30th Oct 2009 12:00
Shire continues to deliver excellent growth from core products
October 30, 2009 - Shire plc the global specialtybiopharmaceutical company, announces results for the three months to September30, 2009.Q3 2009 Financial Highlights Q3 2009(1) Product sales $603 million -15%
Product sales from core products(2) $532 million +20% Product sales growth from core products at constantexchange rates(2) (3) +23% Total revenues $667 million -14% Non GAAP operating income $134 million -52%US GAAP operating income $92 million -25%
Non GAAP diluted earnings per ADS $0.49
-58%
US GAAP diluted earnings per ADS $0.33
+$0.52
(1) Figures compare Q3 2009 results with the same period in 2008.
(2) Core products represent Shire's products excluding ADDERALL XR.
(3) Sales growth at constant exchange rates ("CER"), which is a Non
GAAP measure, is calculated after restating Q3 2009 results using Q3 2008
average foreign exchange rates.
Angus Russell, Chief Executive Officer, commented:
"Shire continues to deliver excellent growth from its core products, which were up 20% over an exceptionally strong Q3 2008. This performance reflects our transformation in the past few years into a global biopharmaceutical company with a proven differentiated strategy and a balanced portfolio of new products which is protected by strong exclusivity and patent protection.
The growth of our core products and continued pro-active cost management arepositioning us well to deliver on our unchanged guidance framework for 2009and our aspiration of growing sales in the mid-teens range on average between2009 and 2015.Following US approval of INTUNIV, our new ADHD treatment, we are preparing forthe US launch next week. INTUNIV adds a new choice of treatment for physiciansand patients within our market-leading branded portfolio of ADHD products. Wehave also continued to grow VYVANSE's market share which is now 13.4%,benefiting from both the `back to school' season and strong 10% ADHD marketgrowth. These results reinforce our confidence that VYVANSE will grow tobecome a leading product in this market.Our HGT business continues to deliver; a New Drug Application forvelaglucerase alfa, for Gaucher disease, was filed with the FDA at the end ofAugust. Velaglucerase alfa is available ahead of its commercial launch in theUS via a treatment protocol and elsewhere on a pre-approval access basis. Weare supporting the Fabry disease community with a stronger uptake of REPLAGALin Europe. In the US a treatment protocol has been approved, enablingimmediate access to the drug. In addition we plan to file a Biologics LicenseApplication with the FDA for REPLAGAL by the end of the year.We continue to invest in our R&D pipeline. This quarter we announced aresearch collaboration with Santaris Pharma A/S, a leading player in RNA-basedtherapeutics, to develop its proprietary Locked Nucleic Acid technology in arange of rare diseases, thereby enabling us to build on our already strongcompetitive position in this area."
Third Quarter 2009 Unaudited Results
Q3 2009 Q3 2008 Non Non US GAAP Adjustments GAAP(1) US GAAP Adjustments GAAP(1) $M $M $M $M $M $MRevenues 667 - 667 779 - 779Operating income 92 42 134 123 156 279Net income/(loss) 60 29 89 (35) 251 216Diluted earnings/(loss)per ADS 33c 16c 49c (20c) 137c 117c
Note: Average exchange rates for Q3 2009 were $1.64: 1.00 and $1.43:EUR1.00, (Q3 2008: $1.89: 1.00 and $1.52:EUR1.00).
(1) The Non GAAP financial measures included above are explained on pages 26and 27, together with an explanation of why Shire's management believes thatthese measures are useful to investors. For a reconciliation of these Non GAAPfinancial measures to the most directly comparable financial measures preparedin accordance with US GAAP, see pages 22 to 25.
FINANCIAL SUMMARY
Third Quarter 2009 (see page 7 for full Financial Results)
- Product sales from core products were up 20% (up 23% at CER) to $532 million, driven by continued strong growth from:
- VYVANSE(R) (up 34% to $129 million);
- LIALDA(R) /MEZAVANT(R) (up 62% to $65 million);
- ELAPRASE(R) (up 16% to $91 million, up 20% at CER); and
- REPLAGAL(R) (up 8% to $48 million, up 15% at CER).
- Product sales including ADDERALL(R) XR, were down 15% to $603 million, as ADDERALL XR product sales declined by 74%, or $198 million to $71 million.
- Non GAAP operating income decreased by 52%, or $145 million, to $134 milliondue to the lower ADDERALL XR revenues in Q3 2009 and increased investment inresearch and development, which were partially offset by higher revenues fromcore products and lower selling, general and administrative costs. On a USGAAP basis operating income in Q3 2009 was $92 million, compared to $123million in 2008 (2008 included the impact of a $121 million in-process R&Dcharge relating to the acquisition of Jerini AG ("Jerini")).
- Non GAAP diluted earnings per ADS were down 58% to $0.49 (Q3 2008: $1.17), and on a US GAAP basis diluted earnings per ADS were $0.33 (Q3 2008: $(0.20)).
- During the first three quarters of 2009 Shire has generated Non GAAP diluted earnings per ADS of $2.38 ($1.74 on a US GAAP basis).
THIRD QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS
Products
VYVANSE - for the treatment of Attention Deficit and Hyperactivity Disorder ("ADHD")
- Following a review of governing statutory and regulatorystandards and public comments, the US Food and Drug Administration ("FDA") hasaffirmed its prior decision to grant five-year New Chemical Entity ("NCE")exclusivity to lisdexamfetamine dimesylate. The five-year exclusivity periodfor VYVANSE expires on February 23, 2012. As a consequence of this decision,the FDA appropriately refused to file the Abbreviated New Drug Applicationsubmitted by Actavis Elizabeth, LLC ("Actavis") for generic lisdexamfetaminedimesylate in January 2009. VYVANSE is covered by US patents which remain ineffect until June 29, 2023.
INTUNIV(TM) - for the treatment of ADHD in children and adolescents in the US
- On September 3, 2009 Shire announced that it received approval from the FDA for INTUNIV Extended Release Tablets for the treatment of ADHD in children and adolescents aged 6 to 17 years. INTUNIV, a once-daily non-scheduled formulation of guanfacine, is the first selective alpha-2A adrenergic receptor agonist approved for the treatment of ADHD.
- Once-daily INTUNIV is expected to be widely available in US pharmacies in November 2009 and will come in four dosage strengths (1 mg, 2 mg, 3 mg, and 4 mg). INTUNIV will be marketed in the US by the existing Shire ADHD sales team of nearly 600 representatives.
FOSRENOL(R) - for the treatment of pre-dialysis chronic kidney disease ("CKD") in the EU
- Shire has received approval through the European Mutual Recognition Procedure for an extension to the current indication for FOSRENOL as a treatment to control hyperphosphataemia in CKD patients who are not on dialysis and with a serum phosphorus level a0/00 1.78mmol/L (5.5mg/dL).
Pipeline
Velaglucerase alfa - for the treatment of Gaucher disease
- On July 30, 2009 Shire began the rolling submission with the FDA under FastTrack designation of a New Drug Application ("NDA") for velaglucerase alfa,its enzyme replacement therapy in development for the treatment of Type 1Gaucher disease. On September 1, 2009 Shire reported that it had completed itsNDA submission. Velaglucerase alfa is available ahead of its commerciallaunch, in the US via a treatment protocol and elsewhere on a pre-approvalbasis, to 300-600 patients in 2009 and will be available to several hundredmore in 2010.
