1st May 2014 14:19
LONDON (Alliance News) - Shire PLC Thursday raised its guidance for earnings per share in 2014, reflecting the contribution from its recently-completed acquisition of ViroPharma Inc. and cost cutting, even as the cost of the acquisition and investments in its drugs pipeline weighed on its first quarter result.
Shire completed the acquisition for USD4.2 billion in January. It now expects to see non-GAAP earnings per share growth in the mid-to-high 20% range in 2014. Previously it had guided at a similar level to the 23% growth it saw in 2013.
On a GAAP basis, Shire posted a pretax profit of USD304.3 million in the first quarter of 2014, down from USD352.0 million a year earlier, as higher operating costs offset a rise in revenue to USD1.31 billion, from USD1.10 billion.
Its operating expenses rose to USD1.04 billion, from USD781.9 million, including a USD166.0 impairment charge for its Iron overload treatment SHP602 and USD57.8 million in amortisation relating to intellectual property rights Shire acquired. The company said a phase II trial for SHP602 programme had been put on hold while it evaluates toxicology findings.
Shire also booked reorganisation costs of USD49.4 million as it worked on its 'One Shire' plan to integrate and pull together its businesses.
Shire said it continues to expect the reorganisation to cut its operating costs, and as a result expects combined non-GAAP research and development, and selling, general and administrative expenses to grow by 4% to 6% in 2014. Previously it had guided at 6% to 8%.
It expects these expenses to be higher in the remaining quarters of 2014 compared to the first, as it continues to invest in its pipeline and new acquisitions. It also will increase its commercial spending ahead of the launch of attention deficit hyperactivity disorder treatment SHP465 in the US and thrombocythaemia treatment XAGRID in Japan.
Shire maintained the rest of its existing guidance, continuing to expect 2014 product sales growth in the mid-to-high teens, and royalties and other revenues to be 10-15% lower than 2013. It continues to expect non-GAAP gross margin to be around 1% lower than 2013 due to a slight dilution from ViroPharma.
On a non-GAAP basis, taking out amortisation, impairments, acquisition and divestment activities and legal and litigation costs, operating income rose 40% to USD591 million in the first quarter, from USD421 million a year earlier, reflecting lower operating expenses.
Product sales grew 19% in the first quarter including USD93 million from ViroPharma products. Excluding sales from ViroPharma products, product sales rose 11%.
ADHD treatment Vyvanse sales rose 18% during the quarter, driven by price increases and some higher prescription demand, although this was offset somewhat by de-stocking in the US in the quarter.
Ulcerative Colitis treatment Lialda/Mezavent rose 28%, driven by higher prescription demand in the US. Sales of hereditary angiodena attack treatment Firazyr rose 80%. Cinryze, which is a ViroPharma product and is also for the treatment of hereditary angiodena, saw sales rise 16%.
Adderall XR sales dropped 15% as the drug continued to be hit by generic competition.
Royalty revenues were USD32.3 million, down from USD38.5 million, hit by poor royalties from hepatitis B treatments 3TC and Zeffix. In the quarter, Adderall XR revenues benefited from royalties from Teva Pharmaceuticals Inc that will not continue after the first quarter.
Shire also said Thursday that it will acquire biotechnology company Fibrotech Therapeutics Pty Ltd for USD75 million. The deal will add a new product to its pipeline. FT011, for the treatment for renal impairment, is currently in a Phase 1B study.
The acquisition is subject to approval from Australia's Foreign Investment Review Board.
In a call with journalists, Chief Executive Office Flemming Ornskov did not comment on the reported approach from botox maker Allergan Inc for a potential takeover, saying that he would not comment "about specifics". Ornskov said that in terms of potential mergers and acquisitions, Shire would be looking for innovation and products it can bring to market. "Size doesn't come into that," he said.
Berenberg maintained its Hold rating for Shire, noting that "all-in-all the top-line performance looks to be uninspiring, especially from the rare disease business perspective. Despite this, products such as Vyvanse and Lialda were negatively affected by destocking effects, suggesting a portion of the underperformance is one-off."
"The bottom line and guidance upgrade are purely cost-driven, but nonetheless an upgrade is an upgrade and this is positive," Berenberg said.
Berenberg noted that shire had increased its borrowing limit from USD4 billion to USD12 billion, which supported "the view that M&A could be on its way."
Jefferies reiterated its Buy rating for the company, which it said was driven by its attractive relative valuation.
"Despite the somewhat disappointing US ADHD trends, we remain bullish given the clear evidence of cost control, plus the outstanding potential for pipeline news, which together could accelerate EPS growth and justify multiple expansion. The substantial cash flows also facilitate possible accretive company or product acquisitions," Jefferies said.
Shares in Shire were trading up 1.4% at 3,425.00 pence Thursday afternoon.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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