BASINGSTOKE, England and PHILADELPHIA, Pennsylvania, July 28 /PRNewswire-FirstCall/ -- Shire plc announces results for the second quarter 2006 and confirms good progression in drugs pipeline.
Matthew Emmens, Chief Executive Officer, said:
"Shire continues to deliver in line with our expectations and we're making good progress with our pipeline. The reaction from patients and physicians to the newly launched DAYTRANA, our Attention Deficit Hyperactivity Disorder (ADHD) patch, has been very positive. Earlier this week, we received Food and Drug Administration (FDA) approval to launch ELAPRASE in the US. This is a significant milestone in the advancement of our Human Genetic Therapies' (HGT) business and is the result of our commitment to provide meaningful treatments for patients suffering from genetic diseases. The European launch of FOSRENOL, a treatment for hyperphosphatemia, is also going well and we are looking to the continued roll-out of this product in the larger European markets during the second half.
"During the second half, we expect decisions from the FDA for NRP104 (October 6) and MESAVANCE (October 21) and from the European authorities for ELAPRASE (December 1). Our development pipeline remains on track with SPD465, a treatment for adult ADHD, filed with the FDA (21 July) and SPD503 (non-stimulant, pediatric ADHD) due to be filed in Q3.
"Discussions are progressing with Barr Laboratories Inc. (Barr) for possible settlement of the ADDERALL XR litigation, prior to the scheduled court date of October 30, 2006. The FDA is still reviewing our Citizen Petition and to date has not awarded any tentative or final approvals to generic copies of ADDERALL XR.
"We reiterate our previously stated guidance of revenue growth for 2006 to be in the low double-digit range and costs to be within the previously indicated ranges."
Q2 2006 Financial Highlights
- Product sales of $376.0 million up 7% (28% growth in Q1 2006).
- Total revenues of $439.1 million up 3% (23% growth in Q1 2006).
- The lower revenue growth rate in Q2 2006 results from wholesaler de-stocking in Q1 2005 and re-stocking in Q2 2005 following the signing of a wholesaler fee for service agreement in March 2005. Revenue growth for the year to date of 12% is a better indicator of revenue performance and is consistent with guidance for the full year 2006.
Business highlights
DAYTRANA (ADHD)
- Approved by the FDA on April 6, 2006 and launched in the US in June 2006 in 10mg, 15mg, 20mg and 30mg dosage strengths.
- Approval triggered a payment of $50 million to Noven Pharmaceuticals, Inc. (Noven). This amount has been capitalized, and together with an upfront milestone payment of $25 million, will be amortized over a 10 year period.
Recent events
ELAPRASE (Hunter syndrome)
- Approved by the FDA on July 24. Launch of ELAPRASE in the US is expected to occur during August.
- The product has a seven-year orphan drug marketing exclusivity in the US.
- Second product to reach the market from the TKT acquisition and the first launched under Shire ownership.
SPD465 (ADHD)
- Filed with the FDA on July 21, 2006.
New Management Committee
Recently we have re-organized our business into two areas: HGT and Specialty Pharmaceuticals. David Pendergast and Mike Cola have been appointed President, HGT and President, Specialty Pharmaceuticals respectively. The Executive Committee has been superseded by a new Senior Management Committee to steer the implementation of Shire's strategy. This is chaired by CEO, Matthew Emmens and comprises CFO, Angus Russell and the two Presidents of Shire's businesses.
New Non Executive Director
Kate Nealon has joined the Shire Board as a Non Executive Director and a member of the Remuneration Committee.
Kate Nealon was Group Head of Legal & Compliance at Standard Chartered plc until 2003. She now holds Non-Executive Director positions with HBOS plc, Cable & Wireless plc and Monitor, the independent regulator for NHS foundation trust hospitals in the UK. Ms Nealon is also a Senior Associate at the Judge Business School at Cambridge University.
Ms Nealon, who lives in London, UK, is a lawyer and spent fifteen years in her early career practising law in New York and is a graduate of Georgetown University, Washington DC.
Q2 2006 Unaudited Results Q2 2006 Q2 2005 US GAAP Non GAAP(1) US GAAP Non GAAP(1) $M Adjustments $M $M Adjustments* $M $M $M _______ ___________ _________ _______ ____________ _______ Revenues 439.1 - 439.1 424.6 - 424.6 Income from ongoing operations (2) 83.8 18.3 102.1 145.0 - 145.0 Net income 61.3 13.2 74.5 109.9 - 109.9 Diluted earnings per: Ordinary 12.0c 2.6c 14.6c 22.0c - 22.0c Share ADS 36.1c 7.8c 43.9c 65.9c - 65.9c
Note: Average exchange rates for Q2 2006 and 2005 were $1.83: GBP1.00 and $1.86: GBP1.00 respectively.
