28th Oct 2011 12:00
Continued strong product sales performance in Q3: On track to deliver significant 2011 earnings growthOctober 28, 2011 - Shire plc , the global specialtybiopharmaceutical company, announces results for the three months to September30, 2011.Financial Highlights Q3 2011(1) $1,018Product sales million +28% $1,086Total revenues million +24% Non GAAP operating income $341 million +15%US GAAP operating income $255 million +64% Non GAAP diluted earnings per ADS $1.28 +10%US GAAP diluted earnings per ADS $1.02 +96% Non GAAP cash generation $296 million +9%Non GAAP free cash flow $138 million +56%
US GAAP net cash provided by operating activities $179 million +26%
(1) Percentages compare to equivalent period in 2010.
The Non GAAP financial measures included within this release are explained onpage 24, and are reconciled to the most directly comparable financial measuresprepared in accordance with US GAAP on pages 19 - 23.
Angus Russell, Chief Executive Officer, commented:
"Shire has delivered another strong set of quarterly results. Total product sales were up 28% to $1,018 million, with our newly acquired regenerative medicine product, DERMAGRAFT for Diabetic Foot Ulcers, contributing sales of $50 million in the quarter. We're on track to deliver significant 2011 earnings growth.
Sales of our rare disease treatments were very strong: with VPRIV up 31% andREPLAGAL up 40% versus the same quarter in 2010. FIRAZYR, ourself-administered treatment for acute attacks of Hereditary Angioedema, wasapproved by the FDA in August and launched just a few weeks ago; initialdemand from patients has been positive. This week we have also initiated arolling Biologics License Application for REPLAGAL in the US, designated FastTrack by the FDA.
The US ADHD market continues to grow and with a strong `back to school' season, our portfolio of treatments has gained share. VYVANSE sales were up 32% and INTUNIV sales grew 50%.
The investment in our product portfolio is already delivering benefits and webelieve our R&D pipeline will provide important therapies to patients aroundthe world. In addition to initiating Phase 3 clinical trials for VYVANSE asadjunctive therapy in Major Depressive Disorder (MDD), we're releasinghighlights of exploratory data showing that cognition and executive functionwere improved in patients with MDD taking VYVANSE as adjunctive therapy. We'vealso released positive new clinical data related to our Phase 3 European ADHDclinical program. Overall, we've increased investment in our R&D programs by21% compared to Q3 2010, and still generated good earnings growth and strongcashflows.Over the course of the year we've seen market expectations for Shire's 2011earnings rise, with further increases in the last quarter. After these goodthird quarter results, and after taking account of the lower royalty incomethat we will be recording in future periods, we remain on track to meet theseincreased expectations. We anticipate that this will be another very good yearfor Shire as we deliver strong sales and continue our investment program forsustained future growth."FINANCIAL SUMMARY
Third Quarter 2011 Unaudited Results
Q3 2011 Q3 2010 US GAAP Adjustments Non GAAP US GAAP Adjustments Non GAAP $M $M $M $M $M $MTotal revenues 1,086 - 1,086 874 - 874Operating income 255 86 341 156 142 298 Diluted earningsper ADS $1.02 $0.26 $1.28 $0.52 $0.64 $1.16 - Product sales were up 28% to $1,018 million (Q3 2010: $794 million) as ourexisting products continued to demonstrate strong growth even when compared tothe very good performance in Q3 2010. In Q3 2011 we recognized the first fullquarter of DERMAGRAFT® sales which contributed six percentage points toproduct sales growth. On a constant exchange rate ("CER") basis, which is aNon GAAP measure, product sales were up 25%.
Product sales in the quarter benefited from higher ADDERALL XR® sales, in part due to significantly lower sales deductions following a lowering of the estimate of inventory in the US retail pipeline.
- The strong product sales growth more than offset declines in 3TC® and ZEFFIX® royalties, both of which are now affected by the disagreement with GlaxoSmithKline ("GSK"), to give growth in total revenues of 24%, to $1,086 million in the quarter (Q3 2010: $874 million).
- As expected, research and development ("R&D") was up 21% on a Non GAAP basis compared to Q3 2010, as we continue to invest in both early and late stage programs across our business to enable us to deliver future growth. On a US GAAP basis, R&D expenditure increased 2% compared to Q3 2010.
- Non GAAP operating income was up 15% to $341 million (Q3 2010: $298million). As expected, Non GAAP operating expenses increased at broadly thesame rate as the increase in product sales compared to Q3 2010. This increasewas due to increased investment in our R&D program and higher selling, generaland administrative ("SG&A") expenditure as we absorb the operating costs ofAdvanced BioHealing Inc. ("ABH") and Movetis, neither of which were incurredin Q3 2010, in addition to supporting product launches and our continuedgrowth.Non GAAP diluted earnings per American Depositary Share ("ADS") were up 10% to$1.28 (Q3 2010: $1.16), due to the higher Non GAAP operating income, partiallyoffset by higher Non GAAP Other Expenses.
