Shire plc: Core Portfolio of Products Delivers 20% Sales Growth

Q2 2009 Financial Highlights
 

    
                                                             Q2 2009(1)
                                                              
    Product sales                                  $558 million        -21%
                                                              
    Product sales (excluding ADDERALL XR)          $491 million        +20%
    Product sales growth (excluding ADDERALL XR) at
    constant exchange rates(2)                                         +27%
                                                              
    Non GAAP operating income                      $116 million        -53%
                                                                         
    US GAAP operating income                        $35 million +$102 million
    Non GAAP diluted earnings per ADS (using actual Q2
    2009 tax rate: 2%)                                    $0.60        -36%
    Non GAAP diluted earnings per ADS (using full year
    expected tax rate: 24%)                               $0.47
    US GAAP diluted earnings per ADS                      $0.24     +$0.68


 

(1) Figures compare Q2 2009 results with the same period in 2008.
 

(2) Sales growth at constant exchange rates ("CER"), which is a Non GAAP measure, is calculated after restating Q2 2009 results using Q2 2008 average foreign exchange rates.
 

Angus Russell, Chief Executive Officer, commented:
 

"In the second quarter we delivered strong core product sales, excluding ADDERALL XR, of $491 million, representing growth of 20% compared to the same quarter last year. The strategic steps we have taken over the last few years are now delivering clear commercial benefits, as we enter a new phase of Shire's development.
 

We have diversified into a broader portfolio of young products with strong intellectual property and exciting growth prospects. We continue to increase the global reach of our business, and now have a presence in 26 countries worldwide compared to nine countries four years ago.
 

We have also developed a promising pipeline with encouraging recent news. With the receipt of a Complete Response Letter from the US Food and Drug Administration ("FDA") for INTUNIV, we are confident that we will quickly come to agreement on the final wording of the product label and will launch in the fourth quarter of 2009 as planned. We are also initiating Phase 2 pilot clinical trials to assess the efficacy and safety of VYVANSE in non ADHD ("Attention Deficit Hyperactivity Disorder") indications. Our HGT pipeline has been strengthened by positive results from our trial of velaglucerase in naïve Gaucher patients. A treatment protocol for early access has been approved by the FDA and the agency has approved Fast Track designation for the product. Rolling review of the New Drug Application ("NDA") has started.
 

Our core portfolio has made good progress in the quarter. We are pleased with the performance of VYVANSE as it has retained market share during the historically quieter summer vacation season in contrast to other branded ADHD treatments that have lost market share. We are anticipating the benefits of the back to school season for VYVANSE and are looking forward to increased sales momentum from our co-promote agreement with GSK for adult ADHD. We are also expecting further positive newsflow from our pipeline during the second half of this year.
 

Supported by pro-active cost management, our business is well placed to deliver on our unchanged guidance framework for 2009 and looking ahead we reiterate our aspiration of growing sales in the mid-teens range on average between 2009 and 2015."
 

Second Quarter 2009 Unaudited Results
 

    
                                             Q2 2009
                              US GAAP   Adjustments  Non GAAP(1)
                                   $M            $M           $M
    Revenues                      630          -             630
    Operating income/(loss)        35            81          116
    Net income/(loss)              44            65          109
    Diluted earnings/(loss)
    per ADS                       24c           36c          60c


 

continued...
 

    
                                             Q2 2008
                    
                              US GAAP   Adjustments   Non GAAP(1)
                                   $M            $M           $M
    Revenues                      776             -          776
    Operating income/(loss)       (67)          314          247
    Net income/(loss)             (79)          267          188
    Diluted earnings/(loss)
    per ADS                       (44c)         139c          95c


 

Note: Average exchange rates for Q2 2009 were $1.55:GBP1.00 and $1.36:EUR1.00, (Q2 2008: $1.97:GBP1.00 and $1.57:EUR1.00).
 

(1) The Non GAAP financial measures included above are explained on pages 26 and 27, together with an explanation of why Shire's management believes that these measures are useful to investors. For a reconciliation of these Non GAAP financial measures to the most directly comparable financial measures prepared in accordance with US GAAP, see pages 22 and 23.
 

    
    FINANCIAL SUMMARY

    Second Quarter 2009 (see page 6 for full Financial Results)

    - Product sales excluding ADDERALL XR(R) were up 20% (up 27% at CER) to
      $491 million, following continued growth from VYVANSE(R) (up 75% to 
      $114 million) and LIALDA(R)/MEZAVANT(R) (up 71% to $55 million).

    - Total product sales, including ADDERALL XR, were down 21% to $558
      million, as ADDERALL XR product sales declined by 77%, or $229 million 
      to $67 million, as a result of the launch by Teva Pharmaceuticals 
      Industries Ltd ("Teva") of an authorized generic version of ADDERALL 
      XR, higher sales deductions in Q2 2009 (equivalent to 72% of gross 
      sales) and the impact of de-stocking (equivalent to gross sales of 
      $67 million). In the second half of 2009 we expect the de-stocking of 
      ADDERALL XR to reduce significantly and for sales deductions to 
      moderate to 55-65% of gross sales, depending on sales mix.

    - Non GAAP operating income decreased by 53%, or $131 million to $116
      million as the lower ADDERALL XR revenues in Q2 2009 were partially 
      offset by higher revenues on other products and lower operating 
      expenses on a Non GAAP basis. On a US GAAP basis operating income in Q2 
      2009 was $35 million, compared to a loss of $67 million in 2008.

    - Non GAAP diluted earnings per ADS were $0.60 for the quarter (Q2 2008:
      $0.95). The decline in Non GAAP earnings per ADS was less than the 
      decline in Non GAAP operating income due primarily to the effects of 
      certain one off net tax credits recognized in the quarter following the 
      issuance in Q2 2009 of new regulations regarding the Massachusetts 
      State tax regime, which lowered the effective tax rate in Q2 2009 
      compared to Q2 2008. Using a full year expected effective tax rate of 
      24%, Non GAAP diluted earnings per ADS for Q2 2009 would have been 
      $0.47 on a pro-forma basis.

SECOND QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS
 

Products
 

VYVANSE - for the treatment of ADHD
 

    
    - On May 1, 2009 Shire and GSK commenced working together on the 
      co-promotion of VYVANSE, with the aim of improving recognition and
      treatment of ADHD in adults.