REPLAGAL - for the treatment of Fabry disease
- On October 21, 2009 Shire announced plans to file a Biologics LicenseApplication with the FDA for REPLAGAL (agalsidase alfa), its enzymereplacement therapy for Fabry disease, by the end of the year. The Companyalso announced that a treatment protocol for REPLAGAL, filed at the request ofthe FDA, has been approved, and that Shire will support emergencyInvestigational New Drug requests, in view of the announced supply restrictionof the only currently marketed treatment for Fabry disease in the US.
FIRAZYR(R) - for the treatment of hereditary angioedema ("HAE")
- In September 2009 Shire initiated a clinical trial to investigate the safety of self-administration of FIRAZYR.
Amicus collaboration for the development of pharmacological chaperones
- On November 7, 2007 Shire licensed from Amicus Therapeutics Inc. ("Amicus")the rights to three pharmacological chaperone compounds in markets outside ofthe US: AMIGAL (HGT-3310) for Fabry disease, PLICERA (HGT-3410) for GaucherDisease and HGT-3510 (formerly referred to as AT2220) for Pompe disease whichwere in clinical development. The parties have mutually agreed to terminatethe collaboration and to return all rights for the three products to Amicus.
Alba collaboration for the development of SPD 550
- On October 16, 2009 and following review of Phase 2 data, Shire informed Alba Therapeutics Corporation ("Alba") of its intent to terminate the collaboration. Effective November 15, 2009 Shire will return to Alba all rights to SPD 550 (larazotide cetate for celiac disease), also known as AT-1001. In December 2007 Shire had acquired rights to SPD550 in markets outside of the US and Japan.
Business
Research Collaboration with Santaris Pharma A/S ("Santaris") on Locked Nucleic Acid ("LNA") Drug Platform
- On August 24, 2009 Shire announced that it had entered into a researchcollaboration with Santaris, to develop its proprietary LNA technology in arange of rare diseases. LNA technology has the benefit of shortened targetvalidation and proof of concept, potentially increasing the speed and loweringthe cost of development. As part of the joint research project Santaris willdesign, develop and deliver pre-clinical LNA oligonucleotides forShire-selected orphan disease targets, and Shire will have the exclusive rightto further develop and commercialize these candidate compounds on a worldwidebasis.Legal proceedings- On September 23, 2009 the Company received a subpoena from the US Departmentof Health and Human Services Office of Inspector General in coordination withthe US Attorney for the Eastern District of Pennsylvania, seeking productionof documents related to the sales and marketing of ADDERALL XR, DAYTRANA(R) andVYVANSE. Shire is cooperating and responding to this subpoena.- On October 19, 2009 Teva Pharmaceuticals USA, Inc. ("Teva") filed suitagainst Shire claiming that Shire is in breach of its supply contract for theauthorized generic version of ADDERALL XR. Shire has been supplying Teva withauthorized generic ADDERALL XR since April 1, 2009. Shire's ability to supplythis product, however, is limited by quota restrictions that the US DrugEnforcement Administration places on amphetamine, which is the product'sactive ingredient.
2009 OUTLOOK
We are reiterating our previously announced guidance framework for Non GAAPdiluted earnings per ADS for 2009, which remains unchanged from that providedin our Q3 2008 earnings release. At that time, and in subsequent earningsreleases, we provided details of the effect of changes in foreign exchangerates on the earnings guidance. Specifically, our plans for 2009, supportingNon 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, 1:$1.95) forthe ten months to October 2008. During the first three quarters of 2009 wehave already achieved Non GAAP diluted earnings per ADS of $2.38.We identified that each 10c movement in the EUR:$ and :$ exchange rates impactsShire'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, theimpact on our base guidance would be: Euro fxGBP fx Non GAAP diluted rate rate earnings per ADS range (1) Base guidance $1.52 $1.95 $3.00 to $3.40As advised at Q2 2009 $1.37 $1.56 $2.80 to $3.20
At average rate for nine months to September 2009 & September $1.39 $1.56 $2.83 to $3.23 average rate for Q4 2009
(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:
- INTUNIV for the treatment of ADHD in children and adolescents in the US in November 2009 (already approved);
- Velaglucerase alfa for the treatment of Gaucher disease in the US and the EU in 2010;
- REPLAGAL for the treatment of Fabry disease in the US in 2010;
- 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;
- DAYTRANA for the treatment of ADHD in adolescents in the US in 2010;
- EQUASYM(R) for the treatment of ADHD; launches will continue in certain EU countries during 2009 and 2010; and
- VYVANSE for the treatment of ADHD, in ex-US and ex-EU regions starting in 2010, and in the EU in 2011.
BOARD CHANGES
The Shire Board announces that Mr David Stout will be joining theBoard as a non executive director with effect from October 31, 2009. Mr Stoutbrings significant pharmaceutical industry experience to the Shire Board,having spent many years at both GSK and prior to that Schering-Plough. Mostrecently, he was President of Pharmaceutical Operations at GSK. In this rolehe had responsibility for GSK's pharmaceutical operations in the UnitedStates, Europe, Japan and all other International Markets. Mr Stout was alsoresponsible for global manufacturing and global Biologics (vaccines) at GSK.
The Shire Board also announces that Mr David Mott will be stepping down from the Shire Board on the expiry of his term of office on October 30, 2009.
Matt Emmens, Chairman of Shire commented;
"We are delighted to welcome David Stout to the Shire Board. He brings with him extensive international experience in the pharmaceutical industry, which we believe will be of great value to Shire as it continues its growth trajectory and becomes a more global company.
We would also like to thank David Mott for his valuable contribution to the Shire Board over the last few years."
ADDITIONAL INFORMATION
The following additional information is included in this press release:
PageOverview of Financial Results 7Financial Information 13Notes to Editors 26Safe Harbor Statement 26Explanation of Non GAAP Measures 26Trademarks 28
For further information please contact:
Investor Relations Clea Rosenfeld (Rest of the World) +44 1256 894 160
Eric Rojas (North America) +1 617 551 9715 Media Jessica Mann (Rest of the World) +44 1256 894 280 Jessica Cotrone (North America) +1 617 613 4640 Matt Cabrey (North America) +1 484 595 8248
Dial in details for the live conference call for investors 14:00 GMT/10:00 ET on October 30, 2009:
UK dial in: 0800 077 8492 or 01296 311 600US dial in: 1 866 8048688 or 1 718 3541175International dial +44 (0) 1296 311 600in:Password/Conf ID: 891 799#Live Webcast: http://www.shire.com/shire/InvestorRelations/index.jsp?tn=2OVERVIEW OF FINANCIAL RESULTS1. IntroductionSummary of Q3 2009Revenues from continuing operations for the three months to September 30, 2009decreased by 14% to $667.0 million (2008: $778.6 million), due to the declinein branded ADDERALL XR product sales in Q3 2009 following the launch of anauthorized generic version by Teva in April 2009. However, core product salesincreased by 20% to $531.6 million (2008: $443.8 million).Non GAAP operating income for the three months to September 30, 2009 decreasedby 52% to $133.6 million (2008: $278.6 million). Increased revenues from coreproducts, combined with lower selling, general and administrative expensesachieved through the Company's continued focus on cost management partiallyoffset the impact of lower revenues from ADDERALL XR and increased investmentin research and development, in part reflecting the Santaris collaborationup-front costs and the acceleration of the velaglucerase program.US GAAP operating income from continuing operations for the three months toSeptember 30, 2009 decreased by 25% to $91.8 million (2008: $122.9 million).US GAAP operating income in Q3 2008 included an in-process R&D ("IPR&D")charge of $120.5 million on the acquisition of Jerini in 2008. Excluding thischarge the decline in US GAAP operating income in the third quarter of 2009principally resulted from lower ADDERALL XR revenues following genericizationin the second quarter of 2009.Net cash provided by operating activities decreased by 52% to $134.0 millionfor the three months to September 30, 2009 (2008: $279.4 million). The cashprovided by operating activities was lower in Q3 2009 than the same period in2008 due to lower sales receipts following the genericization of ADDERALL XRand cash inflows from forward exchange contracts in Q3 2008, which more thanoffset lower payments on operating costs.Cash, cash equivalents and restricted cash at September 30, 2009 totaled$372.0 million (December 31, 2008: $247.4 million), an increase of $124.6million. Cash provided by operating activities of $390.0 million in the ninemonths to September 30, 2009 have been partially offset by investments inproperty, plant and equipment at the HGT campus in Lexington, the acquisitionof EQUASYM from UCB S.A. and the dividend payment.