(1) Non GAAP
These are non GAAP financial measures.
For 2006, this measure for net income excludes costs of $13.2 million as follows:
- Cost of product sales fair value adjustment on acquisition of TKT: $16.7 million;
- TKT integration costs: $1.6 million; and
- Tax allowances on above adjustments: $(5.1) million.
* For 2005, there were no non GAAP adjustments in Q2.
On a pre-tax basis, the above non GAAP adjustments relating to ongoing operations total $18.3 million for 2006 and nil for 2005.
The non-GAAP financial measures presented in the above table are used by Shire management to gain an understanding of the comparative performance of the Company. These measures are presented in order to provide supplemental information regarding the operational performance of the Company to enhance investors' understanding of core financial performance. A reconciliation of these non GAAP financial measures to the most directly comparable US GAAP financial measure can be found on page 24.
(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 H2 2006 and H1 2007 Shire anticipates that it will:
- Launch ELAPRASE in the US and Europe; - Launch MESAVANCE in the US and in Europe; - Launch NRP104 (ADHD) in the US; - Launch DYNEPO in Europe; - File SPD503 (ADHD) with the FDA; - Continue the roll-out of FOSRENOL in Europe; and - Continue the launch of DAYTRANA in the US.
Timings of launches are subject to the regulatory/government approvals process.
Financial outlook
We reaffirm the previous guidance given as part of the Q1 2006 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, including DAYTRANA, 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. Also, Shire will be seeking to maximize ADDERALL XR's market share. As a result, SG&A costs are expected to rise during the year to between $770-800 million for the full year. The level of quarterly SG&A expenditure is expected to increase over the Q2 2006 spend as we reflect a full quarter's cost for the new US sales forces for GI (to launch MesavanCE) and HGT (to launch Elaprase);
- 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 $310-330 million. The level of quarterly R&D expenditure is expected to increase over the Q2 2006 spend as we commence phase 3(b)/4 studies to support new product launches (including DAYTRANA, FOSRENOL and MESAVANCE);
- 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 capitalized business development milestone payments; and
- The tax rate for the full year 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 $50 million paid to New River Pharmaceuticals, Inc. (New River) in February 2006 following the FDA's acceptance of the filing of NRP104. This increased R&D expense in Q1 2006;
- A US GAAP adjustment to cost of product sales, of approximately $50 million to reflect the difference between the accounting fair value and book value of acquired REPLAGAL inventory, of which $40.3 million was charged in H1 2006;
- Shire HGT integration costs estimated at $7 million in 2006, of which $3.9 million was incurred in H1 2006; 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 $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. $16.7 million was charged across these categories in H1 2006 (2005: $13.0 million adjusted retrospectively).
Including these items would result, under US GAAP, in an estimated increase in cost of product sales of $50 million, R&D spend in the range of $370-390 million and SG&A and integration costs between $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 share-based compensation.
The Company has adopted SFAS 123R according to the modified retrospective method. As a result, comparatives, including accounting periods in 2005, have been retrospectively adjusted.
Dividend
In respect of the six months ended June 30, 2006, the Board resolved to pay an interim dividend of 1.9346 US cents per ordinary share (2005: 1.8246 US cents per share).
Dividend payments will be made in Pounds Sterling to Ordinary Shareholders, US Dollars to ADS holders and Canadian Dollars to Exchangeable Shareholders. A dividend of 1.0475 pence per ordinary share, 5.8038 US cents per ADS and 6.5844 Canadian cents per Exchangeable Share respectively will be paid. The Board resolved to pay the dividend on October 12, 2006 to persons whose names appear on the register of members of the Company (or to persons registered as holders of Exchangeable Shares in Shire Acquisition Inc.) at the close of business on September 15, 2006.
This is consistent with Shire's stated policy of paying a dividend semi-annually, set in US cents per share / ADS. Dividend growth for the full year will be reviewed by the Board when the second interim dividend is determined. Shire intends to pursue a progressive dividend policy.
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 attention deficit and hyperactivity disorder (ADHD), human genetic therapies (HGT), gastrointestinal (GI) and renal diseases. 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 (ulcerative colitis) 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 and its most recent Quarterly Report filed on Form 10-Q for the financial period ended on March 31, 2006.
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) 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(R) (epoetin delta) 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 Q2 2006
Revenues from continuing operations for the three months to June 30, 2006 increased by 3% to $439.1 million (2005: $424.6 million).
Income from continuing operations (before income taxes and equity method investees) for the three months to June 30, 2006 was $83.8 million (2005: $145.0 million). This reduction was expected following the increase in sales costs and promotional spend related to the pre-launch activities of DAYTRANA and ELAPRASE.