- On a US GAAP basis, operating income was up 64% to $255 million (Q3 2010: $156 million). Q3 2010 included the up-front payment to Acceleron Pharma Inc. ("Acceleron") and impairment charges relating to the divestment of DAYTRANA®.
US GAAP diluted earnings per ADS were up 96% to $1.02 (Q3 2010: $0.52), due toboth higher US GAAP operating and Other Income (which for US GAAP includes thegain on disposal of shares held in Vertex Pharmaceuticals Inc. ("Vertex")).
- Cash generation, a Non GAAP measure, was up 9% to $296 million (Q3 2010: $271 million). Higher cash receipts from gross product sales were partially offset by lower royalty receipts and higher cash payments on the increased investment in R&D and SG&A, as well as higher sales deduction payments in the quarter.
Free cash flow, also a Non GAAP measure, was up 56% to $138 million comparedto Q3 2010. Free cash flow in Q3 2010 ($89 million) included the impact of the$45 million upfront payment to Acceleron.
On a US GAAP basis, net cash provided by operating activities was $179 million (Q3 2010: $142 million).
2011 OUTLOOK
After these third quarter results we remain on track to meet current market expectations for 2011 earnings.
For the full year we expect to see continued strong product sales growth. Royalty and other revenues combined are expected to continue to decline but now by around 17% for the full year (previous expectation, 10%) compared to 2010. Taken together, we expect year on year growth in total revenues in the second half to be broadly in line with the rate of 22% seen in the first half.
We continue to expect gross margins to be marginally diluted in the second half as a result of the inclusion of ABH, although gross margins for the full year should be in line with those recorded in 2010.
As previously indicated, we have significant opportunities for future growth.During the year we have initiated a program of investment to advance ourpipeline and continue the international expansion of our portfolio. Wecontinue to expect that combined R&D and SG&A for the full year will be around20% higher than 2010, reflecting this investment program and the inclusion ofABH's cost base in 2011.
We anticipate our Non GAAP effective tax rate to be between 22 and 24% for the full year.
Overall, the operational leverage we expect to achieve for the full year willdrive significant earnings growth in 2011, and we reiterate our aspirationalgrowth targets.
THIRD QUARTER 2011 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
Products
FIRAZYR® - for the treatment of acute attacks of Hereditary Angioedema ("HAE") in adults
- On August 25, 2011 Shire announced that the U.S. Food and DrugAdministration ("FDA") had granted marketing approval for FIRAZYR in the USfor treatment of acute attacks of HAE in adults 18 years of age and older.After injection training, patients may self-administer FIRAZYR, the first andonly self-administered subcutaneous treatment for acute HAE. FIRAZYR hasorphan drug designation status in Europe and the US for the treatment of acuteHAE.
VPRIV® and REPLAGAL® Manufacturing Update
- Shire has completed process validation runs for VPRIV at its newLexington manufacturing facility and intends to file for regulatory approvalsstarting in November 2011. Approval for the manufacture of VPRIV at theLexington facility is anticipated in early 2012 and will significantlyincrease Shire's manufacturing capacity for VPRIV. In addition, this approvalwill release further capacity for the manufacturing of REPLAGAL at Shire'sAlewife facility where both VPRIV and REPLAGAL are currently manufactured.
VPRIV - for the treatment of Type 1 Gaucher disease
- Shire's continued focus remains on providing patients with longterm, uninterrupted treatment with VPRIV, with approximately 1,200 patientsworldwide currently on treatment. Shire has experienced an increase in demandfor VPRIV following the recent announcement of CEREZYME® shortages in the USand other countries. Shire can accommodate a limited number of additionalpatients prior to approval of the Lexington facility. Shire will carefullymonitor and seek to manage this increased demand until the Lexington facilityis approved.
REPLAGAL - for the treatment of Fabry disease
- Earlier this week, Shire initiated a rolling Biologics LicenseApplication ("BLA") for REPLAGAL in the US, designated Fast Track by the FDA.Shire plans to submit the final BLA sections in November 2011 and will requestPriority Review of this submission in response to the continuing supplyshortage of FABRAZYME®. In 2010 Shire withdrew its BLA in order to gatheradditional clinical data for REPLAGAL. These data, including data from Shire'songoing US Treatment Protocol, have now been evaluated and will be included inthe new filing.
