25th Apr 2007 11:22
Hampshire International Business Park
Chineham Basingstoke Hampshire RG24 8EP United Kingdom Tel +44 (0)1256 894000 Fax +44 (0)1256 894708 www.shire.com Press Release 12.00 pm GMT 7.00 am EST
First quarter results - strong start to the year with upgraded guidance now including New River
Basingstoke, UK and Philadelphia, US - April 25, 2007 - Shire plc announces results for the first quarter 2007.
Q1 2007 Financial Highlights
* Product sales up 33% to $462 million; * Total revenues up 29% to $528 million; and * US GAAP Diluted EPS up 78% and Non GAAP Diluted EPS up 39%.
Matthew Emmens, Chief Executive Officer, commented:
"We've had a strong first quarter with revenue growth of 29%. The ADHD marketis growing at 5% by volume and ADDERALL XR has maintained a 26% market share.DAYTRANA continues to be well accepted and to gain share. We completed theacquisition of New River Pharmaceuticals Inc. on April 19, gaining full controlof the development and marketing rights for VYVANSE and the CARRIERWAVEtechnology platform. We are ready to launch VYVANSE and are awaiting finalassessment by the Drug Enforcement Agency which we expect during June. Werecently conducted in-depth market research analysis of physicians andconsumers receptivity to VYVANSE and found that they viewed it as a veryattractive next generation ADHD treatment that provides impressive efficacy,extended duration of action and lower abuse potential compared to other ADHDmedicines."Our recent product launches are progressing well. Initial US marketing effortswith LIALDA for the treatment of ulcerative colitis have been very encouraging.Our treatment for Hunter syndrome, ELAPRASE, continues to grow. Through March,291 patients worldwide were receiving treatment. In the renal area, the launchof FOSRENOL in Europe continues, and we have gained significant market sharesin many countries. DYNEPO was recently launched in Germany as the first step inthe staged launch of the product in Europe."
Business Highlights
New River Acquisition
On April 19, 2007 Shire completed the acquisition of New River Pharmaceuticals Inc. ("New River") by way of a short-form merger for $64 per share, or approximately $2.6 billion.
The acquisition was funded by:
* Net proceeds of $878 million from the private placement on February 20,
2007 of approximately 42.9 million new ordinary shares at a price of 1075
pence per share (8.4% of Shire plc's issued ordinary share capital prior to
the placing); * A draw down of $1.3 billion on the new bank facilities of $2.3 billion secured on February 20, 2007. A further $1.0 billion remains available under those bank facilities for general corporate purposes, including future acquisitions; with * The balance coming from Shire's pre-acquisition cash resources.
SPD754 (Apricitabine) - HIV
* On January 22, 2007 Shire amended its out-license agreement with Avexa
Limited ("Avexa") relating to the investigational HIV compound SPD754, to
extend Avexa's exclusive commercialization rights to include the US and
Canadian markets. In return, Shire received an up-front cash payment of $10
million, eight million additional Avexa shares valued at approximately $3.0
million (taking its shareholding in Avexa to just over 8%) and will receive
further milestones and royalty payments upon approval and commercialization
of the product. Total upfront consideration will be spread over 28 months
and $0.8m was recognised in Q1 2007. * In March 2007, Avexa reported positive Phase 2b results for SPD754 and initiated a capital raising program, including a rights issue, to fund Phase 3 trials. Shire has fully participated in the rights issue.
Product Highlights
DYNEPO‚® (epoetin delta) - Anemia associated with chronic kidney disease
* In March 2007 Shire launched DYNEPO in Germany, the initial step of a
staged launch of the product in Europe. DYNEPO is the first and only
erythropoiesis-stimulating agent produced in a human cell line.
LIALDA¢â€ž¢ (mesalamine) - Ulcerative colitis
* LIALDA, the only once-daily oral formulation of mesalamine was approved by
the FDA on January 16, 2007 and became available to patients in the US on
March 19, 2007. As of April 13, 2007 LIALDA had captured 1.2% of the oral
mesalamine market.
FOSRENOL‚® (lanthanum carbonate) - Hyperphosphatemia
* FOSRENOL was launched in the UK on February 19, 2007. Launches in Spain,
Italy and Canada are expected by the end of 2007.
REPLAGAL‚® (agalsidase alfa) - Fabry disease
* REPLAGAL was launched in Japan through Shire's partner Dainippon Sumitomo
Pharma Co., Ltd on February 15, 2007.
ELAPRASE¢â€ž¢ (idursulfase) - Hunter syndrome
* The European Commission granted marketing authorisation for ELAPRASE on
January 8, 2007. Pricing and reimbursement procedures are underway and
ELAPRASE was launched in the UK and Germany in Q1 2007. ELAPRASE continues
to be sold in European countries that have mechanisms for pre-approval
access including France, Italy and Spain. Launch is expected across the
majority of other EU countries in 2007. Through March 2007, 291 patients
worldwide were receiving treatment.
Pipeline Highlights
VYVANSE¢â€ž¢ (lisdexamfetamine dimesylate) - ADHD
* On February 23, 2007 the FDA granted marketing approval for VYVANSE for the
treatment of ADHD in children aged six to twelve years old. A supplemental
New Drug Application for the adult indication is expected to be filed with
the FDA in Q2 2007.