    - On June 1, 2009 Shire announced that the FDA had approved a change to 
      the prescribing information for VYVANSE, to include supplemental
      data that demonstrated significant ADHD symptom control in children 
      aged 6 to 12 from the first time point measured (1.5 hours) through 13 
      hours post-dose. VYVANSE is now the first and only oral ADHD stimulant 
      treatment to have 13 hour post-dose efficacy data for pediatric 
      patients included in its product labeling.

    - By July 24, 2009 VYVANSE had achieved a US ADHD market share
      of 12.3% based on weekly prescription volumes.

    ADDERALL XR - for the treatment of ADHD

    - On April 2, 2009 Teva announced that it had commenced
      commercial shipment of its authorized generic version of ADDERALL XR. 
      In Q2 2009 sales of ADDERALL XR declined by 77% to $67 million. A 
      decline in ADDERALL XR sales subsequent to generic launch was 
      anticipated and was already reflected in our guidance framework.


 

Pipeline
 

INTUNIV(TM) - for the treatment of ADHD in children and adolescents in the US.
 

    
    - On May 19, 2009 Shire announced that a randomized placebo controlled
      trial had met its primary objective, evaluating the effects of INTUNIV 
      on oppositional symptoms in children aged 6 to 12 years with a 
      diagnosis of ADHD and the presence of oppositional symptoms.

    - The Prescription Drug User Fee Act date ("PDUFA") for INTUNIV was July 
      27, 2009. Shire has received a Complete Response Letter from the FDA 
      for INTUNIV. Shire and the FDA were not able to reach agreement on 
      final product labeling in time to meet the PDUFA date. The FDA did not
      identify safety concerns regarding INTUNIV, request new clinical data or
      additional analyses in the Complete Response Letter. Shire and the FDA 
      will continue to work together to resolve the remaining labeling 
      language over the next 4-8 weeks and we anticipate launch in the fourth 
      quarter of 2009 as planned.

    VYVANSE - for the treatment of non ADHD indications in adults

    - Shire is conducting Phase 2 pilot clinical trials to assess the
      efficacy and safety of VYVANSE as adjunctive therapy in depression, for 
      the treatment of negative symptoms and cognitive impairment in 
      schizophrenia, and for the treatment of cognitive impairment in 
      depression.

    Velaglucerase alfa - for the treatment of Gaucher disease

    - On July 16, 2009 Shire announced that it had received Fast Track
      designation from the FDA for velaglucerase alfa, its enzyme replacement
      therapy in development for the treatment of Gaucher disease. On July 30 
      Shire began the rolling submission of a NDA for velaglucerase alfa to 
      treat patients with Type 1 Gaucher disease. Fast Track is a process 
      which expedites the review of drugs to treat serious diseases and fill 
      an unmet medical need with the goal of getting important new treatments 
      to patients earlier. Shire will file additional sections of the NDA as 
      they become available. Results from the first of the three Phase 3 
      trials were positive, and achieved statistically significant 
      improvements in the primary endpoint. Velaglucerase alfa was also found 
      to be well tolerated with no drug related serious adverse events 
      reported in this trial.

    - On August 3, 2009 Shire announced that it had received approval from
      the FDA on the initiation of a treatment protocol for velaglucerase 
      alfa. This protocol was submitted at the request of the FDA, in view of 
      a potential restriction on the availability of the current approved and 
      marketed treatment for Gaucher disease patients. This will allow 
      physicians to treat Gaucher disease patients with velaglucerase alfa 
      ahead of commercial availability in the US. Under the conditions of the 
      treatment protocol, Shire will provide velaglucerase alfa free of 
      charge initially, in order to provide access to patients as quickly as 
      possible.

FIRAZYR(R) - for the treatment of hereditary angioedema ("HAE")
 

- In June 2009, Shire initiated a Phase 3 study in patients with acute attacks of HAE, known as the FAST-3 trial, which is designed to support filing of a NDA for FIRAZYR in the US.
 

2009 OUTLOOK
 

We are reiterating our previously announced guidance framework for Non GAAP diluted earnings per ADS for 2009, which remains unchanged from that provided in our Q3 2008 earnings release. At that time, and in subsequent earnings releases, we provided details of the effect of changes in foreign exchange rates on the earnings guidance. Specifically, our plans for 2009, supporting Non GAAP diluted earnings per ADS for 2009 in the range of $3.00 to $3.40, were based on average actual foreign exchange rates (EUR1:$1.52, GBP1:$1.95) for the ten months to October 2008. During the first half of 2009 we have already achieved Non GAAP diluted earnings per ADS of $1.88.
 

We identified that each 10c movement in the EUR:$ and GBP:$ exchange rates impacts Shire's Non GAAP diluted earnings per ADS by $0.10 and $0.01 respectively. Based on the following exchange rate scenarios, which are not forecasts, the impact on our base guidance would be:
 

    
    
                                      Euro fx     GBP fx    Non GAAP diluted
                                       rate        rate     earnings per ADS
                                                                range (1)
 
    Base guidance                      $1.52      $1.95      $3.00 to $3.40
    At average March 2009 exchange     $1.30      $1.42      $2.73 to $3.13
    rates
    At average H1 2009 & July 2009     $1.37      $1.56      $2.80 to $3.20
    exchange rates


 

(1) Our guidance framework for Non GAAP diluted earnings per ADS is not prepared in accordance with US GAAP. Non GAAP diluted earnings per ADS excludes the effect of certain cash and non-cash items, both recurring and non-recurring, that Shire's management believes are not related to the core performance of Shire's business. A list of these items can be found on pages 26-27.
 

PRODUCT LAUNCHES
 

Subject to obtaining the relevant regulatory/governmental approvals, product launches planned over the next two years include:
 

    
    - MEZAVANT for the treatment of ulcerative colitis; launches will 
      continue in certain EU and RoW countries in 2009 and 2010;

    - FIRAZYR for the symptomatic treatment of acute attacks of HAE; launches
      will continue in certain European and Latin American countries during 
      2009 and 2010;

    - INTUNIV for the treatment of ADHD in children and adolescents in the 
      US in the fourth quarter of 2009;

    - EQUASYM(R) for the treatment of ADHD; launches will continue in certain 
      EU countries during 2009 and 2010;

    - DAYTRANA(R) for the treatment of ADHD in adolescents in the US in 2010;

    - Velaglucerase alfa for the treatment of Gaucher disease in the US and 
      the EU in 2010; and

    - VYVANSE for the treatment of ADHD, in ex-US and ex-EU regions starting 
      in 2010, and in the EU in 2011.