2. Product sales
For the three months to September 30, 2009 product sales decreased by 15% to$602.5 million (2008: $712.5 million) and represented 91% of total revenues(2008: 92%). Excluding ADDERALL XR, product sales from core products increasedby 20% to $531.6 million (2008: $443.8 million).Product Highlights US Average CER US Rx Quarterly Sales Sales Growth(2) Growth(1) MarketProduct $M Growth(2) (3) (2) Share(1)SpecialtyPharmaceuticalsVYVANSE 129.0 34% 34% 57% 13%DAYTRANA 17.4 -4% -4% -12% 1%EQUASYM 9.2 n/a n/a n/a(5) n/a(5)LIALDA / MEZAVANT 65.4 62% 63% 34% 17%PENTASA 51.3 4% 4% -3% 16%FOSRENOL 47.7 11% 14% -3% 8%XAGRID(R) 21.5 11% 18% n/a(5) n/a(5) ADDERALL XR 70.9 -74% -74% -59% 8%
Human Genetic Therapies
ELAPRASE 90.9 16% 20% n/a(4) n/a(4)REPLAGAL 48.3 8% 15% n/a(5) n/a(5)FIRAZYR 1.8 - - 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 Q3 2008.
(3) CER growth, which is a Non GAAP measure, is calculated after restating Q3 2009 results using Q3 2008 average foreign exchange rates.
(4) IMS Data not available.(5) Not sold in the US.Specialty PharmaceuticalsUS ADHD market share
Shire's share of the total US ADHD market for the three months to September 30, 2009 was 22%. Shire continues to have the leading portfolio of branded products in the US ADHD market.
VYVANSE - ADHD
Product sales of VYVANSE for the three months to September 30, 2009 increasedby 34% to $129.0 million (2008: $96.0 million), with VYVANSE's average shareof the US ADHD market for Q3 2009 increasing to 13% (2008: 9%). Product salesgrowth was driven by a 57% increase in US prescription demand in Q3 2009 overthe same period in 2008, as a result of increased average market share and 10%growth in the US ADHD market. Product sales growth was less than prescriptiongrowth due to the stocking benefits from new dosage strengths of VYVANSE in
Q32008.ADDERALL XR - ADHDProduct sales of ADDERALL XR for the three months to September 30, 2009 were$70.9 million (2008: $268.7 million), a decrease of 74%, following the launchby Teva in April 2009 of its authorized generic version of ADDERALL XR. Thelaunch of the authorized generic version led to a 59% decline in ADDERALL XRUS prescription demand and higher US sales deductions in Q3 2009 than the sameperiod last year.Sales deductions represented 73% of branded ADDERALL XR gross sales in Q32009, compared to 26% in the same period in 2008 following higher Medicaid andManaged Care rebates subsequent to generic launch. These factors more thanoffset the positive impacts of price increases taken since Q3 2008, and theinclusion in product sales of shipments of authorized generic ADDERALL XR toTeva and Impax Laboratories, Inc. ("Impax") in Q3 2009.
US oral mesalamine market share
Shire's average market share of the US oral mesalamine market was 33% for the three months to September 30, 2009.
LIALDA/MEZAVANT - Ulcerative colitis
Product sales of LIALDA/MEZAVANT for the three months to September 30, 2009 increased by 62% to $65.4 million (2008: $40.4 million). US prescriptions increased by 34%, due to an increase in LIALDA's average share of the US oral mesalamine market to 17% (2008: 13%), underlying growth in the US oral mesalamine market and price increases.
By September 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
Product sales of PENTASA(R) for the three months to September 30, 2009 were $51.3 million, an increase of 4% compared to the same period in 2008 (2008: $49.2 million). Sales grew despite a 3% decrease in prescriptions primarily due to the impact of price increases.
FOSRENOL - Hyperphosphatemia
Product sales of FOSRENOL for the three months to September 30, 2009 were up11% to $47.7 million (2008: $43.0 million). On a CER basis sales were up 14%.In markets outside the US FOSRENOL sales increased as the product entered newcountries, 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 Q3 2009remained constant at 8% (2008: 8%).
Human Genetic Therapies
ELAPRASE - Hunter syndrome
Product sales for the three months to September 30, 2009 were $90.9million, an increase of 16% (2008: $78.2 million). Expressed on a CER basis,sales increased by 20% (ELAPRASE is primarily sold in US dollars and Euros).The sales growth was driven by increased volumes across all regions whereELAPRASE is sold.
REPLAGAL - Fabry disease
Product sales for the three months to September 30, 2009 were $48.3million, an increase of 8% (2008: $44.6 million). Expressed on a CER basisproduct sales increased by 15% (REPLAGAL is primarily sold in Euros and PoundsSterling). The product sales growth was driven by increased volumes in Europeand Asia Pacific.FIRAZYR - HAE
Product sales for the three months to September 30, 2009 were $1.8 million (2008: $0.2 million). With a Q3 launch in Italy, FIRAZYR is now marketed in the five largest European countries. 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 decreased by 1% to $60.3 million for the three months to September 30, 2009 (2008: $60.8 million). The following table provides an analysis of Shire's royalty revenue:
Royalties to Year on yearProduct Shire $M change(1) CER(2)3TC(R) and ZEFFIX(R) 42.0 -6% 0%ADDERALL XR 2.2 n/a n/aOther 16.1 -1% n/aTotal 60.3 -1% 0%
(1) Compared with Q3 2008
(2) CER growth, which is a Non GAAP measure, is calculated after restating Q3 2009 results using Q3 2008 average foreign exchange rates.
Royalties from Teva's sales of authorized generic ADDERALL XR forthe three months to September 30, 2009 were $2.2 million (2008: $nil). Receiptof this royalty began with Teva's sales of an authorized generic version ofADDERALL XR in April 2009 and ceased in September 2009. From Q4 2009, Shirewill receive royalties on Impax's sales of its authorized generic version ofADDERALL XR.4. Financial detailsCost of product sales 2009 % of 2008 % of product product $M sales $M salesCost of product sales 104.9 17% 84.2 12%(US GAAP)Fair value adjustment foracquired inventories (0.6) -Accelerated depreciation ontransfer of manufacturingfrom Owings Mills (4.5) -Depreciation (0.8) (3.2)Cost of product sales 99.0 16% 81.0 11%(Non GAAP) Non GAAP cost of product sales as a percentage of product sales increased by 5percentage points compared to 2008. This increase primarily results fromchanges to the product mix following the launch by Teva of an authorizedgeneric version of ADDERALL XR in April 2009. Higher sales deductions onShire's sales of branded ADDERALL XR, together with lower margin sales of theauthorized generic version of ADDERALL XR to Teva and Impax have bothdepressed gross margin for that product.