Shire is continuing to experience strong demand for REPLAGAL from both patients new to treatment and patients switching from FABRAZYME. Approximately 2,800 patients worldwide are currently receiving REPLAGAL and Shire can accommodate a modest number of new patients per month prior to approval of the Lexington facility. Shire will continue to carefully monitor the addition of new patients to ensure that we can provide patients with uninterrupted long term supply of REPLAGAL at the recommended dose and frequency.
Pipeline
DERMAGRAFT - for the treatment of Venous Leg Ulcers ("VLU")
- On August 24, 2011 Shire announced its preliminary analysis of the top-lineresults from ABH's Phase 3 pivotal trial of DERMAGRAFT in subjects with VLU.The international pivotal trial was designed as a prospective, multicenter,randomized, controlled clinical study to assess the product's safety andefficacy in the promotion of healing VLU. The preliminary analysis of the datawas that the trial did not meet the primary endpoint mutually agreed with theFDA and European Medicine Agency.
VYVANSE® - for the treatment of Attention Deficit Hyperactivity Disorder ("ADHD")
- On October 21, 2011 Shire reported positive top line results of the firstEuropean Phase 3 study of once-daily lisdexamfetamine dimesylate ("LDX") inchildren and adolescents aged 6 to 17 years with ADHD. The study, conducted at48 sites across Europe, demonstrated that a once-daily morning dose of LDXresulted in positive efficacy results on the primary as well as key secondaryendpoints compared to placebo, and a safety profile consistent with the knowneffects of amphetamine treatment and previous LDX trials. In the study,patients were randomized to receive LDX, osmotic-controlled extended-releasemethylphenidate ("OROS-MPH"; marketed as CONCERTA® and CONCERTA XL® by Johnson& Johnson) or placebo, over a period of seven weeks. The CONCERTA arm wasincluded in order to provide data versus the current European standard of careas it is often required for approval and to support appropriate reimbursement.The primary measure was the change in total score of the ADHD-RS-IV of LDXversus placebo with OROS-MPH included as an active control.
VYVANSE - for the treatment of inadequate response in Major Depressive Disorder ("MDD")
- Today, in the live conference call for investors, Shire will present the highlights of new data from an exploratory study for VYVANSE as adjunctive therapy in adults with significant cognitive impairments with partially or fully remitted MDD. This study met its primary and secondary endpoints.
- A Phase 3 clinical trial program to assess the efficacy and safety of VYVANSE as adjunctive therapy in patients with MDD has been initiated.
BOARD CHANGES
Mr Patrick Langlois, who has been a member of Shire's Board ofDirectors for 6 years, will be stepping down from the Board and from theCompany's Audit, Compliance & Risk Committee and its Remuneration Committee onthe expiry of his current term of office on November 10, 2011. Matthew Emmens,Chairman of Shire, said "We thank Patrick for his contribution to Shire overthe past few years".ADDITIONAL INFORMATION
The following additional information is included in this press release:
PageOverview of Third Quarter 2011 Financial Results 6Financial Information 10Non GAAP Reconciliations 19Safe Harbor Statement 23Explanation of Non GAAP Measures 24Trademarks 25
For further information please contact:
Investor Relations- Eric Rojas [email protected] +1 781 482 0999- Sarah Elton-Farr [email protected] +44 1256 894 157Media - Jessica Mann (Corporate) [email protected] +44 1256 894 280
- Matthew Cabrey (Specialty Pharma) [email protected] +1 484 595 8248- Jessica Cotrone (Human Genetic Therapies) [email protected] +1 781 482 9538- Lindsey Hart (Regenerative Medicine) [email protected] +1 615 250 3311
Dial in details for the live conference call for investors 14:00 BST/9:00 EDT on October 28, 2011:
UK dial in: 0800 077 8492 or 0844 335 0351
US dial in: 1 866 8048688 or 1 718 3541175
International dial in: +44 208 996 3900
Password/Conf ID: 280117
Live Webcast: http://www.shire.com/shireplc/en/investors
OVERVIEW OF THIRD QUARTER 2011 FINANCIAL RESULTS
1. Product sales
For the three months to September 30, 2011 product sales increased by 28% to$1,018.4 million (Q3 2010: $794.3 million) and represented 94% of totalrevenues (Q3 2010: 91%).Product Highlights US Exit Market Year on year growth Share(1)Product Sales $M Sales CER US Rx(1) VYVANSE 199.7 +32% +32% +20% 16%ADDERALL XR 149.9 +50% +50% +8% 7%REPLAGAL 129.0 +40% +31% n/a(3) n/a(3)ELAPRASE® 109.6 +13% +7% n/a(2) n/a(2)LIALDA/MEZAVANT® 89.7 +18% +17% +7% 21%VPRIV 64.6 +31% +27% n/a(2) n/a(2)INTUNIV® 56.1 +50% +50% +59% 4%PENTASA® 55.9 -2% -2% -4% 15%DERMAGRAFT 50.0 n/a n/a n/a(2) n/a(2)FOSRENOL® 40.5 -10% -14% -17% 5%FIRAZYR 7.2 +148% +129% n/a(2) n/a(2)RESOLOR® 1.5 n/a n/a n/a(3) n/a(3)OTHER 64.7 -25%(4) -29% n/a n/a
Total product sales 1,018.4 +28% +25%
(1) Data provided by IMS Health National Prescription Audit ("IMS NPA"). Exit market share represents the average monthly US market share in the month ended September 30, 2011.