 

DIVIDEND
 

In respect of the six months ended June 30, 2009, the Board resolved to pay an interim dividend of 2.147 US cents per ordinary share (2008: 2.147 US cents per share).
 

Dividend payments will be made in Pounds Sterling to Ordinary shareholders and in US Dollars to holders of American Depository Shares ("ADS"). A dividend of 1.302 pence per ordinary share (2008: 1.085 pence) and 6.441 US cents per ADS (2008: 6.441 US cents) will be paid on October 8, 2009 to persons whose names appear on the register of members of the Company at the close of business on September 11, 2009.
 

Additional Information
 

The following additional information is included in this press release:
 

    
                                                    Page
    Overview of Financial Results                    6
    Financial Information                            13
    Notes to Editors                                 26
    Safe Harbor Statement                            26
    Explanation of Non GAAP Measures                 26
    Trademarks                                       27


 

Dial in details for the live conference call for investors 14:00 BST/09:00 EDT on August 5, 2009:
 

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Password/Conf ID: 515 749#
 

Live Webcast: http://www.shire.com/shire/InvestorRelations/index.jsp?tn=2
 

OVERVIEW OF FINANCIAL RESULTS
 

1. Introduction
 

Summary of Q2 2009
 

Revenues from continuing operations for the three months to June 30, 2009 decreased by 19% to $629.7 million (2008: $775.6 million), primarily due to the decline in branded ADDERALL XR product sales in Q2 2009 following the launch of an authorized generic version by Teva in April 2009. Excluding ADDERALL XR, product sales increased by 20% to $491.0 million (2008: $409.3 million).
 

Non GAAP operating income for the three months to June 30, 2009 decreased by 53% to $115.5 million (2008: $246.5 million). The lower product sales of ADDERALL XR in Q2 2009 were partially offset by higher revenues from other products and lower operating expenses, as the Company benefits from its more diversified portfolio and continues to focus on cost management, with some additional benefits from foreign exchange compared to 2008.
 

US GAAP operating income from continuing operations for the three months to June 30, 2009 increased by $102.0 million to $34.7 million (2008: $67.3 million loss). US GAAP operating income from continuing operations in Q2 2009 includes a charge of $36.9 million following the amendment of an in-license agreement for INTUNIV. The US GAAP operating loss from continuing operations in Q2 2008 included in-process R&D charges on acquisition of METAZYM(R) from Zymenex A/S ($135.0 million) and costs associated with the cessation of commercialization of DYNEPO(TM) ($150.3 million). Excluding the above charges the fall in US GAAP operating income from continuing operations in Q2 2009 principally resulted from lower revenues following declines in branded ADDERALL XR product sales.
 

Net cash provided by operating activities decreased by 60% to $72.0 million for the three months to June 30, 2009 (2008: $180.4 million). The cash inflow from operating activities was lower in Q2 2009 than the same period in 2008 as lower sales receipts, higher cash tax payments and cash payments on forward exchange contracts in 2009 were only partially offset by lower operating expense payments during the quarter.
 

Cash, cash equivalents and restricted cash at June 30, 2009 totaled $299.1 million (December 31, 2008: $247.4 million), an increase of $51.7 million. Cash inflows from operating activities, cash received on the disposal of Shire's minority investment in Virochem Pharma Inc. and Jerini's Peptides business have been partially offset by cash outflows to acquire EQUASYM, investment in property, plant and equipment at the HGT campus in Lexington and the dividend payment.
 

2. Product sales
 

For the three months to June 30, 2009 product sales decreased by 21% to $558.4 million (2008: $705.7 million) and represented 89% of total revenues (2008: 91%). Excluding ADDERALL XR, product sales increased by 20% to $491.0 million (2008: $409.3 million).
 

Product Highlights
 

    
                                                                        US
                                                                     Average
                                                             US Rx    Annual
                                        Sales       CER    Growth(1)  Market
    Product                 Sales $M  Growth(2)  Growth(3)    (2)    Share(1)
    Specialty
    Pharmaceuticals
    VYVANSE                    114.2         75%       75%       80%    12.1%
    ADDERALL XR                 67.4        -77%      -77%      -48%    11.0%
    DAYTRANA                    14.9        -34%      -34%      -14%     1.4%
    EQUASYM                      4.9         n/a       n/a    n/a(5)   n/a(5)
    LIALDA / MEZAVANT           54.6         71%       73%       53%    15.9%
    PENTASA                     54.0         21%       21%       -2%    15.9%
    FOSRENOL                    49.6         17%       26%       -3%     7.8%
    XAGRID                      20.7          0%       12%    n/a(5)   n/a(5)
 
    Human Genetic Therapies
    ELAPRASE                    85.3          6%       15%    n/a(4)   n/a(4)
    REPLAGAL                    44.4         -1%       14%    n/a(5)   n/a(5)
    FIRAZYR                      1.5         n/a       n/a    n/a(5)   n/a(5)

(1) Product specific prescription data is provided by IMS Health ("IMS") National Prescription Audit, a leading global provider of business intelligence for the pharmaceutical and healthcare industries. All other US market share data stated in the text below is also provided by IMS.
 

(2) Compared to Q2 2008.
 

(3) CER growth is calculated after restating Q2 2009 results using Q2 2008 average foreign exchange rates.
 

(4) IMS Data not available.
 

(5) Not sold in the US.
 

Specialty Pharmaceuticals
 

US ADHD market share
 

Shire's share of the total US ADHD market for the three months to June 30, 2009 declined by approximately 8 percentage points to 24.5% (2008: 32.3%), following the launch by Teva in April 2009 of an authorized generic version of ADDERALL XR. Shire continues to have the leading portfolio of branded products in the US ADHD market.
 