Research and development ("R&D")
2009 % of 2008 % of product product $M sales $M salesR&D (US GAAP) 147.8 25% 120.2 17%Depreciation (3.6) (3.4)R&D (Non GAAP) 144.2 24% 116.8 16%
Non GAAP R&D increased 23% to $144.2 million (2008: $116.8 million) as the Company has continued to increase investment in R&D programs, including an up-front payment of $6.5 million to Santaris for technology access and R&D funding in August 2009. Non GAAP R&D as a percentage of product sales increased due to lower product sales in Q3 2009 following the genericization of ADDERALL XR.
Selling, general and administrative ("SG&A")
2009 % of 2008 % of product product $M sales $M salesSG&A (US GAAP) 320.6 53% 327.3 46%Intangible asset (34.8) (29.7)amortizationNew holding company costs - (2.0)Depreciation (18.5) (12.0)SG&A (Non GAAP) 267.3 44% 283.6 40% Non GAAP SG&A declined in absolute terms by 6% due to the Company's continuedfocus on cost management. Non GAAP SG&A increased as a percentage of productsales due to lower product sales following the genericization of ADDERALL XR.
Gain on sale of product rights
For the three months to September 30, 2009 Shire recorded gains of $6.3 million (2008: $4.0 million) from the sale of non-core products to Laboratorios Almirall S.A. in 2007. These gains had been deferred since 2007 pending transfer of the relevant consents.
Reorganization costs
For the three months to September 30, 2009 Shire recorded reorganization costs of $2.0 million (2008: $nil) relating to the transfer of manufacturing from its Owings Mills facility.
Integration and acquisition costs
For the three months to September 30, 2009 Shire recorded integration and acquisition costs of $6.2 million (2008: $7.5 million), primarily relating to the integration of Jerini.
Interest incomeFor the three months to September 30, 2009 Shire received interest income of$0.2 million (2008: $3.8 million), primarily earned on cash and cashequivalents. Interest income for the three months to September 30, 2009 islower than the same period in 2008 due to significantly lower interest ratesin 2009 compared to 2008, and lower average cash and cash equivalent balances.Interest expense 2009 2008 $M $MInterest expense (US GAAP) 9.4 92.9
Additional interest on settlement of appraisal - (73.0) rights litigation Interest expense (Non GAAP)
9.4 19.9
For the three months to September 30, 2009 the Company incurred interest expense of $9.4 million (2008: $92.9 million). Interest expense in 2008 was higher than 2009 due to accrued interest expense of $77.0 million recorded in respect of the Transkaryotic Therapies, Inc. ("TKT") appraisal rights litigation; of the $77.0 million, $73.0 million was additional interest arising from the settlement of the litigation in November 2008.
Other income/(expense), net 2009 2008 $M $MOther income/(expense), net (US GAAP) 7.0 (52.0)
Other than temporary impairment of available - 54.1 for sale securities Other income, net (Non GAAP)
7.0 2.1
Non GAAP other income, net in 2009 was higher than the same period in 2008 due to a gain recognized following the substantial modification of a property lease.
Taxation
The effective rate of tax for the three months to September 30, 2009 was 34% (2008: -103%), and the effective tax rate on Non GAAP income is 33% (2008: 19%).
The Non GAAP effective tax rate was higher in Q3 2009 compared to the sameperiod in 2008 principally as a result of the recognition of valuationallowances against certain EU deferred tax assets and increases to accruedinterest on tax contingencies in the third quarter of 2009. The adverse rateimpact of these items was partially offset by foreign exchange gains on theretranslation of certain deferred tax assets, together with the benefit of taxreturn to provision adjustments following the submission of various taxreturns in Q3 2009.
Equity in earnings of equity method investees
Equity in earnings of equity method investees of $0.6 million were recorded for the three months to September 30, 2009 (2008: $1.6 million). This comprised earnings of $1.4 million from the 50% share of the anti-viral commercialization partnership with GSK in Canada (2008: $1.6 million earnings) and losses of $0.8 million, being the Company's share of losses in the GeneChem, AgeChem and EGS Funds (2008: $nil).
FINANCIAL INFORMATIONTABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 14
Unaudited US GAAP Consolidated Statements of Operations 15
Unaudited US GAAP Consolidated Statements of Cash Flows 17
Selected Notes to the Unaudited US GAAP Financial Statements
(1) Earnings per share 19 (2) Analysis of revenues 20 Non GAAP reconciliation 22
Unaudited US GAAP results for the three months and nine months to September 30, 2009 Consolidated Balance Sheets
September 30, December 31, 2009 2008 $M $MASSETSCurrent assets:Cash and cash equivalents 332.7 218.2Restricted cash 39.3 29.2Accounts receivable, net 539.2 395.0Inventories 173.3 154.5Assets held for sale 1.7 16.6Deferred tax asset 99.8 89.5Prepaid expenses and othercurrent assets 149.2 141.4 Total current assets 1,335.2 1,044.4 Non-current assets:Investments 95.2 42.9Property, plant and equipment, net 630.0 534.2Goodwill 385.9 350.8Other intangible assets, net 1,832.9 1,824.9Deferred tax asset 136.7 118.1Other non-current assets 11.6 18.4 Total assets 4,427.5 3,933.7 LIABILITIES AND EQUITYCurrent liabilities:Accounts payable and accruedexpenses 938.9 708.6Deferred tax liability 10.9 10.9Other current liabilities 124.6 104.3 Total current liabilities 1,074.4 823.8 Non-current liabilities:Convertible bonds 1,100.0 1,100.0Other long-term debt 43.7 43.1Deferred tax liability 315.5 377.0Other non-current liabilities 219.5 291.3 Total liabilities 2,753.1 2,635.2 Shareholders' equity:Common stock of 5p par value; 1,000million shares authorized; and 561.0 millionshares issued and outstanding (2008: 1,000million shares authorized; and 560.2 millionshares issued and outstanding) 55.6 55.5Additional paid-in capital 2,645.0 2,594.6Treasury stock: 19.2 million shares(2008: 20.7 million) (375.5) (397.2)Accumulated other comprehensive income 146.6 97.0Accumulated deficit (797.7) (1,051.7) Total Shire plc shareholders' equity 1,674.0 1,298.2Noncontrolling interest in subsidiaries 0.4 0.3 Total equity 1,674.4 1,298.5 Total liabilities and equity 4,427.5 3,933.7
Unaudited US GAAP results for the three months and nine months to September 30, 2009 Consolidated Statements of Operations
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2009 2008 2009 2008 $M $M $M $MRevenues:Product sales 602.5 712.5 1,916.8 2,049.9Royalties 60.3 60.8 177.8 190.7Other revenues 4.2 5.3 19.8 15.8Total revenues 667.0 778.6 2,114.4 2,256.4 Costs and expenses:Cost of product sales(1) 104.9 84.2 284.9 317.4
Research and development(2) 147.8 120.2 492.5
368.4Selling, general andadministrative(1) (2) 320.6 327.3 973.8 1,109.7Gain on sale of productrights (6.3) (4.0) (6.3) (20.7)In-process R&D charge - 120.5 - 255.5Reorganization costs 2.0 - 7.1 -Integration and acquisitioncosts 6.2 7.5 10.0 7.5Total operating expenses 575.2 655.7 1,762.0 2,037.8 Operating income 91.8 122.9 352.4 218.6 Interest income 0.2 3.8 1.5 23.0Interest expense (9.4) (92.9) (30.6) (127.0)
Other income/(expenses), net 7.0 (52.0) 61.9
(38.6)
Total other (expense)/income,net (2.2) (141.1) 32.8
(142.6)
Income/(loss) from continuingoperations before incometaxesand equity in earnings ofequitymethod investees 89.6 (18.2) 385.2 76.0Income taxes (30.6) (18.7) (56.7) (63.0)Equity in earnings of equitymethod investees, net oftaxes 0.6 1.6 1.0
1.3
Income/(loss) from continuingoperations, net of tax 59.6 (35.3) 329.5 14.3 Loss from discontinuedoperations(net of income tax expense of$nilin all periods) - (0.9) (12.4) (0.9)Net income/(loss) 59.6 (36.2) 317.1 13.4 Add: Net loss attributable tononcontrolling interest insubsidiaries - 1.3 0.2 1.3Net income/(loss)attributableto Shire plc 59.6 (34.9) 317.3 14.7(1) Cost of product sales includes amortization of intangible assets relatingto favorable manufacturing contracts of $0.4 million for the three months toSeptember 30, 2009 (2008: $0.4 million) and $1.3 million for the nine monthsto September 30, 2009 (2008: $1.3 million). Selling, general andadministrative costs include amortization and impairment charges of intangibleassets relating to intellectual property rights acquired of $34.8 million forthe three months to September 30, 2009 (2008: $29.7 million) and $101.6million for the nine months to September 30, 2009 (2008: $181.9 million).