DAYTRANA¢â€ž¢ (methylphenidate transdermal system) - ADHD
* Shire is planning to make regulatory filings in Europe for DAYTRANA in H2
2007.
In addition, Shire is anticipating FDA decisions on:
* SPD465 - ADHD: The Prescription Drug User Fee Act (PDUFA) date is May 21,
2007; and
* SPD503 - ADHD: The PDUFA date is June 24, 2007.
Q1 2007 Unaudited Results
Q1 2007 Q1 2006 US GAAP Adjustments Non GAAP US GAAP Adjustments Non GAAP (1) (1) $M $M $M $M $M $M _______ _________ __________ _______ __________ __________ Revenues 528.2 - 528.2 411.0 - 411.0 Income from 153.7 25.9 179.6 23.5 98.6 122.1ongoing operations (2) Net income 112.7 18.9 131.6 61.1 30.4 91.5 Diluted earnings per: Ordinary share 21.3c 3.6c 24.9c 12.0c 5.9c 17.9c ADS 63.9c 10.8c 74.7c 36.0c 17.7c 53.7c
Note: Average exchange rates for Q1 2007 and Q1 2006 were $1.95: ‚£1.00 and $1.75: ‚£1.00 respectively. (1) Non GAAP income from ongoing operations, Non GAAP net income and Non GAAPdiluted earnings per ordinary share and per ADS for both Q1 2007 and Q1 2006exclude intangible asset amortization charges, the accounting impact ofshare-based compensation and other non-GAAP items as described on page 5. Foran explanation of why Shire's management believes that these non-GAAP financialmeasures are useful to investors, see page 5. For a reconciliation of thesenon-GAAP financial measures to the most directly comparable financial measuresprepared in accordance with US GAAP, see pages 20-21.
(2) Income from continuing operations before income taxes and equity in earnings of equity method investees.
2007 Financial Outlook (including New River acquisition)
We have upgraded the previous guidance given as part of the 2006 year end results and it is now updated to include the impact of the New River acquisition as follows:
* 2007 revenue growth is now expected to be in the low 20% range (previous
guidance: around 20%) assuming prescription growth in the ADHD market of
4-6%;
* As in 2006, earnings for 2007 will be impacted by the costs associated with
the continued development, launch and roll-out of new products. These include in 2007 and H1 2008 VYVANSE, DAYTRANA, ELAPRASE, LIALDA and FOSRENOL in the US and ELAPRASE, FOSRENOL and DYNEPO in Europe. * These launches and roll-outs will require additional advertising and promotional spend and in some cases additional sales representatives. Consequently, SG&A costs are expected to rise to between $930 - $960
million for 2007. The level of quarterly SG&A expenditure is expected to
increase over the Q1 2007 spend as we expand the ADHD sales force (to launch VYVANSE and continue the roll-out of DAYTRANA) and the US sales force for GI (to launch LIALDA). * Phase 3(b) and Phase 4 studies to support new product launches and the
continuation of Phase 3 trials on GA-GCB, the development of the Women's
Health and New River franchises, pre-clinical development of three HGT
projects, two new Phase 1 projects and two further pre-clinical projects,
are all expected to result in R&D spend in the range of $340 - $360 million
(previous guidance: $360 - $380 million. The level of quarterly R&D
expenditure is expected to increase over the Q1 2007 spend as we commence
new Phase 3(b)/4 studies to support new product launches (including VYVANSE
and LIALDA); * The following other guidance is unchanged unless stated: * The depreciation charge for the year is expected to increase by approximately 20% compared to 2006; and * The effective tax rate for 2007 is expected to be approximately 26%. Shire reports its non GAAP earnings based on net income adjusted for certainitems, and also from Q1 2007 excluding intangible asset amortization chargesand the accounting impact of SFAS123R for share based compensation. Thefinancial outlook for the full year stated above excludes intangible asset amortization charges, which are expected to rise by up to 80% (previousguidance: up 20%) over the 2006 charge of $57.4 million (including $1.1 millionof impairments) and the accounting impact of SFAS 123R estimated atapproximately $45m (split for GAAP purposes between cost of product sales, R&Dand SG&A in the approximate ratio of 10%, 20% and 70%, respectively). Alsoexcluded, will be integration costs for the New River acquisition which areestimated to be approximately $10m and other non-GAAP items as described onpage 5.
For further information please contact:
Investor Relations Clĩa Rosenfeld (Rest of the World) +44 1256 894 160 Eric Rojas (North America) +1 484 595 8252 Media Jessica Mann (Rest of the World) +44 1256 894 280 Matthew Cabrey (North America) +1 484 595 8248
Notes to editors
SHIRE PLC
Shire's strategic goal is to become the leading specialty biopharmaceuticalcompany that focuses on meeting the needs of the specialist physician. Shirefocuses its business on ADHD, human genetic therapies (HGT), gastrointestinal(GI) and renal diseases. The structure is sufficiently flexible to allow Shireto target new therapeutic areas to the extent opportunities arise throughacquisitions. Shire believes that a carefully selected portfolio of productswith a strategically aligned and relatively small-scale sales force willdeliver strong results.Shire's focused strategy is to develop and market products for specialtyphysicians. Shire's in-licensing, merger and acquisition efforts are focused onproducts in niche markets with strong intellectual property protection eitherin the US or Europe.