VYVANSE - ADHD
 

Sales of VYVANSE for the three months to June 30, 2009 increased by 75% to $114.2 million (2008: $65.2 million), with VYVANSE's average share of the US ADHD market for Q2 2009 increasing to 12.1% (2008: 7.4%). Product sales growth was driven by an 80% increase in US prescription demand in Q2 2009 over the same period in 2008, as a result of increased US ADHD average market share and 10% growth in the US ADHD market.
 

ADDERALL XR - ADHD
 

Sales of ADDERALL XR for the three months to June 30, 2009 were $67.4 million, a decrease of 77% (2008: $296.4 million) resulting from the launch by Teva in April 2009 of its authorized generic version of ADDERALL XR. The launch of the generic version led to a 48% decline in ADDERALL XR US prescription demand, higher US sales deductions and significant de-stocking (equivalent to gross sales of $67 million) by wholesalers and retail pharmacies in Q2 2009 compared to the same period in 2008. These factors more than offset the positive impacts of price increases taken since Q2 2008, and the inclusion within product sales of shipments of authorized generic ADDERALL XR to Teva in Q2 2009.
 

Sales deductions represented 72% of branded ADDERALL XR gross sales in Q2 2009 (2008: 22%), the increase primarily resulting from higher sales deductions for Managed Care and Medicaid rebates as well as the impact of revising estimates made at the end of Q1 and used in the measurement of the rebate liability on the wholesale and retail pipeline. These revisions increased Q2 sales deduction expense by the equivalent of 11% of Q2 2009 ADDERALL XR gross sales.
 

The Managed Care rebate percentage increased due to higher rebates offered to Managed Care organizations ("MCO") from April 1, 2009.
 

The Medicaid rebate percentage was higher in Q2 2009 than the same period last year due to a higher proportion of gross sales being made through Medicaid and an increased unit rebate amount ("URA"). The rise in URA is a direct result of price increases and the inclusion of shipments of authorized generic ADDERALL XR to Teva in the URA calculation.
 

DAYTRANA - ADHD
 

Product sales of DAYTRANA for the three months to June 30, 2009 decreased by 34% to $14.9 million (2008: $22.6 million). Product sales declined due to a 14% reduction in US prescription demand, following a decline in DAYTRANA's average share of the US ADHD market to 1.4% (2008: 1.8%) together with the impact of de-stocking in Q2 2009. These declines were partially offset by price increases taken since Q2 2008.
 

EQUASYM - ADHD
 

Following the acquisition of EQUASYM from UCB on March 31, 2009 the Company has recorded product sales of EQUASYM for the three months to June 30, 2009 of $4.9 million (2008: $nil).
 

US oral mesalamine market share
 

Shire's average market share of the US oral mesalamine market rose to 31.8% for the three months to June 30, 2009 (2008: 27.6%).
 

LIALDA/MEZAVANT - Ulcerative colitis
 

Product sales of LIALDA/MEZAVANT for the three months to June 30, 2009 increased by 71% to $54.6 million (2008: $32.0 million). US prescriptions increased by 53%, due to an increase in LIALDA's average share of the US oral mesalamine market to 15.9% (2008: 10.8%) and underlying growth in the US oral mesalamine market of 4%.
 

By June 30, 2009 MEZAVANT was available in eight countries outside the US, and further launches are planned in other countries throughout 2009 and 2010, subject to the successful conclusion of pricing and reimbursement negotiations.
 

PENTASA - Ulcerative colitis
 

Sales of PENTASA(R) for the three months to June 30, 2009 were $54.0 million, an increase of 21% compared to the same period in 2008 (2008: $44.8 million). Sales grew despite a 2% decrease in prescriptions primarily due to the impact of price increases.
 

FOSRENOL - Hyperphosphatemia
 

Product sales of FOSRENOL(R) for the three months to June 30, 2009 were up 17% to $49.6 million (2008: $42.4 million). On a CER basis sales were up 26%. In markets outside the US FOSRENOL sales increased as the product entered new countries, and continued to grow in countries entered in the last two years. In the US, FOSRENOL's average share of the phosphate binder market in Q2 2009 declined to 7.8% (2008: 8.2%) due to a 3% decrease in prescriptions. However, US product sales grew 15% as price increases offset the prescription decline.
 

XAGRID - Thrombocythemia
 

Sales of XAGRID(TM) for the three months to June 30, 2009 were $20.7 million (2008: $20.6 million). On a CER basis sales increased by 12% (XAGRID is primarily sold in Euros and Pounds Sterling).
 

Human Genetic Therapies
 

ELAPRASE - Hunter syndrome
 

Product sales for the three months to June 30, 2009 were $85.3 million, an increase of 6% (2008: $80.8 million). Expressed on a CER basis sales increased by 15% (ELAPRASE(R) is primarily sold in US dollars and Euros). The sales growth was driven by increased volumes across all regions where ELAPRASE is sold.
 

REPLAGAL - Fabry disease
 

Product sales for the three months to June 30, 2009 were $44.4 million, a decrease of 1% (2008: $44.7 million). Expressed on a CER basis sales increased by 14% (REPLAGAL(R) is primarily sold in Euros and Pounds Sterling). The sales growth was primarily driven by increased volumes in Europe and Asia Pacific.
 

FIRAZYR - HAE
 

Sales for the three months to June 30, 2009 were $1.5 million (2008: $nil). Sales of FIRAZYR in Q1 2009 were $0.5 million. With Q2 launches in France and Portugal, FIRAZYR is now launched in nine countries, including four of the five largest European countries. FIRAZYR also received final price publication in Italy during June, which will enable launch in Italy during Q3. FIRAZYR is the first new product for HAE in Europe in 30 years and has orphan exclusivity in the EU until 2018.
 

3. Royalties
 

Royalty revenue increased by 3% to $66.9 million for the three months to June 30, 2009 (2008: $64.8 million). The following table provides an analysis of Shire's royalty income:
 

    
    Product              Royalties to Shire $M  Year on year change(1)
    3TC                          29.2                   -18%
    ZEFFIX                       10.2                    -6%
    ADDERALL XR                  13.6                   n/a
    Other                        13.9                   -25%
    Total                        66.9                     3%

(1) Compared with Q2 2008
 

3TC - HIV infection and AIDS
 

Shire receives royalties from GSK on worldwide sales of 3TC(R) sales. Royalties from sales of 3TC for the three months to June 30, 2009 were $29.2 million (2008: $35.6 million). Excluding unfavorable foreign exchange movements of 7%, royalties have decreased by 11% mainly due to competition from other HIV treatments.
 

