
PENTASA for the treatment of Ulcerative Colitis
PENTASA had a 17% share of the total US oral mesalamine prescription market in March 2006 (March 2005: 18%), a market that grew 4% compared with the same period in 2005. US prescriptions for the three months to March 31, 2006, were down 1% compared to the same period in 2005, due to reduced promotional activity in Q1 2006.
Sales of PENTASA for the three months to March 31, 2006 were US$28.1 million, an increase of 7% compared to the same period in 2005 (2005: US$26.2 million). The difference between sales growth and the lower levels of prescriptions is due to the impact of the January 2006 price increase and a change in the product sales mix from the 250mg to 500mg dose strength.
REPLAGAL for the treatment of Fabry Disease
REPLAGAL was acquired by Shire as part of the TKT acquisition, which was completed on July 27, 2005. Product sales for the three months to March 31, 2006 were US$25.8 million. The majority of REPLAGAL sales are in Europe. Pre-acquisition sales for the three months to March 31, 2005 were US$22.5 million. The increase in sales of 15% is primarily due to greater European coverage by an increased number of sales representatives.
AGRYLIN/XAGRID for the treatment of Thrombocythemia
AGRYLIN/XAGRID sales worldwide for the three months to March 31, 2006 were US$13.5 million, down 58% compared to the same period in 2005 (2005: US$32.0 million).
North American sales were US$1.4 million (2005: US$19.9 million). This reduction was expected following the approval of generic versions of AGRYLIN in the US market in April 2005.
For the Rest of the World (all sales outside North America) sales were US$12.1 million, (2005: US$12.1 million). The impact of unfavorable exchange rate movements during the quarter offset a 6% increase in sales as expressed in the transaction currencies (XAGRID is primarily sold in Euros).
FOSRENOL for the treatment of Hyperphosphatemia
US prescriptions for the three months to March 31, 2006 were up 128% compared to the same period in 2005. This was primarily due to FOSRENOL increasing its share of the total US phosphate binding market, which in March 2006 was 9% (2005: 6%), in a market that had itself grown 10% over the same period. FOSRENOL was launched in the US in January 2005.
Sales of FOSRENOL for the three months to March 31, 2006 were US$7.8 million, an increase of 59% compared to the same period in 2005. The difference between sales growth and prescription growth is due mainly to a decrease in pipeline inventory as the new higher dose strengths launch stocks shipped to wholesalers in the US in December 2005 were sold in Q1 2006, and higher sales deductions.
FOSRENOL was launched in Austria, Ireland, Sweden and Denmark in December 2005. Shire continues its discussions relating to FOSRENOL with regulatory authorities and reimbursement agencies across Europe and other regions and further launches are expected in European markets over the next few months, subject to obtaining national approvals and concluding pricing and reimbursement negotiations.
3. Royalties
Royalty revenue increased by 5% to US$61.0 million for the three months to March 31, 2006 (2005: US$58.3 million), as a result of growth in sales.
Royalty Highlights Worldwide in-market sales by licensee(2) Royalties to Royalty growth(1) in 2005 Shire % US$M Product US$M 3TC 39.5 0% (x) 305 ZEFFIX 7.7 +18% (x) 67 Other 13.8 +11% n/a Total 61.0 5% n/a
(x) The impact of foreign exchange movements has contributed -2% to the reported growth
1. Compared to Q1 2005
2. GSK
3TC
Royalties from sales of 3TC for the three months to March 31, 2006 were US$39.5 million (2005: US$39.4 million). This increase was due to the continued growth in the nucleoside analog market for HIV, offset by the impact of unfavorable exchange rate movements during the quarter.
Shire receives royalties from GSK on worldwide 3TC sales. GSK’s worldwide sales of 3TC for the three months to March 31, 2006 were US$305 million, an increase of 2% compared to the same period in 2005 (2005: US$298 million).
ZEFFIX
Royalties from sales of ZEFFIX for the three months to March 31, 2006 were US$7.7 million (2005: US$6.5 million). This increase was primarily due to strong growth in the Chinese, Japanese and Korean markets.
Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK’s worldwide sales of ZEFFIX for the three months to March 31, 2006 were US$67 million, an increase of 20% compared to the same period in 2005 (2005: US$56 million).
OTHER
Other royalties are primarily in respect of REMINYL and REMINYL XL (now marketed as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwide by Janssen Pharmaceutical N.V. (Janssen), an affiliate of Johnson and Johnson, with the exception of the United Kingdom and the Republic of Ireland where Shire previously co-promoted REMINYL with Janssen and acquired the exclusive marketing rights from May 2004.
Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer’s type, are growing well in the Alzheimer’s market.
4. Financial details
Cost of product sales
For the three months to March 31, 2006 the cost of product sales amounted to 18% of product sales (2005: 12%). The decrease in gross margin is primarily due to the addition of REPLAGAL to Shire’s product portfolio following the acquisition of TKT. REPLAGAL’s cost of product sales relates entirely to acquired inventories, which in accordance with US GAAP have been accounted for at fair value, estimated to be 97% of the expected sales price of REPLAGAL. Accordingly, little or no margin will be reflected for REPLAGAL sales until all acquired finished goods have been sold (anticipated Q3 2006). For the three months to March 31, 2006 the cost of product sales for REPLAGAL included a US$23.6 million adjustment in respect of the acquired inven