For further information on Shire, please visit the Company's website: www.shire.com
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-lookingstatements. Such forward-looking statements involve a number of risks anduncertainties and are subject to change at any time. In the event such risks oruncertainties materialize, Shire's results could be materially affected. Therisks 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 Deficitand Hyperactivity Disorder ("ADHD") franchise; patents, including but notlimited to, legal challenges relating to Shire's ADHD franchise; governmentregulation and approval, including but not limited to the expected productapproval dates of SPD503 (guanfacine extended release) (ADHD) and SPD465(extended release triple-bead mixed amphetamine salts) (ADHD); Shire's abilityto secure new products for commercialization and/or development; Shire'sability to benefit from its acquisition of New River Pharmaceuticals Inc.; andother risks and uncertainties detailed from time to time in Shire plc's filingswith the Securities and Exchange Commission, particularly Shire plc's AnnualReport on Form 10-K for the year ended December 31, 2006.
Non-GAAP Measures
This press release contains financial measures not prepared in accordance withUS GAAP. These measures are referred to as "non GAAP" measures and include NonGAAP income from ongoing operations, Non GAAP net income, Non GAAP dilutedearnings per ordinary share and Non GAAP diluted earnings per ADS. These nonGAAP measures exclude the effect of certain cash and non-cash items, bothrecurring and non-recurring, that Shire's management believes are not relatedto the core performance of Shire's business.These non GAAP financial measures are used by Shire's management to makeoperating decisions because they facilitate internal comparisons of theCompany's performance to historical results and to competitors' results. Thesemeasures are also considered by the Remuneration Committee of Shire's Board ofDirectors in assessing the performance and compensation of employees, includingits executive officers.The non GAAP measures are presented in this press release as the Company'smanagement believe that they will provide investors with a means of evaluating,and an understanding of how Shire's management evaluates, the Company'sperformance and results on a comparable basis that is not otherwise apparent ona GAAP basis, since many one-time, infrequent or non-cash items that theCompany's management believe are not indicative of the core performance of thebusiness may not be excluded when preparing financial measures under US GAAP.However, these non GAAP measures should not be considered in isolation from, assubstitutes for, or superior to financial measures prepared in accordance withUS GAAP.
The following are trademarks of Shire or companies within the Shire Group which are the subject of trademark registrations in certain territories:
ADDERALL XR‚® (mixed salts of a single-entity amphetamine) AGRYLIN‚® (anagrelide hydrochloride) CALCICHEW‚® range (calcium carbonate with or without vitamin D3) CARBATROL‚® (carbamazepine extended-release capsules)
CARRIERWAVE¢â€ž¢
DAYTRANA¢â€ž¢ (methylphenidate transdermal system)
ELAPRASE¢â€ž¢ (idursulfase)FOSRENOL‚® (lanthanum carbonate)GENE-ACTIVATED‚®
LIALDA¢â€ž¢ (mesalamine)
REMINYL‚® (galantamine hydrobromide) (UK and Republic of Ireland) REMINYL XL¢â€ž¢ (galantamine hydrobromide) (UK and Republic of Ireland) REPLAGAL‚® (agalsidase alfa) VYVANSE¢â€ž¢ (lisdexamfetamine dimesylate)
XAGRID‚® (anagrelide hydrochloride)
The following are trademarks of third parties referred to in this press release :
3TC (trademark of GlaxoSmithKline (GSK)DYNEPO (trademark of Sanofi Aventis)PENTASA (trademark of Ferring)RAZADYNE (trademark of Johnson & Johnson)RAZADYNE ER (trademark of Johnson & Johnson)REMINYL (trademark of Johnson & Johnson, excluding UK and Republic of Ireland)REMINYL XL (trademark of Johnson & Johnson, excluding UK and Republic ofIreland)ZEFFIX (trademark of GSK)
OVERVIEW OF US GAAP FINANCIAL RESULTS
1. Introduction
Summary of Q1 2007
Revenues from continuing operations for the three months to March 31, 2007 increased by 29% to $528.2 million (2006: $411.0 million).
Income from continuing operations (before income taxes and equity in earningsof equity method investees) for the three months to March 31, 2007 was $153.7million (2006: $23.5 million). The increase in income from continuingoperations is primarily due to increased product sales in 2007 compared to2006, a $23.6 million fair value adjustment to costs of sales in Q1 2006relating to acquired inventory in the Transkaryotic Therapies, Inc. ("TKT")acquisition, decreased R&D expenditure following the inclusion of a $50 millionmilestone payment to New River in Q1 2006, with all the above items partiallyoff-set by increased SG&A costs (see Note 4 for details).Cash inflow from operating activities for the three months to March 31, 2007decreased by 18% to $101.4 million (2006: $123.4 million). The decreaseresulted mainly from unfavourable movements in working capital primarily due tothe phasing of sales in Q1 2007 compared to Q1 2006.Cash and cash equivalents, restricted cash and short-term investments at March31, 2007 totaled $2,076.4 million (December 31, 2006: $1,156.7 million). Theincrease in cash and cash equivalents during the quarter of $919.3 million wasprimarily due to the net proceeds from the issuance of common stock of $878.3million to part fund the acquisition of New River together with positive cashflow from operating activities.