ZEFFIX - Chronic hepatitis B infection
 

Shire receives royalties from GSK on worldwide ZEFFIX(R) sales. Royalties from sales of ZEFFIX for the three months to June 30, 2009 were $10.2 million, a decrease of 6% (2008: $10.8 million). The impact of foreign exchange movements has contributed 4% to the reported decrease, with the remainder of the decrease due to increased competition from other hepatitis B treatments.
 

ADDERALL XR - ADHD
 

Royalties from Teva's sales of authorized generic ADDERALL XR for the three months to June 30, 2009 were $13.6 million (2008: $nil). Receipt of this royalty began with Teva's sales of authorized generic ADDERALL XR in April 2009.
 

OTHER
 

Other royalties are primarily in respect of REMINYL(R) and REMINYL XL(TM) (known as RAZADYNE(R) and RAZADYNE(R) ER in the US), for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer's type.
 

The range of REMINYL products is marketed worldwide (excluding the UK and the Republic of Ireland where Shire has exclusive marketing rights) by Janssen Pharmaceutical N.V., an affiliate of Johnson & Johnson ("J&J"). Sales of the REMINYL/RAZADYNE range continue to grow in most countries, however the entry of generic versions of RAZADYNE and RAZADYNE ER into the US market in Q3 2008 has significantly decreased sales in that region.
 

4. Financial details
 

Cost of product sales
 

    
                                                % of              % of
                                             product           product
                                   2009        sales     2008    sales
                                     $M                    $M
    Cost of product sales (US 
    GAAP)                          96.4          17%    142.9      20%
    Accelerated depreciation on
    transfer of manufacturing
    from Owings Mills              (3.0)                    -
    Fair value adjustment for
    acquired inventories           (1.4)                    -
    Write down of inventory and
    exit costs for DYNEPO             -                 (53.4)
    Depreciation                   (4.9)                 (3.0)
    Cost of product sales (Non
    GAAP)                          87.1          16%     86.5      12%
 


 

After the exclusion of those charges outlined above, Non GAAP cost of product sales as a percentage of product sales increased by 4 percentage points (from 12% to 16%) compared to 2008. This increase primarily results from changes to the product mix following the launch by Teva of an authorized generic version of ADDERALL XR in April 2009; higher sales deductions on Shire's sales of branded ADDERALL XR, together with lower margin sales of the authorized generic version of ADDERALL XR to Teva have both depressed gross margin for that product.
 

Research and development ("R&D")
 

    
                                            % of              % of
                                         product           product
                               2009        sales     2008    sales
                                 $M                    $M
    R&D (US GAAP)             158.7          28%    136.4      19%
    INTUNIV license payment   (36.9)                    -
    DYNEPO R&D commitments        -                  (6.5)
    Depreciation               (3.8)                 (3.1)
    R&D (Non GAAP)            118.0          21%    126.8      18%

Non GAAP R&D decreased 7% to $118.0 million (2008: $126.8 million). The continued investment in core R&D programs has been offset by the benefit of foreign exchange rates in Q2 2009 over the same period in 2008 and the cessation of certain non-core programs since Q2 2008. As a percentage of product sales, Non GAAP R&D increased to 21% (2008: 18%) due to the lower product sales in Q2 2009.
 

Selling, general and administrative ("SG&A")
 

    
                                            % of              % of
                                         product           product
                                   2009    sales     2008    sales
                                     $M                $M
    SG&A (US GAAP)                334.7      60%    437.7      62%
    Intangible asset        
    amortization                  (34.3)            (31.0)
    Impairment of intangible
    assets                            -             (90.4)
    New holding company costs         -              (6.6)
    Depreciation                  (15.9)            (11.2)
    SG&A (Non GAAP)               284.5      51%    298.5      42%

Non GAAP SG&A declined by 5% to $284.5 million (2008: $298.5 million) as a result of the increased focus on cost management and favorable foreign exchange rates in 2009 over 2008. Non GAAP SG&A increased as a percentage of product sales to 51% (2008: 42%) as cost ratios were adversely affected by lower product sales following the genericization of ADDERALL XR.
 

Reorganization costs
 

For the three months to June 30, 2009 Shire recorded reorganization costs of $2.9 million (2008: $nil) relating to the transfer of manufacturing from its Owing Mills facility.
 

Integration and acquisition costs
 

For the three months to June 30, 2009 Shire recorded integration and acquisition costs of $2.3 million (2008: $nil) relating to the integration of Jerini AG and charges associated with the acquisition of EQUASYM.
 

Interest income
 

For the three months to June 30, 2009 Shire received interest income of $0.6 million (2008: $6.5 million), primarily received on cash and cash equivalents. Interest income for the three months to June 30, 2009 is lower than the same period in 2008 due to significantly lower interest rates in 2009 compared to 2008, and lower average cash and cash equivalent balances.
 

Interest expense
 

For the three months to June 30, 2009 the Company incurred interest expense of $10.1 million (2008: $16.8 million). The higher expense in 2008 was primarily due to the accrual of interest in respect of the Transkaryotic Therapies, Inc. ("TKT") appraisal rights litigation. This litigation was settled in November 2008.
 

Taxation
 

The effective rate of tax for the three months to June 30, 2009 was -78% (2008: -0.3%). The effective tax rate on Non GAAP income is 2% (2008: 20%). The Non GAAP effective tax rate in the three months to June 30, 2009 was 18 percentage points lower than the corresponding period in 2008 principally due to the decrease in valuation allowances held in respect of US State tax credits and losses. Following the interpretation and analysis of the implications of new Massachusetts State tax regulations issued in Q2 2009, Shire determined during the second quarter that it was now more likely than not that these State tax credits and losses were realizable.
 

Equity in earnings/(losses) of equity method investees
 

Net earnings of equity method investees of $0.5 million were recorded for the three months to June 30, 2009 (2008: $1.9 million loss). This comprised earnings of $1.2 million from the 50% share of the anti-viral commercialization partnership with GSK in Canada (2008: $1.5 million earnings) and losses of $0.7 million, being the Company's share of losses in the GeneChem, AgeChem and EGS Funds (2008: $3.4 million loss).
 