(2) Promotional costs totaling $6.9 million and $26.0 million have been reclassified from Research and development to Selling, general and administrative costs for the three and nine months to September 30, 2008 respectively.
Unaudited US GAAP results for the three months and nine months to September 30, 2009 Consolidated Statements of Operations (continued)
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2009 2008 2009 2008Earnings/(loss) per ordinaryshare - basicEarnings/(loss) fromcontinuingoperations 11.0c (6.3c) 61.1c 2.9cLoss from discontinuedoperations - (0.2c) (2.3c) (0.2c)Earnings/(loss) per ordinaryshare - basic 11.0c (6.5c) 58.8c 2.7c Earnings/(loss) per ADS -basic 33.0c (19.5c) 176.4c 8.1c Earnings/(loss) per ordinaryshare - dilutedEarnings/(loss) fromcontinuingoperations 10.9c (6.3c) 60.3c 2.9cLoss from discontinuedoperations - (0.2c) (2.3c) (0.2c)Earnings/(loss) per ordinaryshare - diluted 10.9c (6.5c) 58.0c 2.7c Earnings/(loss) per ADS -diluted 32.7c (19.5c) 174.0c 8.1c Weighted average number ofshares (millions): Basic 540.6 540.3 540.0 542.6Diluted 548.3 540.3 547.1 545.3
Unaudited US GAAP results for the three months and nine months to September 30, 2009 Consolidated Statements of Cash Flows
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2009 2008 2009 2008 $M $M $M $MCASH FLOWS FROM OPERATINGACTIVITIES:Net income/(loss) 59.6 (36.2) 317.1 13.4Adjustments to reconcile netincome/(loss) to net cash providedby operating activities: Loss from discontinued operations - 0.9 12.4 0.9 Depreciation and amortization 59.7 49.1 177.4 145.4 Share based compensation 16.9 16.2 50.1 52.0 In-process R&D charge - 120.5 - 120.5 Impairment of intangible assets - - - 90.4 Impairment of available for sale securities 0.8 54.1 0.8 54.1 Loss/(gain) on sale of non-current investments - 0.4 (55.2) (9.4) Gain on sale of product rights (6.3) (4.0) (6.3) (20.7) Other 4.4 2.0 10.7 6.4
Movement in deferred taxes (41.9) (3.7) (87.5) 13.9Equity in earnings of equity methodinvestees (0.6) (1.6)
(1.0) (1.3)
Changes in operating assets andliabilities: Increase in accounts receivable (113.4) (12.3) (156.4) (40.7) Increase in sales deduction accrual 94.7 1.4 212.2 36.9 (Increase)/decrease in inventory (11.3) 29.2 (24.2) 39.6 Decrease/(increase) in prepayments and other current assets 25.7 (24.5) (8.1) (0.2) Decrease/(increase) in other assets 0.9 (51.1) 5.3 (53.5) Increase/(decrease) in accounts and notes payable and other liabilities 44.8 131.9 (56.3) 70.7Returns on investment from jointventure - 7.1 4.9 7.1Cash flows used in discontinuedoperations - - (5.9) -Net cash provided by operatingactivities(A) 134.0 279.4 390.0 525.5
Unaudited US GAAP results for the three months and nine months to September 30, 2009 Consolidated Statements of Cash Flows (continued)
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2009 2008 2009 2008 $M $M $M $MCASH FLOWS FROM INVESTINGACTIVITIES:
Movements in restricted cash (3.4) 2.5 (10.1)
7.7
Purchases of subsidiaryundertakingsand businesses, net of cashacquired - (462.5) (75.5) (462.5)Purchases of non-currentinvestments - (0.2) - (1.3)Purchases of property, plantandequipment (67.5) (77.1) (169.4) (166.5)Purchases of intangibleassets (1.0) (25.0) (7.0) (25.0)Proceeds from disposal ofnon-current investments - - 19.2
10.3
Proceeds from disposal ofproperty,plant and equipment - 1.0 0.5
1.8
Proceeds/deposits received onsalesof product rights - - - 5.0Proceeds from disposal ofsubsidiaryundertakings - - 6.7 -Returns from equityinvestments - - 0.2 0.4Net cash used in investingactivities(B) (71.9) (561.3) (235.4) (630.1) CASH FLOWS FROM FINANCINGACTIVITIES:Payment under buildingfinancingobligation (0.9) (0.9) (3.9) (1.3)Costs of issue of commonstock - (0.1) - (2.9)Proceeds from exercise ofoptions 1.8 0.7 2.8 1.7Payment of dividend - - (43.0) (36.4)Payments to acquire shares byEmployee Share OwnershipTrust("ESOT") - (36.2) (1.0) (140.2)Net cash provided by/(usedin)financing activities(C) 0.9 (36.5) (45.1) (179.1) Effect of foreign exchangeratechanges on cash and cashequivalents (D) 6.4 (9.5) 5.0 (5.5) Net increase/(decrease) incash andcash equivalents(A) +(B) +(C)+(D) 69.4 (327.9) 114.5
(289.2)
Cash and cash equivalents atbeginning of period 263.3 801.2 218.2
762.5
Cash and cash equivalents atend of period 332.7 473.3 332.7 473.3
Unaudited US GAAP results for the three months and nine months to September 30, 2009
Selected Notes to the Financial Statements
(1) Earnings per share 9 months 9 months to to 3 months to 3 months to September September September 30, September 30, 30, 30, 2009 2008 2009 2008 $M $M $M $M Income/(loss) from continuingoperations 59.6 (35.3) 329.5 14.3Loss from discontinuedoperations - (0.9) (12.4) (0.9)Noncontrolling interest insubsidiaries - 1.3 0.2 1.3 Numerator for basic anddilutedEPS(1) 59.6 (34.9) 317.3 14.7 Weighted average number ofshares: Millions Millions Millions MillionsBasic(2) 540.6 540.3 540.0 542.6Effect of dilutive shares:Stock options(3) 7.7 - 7.1 2.7 Diluted 548.3 540.3 547.1 545.3
(1) For the three and nine month periods ended September 30, 2009 and 2008 interest on the convertible bonds has not been added back as the effect would be anti-dilutive for all periods presented.
(2) Excludes shares purchased by the ESOT and presented by the Company as treasury stock.