2. Product sales
For the three months to March 31, 2007 product sales increased by 33% to $461.5million (2006: $346.0 million) and represented 87% of total revenues (2006:84%).Product Highlights Sales Sales US Rx US Market Product $M Growth (2) Growth (1) Share (1) (2) ADDERALL XR 249.1 +21% +5% 26% DAYTRANA 11.9 - n/a 2% PENTASA 43.8 +56% +6% 18% FOSRENOL 22.8 +192% +15% 9% REPLAGAL 32.5 +26% n/a n/a ELAPRASE 26.6 - n/a n/a CARBATROL 15.5 +10% -6% 41% XAGRID(3) 14.5 +20% n/a n/a
(1) IMS Prescription Data - Product specific (March 2007).
(2) Compared to Q1 2006.
(3) Worldwide sales excluding US and Canada.
ADDERALL XR - ADHD
ADDERALL XR is the leading brand in the US ADHD market with an average marketshare of 26% in March 2007 (2006: 26%). US ADHD market growth of 5% resulted ina 5% increase in US prescriptions for ADDERALL XR for the three months to March31, 2007 compared to the same period in 2006.Sales of ADDERALL XR for the three months to March 31, 2007 were $249.1million, an increase of 21% compared to the same period in 2006 (2006: $206.1million). Product sales growth was significantly higher than prescriptiongrowth due primarily to price increases in April 2006 and January 2007 and anincrease in pipeline inventory in Q1 2007 compared to a reduction in Q1 2006.
Litigation proceedings concerning Shire's ADDERALL XR patents are ongoing. 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, 2006.
DAYTRANA - ADHD
Following its launch in June 2006, DAYTRANA achieved a 2.3% share of the US ADHD market by March 31, 2007. Net sales for the three months to March 31, 2007 were $11.9 million and were impacted by the redemption of $7.2 million of coupons issued to support the product launch.
The addition of DAYTRANA, combined with the ADDERALL XR market share has helpedShire grow its total share of the US ADHD market to 28% at March 31, 2007compared to 27% (which included a 1% share relating to ADDERALL) at March 31,2006.PENTASA - Ulcerative colitis
US prescriptions for the three months to March 31, 2007 were up 6% compared to the same period in 2006 primarily due to a 4% increase in the US oral mesalamine prescription market and an increase in PENTASA's US market share from 17.4% to 17.9%.
Sales of PENTASA for the three months to March 31, 2007 were $43.8 million, an increase of 56% compared to the same period in 2006 (2006: $28.1 million). Sales growth is higher than prescription growth due to significant pipeline stocking in Q1 2007 compared to de-stocking in Q1 2006 and the impact of a price increase in November 2006.
FOSRENOL - Hyperphosphatemia
US sales of FOSRENOL for the three months to March 31, 2007 were $16.3 million(2006: $7.2 million). US IMS Retail Audit prescriptions for the three months toMarch 31, 2007 were up 15% compared to 2006 due to FOSRENOL increasing itsaverage market share to 9% (2006: 8%) and market growth of 6% over the sameperiod. The increase in net sales is significantly higher than retail auditprescription growth due to a combination of a price increase in July 2006,growth in use of the higher strengths (launched in early 2006), lower salesdeductions and the growth of non-retail business.FOSRENOL was launched in the US in January 2005. An agreement with Abbott wassigned in December 2006 for the co-promotion of FOSRENOL in the US. Abbott'sUS renal care sales team started to co-promote FOSRENOL with Shire's US salesforce in Q1 2007 and will continue the co-promotion for a term of five years.
On October 18, 2006 Health Canada granted a marketing license application for FOSRENOL. The Canadian launch is planned for Q2 2007.
In Europe, FOSRENOL has now been launched in Germany, France, UK and a numberof other countries. Launches will continue throughout 2007 in the EU includingItaly and Spain, subject to finalization of national licensing and conclusionof pricing and reimbursement negotiations. European sales of FOSRENOL for thethree months to March 31, 2007 were $6.5 million (2006: $0.6 million), givingtotal FOSRENOL sales worldwide of $22.8 million (2006: $7.8 million).
REPLAGAL - Fabry disease
Sales for the three months to March 31, 2007 were $32.5 million (2006: $25.8million). This represents an increase in sales of 26% which is due toadditional patients beginning therapy in both Europe and in the rest of worldmarkets, and the impact of favorable exchange rates.
ELAPRASE - Hunter syndrome
ELAPRASE was successfully launched in the US in August 2006 and in the UK andGermany in Q1 2007. ELAPRASE continues to be sold in European countries thathave mechanisms for pre-approval access including France, Italy and Spain. Bythe end of the first quarter 291 patients were on the treatment. Sales for thethree months to March 31, 2007 were $26.6 million compared to $19.3 million forthe three months to December 31, 2006 and continue to grow.