Discontinued operations
 

The loss from discontinued operations for the three months to June 30, 2009 was $9.8 million (2008: $nil), relating to net losses on discontinued Jerini businesses which were either divested or closed during the second quarter of 2009, the loss on divestment of Jerini's Peptides business and the write-off of the fair value less costs to sell of assets previously classified as held for sale.
 

FINANCIAL INFORMATION
 

TABLE OF CONTENTS
 

    
                                                          Page
 
    Unaudited US GAAP Consolidated Balance Sheets           14
 
    Unaudited US GAAP Consolidated Statements of Income     15
 
    Unaudited US GAAP Consolidated Statements of Cash
    Flows                                                   17
 
    Selected Notes to the Unaudited US GAAP Financial       19
    Statements
    (1) Earnings per share                                  19
    (2) Analysis of revenues                                20
 
    Non GAAP reconciliation                                 22

Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Balance Sheets
 

    
                                                       June 30,  December 31,
                                                           2009          2008
                                                             $M            $M
    ASSETS
    Current assets:
    Cash and cash equivalents                             263.3         218.2
    Restricted cash                                        35.8          29.2
    Accounts receivable, net                              424.7         395.0
    Inventories, net                                      166.6         154.5
    Assets held for sale                                    1.7          16.6
    Deferred tax asset                                     84.6          89.5
    Prepaid expenses and other current assets             174.3         141.4
 
    Total current assets                                1,151.0       1,044.4
 
    Non-current assets:
    Investments                                            90.2          42.9
    Property, plant and equipment, net                    598.1         534.2
    Goodwill                                              377.6         350.8
    Other intangible assets, net                        1,846.2       1,824.9
    Deferred tax asset                                    145.0         118.1
    Other non-current assets                               13.2          18.4
 
    Total assets                                        4,221.3       3,933.7
 
    LIABILITIES AND EQUITY
    Current liabilities:
    Accounts payable and accrued expenses                 807.6         708.6
    Deferred tax liability                                 10.9          10.9
    Other current liabilities                              62.4         104.3
 
    Total current liabilities                             880.9         823.8
 
    Non-current liabilities:
    Convertible bonds                                   1,100.0       1,100.0
    Other long-term debt                                   49.4          43.1
    Deferred tax liability                                346.9         377.0
    Other non-current liabilities                         275.0         291.3
 
    Total liabilities                                   2,652.2       2,635.2
 
    Shareholders' equity:
    Common stock of 5p par value; 1,000 million
    shares authorized; and 560.3 million shares
    issued and outstanding (2008: 1,000 million
    shares authorized; and 560.2 million shares
    issued and outstanding)                                55.5          55.5
    Additional paid-in capital                          2,628.0       2,594.6
    Treasury stock: 20.2 million shares (2008: 20.7
    million)                                             (390.6)      (397.2)
    Accumulated other comprehensive income                119.7          97.0
    Accumulated deficit                                  (843.8)    (1,051.7)
 
    Total Shire plc shareholders' equity                1,568.8       1,298.2
    Noncontrolling interest in subsidiaries                 0.3           0.3
 
    Total equity                                        1,569.1       1,298.5
 
    Total liabilities and equity                        4,221.3       3,933.7

Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Income
 

    
                                                     3                     6
                                                months                months
                                  3 months to       to  6 months to       to
                                                   June                  June
                                     June 30,      30,     June 30,      30,
                                         2009     2008         2009     2008
                                           $M       $M           $M       $M
    Revenues:
    Product sales                       558.4    705.7      1,314.3  1,337.4
    Royalties                            66.9     64.8        117.5    129.9
    Other revenues                        4.4      5.1         15.6     10.5
    Total revenues                      629.7    775.6      1,447.4  1,477.8
 
    Costs and expenses:
    Cost of product sales(1)             96.4    142.9        180.0    233.2
    Research and development(2)         158.7    136.4        344.6    248.2
    Selling, general and
    administrative(1) (2)               334.7    437.7        653.3    782.4
    Gain on sale of product rights          -     (9.1)           -    (16.7)
    In-process R&D charge                   -    135.0            -    135.0
    Reorganization costs                  2.9        -          5.1        -
    Integration and acquisition
    costs                                 2.3        -          3.8        -
    Total operating expenses            595.0    842.9      1,186.8  1,382.1
 
    Operating income/(loss)              34.7    (67.3)       260.6     95.7
 
    Interest income                       0.6      6.5          1.3     19.2
    Interest expense                    (10.1)   (16.8)       (21.2)   (34.1)
    Other income, net                     4.7      0.7         54.9     13.4
    Total other (expense)/income, net    (4.8)    (9.6)        35.0     (1.5)
 
    Income/(loss) from continuing
    operations before income taxes
    and equity in earnings/(losses)
    of equity method investees           29.9    (76.9)       295.6     94.2
    Income taxes                         23.4     (0.2)       (26.1)   (44.3)
    Equity in earnings/(losses) of
    equity method investees, net of
    taxes                                 0.5     (1.9)         0.4     (0.3)
    Income/(loss) from continuing
    operations, net of tax               53.8    (79.0)       269.9     49.6
 
    Loss from discontinued
    operations (net of income tax
    expense of $nil in all periods)      (9.8)        -       (12.4)       -
    Net income/(loss)                    44.0    (79.0)       257.5     49.6
 
    Add: Net loss attributable to
    noncontrolling interest in
    subsidiaries                          0.1         -         0.2        -
    Net income/(loss) attributable
    to Shire plc                         44.1     (79.0)      257.7     49.6

(1) Cost of product sales includes amortization of intangible assets relating to favorable manufacturing contracts of $0.4 million for the three months to June 30, 2009 (2008: $0.4 million) and $0.9 million for the six months to June 30, 2009 (2008: $0.9 million). Selling, general and administrative costs include amortization and impairment charges of intangible assets relating to intellectual property rights acquired of $34.3 million for the three months to June 30, 2009 (2008: $121.4 million) and $66.8 million for the six months to June 30, 2009 (2008: $152.3 million).
 