(3) Calculated using the treasury stock 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 9 months to 9 months to September 30, September 30, September 30, September 30, 2009 2008 2009 2008 Millions(1)(2) Millions(3) Millions(1)(2) Millions(1)(2) Stock options in the money - 1.2 - -Stock options out of themoney 16.8 17.0 18.0 17.0Convertible bonds 2.75% due2014 33.2 32.7 33.1 32.7
(1) For the three and nine month periods ended September 30, 2009 and the nine month period ended September 30, 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 nine month periods ended September 30, 2009 and the nine month period ended September 30, 2008 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 September 30, 2008 no shareoptions or ordinary shares underlying the convertible bonds have been includedin the calculation of the diluted weighted average number of shares becausethe Company made a net loss during the calculation period and the inclusion ofthese items would be anti-dilutive.
Unaudited US GAAP results for the three months to September 30, 2009
Selected Notes to the Financial Statements
(2) Analysis of revenues3 months to September 30, 2009 2008 2009 2009 % % of total $M $M change revenueNet product sales:Specialty Pharmaceuticals("Specialty")ADHDADDERALL XR 70.9 268.7 -74% 11%VYVANSE 129.0 96.0 34% 19%DAYTRANA 17.4 18.1 -4% 3%EQUASYM 9.2 - n/a 1% 226.5 382.8 -41% 34%GIPENTASA 51.3 49.2 4% 8%LIALDA / MEZAVANT 65.4 40.4 62% 10% 116.7 89.6 30% 18%General productsFOSRENOL 47.7 43.0 11% 7%CALCICHEW(R) 12.4 13.3 -7% 2%CARBATROL(R) 20.8 21.6 -4% 3%REMINYL(R)/REMINYL XL(TM) 10.5 9.6 9% 2%XAGRID 21.5 19.4 11% 3% 112.9 106.9 6% 17% Other product sales 5.4 10.2 -47% 1%Total Specialty productsales 461.5 589.5 -22% 70% Human Genetic Therapies("HGT")ELAPRASE 90.9 78.2 16% 14%REPLAGAL 48.3 44.6 8% 7%FIRAZYR 1.8 0.2 n/a 0%Total HGT product sales 141.0 123.0 15% 21% Total product sales 602.5 712.5 -15% 91% Royalties:3TC and ZEFFIX 42.0 44.5 -6% 6%ADDERALL XR 2.2 - n/a 0%Other 16.1 16.3 -1% 2%Total royalties 60.3 60.8 -1% 8% Other revenues 4.2 5.3 -21% 1% Total Revenues 667.0 778.6 -14% 100%
Unaudited US GAAP results for the nine months to September 30, 2009
Selected Notes to the Financial Statements
(2) Analysis of revenues9 months to September 30, 2009 2008 2009 2009 % % of total $M $M change revenueNet product sales:Specialty Pharmaceuticals("Specialty")ADHDADDERALL XR 434.2 826.6 -47% 21%VYVANSE 359.7 215.6 67% 17%DAYTRANA 52.2 61.0 -14% 2%EQUASYM 14.1 - n/a 1% 860.2 1,103.2 -22% 41%GIPENTASA 156.5 138.2 13% 7%LIALDA / MEZAVANT 169.4 99.6 70% 8% 325.9 237.8 37% 15%General productsFOSRENOL 137.2 121.6 13% 6%CALCICHEW 32.8 40.8 -20% 2%CARBATROL 59.7 55.7 7% 3%REMINYL/REMINYL XL 28.8 26.6 8% 1%XAGRID 62.3 58.7 6% 3% 320.8 303.4 6% 15% Other product sales 14.3 43.0 -67% 1%Total Specialty productsales 1,521.2 1,687.4 -10% 72% Human Genetic Therapies("HGT")ELAPRASE 258.9 230.5 12% 12%REPLAGAL 132.9 131.8 1% 6%FIRAZYR 3.8 0.2 n/a 1%Total HGT product sales 395.6 362.5 9% 19% Total product sales 1,916.8 2,049.9 -6% 91% Royalties:3TC and ZEFFIX 120.3 138.6 -13% 5%ADDERALL XR 15.8 - n/a 1%Other 41.7 52.1 -20% 2%Total royalties 177.8 190.7 -7% 8% Other revenues 19.8 15.8 25% 1% Total Revenues 2,114.4 2,256.4 -6% 100%
Unaudited results for the three months to September 30, 2009
Non GAAP reconciliation
US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations September & asset integration & discontinued Reclassify September3 months to, 30, 2009 impairments activities operations
depreciation 30, 2009 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 667.0 - - - - 667.0 Costs and expenses:Cost of product sales 104.9 - (0.6) (4.5) (0.8) 99.0Research anddevelopment 147.8 - - - (3.6) 144.2Selling, general andadministrative 320.6 (34.8) - - (18.5) 267.3Gain on sale of productrights (6.3) - - 6.3 - -Reorganization costs 2.0 - - (2.0) - -Integration andacquisitioncosts 6.2 - (6.2) - - -Depreciation - - - - 22.9 22.9Total operatingexpenses 575.2 (34.8) (6.8) (0.2) - 533.4 Operating income 91.8 34.8 6.8 0.2 - 133.6 Interest income 0.2 - - - - 0.2Interest expense (9.4) - - - - (9.4)Other income, net 7.0 - - - - 7.0Total other expense,net (2.2) - - - - (2.2)Income from continuingoperations beforeincometaxes and equity inearningsof equity methodinvestees 89.6 34.8 6.8 0.2 - 131.4Income taxes (30.6) (9.9) (1.8) (0.5) - (42.8)Equity in earnings ofequitymethod investees, netof tax 0.6 - - - - 0.6Net income attributabletoShire plc 59.6 24.9 5.0 (0.3) - 89.2Numerator for dilutedEPS 59.6 24.9 5.0 (0.3) - 89.2Weighted average numberofshares (millions) -diluted 548.3 - - - - 548.3Diluted earnings perADS 32.7c 13.5c 2.7c - - 48.9c
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($34.8 million) and tax effect of adjustment;
(b) Acquisitions and integration activities Inventory fair value adjustmentrelated to the acquisition of Jerini ($0.6 million); costs associated with theintegration and acquisition of Jerini and EQUASYM from UCB ($6.2 million) andtax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerated depreciation ($4.5 million) and reorganization costs ($2.0 million) for the transition of manufacturing from Owings Mills, gains on the disposal of non-core product rights ($6.3 million) and tax effect of adjustments; and
(d) Depreciation: Depreciation of $22.9 million included in Cost of product sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the three months to September 30, 2008
Non GAAP reconciliation US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations September & asset integration & discontinued Reclassify September3 months to, 30, 2008 impairments activities operations depreciation 30, 2008 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 778.6 - - - - 778.6 Costs and expenses:Cost of product sales 84.2 - - - (3.2) 81.0Research anddevelopment(1) 120.2 - - - (3.4) 116.8Selling, general andadministrative(1) 327.3 (29.7) - (2.0) (12.0) 283.6In-process R&D charge 120.5 - (120.5) - - -Integration andacquisition costs 7.5 - (7.5) - - -Gain on sale of productrights (4.0) - - 4.0 - -Depreciation - - - - 18.6 18.6Total operating expenses 655.7 (29.7) (128.0) 2.0 - 500.0 Operating income 122.9 29.7 128.0 (2.0) - 278.6 Interest income 3.8 - - - - 3.8Interest expense (92.9) - 73.0 - - (19.9)Other (expense)/income,net (52.0) 54.1 - - - 2.1Total other expense, net (141.1) 54.1 73.0 - - (14.0)(Loss)/income fromcontinuingoperations before incometaxesand equity in earningsof equitymethod investees (18.2) 83.8 201.0 (2.0) - 264.6Income taxes (18.7) (9.7) (23.3) 0.2 - (51.5)Equity in earnings ofequitymethod investees, net oftax 1.6 - - - - 1.6(Loss)/income fromcontinuingoperations, net of tax (35.3) 74.1 177.7 (1.8) - 214.7Loss from discontinuedoperations (0.9) - - 0.9 - -Net (loss)/income (36.2) 74.1 177.7 (0.9) - 214.7Add: Net lossattributable tononcontrolling interestinsubsidiaries 1.3 - - - - 1.3Net (loss)/incomeattributableto Shire plc (34.9) 74.1 177.7 (0.9) - 216.0Impact of convertibledebt, netof tax (2) - 8.6 - - - 8.6Numerator for dilutedEPS (34.9) 82.7 177.7 (0.9) - 224.6Weighted average numberofshares (millions) -diluted(2) 540.3 33.9 - - - 574.2
Diluted earnings per ADS (19.5c) 44.7c 92.7c (0.6c)
- 117.3c
(1) $6.9m of promotional costs have been reclassified from Research and development to Selling, general and administrative costs for the three months to September 30, 2008.