CARBATROL - Epilepsy
US prescriptions for the year ending March 31, 2007 were down 6% compared tothe same period in 2006. This was primarily due to a 4% decline in the USextended release carbamazepine prescription market and a decline in CARBATROL'sUS market share from 42% to 41%.Sales of CARBATROL for the three months to March 31, 2007 were $15.5 million,an increase of 10% compared to the same period in 2006 (2006: $14.1 million).Despite the drop in prescriptions, sales growth arose due to a price increasein July 2006 and stocking in 2007 compared to destocking in 2006.Patent litigation proceedings with Nostrum Pharmaceuticals, Inc. and CorepharmaLLC relating to CARBATROL are ongoing. Further information about the ongoingproceedings relating to the Company's CARBATROL patents can be found in ourfilings with the US Securities and Exchange Commission, including our AnnualReport on Form 10-K for the period ended December 31, 2006.
XAGRID - Thrombocythemia
Sales for the three months to March 31, 2007 were $14.5 million, an increase of20% compared to the same period in 2006 (2006: $12.1 million). Expressed intransaction currencies (XAGRID is primarily sold in Euros), sales increased by9% due to growth in many of Shire's markets. In addition there was a benefit of11% from favorable exchange rate movements against the US dollar.
3. Royalties
Royalty revenue is down 2% at $59.5 million for the three months to March 31, 2007 (2006: $61.0 million).
Royalty HighlightsProduct Royalties to Shire Royalty (1) $M Growth % 3TC 35.5 -10%(2) ZEFFIX 9.1 +18%(3) Other 14.9 +8% Total 59.5 -2% (1) Compared with 2006.
(2) The impact of foreign exchange movements has contributed +4% to the reported growth.
(3) The impact of foreign exchange movements has contributed +11% to the reported growth.
3TC - HIV infection and AIDS
Royalties from sales of 3TC for the three months to March 31, 2007 were $35.5 million, a decrease of 10% compared to the prior year (2006: $39.5 million).
Shire receives royalties from GSK on worldwide 3TC sales. GSK's worldwide salesof 3TC for the three months to March 31, 2007 were $270 million, a decrease of11% compared to prior year (2006: $305 million). The nucleoside analogue marketfor HIV has continued to grow, however competitive pressures within the markethave increased, leading to a decline in 3TC sales.
ZEFFIX - Chronic hepatitis B infection
Royalties from sales of ZEFFIX for the three months to March 31, 2007 were $9.1 million, an increase of 18% compared to the prior year (2006: $7.7 million).
Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK's worldwidesales of ZEFFIX for the three months to March 31, 2007 were $79 million, anincrease of 18% compared to prior year (2006: $67 million). This increase wasmainly due to strong growth in the Chinese and Korean markets and favorableforeign exchange movements.
OTHER
Other royalties are primarily in respect of REMINYL and REMINYL ER (known asRAZADYNE and RAZADYNE ER in the US), a product marketed worldwide (excludingthe UK and the Republic of Ireland) by Janssen Pharmaceutical N.V. (Janssen),an affiliate of Johnson & Johnson. Shire has the exclusive marketing rights inthe UK and the Republic of Ireland.
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 June 2006 Janssen and Synaptech, Inc. filed a law suit against Barr forinfringement of their patent rights relating to RAZADYNE ER as a result of Barrfiling an Abbreviated New Drug Application ("ANDA") with the FDA for a genericversion of RAZADYNE ER. No court date has been set.Barr and other companies have filed ANDAs with the FDA for generic versions ofRAZADYNE and Janssen and Synaptech Inc. have filed law suits against some ofthose ANDA filers. The court date for the first of these proceedings is May
2007.4. Financial detailsCost of product sales
For the three months to March 31, 2007 the cost of product sales was 14% ofproduct sales (2006: 18%). The cost of product sales for REPLAGAL in 2006included a $23.6 million adjustment in respect of acquired inventories (all ofwhich were consumed by Q3 2006). This fair value adjustment increased Shire'scost of product sales as a percentage of product sales for the three months toMarch 31, 2006 by 7%. Excluding the impact of this fair value adjustment in2006, cost of product sales as a percentage of product sales in the threemonths to March 31, 2007 was 3% higher than for the three months to March 31,2006 due to the impact of product mix changes and inventory write-offs.
For the three months to March 31, 2007 cost of product sales included a charge of $0.8 million for share based compensation under SFAS 123R (2006: $0.8 million).
Research and development (R&D)
R&D expenditure decreased from $127.4 million in the three months to March 31, 2006 to $80.8 million in the three months to March 31, 2007.
Expressed as a percentage of total revenues, R&D expenditure was 15% for thethree months to March 31, 2007 (2006: 31%). In the three months to March 31,2006 a payment was made to New River of $50 million on the filing of the drugapproval application for VYVANSE with the FDA. This payment was expensed inaccordance with Shire's accounting policy, and was equivalent to 12% of totalrevenue.
For the three months to March 31, 2007 R&D included a charge of $2.3 million for share based compensation under SFAS 123R (2006: $1.5 million).
Selling, general and administrative (SG&A)
SG&A expenses increased from $182.0 million in the three months to March 31,2006 to $213.8 million in the three months to March 31, 2007, an increase of17%.