(2) Promotional costs totaling $8.9 million and $19.1 million have been reclassified from Research and development to Selling, general and administrative costs for the three and six months to June 30, 2008 respectively.
 

Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Income (continued)
 

    
                                                     3                     6
                                                months                months
                                  3 months to       to  6 months to       to
                                                  June                  June
                                     June 30,      30,     June 30,      30,
                                         2009     2008         2009     2008
    Earnings/(loss) per ordinary
    share - basic
    Earnings/(loss) from continuing
    operations                           10.0c  (14.6c)        50.0c     9.1c
    Loss from discontinued
    operations                          (1.8c)        -       (2.3c)        -
    Earnings/(loss) per ordinary
    share - basic                         8.2c  (14.6c)        47.7c     9.1c
 
    Earnings/(loss) per ADS - basic      24.6c  (43.8c)       143.1c    27.3c
 
    Earnings/(loss) per ordinary
    share - diluted
    Earnings/(loss) from continuing             (14.6c)                  8.2c
    operations                            9.9c                 49.6c
    Loss from discontinued
    operations                          (1.8c)        -       (2.3c)        -
    Earnings/(loss) per ordinary
    share - diluted                       8.1c  (14.6c)        47.3c     8.2c
 
    Earnings/(loss) per ADS -
    diluted                              24.3c  (43.8c)       141.9c    24.6c
 
    Weighted average number of
    shares (millions):
 
    Basic                                539.9    542.5        539.7    543.7
    Diluted                              543.4    542.5        545.0    579.6

Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Cash Flows
 

    
                                                        3                  6
                                         3 months  months  6 months   months
                                               to      to        to       to
                                                      June               June
                                         June 30,     30,  June 30,      30,
                                             2009    2008      2009     2008
                                               $M      $M        $M       $M
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income/(loss) attributable to
    Shire plc                                44.1   (79.0)    257.7     49.6
    Adjustments to reconcile net
    income/(loss) attributable to Shire
    plc to net cash provided by operating
    activities:
    Loss from discontinued operations         9.8       -      12.4        -
    Depreciation and amortization            62.3    48.9     117.7     96.3
    Share based compensation                 17.4    19.4      33.2     35.7
    Amortization of deferred financing
    charges                                   1.3     1.2       2.5      2.5
    Interest on building financing
    obligation                                0.8     0.7       1.3      1.9
    Impairment of intangible assets             -    90.4         -     90.4
    Impairment of property, plant and
    equipment                                 0.5       -       2.7        -
    Gain on sale of long-lived assets        (0.2)   (0.4)     (0.2)    (0.4)
    Gain on sale of non-current
    investments                                 -       -     (55.2)    (9.4)
    Gain on sale of product rights              -    (9.1)        -    (16.7)
    Movement in deferred taxes              (79.3)  (16.4)    (45.7)    17.4
    Equity in (earnings)/losses of equity
    method investees                         (0.5)    1.9      (0.4)     0.3
    Noncontrolling interest in
    subsidiaries                             (0.1)      -      (0.2)       -
 
    Changes in operating assets and
    liabilities:
              Decrease/(increase) in
              accounts receivable           108.1    22.0     (42.9)   (28.4)
              (Decrease)/increase in sales
              deduction accrual             (4.4)    27.6     117.5     35.5
              (Increase)/decrease in
              inventory                     (3.3)    19.5     (12.8)    10.4
              (Increase)/decrease in
              prepayments and other
              current assets               (21.5)     3.8     (33.8)    24.3
              Decrease/(increase) in other
              assets                         1.0     (2.7)      4.4     (2.4)
              (Decrease)/increase in
              accounts and notes payable
              and other liabilities        (60.2)    50.7     (98.5)   (66.4)
              (Decrease)/increase in
              deferred revenue              (0.5)     1.9      (2.7)     5.5
    Returns on investment from joint
    venture                                    -        -       4.9        -
    Cash flows used in discontinued
    operations                              (3.3)       -      (5.9)       -
    Net cash provided by operating
    activities(A)                           72.0    180.4     256.0    246.1

Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Cash Flows (continued)
 

    
                                                     3                     6
                                                months                months
                                  3 months to       to  6 months to       to
                                                  June                  June
                                     June 30,      30,     June 30,      30,
                                         2009     2008         2009     2008
                                           $M       $M           $M       $M
    CASH FLOWS FROM INVESTING
    ACTIVITIES:
    Movements in restricted cash          0.2      0.2        (6.6)      5.2
    Purchases of subsidiary
    undertakings and businesses,
    net of cash acquired                 (1.4)       -       (75.5)        -
    Purchases of non-current
    investments                             -     (0.1)          -      (1.1)
    Purchases of property, plant
    and equipment                       (59.8)   (61.6)     (101.8)    (89.4)
    Purchases of intangible assets          -        -        (6.0)        -
    Proceeds from disposal of
    non-current investments                 -        -        19.2      10.3
    Proceeds from disposal of
    property, plant and equipment           -      0.8         0.4       0.9
    Proceeds/deposits received on
    sales of product rights                 -        -           -       5.0
    Proceeds from disposal of
    subsidiary undertakings               6.7        -         6.7         -
    Returns from equity investments         -      0.4         0.2       0.4
    Net cash used in investing
    activities(B)                       (54.3)   (60.3)     (163.4)    (68.7)
 
    CASH FLOWS FROM FINANCING
    ACTIVITIES:
    Payment under building
    financing obligation                 (2.3)    (0.2)        (3.0)    (0.4)
    Costs of issue of common stock          -     (2.9)            -    (2.9)
    Proceeds from exercise of
    options                               0.9      0.7          1.0      1.0
    Payment of dividend                 (43.0)   (36.4)       (43.0)   (36.4)
    Payments to acquire shares by
    Employee Share Ownership Trust
    ("ESOT")                             (1.0)   (71.0)        (1.0)  (104.1)
    Net cash used in financing
    activities(C)                       (45.4)  (109.8)       (46.0)  (142.8)
 
    Effect of foreign exchange rate
    changes on cash and cash
    equivalents (D)                      (0.1)     0.3         (1.5)     4.1
 