Cash inflow from operating activities for the three months to June 30, 2006 was $137.4 million (2005: $181.2 million). This reduction related primarily to the decrease in income from continuing operations referred to above. Cash and cash equivalents, restricted cash and short-term investments at June 30, 2006 totaled $916.1 million (December 31, 2005: $694.0 million).
2. Product sales
For the three months to June 30, 2006 product sales increased by 7% to $376.0 million (2005: $351.6 million) and represented 85% of total revenues (2005: 83%). Product Highlights Sales Sales Growth US Rx Growth US Market (2) (2) Share (1) Product $M ADDERALL XR 220.7 +7% +8% 26% CARBATROL 16.2 -25% -10% 42% PENTASA 34.5 +11% -4% 17% REPLAGAL (3) 28.3 n/a n/a n/a AGRYLIN and XAGRID North America (4) 2.0 -88% -88% 2% Rest of World 14.1 +14% n/a n/a FOSRENOL 6.2 -38% +23% 8% (1) IMS Prescription Data-Product specific (June 2006) (2) Compared to Q2 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 June 30, 2005 were $22.6 million
(4) Includes US and Canada
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 June 2006 (2005: 24%). The US ADHD market grew 2% overall compared to the same period in 2005. These factors contributed to an 8% increase in US prescriptions for ADDERALL XR for the three months to June 30, 2006 compared to the same period in 2005.
Sales of ADDERALL XR for the three months to June 30 2006 were $220.7 million, an increase of 7% compared to the same period in 2005 (2005: $205.4 million). Product sales growth was marginally less than prescription growth, with the August 2005 and April 2006 price increases being offset by higher sales deductions and lower levels of pipeline stocking compared with Q2 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.
As previously disclosed in the Quarterly Report filed on Form 10-Q for the financial reporting period ending March 31, 2006, two FDA Advisory Committees met in February and March 2006 to discuss cardiovascular and psychiatric adverse events associated with ADHD medicines. In May 2006, the FDA sent revised labels to manufacturers of ADHD stimulant medicines, changing on a class basis the safety warnings related to cardiovascular and psychiatric events. The FDA did not make changes to the existing black box warning or add new black box warnings to the medicines. Shire has revised the labels on all its ADHD medicines (ADDERALL XR, ADDERALL and DAYTRANA) to include these class warnings.
As previously disclosed in the Quarterly Report filed on Form 10-Q for the financial reporting period ending March 31, 2006, Shire announced in October 2005 that it had filed a lawsuit against Barr Laboratories, Inc. (Barr) with respect to Patent No. 6,913,768 (the '768 Patent). Barr moved to dismiss the '768 Patent lawsuit asserting that there was no subject matter jurisdiction. A hearing on this motion was heard on February 17, 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 and our most recent Quarterly Report on Form 10-Q for the period ended March 31, 2006.
CARBATROL for the treatment of Epilepsy
US prescriptions for the three months to June 30, 2006 were down 10% compared to the same period in 2005. This was primarily due to a 7% decrease in the US extended release carbamazepine prescription market. In addition, limited promotion of the product during 2006 led to a 1% decrease in Shire's market share to 42% in June 2006 (2005: 43%).
Sales of CARBATROL for the three months to June 30, 2006 were $16.2 million, a decrease of 25% compared to the same period in 2005 (2005: $21.8 million). The difference between the decreases in sales and prescriptions is due to the lower levels of pipeline stocking compared with Q2 2005, being only partially offset by a price increase in October 2005.
In July 2006 Impax Laboratories, Inc. (Impax) deployed a sales force to begin promotion of CARBATROL under the promotional services agreement for the US market signed in January 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, once it meets all regulatory requirements.
On July 17, 2006 the Court entered an order staying discovery in this case until and through September 15, 2006.
On March 30, 2006 the Company was notified that Corepharma LLC (Corepharma) 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 Laboratories, Inc. filed suit against Corepharma for the infringement of the US Patent No. 5,912,013 and US Patent No. 5,326,570 in the District Court for the District of New Jersey on May 17, 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 period ended December 31, 2005 and our most recent Quarterly Report on Form 10-Q for the period ended March 31, 2006.
PENTASA for the treatment of Ulcerative Colitis
US prescriptions for the three months to June 30, 2006 were down 4% compared to the same period in 2005. This was primarily due to lower levels of promotional activity compared to Q2 2005, leading to a 2% decrease in Shire's market share of the total US oral mesalamine prescription market to 17% in June 2006 (2005: 19%), partly offset by a 2% increase in the market as a whole.
Sales of PENTASA for the three months to June 30, 2006 were $34.5 million, an increase of 11% compared to the same period in 2005 (2005: $31.0 million). The difference between sales growth and the lower levels of prescriptions is due to the impact of the January 2006 price increase and higher levels of pipeline stocking in Q2 2006 compared to Q2 2005 following production shortages last year.