The increase in SG&A expenses included the impact of the following:
* Increase in the sales force to promote DAYTRANA and VYVANSE; * The cost of the new GI sales force in the US; and * The launches of DYNEPO and LIALDA and pre-launch activities relating to VYVANSE. As a percentage of product sales, SG&A expenses were 46% (2006: 53%). For thethree months to March 31, 2007 SG&A included a charge of $7.5 million for sharebased compensation under SFAS 123R (2006: $6.7 million), representing 1% ofproduct sales (2006: 2%).
Depreciation and amortization
The depreciation charge for the three months to March 31, 2007 was $13.6million (2006: $9.2 million). The amortization charge for the three months toMarch 31, 2007 was $15.3 million (2006: $13.7 million). The increase indepreciation has resulted from investment in Shire's infrastructure to supportthe continuing growth of the Company. The increase in amortization is primarilydue to the amortization of capitalized milestone payments for DAYTRANAfollowing its launch in June 2006.
Interest income
For the three months to March 31, 2007 Shire received interest income of $19.8million (2006: $14.2 million). Interest income for 2007 primarily related tointerest received on cash balances. Interest income for 2006 comprised $7.9million of interest on cash balances plus $6.3 million interest recognised onrepayment of a $70.6 million loan to IDB Biomedical Inc. ("IDB"). Excludinginterest income in respect of the IDB repayment, interest income for the threemonths to March 31, 2007 is significantly higher than for the three monthsending March 31, 2006 due to increases in the US dollar interest rate andhigher cash balances (Q1 2007 cash balances include net proceeds from theissuance of common stock of $878.3 million to part fund the acquisition of
NewRiver).Interest expense
For the three months to March 31, 2007 the Company incurred interest expense of $7.8 million (2006: $5.6 million).
In both years this expense primarily relates to a provision for interest, whichmay be awarded by the Court in respect of amounts due to those ex-TKTshareholders who have requested appraisal of the acquisition considerationpayable for their TKT shares. The original trial date for the appraisal rightslitigation was set for April 23, 2007, but this trial date has since beendeferred, and the Company is awaiting a new trial date. Further information canbe 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, 2006.
Taxation
The effective rate of tax for the three months to March 31, 2007 was 27% (2006: 28%). At March 31, 2007 net deferred tax assets of $247.8 million were recognized (December 31, 2006: $261.0 million).
Equity in earnings of equity method investees
Net earnings of equity method investees of $0.5 million were recorded for thethree months to March 31, 2007 (2006: $3.5 million). This comprised earnings of$1.5 million from the 50% share of the anti-viral commercialization partnershipwith GSK in Canada (2006: $1.6 million), offset by losses of $1.0 million beingthe Company's share of losses in the GeneChem and EGS Healthcare Funds (2006:earnings of $1.9 million).FINANCIAL INFORMATIONTABLE OF CONTENTS Page
Unaudited US GAAP Consolidated Balance Sheets
12
Unaudited US GAAP Consolidated Statements of Operations
14
Unaudited US GAAP Consolidated Statements of Cash Flows
16
Selected Notes to the Unaudited US GAAP Financial Statements
18 (1) Earnings per share 18 (2) Analysis of revenues 19
Non GAAP reconciliation of income from ongoing operations, net
20
income and numerator for diluted EPS Non GAAP reconciliation of reported EPS
21
Unaudited US GAAP results for the three months to March 31, 2007Consolidated Balance Sheets March 31, December 31, 2007 2006 $M $M ___________ ___________ ASSETS Current assets: Cash and cash equivalents 2,046.2 1,126.9 Restricted cash 30.2 29.8 Accounts receivable, net 388.4 310.8 Inventories 145.2 131.1 Deferred tax asset 92.4 105.7 Prepaid expenses and other current 131.4 106.0assets ___________ ___________ Total current assets 2,833.8 1,810.3 Non current assets: Investments 66.7 55.8 Property, plant and equipment, net 291.9 292.8 Goodwill 237.7 237.4 Other intangible assets, net 746.4 762.4 Deferred tax asset 155.4 155.3 Other non-current assets 21.2 12.4 ___________ ___________ Total assets 4,353.1 3,326.4 ___________ ___________ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 567.8 566.1 Liability to dissenting shareholders 458.5 452.3 Other current liabilities 59.3 313.6 ___________ ___________ Total current liabilities 1,085.6 1,332.0 Non-current liabilities 339.9 52.1 ___________ ___________ Total liabilities 1,425.5 1,384.1 ___________ ___________
Unaudited US GAAP results for the three months to March 31, 2007
Consolidated Balance Sheets (continued)
March 31, December 31, 2007 2006 $M $M __________ ___________ Shareholders' equity: Common stock of 5p par value: 750 million 48.1
43.7
shares authorized; and 551.5 million shares issued and outstanding (2006: 750 million shares authorized; and 506.7 million shares