(2) After the above adjustments, the Company made Non GAAP net income duringthe calculation period. As a result (i) the after tax impact of theconvertible bonds has been added back to the numerator and (ii) in the moneyshare options and convertible bonds are now included in the calculation of thediluted weighted average number of shares as they have a dilutive effect.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($29.7 million), other thantemporary impairment of available for sale securities ($54.1 million) and taxeffect of adjustments;
(b) Acquisitions & integration activities: In-process R&D in respect of the acquisition of Jerini ($120.5 million), Integration and transaction related costs in respect of the acquisition of Jerini ($7.5 million), additional interest expense incurred on the settlement of the TKT appraisal rights litigation ($73.0 million) and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Costs associatedwith the introduction of a new holding company ($2.0 million), gains on thedisposal of non-core product rights ($4.0 million), discontinued operations inrespect of non-core Jerini operations ($0.9 million) and tax effect ofadjustments; and
(d) Depreciation: Depreciation of $18.6 million included in Cost of product sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the nine months to September 30, 2009
Non GAAP reconciliation
US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations September & asset integration & discontinued Reclassify September9 months to, 30, 2009 impairments activities operations depreciation 30, 2009 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 2,114.4 - - -
- 2,114.4Costs and expenses:Cost of product sales 284.9 - (1.9) (7.5) (9.4) 266.1Research anddevelopment 492.5 - (36.9) (65.0) (11.3) 379.3Selling, general andadministrative 973.8 (101.6) - - (49.3) 822.9Gain on sale of productrights (6.3) - - 6.3 - -Reorganization costs 7.1 - - (7.1) - -Integration &acquisitioncosts 10.0 - (10.0) - - -Depreciation - - - - 70.0 70.0Total operating
expenses 1,762.0 (101.6) (48.8) (73.3) - 1,538.3 Operating income 352.4 101.6 48.8 73.3 - 576.1 Interest income 1.5 - - - - 1.5Interest expense (30.6) - - - - (30.6)Other income, net 61.9 - - (55.2) - 6.7Total other income/(expense), net 32.8 - - (55.2) - (22.4)Income from continuingoperations beforeincometaxes and equity inearningsof equity methodinvestees 385.2 101.6 48.8 18.1 - 553.7Income taxes (56.7) (29.0) (16.2) (17.8)
- (119.7)Equity in earnings ofequitymethod investees, netof tax 1.0 - - - - 1.0Income from continuing
operations, net of tax 329.5 72.6 32.6 0.3 - 435.0Loss from discontinuedoperations (12.4) - - 12.4 - -Net income 317.1 72.6 32.6 12.7 - 435.0Add: Net lossattributableto noncontrollinginterest insubsidiaries 0.2 - - - - 0.2Net income attributabletoShire plc 317.3 72.6 32.6 12.7
- 435.2Impact of convertibledebt,net of tax (1) - 25.1 - - - 25.1Numerator for diluted
EPS 317.3 97.7 32.6 12.7 - 460.3Weighted average numberof shares (millions) -diluted(1) 547.1 33.1 - - - 580.2Diluted earnings perADS 174.0c 40.5c 16.8c 6.6c - 237.9c
(1) The impact of convertible debt, net of tax has a dilutive effect on a Non GAAP basis.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($101.6 million) and tax effect of adjustment;
(b) Acquisitions and Integration activities Inventory fair value adjustmentrelated to the acquisition of Jerini ($1.9 million), payment on amendment ofINTUNIV in-licence agreement ($36.9 million), costs associated with theintegration and acquisition of Jerini and EQUASYM from UCB ($10.0 million) andtax effect of adjustments;(c) Divestments, reorganizations and discontinued operations: Accelerateddepreciation ($7.5 million) and reorganization costs ($7.1 million) for thetransition of manufacturing from Owings Mills, costs associated with agreementto terminate Women's Health products with Duramed ($65.0 million), gain on thedisposal of non-core product rights ($6.3 million), gain on disposal of theinvestment in Virochem ($55.2 million), discontinued operations in respect ofnon-core Jerini operations ($12.4 million) and tax effect of adjustments; and
(d) Depreciation: Depreciation of $70.0 million included in Cost of product sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the nine months to September 30, 2008
Non GAAP reconciliation US GAAP Adjustments Non GAAP Divestments, Acquisitions reorganizations Amortization & & September & asset integration discontinued Reclassify September9 months to, 30, 2008 impairments activities operations depreciation 30, 2008 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 2,256.4 - - - - 2,256.4 Costs and expenses:Cost of product sales 317.4 - - (53.4) (8.8) 255.2Research anddevelopment(1) 368.4 - - (6.5) (9.4) 352.5Selling, general andadministrative(1) 1,109.7 (181.9) - (14.2) (34.0) 879.6Integration andacquisition costs 7.5 - (7.5) - - -Gain on sale of productrights (20.7) - - 20.7 - -In-process R&D charge 255.5 - (255.5) - - -Depreciation - - - - 52.2 52.2Total operating expenses 2,037.8 (181.9) (263.0) (53.4) - 1,539.5 Operating income 218.6 181.9 263.0 53.4 - 716.9 Interest income 23.0 - - - - 23.0Interest expense (127.0) - 73.0 - - (54.0)Other (expense)/income,net (38.6) 54.1 - (9.4) - 6.1Total other expense, net (142.6) 54.1 73.0 (9.4) - (24.9)Income from continuingoperationsbefore income taxes andequity inearnings of equitymethod investees 76.0 236.0 336.0 44.0 - 692.0Income taxes (63.0) (33.7) (48.0) (6.2) - (150.9)Equity in earnings ofequity methodinvestees, net of tax 1.3 - - - - 1.3Income from continuingoperations,net of tax 14.3 202.3 288.0 37.8 - 542.4Loss from discontinuedoperations (0.9) - - 0.9 - -Net income 13.4 202.3 288.0 38.7 - 542.4Add: Net lossattributable tononcontrolling interestinsubsidiaries 1.3 - - - - 1.3Net income attributabletoShire plc 14.7 202.3 288.0 38.7 - 543.7Impact of convertibledebt, netof tax (2) - 6.2 - - - 6.2Numerator for dilutedEPS 14.7 208.5 288.0 38.7 - 549.9Weighted average numberofshares (millions) -diluted(2) 545.3 32.7 - - - 578.0
Diluted earnings per ADS 8.1c 107.7c 149.4c 20.1c
- 285.3c
(1) Promotional costs totaling $26.0 million have been reclassified from Research and development to Selling, general and administrative costs for the nine months to September 30, 2008.