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 June 30, 2006 were $28.3 million, the majority of which were in Europe. Pre-acquisition sales for the three months to June 30, 2005 were $22.6 million. The increase in sales of 25% is due to greater European coverage by an increased number of sales representatives, and strong growth in the Rest of the World market.
AGRYLIN/XAGRID for the treatment of Thrombocythemia
AGRYLIN/XAGRID sales worldwide for the three months to June 30, 2006 were $16.1 million, down 46% compared to the same period in 2005 (2005: $29.6 million).
North American sales were $2.0 million (2005: $17.2 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 up by 14% to $14.1 million (2005: $12.4 million). Sales increased by 15% as expressed in the transaction currencies (XAGRID is primarily sold in Euros), due mainly to strong growth in France and Spain, offset by unfavorable exchange rate movements of 1%.
FOSRENOL for the treatment of Hyperphosphatemia
US prescriptions for the three months to June 30, 2006 were up 23% 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 June 2006 was 8.4% (2005: 7.8%), in a market that had itself grown 9% over the same period. FOSRENOL was launched in the US in January 2005.
Sales of FOSRENOL for the three months to June 30, 2006 were $6.2 million (2005: $9.9 million). Although prescription growth continued, sales revenue is down due to a combination of pipeline de-stocking in Q2 2006, pipeline stocking in Q2 2005 and higher sales deductions.
FOSRENOL was launched in Austria, Ireland, Sweden and Denmark in December 2005 and in South Korea in June 2006. On July 11, 2006 Shire received confirmation that FOSRENOL had been recommended for approval through the Mutual Recognition Procedure in 11 markets in Europe (the UK, Germany, Spain, Norway, Hungary, Estonia, Lithuania, Malta, Latvia, Slovenia and Slovakia). FOSRENOL is already approved in all other European Union countries (Sweden, Portugal, Italy, Poland, Austria, Finland, Czech Republic, Denmark, France, Belgium, Cyprus, Greece, Luxembourg, Netherlands, Ireland) and Iceland. The product launches will continue throughout 2006 and 2007, subject to national licensing and re-imbursement negotiations.
3. Royalties
Royalty revenues decreased by 4% to $60.4 million for the three months to June 30, 2006 (2005: $62.6 million).
Royalty Highlights Worldwide in-market sales Royalties to by licensee(2) in Shire Royalty growth(1) Q2 2006 Product $M % $M 3TC 38.3 -5%* 290 ZEFFIX 8.4 +9%** 73 Other 13.7 -5%*** n/a Total 60.4 -4% n/a
* The impact of foreign exchange movements has contributed +1% to the reported growth
** The impact of foreign exchange movements has contributed +2% to the reported growth
*** Includes REMINYL/RAZADYNE and the impact of RAZADYNE ER US launch stocking during Q2 05
1 Compared to Q2 2005
2 GSK
3TC
Royalties from sales of 3TC for the three months to June 30, 2006 were $38.3 million (2005: $40.5 million).
Shire receives royalties from GSK on worldwide 3TC sales. GSK's worldwide sales of 3TC for the three months to June 30, 2006 were $290 million, a decrease of 6% compared to the same period in 2005 (2005: $309 million). The nucleoside analogue market for HIV has continued to grow, however competitive pressures within the market have increased, leading to GSK's decline in sales.
ZEFFIX
Royalties from the sales of ZEFFIX for the three months to June 30, 2006 were $8.4 million (2005: $7.7 million).
Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK's worldwide sales of ZEFFIX for the three months to June 30, 2006 were $73 million, an increase of 7% compared to the same period in 2005 (2005: $68 million). This increase was primarily due to strong growth in the Chinese, Japanese and Korean markets.
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 has the exclusive marketing rights.
Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer's type, continue to grow in the Alzheimer's market. Revenue in Q2 2006 was marginally lower than in the same period in 2005 due to the impact of wholesalers stocking for the launch of RAZADYNE ER in the US in Q2 2005.
In June 2006 Janssen and Synaptech, Inc. filed suit against Barr Laboratories Inc for infringement of their patent rights relating to RAZADYNE ER as a result of Barr filing an ANDA ("Abbreviated New Drug Application") with the FDA for RAZADYNE ER. No court date has been set.
Barr and other generics have filed ANDAs with the FDA as regards RAZADYNE and Janssen and Synaptech have filed suit against some of those ANDA filers. The court date for these proceedings is June 2007.
Financial details
Cost of product sales
For the three months to June 30, 2006 the cost of product sales amounted to 16% 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 includes acquired inventories, which in accordance with US GAAP have been accounted for at fair value. Accordingly, lower margins will be reflected for REPLAGAL sales until all acquired inventory has been sold (anticipated Q3 2006). For the three months to June 30, 2006 the cost of product sales for REPLAGAL included a $16.7 million a