issued and outstanding) Exchangeable shares: 1.3 million shares 59.3
59.4
issued and outstanding (2006: 1.3 million)
Treasury stock (139.1) (94.8) Additional paid-in capital 2,400.1 1,493.2 Accumulated other comprehensive income 93.5 87.8 Retained earnings 465.7 353.0 _________ ___________ Total shareholders' equity 2,927.6 1,942.3 _________ ___________ Total liabilities and shareholders' equity 4,353.1 3,326.4 _________ ___________
Unaudited US GAAP results for the three months to March 31, 2007 Consolidated Statements of Operations
3 months to 3 months to March 31, March 31, 2007 2006 $M $M ___________ ___________ Revenues: Product sales 461.5 346.0 Royalties 59.5 61.0 Other revenues 7.2 4.0 ___________ ___________ Total revenues 528.2 411.0 ___________ ___________ Costs and expenses: Cost of product sales 63.5 62.0 Research and development 80.8 127.4 Selling, general and administrative 213.8 182.0 Depreciation and amortization 28.9 22.9 Integration costs - 2.3 ___________ ___________ Total operating expenses 387.0 396.6 ___________ ___________ Operating income 141.2 14.4 Interest income 19.8 14.2 Interest expense (7.8) (5.6) Other income, net 0.5 0.5 ___________ ___________ Total other income, net 12.5 9.1 ___________ ___________ Income from continuing operations 153.7 23.5before income taxes and equity in earnings of equity method investees Income taxes (41.5) (6.5) Equity in earnings of equity method 0.5 3.5investees ___________ ___________ Income from continuing operations 112.7 20.5 Gain from discontinued operations - 40.6(net of income tax expense of $nil) ___________ ___________ Net income 112.7 61.1 ___________ ___________
Unaudited US GAAP results for the three months to March 31, 2007 Consolidated Statements of Operations (continued)
3 months to 3 months to March 31, March 31, 2007 2006 ___________ ___________ Earnings per share - basic
Income from continuing operations 21.6c 4.0c Gain on disposition of discontinued operations - 8.1c ___________ ___________ Earning per ordinary share - basic 21.6c 12.1c
___________ ___________ Earnings per share - diluted
Income from continuing operations 21.3c 4.0c Gain on disposition of discontinued operations - 8.0c ___________ ___________ Earnings per ordinary share - diluted 21.3c 12.0c ___________ ___________ Earnings per ADS - diluted 63.9c 36.0c ___________ ___________ Weighted average number of shares:
Basic 522.6 503.2 Diluted 529.7 510.3 ___________ ___________
Unaudited US GAAP results for the three months to March 31, 2007 Consolidated Statements of Cash Flows
3 months to 3 months to March 31, March 31, 2007 2006 ___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 112.7 61.1
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization:
- in cost of product sales 1.3 1.1 - in other costs and expenses 28.6 22.9 Share based compensation 10.6 9.0
Write-down of long-term assets 0.3
-
Loss on sale of long-term assets 0.1
-
Equity in earnings of equity method investees (0.5)
(3.5)
Gain on disposition of discontinued operations -
(40.6)
Changes in operating assets and liabilities, net of
acquisitions: (Increase)/decrease in accounts receivable (77.8)
56.4
Increase in sales deduction accrual 29.7
4.9
(Increase)/decrease in inventory (13.4)
5.1
(increase)/decrease in prepayments and other (13.8) 22.6current assets
(Increase)/decrease in other assets (9.1)
2.4 Movement in deferred taxes 13.7 (10.2) Decrease in accounts and notes payable and other (17.5) (4.5)liabilities Increase/(decrease) in deferred revenue 36.5 (3.3) ___________ ___________ Net cash provided by operating activities(A) 101.4 123.4 ___________ ___________
Unaudited US GAAP results for the three months to March 31, 2007 Consolidated Statements of Cash Flows
3 months to 3 months to March 31, 2007 March 31, $M 2006 $M ___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES: Movements in short-term investments - 5.5 Movements in restricted cash (0.4) (0.3) Purchase of subsidiary undertaking, net of cash - (0.8)acquired
Expenses relating to the acquisition of New (3.1)
-River Purchase of long-term investments (2.1)
(0.5)
Purchase of property, plant and equipment (17.9)
(26.5)
Purchases of intangible assets (28.2)
(0.2)
Deposit received for sale of intangible assets 7.0 - Proceeds from loan repaid by IDB -
70.6
Returns of equity investments 1.2
- ___________ ___________ Net (cash used in)/provided by investing (43.5) 47.8activities(B) ___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of 2% convertible loan notes -
(0.1)
Payment of debt issuance costs (2.9)
-
Proceeds from exercise of options 22.4
13.8
Proceeds for the future exercise of warrants 7.0
-
Proceeds from issue of common stock, net 878.3
-
Excess tax benefit of share based compensation, - 1.2 charged directly to equity Payments to acquire treasury stock (44.4) (2.0) ___________ ___________ Net cash provided by financing activities(C) 860.4 12.9 ___________ ___________ Effect of foreign exchange rate changes on cash 1.0 1.8 and cash equivalents (D) ___________ ___________ Net increase in cash and cash equivalents(A) + 919.3 185.9 (B) +(C) +(D) Cash and cash equivalents at beginning of period 1,126.9 656.5 ___________ ___________ Cash and cash equivalents at end of period 2,046.2 842.4 ___________ ___________