    Net (decrease)/increase in cash
    and cash equivalents(A) +(B)
    +(C) +(D)                           (27.8)    10.6         45.1     38.7
    Cash and cash equivalents at
    beginning of period                  291.1   790.6        218.2    762.5
    Cash and cash equivalents at
    end of period                        263.3   801.2        263.3    801.2

Unaudited US GAAP results for the three months and six months to June 30, 2009
 

Selected Notes to the Financial Statements
 

(1) Earnings per share
 

    
                                       3 months  3 months  6 months  6 months
                                        to June   to June   to June   to June
                                            30,       30,       30,       30,
                                           2009      2008      2009      2008
                                             $M        $M        $M        $M
 
    Income/(loss) from continuing
    operations                             53.8    (79.0)     269.9      49.6
    Loss from discontinued operations      (9.8)         -    (12.4)        -
    Noncontrolling interest in
    subsidiaries                            0.1         -       0.2         -
 
    Numerator for basic EPS                44.1    (79.0)     257.7      49.6
    Interest on convertible bonds, net
    of tax (1)                                -         -         -     (2.2)
 
    Numerator for diluted EPS              44.1    (79.0)     257.7      47.4
 
    Weighted average number of shares:
                                       Millions  Millions  Millions  Millions
    Basic(2)                              539.9     542.5     539.7     543.7
    Effect of dilutive shares:
    Stock options(3)                        3.5         -       5.3       3.2
    Convertible bonds 2.75% due 2014(4)       -         -         -      32.7
 
    Diluted                               543.4     542.5     545.0     579.6

(1) For the three and six month periods ended June 30, 2009 and the three month period ended June 30, 2008 interest on the convertible bonds has not been added back as the effect would be anti-dilutive.
 

(2) Excludes shares purchased by the ESOT and presented by the Company as treasury stock.
 

(3) Calculated using the treasury stock method.
 

(4) Calculated using the "if-converted" method.
 

The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:
 

    
                           3 months to  3 months to  6 months to  6 months to
                              June 30,     June 30,     June 30,     June 30,
                                  2009         2008         2009         2008
                           Millions(1)               Millions(1)
                                   (2)  Millions(3)          (2)  Millions(1)
    Stock options in the
    money                            -          1.3            -            -
    Stock options out of
    the money                     31.3         17.9         18.9         17.4
    Convertible bonds 2.75%
    due 2014                      32.7         32.7         32.7            -


 

(1) For the three month period ended June 30, 2009 and the six month periods ended June 30, 2009 and 2008, certain stock options have been excluded from the calculation of diluted EPS because their exercise prices exceeded Shire plc's average share price during the calculation period.
 

(2) For the three and six month periods ended June 30, 2009 the ordinary shares underlying the convertible bonds have not been included in the calculation of the diluted weighted average number of shares, because the effect of their inclusion would be anti-dilutive.
 

(3) For the three month period ended June 30, 2008 no share options or ordinary shares underlying the convertible bonds have been included in the calculation of the diluted weighted average number of shares because the Company made a net loss during the calculation period and the inclusion of these items would be anti-dilutive.
 

Unaudited US GAAP results for the three months to June 30, 2009
 

Selected Notes to the Financial Statements
 

(2) Analysis of revenues
 

    
    3 months to June 30,               2009      2008      2009        2009
                                                              %  % of total
                                         $M        $M    change     revenue
    Net product sales:
    Specialty Pharmaceuticals
    ("Specialty")
    ADHD
    ADDERALL XR                        67.4     296.4      -77%         11%
    VYVANSE                           114.2      65.2       75%         18%
    DAYTRANA                           14.9      22.6      -34%          2%
    EQUASYM                             4.9         -       n/a          1%
                                      201.4     384.2      -48%         32%
    GI
    PENTASA                            54.0      44.8       21%          8%
    LIALDA / MEZAVANT                  54.6      32.0       71%          9%
                                      108.6      76.8       41%         17%
    General products
    FOSRENOL                           49.6      42.4       17%          8%
    CALCICHEW(R)                       10.8      13.9      -22%          2%
    CARBATROL(R)                       20.8      16.2       28%          3%
    REMINYL/REMINYL XL                 10.9       8.7       25%          2%
    XAGRID                             20.7      20.6        0%          3%
                                      112.8     101.8       11%         18%
 
    Other product sales                 4.4      17.4      -75%          1%
    Total Specialty product
    sales                             427.2     580.2      -26%         68%
 
    Human Genetic Therapies
    ("HGT")
    ELAPRASE                           85.3      80.8        6%         14%
    REPLAGAL                           44.4      44.7       -1%          7%
    FIRAZYR                             1.5         -       n/a          0%
    Total HGT product sales           131.2     125.5        5%         21%
 
    Total product sales               558.4     705.7      -21%         89%
 
    Royalty income:
    3TC                                29.2      35.6      -18%          4%
    ZEFFIX                             10.2      10.8       -6%          2%
    ADDERALL XR                        13.6         -       n/a          2%
    Other                              13.9      18.4      -25%          2%
    Total royalty income               66.9      64.8        3%         10%
 
    Other revenues                      4.4       5.1      -14%          1%
 
    Total Revenues                    629.7     775.6      -19%        100%


 

Unaudited US GAAP results for the six months to June 30, 2009
 

Selected Notes to the Financial Statements
 

(2) Analysis of revenues
 

    
    6 months to June 30,              2009      2008      2009        2009
                                                             %  % of total
                                        $M        $M    change     revenue
    Net product sales:
    Specialty Pharmaceuticals
    ("Specialty")
    ADHD
    ADDERALL XR                      363.3     557.9      -35%         25%
    VYVANSE                          230.7     119.6       93%         16%
    DAYTRANA                          34.8      42.9      -19%          2%
    EQUASYM                            4.9         -       n/a          0%
                                     633.7     720.4      -12%         43%
    GI
    PENTASA                          105.2      89.0       18%          7%
    LIALDA / MEZAVANT                104.0      59.2       76%          7%
                                     209.2     148.2       41%         14%
    General products
    FOSRENOL                          89.5      78.6       14%          6%
    CALCICHEW                         20.4      27.5      -26%          2%
    CARBATROL                         38.9      34.1       14%          3%
    REMINYL/REMINYL XL                18.3      17.0        8%          1%
    XAGR

Posted: August 2009


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