(2) Under US GAAP the convertible bonds were not included in the calculationof the diluted weighted average number of shares nor was the after tax incomestatement effect of the bonds added to the numerator as the impact wasanti-dilutive. On a Non GAAP basis the after tax impact of the convertiblebond has been added to the numerator and the number of shares underlying theconvertible bond are now included in the calculation of the diluted weightedaverage number of shares as they have a dilutive effect.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($91.5 million), impairmentcharge in respect of DYNEPO intangible asset ($90.4 million), other thantemporary impairment of available for sale securities ($54.1 million), and taxeffect of adjustments;(b) Acquisitions & integration activities: In-process R&D in respect ofMETAZYM acquired from Zymenex A/S ($135.0 million), In-process R&D in respectof the acquisition of Jerini ($120.5 million), integration and transactionrelated costs in respect of the acquisition of Jerini ($7.5 million),additional interest expense incurred on settlement of the TKT appraisal rightslitigation ($73.0 million), and tax effect of adjustments;(c) Divestments, reorganizations and discontinued operations: Costs associatedwith inventory write down and other exit costs in respect of DYNEPO ($53.4million), R&D commitment in respect of DYNEPO ($6.5 million), costs associatedwith the introduction of a new holding company ($14.2 million), gains on thedisposal of non-core assets ($20.7 million), gain on disposal of minorityequity investment ($9.4 million), discontinued operations in respect ofnon-core Jerini operations ($0.9 million) and tax effect of adjustments; and
(d) Depreciation: Depreciation of $52.2 million included in Cost of product sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
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 attention deficit and hyperactivity disorder, humangenetic therapies and gastrointestinal diseases as well as opportunities inother therapeutic areas to the extent they arise through acquisitions. Shire'sin-licensing, merger and acquisition efforts are focused on products inspecialist markets with strong intellectual property protection and globalrights. Shire believes that a carefully selected and balanced portfolio ofproducts with strategically aligned and relatively small-scale sales forceswill deliver strong results.
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 risksor uncertainties materialize, the Company's results could be materiallyadversely affected. The risks and uncertainties include, but are not limitedto, risks associated with: the inherent uncertainty of research, development,approval, reimbursement, manufacturing and commercialization of the Company'sSpecialty Pharmaceutical and Human Genetic Therapies products, as well as theability to secure and integrate new products for commercialization and/ordevelopment; government regulation of the Company's products; the Company'sability to manufacture its products in sufficient quantities to meet demand;the impact of competitive therapies on the Company's products; the Company'sability to register, maintain and enforce patents and other intellectualproperty rights relating to its products; the Company's ability to obtain andmaintain government and other third-party reimbursement for its products; andother risks and uncertainties detailed from time to time in the Company'sfilings with the Securities and Exchange Commission.
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:Non GAAP operating income; Non GAAP net income; Non GAAP diluted earnings perADS; effective tax rate on Non GAAP income from continuing operations beforeincome taxes and earnings of equity method investees ("Effective tax rate onNon GAAP income"); Non GAAP Cost of product sales; Non GAAP Research anddevelopment; Non GAAP Selling, general and administrative; Non GAAP operatingexpenses; Non GAAP interest expense; and Non GAAP other income. These Non GAAPmeasures exclude the effect of certain cash and non-cash items, both recurringand non-recurring, that Shire's management believes are not related to thecore performance of Shire's business. In the case of product sales, growth atconstant exchange rates is calculated after restating current period productsales using the comparative periods' average foreign exchange rates.
These Non GAAP financial measures are used by Shire's management to make operating decisions because they facilitate internal comparisons of the Company's performance to historical results and to competitors' results. These measures are also considered by Shire's Remuneration Committee in assessing the performance and compensation of employees, including the Company's executive directors.
The Non GAAP measures are presented in this press release as the Company'smanagement believe that they will provide investors with a means ofevaluating, and an understanding of how Shire's management evaluates, theCompany's performance and results on a comparable basis that is not otherwiseapparent on a US GAAP basis, since many one-time, infrequent or non-cash itemsthat the Company's management believe are not indicative of the coreperformance of the business may not be excluded when preparing financialmeasures under US GAAP.
These Non GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP.
The following items, including their tax effect, have been excluded from both 2008 and 2009 Non GAAP earnings, and from our 2009 guidance for Non GAAP diluted earnings per ADS:
Amortization and asset impairments:
- Intangible asset amortization and impairment charges; and
- Other than temporary impairment of investments.
Acquisitions and integration activities:
- Upfront payments and milestones in respect of in-licensed and acquired products;
- Costs associated with acquisitions, including transaction costs, and fair value adjustments on contingent consideration and acquired inventory;
- Costs associated with the integration of companies; and
- Incremental interest charges arising on the settlement of litigation with the former dissenting shareholders of TKT.
Divestments, re-organizations and discontinued operations
- Gains and losses on the sale of non-core assets;
- Costs associated with restructuring and re-organization activities;
- Termination costs;
- Costs associated with the introduction of the new holding company; and
- Income / (losses) from discontinued operations.
Depreciation, which is included in Cost of product sales, Research anddevelopment costs and Selling, general and administrative costs in our US GAAPresults, has been separately disclosed for the presentation of 2008 and 2009Non GAAP earnings. A reconciliation of Non GAAP financial measures to the mostdirectly comparable measure under US GAAP is presented on pages 22-25.
2008 Comparative Financial Information
Subsequent to the announcement of Shire's Q3 2008 results but priorto the filing with the SEC of the Company's Form 10-Q for the third quarter of2008, the Company settled the TKT appraisal rights litigation. On settlement,the Company amended the method of determining its interest provision for thislitigation, and as a result recorded additional interest expense of $73.0million and related tax effects. This interest expense and related tax effectswere included in the third quarter Form 10-Q, but not in the Q3 2008 resultsannouncement as settlement of the litigation occurred after its publication.However, the comparative US GAAP financial information in this Q3 2009earnings release has been restated to reflect the settlement of thislitigation.
A reconciliation between the US GAAP financial information included in the original Q3 2008 results announcement and the comparative US GAAP financial information included herein is as follows:
Interest Income Net income/ expense taxes (loss) $M $M $M 3 months to September 30, 2008US GAAP information in Q3 2008announcement (19.9) (45.0) 11.8
Recognition of additional interest (73.0) 26.3 (46.7) US GAAP comparative information included herein
(92.9) (18.7) (34.9) 9 months to September 30, 2008US GAAP information in Q3 2008announcement (54.0) (89.3) 61.4
Recognition of additional interest (73.0) 26.3 (46.7) US GAAP comparative information included herein
(127.0) (63.0) 14.7
This additional interest expense, and related tax effect, has been excluded from Non GAAP earnings, therefore Non GAAP earnings are unaffected by this restatement.
TRADEMARKS
All trademarks defined as (R) and (TM) used in this press release are trademarks of Shire plc or companies within the Shire group except for:
3TC(R) and ZEFFIX(R) which are trademarks of GSK, DYNEPO(TM) which is a trademark ofSanofi Aventis, EQUASYM(R) which is a trademark of UCB S.A., PENTASA(R) which is atrademark of Ferring A/S Corp, and REMINYL(R) and REMINYL XL(TM) which aretrademarks of J&J (except in the UK and Republic of Ireland)1.A full list of the trademarks of Shire plc or companies within the Shire groupis set out in the Company's Quarterly Report on Form 10-Q for the six monthsended June 30, 2009.
1 REMINYL(R) and REMINYL XL(TM) are both trademarks of Shire in the UK and Republic of Ireland.
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Shire