US GAAP results for the three months to March 31, 2007
Selected Notes to the Unaudited US GAAP Financial Statements
(1) Earnings per share 3 months to 3 months to March 31, March 31, 2007 2006 $M $M ___________ ___________ Income from continuing operations 112.7
20.5
Gain on disposition of discontinued operations - 40.6 ___________ ___________ Numerator for basic and diluted EPS 112.7 61.1 ___________ ___________
Weighted average number of shares:
___________ ___________ Basic 522.6 503.2 Effect of dilutive shares: Stock options 6.4 6.5 Warrants 0.7 0.6 ___________ ___________ Diluted 529.7 510.3 ___________ ___________
The share options not included in the calculation of the diluted weighted average number of shares because the exercise prices exceeded Shire's average share price during the calculated period, are shown below:
3 months to 3 months to March 31, 2007 March 31, 2006 No. of shares No. of shares Millions Millions ___________ ___________ Stock options 10.3 2.2 ___________ ___________
Unaudited US GAAP results for the three months to March 31, 2007 Selected Notes to the US GAAP Financial Statements (continued)
(2) Analysis of revenues
3 months to 3 months to 3 months to 3 months to March 31, March 31, March 31, March 31, 2007 2007 2006 2007 % of total $M $M % change revenue Net product sales: ___________ ___________ ___________ ___________ ADHD ADDERALL XR 249.1 206.1 +21% 47% ADDERALL - 9.1 - - DAYTRANA 11.9 - - 2% ___________ ___________ ___________ ___________ 261.0 215.2 +21% 49% ___________ ___________ ___________ ___________ GI PENTASA 43.8 28.1 +56% 8% ___________ ___________ ___________ ___________ RENAL FOSRENOL 22.8 7.8 +192% 4% ___________ ___________ ___________ ___________ HGT REPLAGAL 32.5 25.8 +26% 6% ELAPRASE 26.6 - - 5% ___________ ___________ ___________ ___________ 59.1 25.8 +129% 11% ___________ ___________ ___________ ___________ GP CALCICHEW 12.1 10.4 +16% 2% CARBATROL 15.5 14.1 +10% 4% REMINYL/REMINYL XL 7.0 4.2 +67% 1% XAGRID 14.5 12.1 +20% 3% ___________ ___________ ___________ ___________ 49.1 40.8 +20% 10% ___________ ___________ ___________ ___________ Other product sales 25.7 28.3 -9% 5% ___________ ___________ ___________ ___________ Total product sales 461.5 346.0 +33% 87% ___________ ___________ ___________ ___________ Royalty income: 3TC 35.5 39.5 -10% 7% ZEFFIX 9.1 7.7 +18% 2% Others 14.9 13.8 +8% 3% ___________ ___________ ___________ ___________ 59.5 61.0 -2% 12% ___________ ___________ ___________ ___________ Other 7.2 4.0 +80% 1% ___________ ___________ ___________ ___________ Total revenues 528.2 411.0 +29% 100% ___________ ___________ ___________ ___________
Non GAAP reconciliation of income from ongoing operations, net income and numerator for diluted EPS for the 3 months to March 31, 2007 and 2006
3 months to 3 months to March 31, March 31, 2007 2006 $M $M ___________ ___________
Non GAAP reconciliation of income from ongoing
operations(1) Income from ongoing operations(1) 153.7 23.5 Add back: TKT cost of product sales fair value adjustment - 23.6 New River milestone payment - 50.0 TKT integration costs - 2.3 Intangible asset amortization 15.3
13.7
Share based compensation under SFAS 123R 10.6
9.0 ___________ ___________ Non GAAP adjustment to income from ongoing 25.9 98.6operations(1) ___________ ___________ Non GAAP income from ongoing operations(1) 179.6 122.1 ___________ ___________
Non GAAP reconciliation of net income and numerator
for diluted EPS Net income 112.7 61.1 Non GAAP adjustment to income from ongoing 25.9 98.6operations(1) Taxes on above adjustments (7.0) (27.6) Gain on disposition of discontinued operations - (40.6) ___________ ___________ Non GAAP adjustment to net income and numerator for 18.9 30.4diluted EPS ___________ ___________ Non GAAP net income and numerator for non GAAP 131.6 91.5diluted EPS ___________ ___________(1) Income from continuing operations before income taxes and equity inearnings of equity method investees.Non GAAP reconciliation of reported EPS forthe 3 monthsto March 31, 2007 and 2006 3 months to 3 months to March 31, March 31, 2007 2006 $M $M ___________ ___________ Earnings per ordinary share-diluted 21.3c 12.0c Add back: Gain on disposition of discontinued operations -
(8.0c)
TKT cost of product sales fair value adjustment -
4.6c New River milestone payment - 9.8c TKT integration costs - 0.5c
Intangible asset amortization 2.9c
2.6c
Share based compensation under SFAS 123R 2.0c
1.8c Taxes on above adjustments (1.3c) (5.4c) ___________ ___________
Non GAAP adjustments to diluted EPS per ordinary 3.6c
5.9cshare ___________ ___________ Non GAAP - diluted EPS per ordinary share 24.9c 17.9c ___________ ___________ Non GAAP - diluted EPS per ADS 74.7c 53.7c ___________ ___________ - ENDS -
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