(2) IMS NPA Data not available.
(3) Not sold in the US in Q3 2011.
(4) Q3 2010 included DAYTRANA product sales of $14.7 million.
VYVANSE - ADHD
The growth in VYVANSE product sales resulted from higher prescription demand,due to growth in the US ADHD market and increases to VYVANSE's share of thatmarket, in addition to the effect of a price increase taken since Q3 2010.These positive factors were partially offset by higher sales deductions in Q32011 compared to Q3 2010.
ADDERALL XR - ADHD
Product sales for ADDERALL XR increased due to higher prescription demand, dueprimarily to growth in the US ADHD market and lower sales deductions. Salesdeductions as a percentage of gross product sales (47% for the quarter) weresignificantly lower than Q3 2010 (60%) and the first half of 2011 (61%), dueprimarily to a lowering of the estimate of inventory in the US retailpipeline, and the related sales deduction reserve. We expect that salesdeductions will be between 60-65% of gross product sales for the fourthquarter.
REPLAGAL - Fabry disease
The growth in REPLAGAL product sales was driven by the treatment of new patients, being both na¯ve patients and switches from FABRAZYME. Reported REPLAGAL sales also benefited from favorable foreign exchange, due to the weaker US dollar in Q3 2011 compared to Q3 2010.
ELAPRASE - Hunter syndrome
Product sales for ELAPRASE increased as a result of increased patients on therapy across all regions in which ELAPRASE is sold. Reported ELAPRASE sales also benefited from favorable foreign exchange.
LIALDA/MEZAVANT - Ulcerative colitis
LIALDA/MEZAVANT product sales continued to grow in Q3 2011, driven primarily by increased US prescription demand due to higher US market share and the effect of price increases taken since Q3 2010, partially offset by customer destocking in Q3 2011.
VPRIV - Gaucher disease
VPRIV product sales growth was driven by the treatment of new patients, being both na¯ve patients and switches from CEREZYME. Reported VPRIV sales also benefited from favorable foreign exchange.
INTUNIV - ADHD
INTUNIV product sales were up 50% compared to Q3 2010 primarily driven by strong growth in prescription demand compared to Q3 2010. The growth in product sales was marginally less than the increase in US prescription demand due to de-stocking in Q3 2011 compared to stocking in Q3 2010 and slightly higher sales deductions as a percentage of product sales in Q3 2011.
PENTASA - Ulcerative colitis
The decrease in PENTASA product sales was driven by a decrease in US prescription demand as well as higher destocking in Q3 2011 as compared to Q3 2010. This decrease was partially offset by price increases and lower sales deductions as compared to Q3 2010.
DERMAGRAFT - Diabetic Foot Ulcers ("DFU")
DERMAGRAFT(1) continues to see strong revenue growth in the US, up 27% compared to Q3 2010. The growth resulted from a combination of an expanding US diabetic population, continued adoption of DERMAGRAFT as an efficacious, cost-effective treatment for DFU, and the continued addition of sales representatives to market the product.
(1) Shire acquired DERMAGRAFT through its acquisition of ABH in Q2 2011.
FOSRENOL - Hyperphosphatemia
Product sales of FOSRENOL decreased due to the combined effect of lower US prescription demand resulting from a fall in market share and higher sales deductions in Q3 2011 as compared to Q3 2010.
2. Royalties Year on year growth Royalties toProduct Shire $M Royalties CER ADDERALL XR 1.00 22.9 27% 27%3TC and ZEFFIX 1.00 17.3 -57% -58%FOSRENOL 1.00 10.9 56% 56%Other 1.00 11.7 7% 0%Total 1.00 62.8 -18% -19%
Royalty income decreased in Q3 2011 compared to Q3 2010 as higher royalties on ADDERALL XR and FOSRENOL were more than offset by lower royalties from 3TC and ZEFFIX.
Royalty income from 3TC and ZEFFIX continues to be adverselyimpacted by increased competition from other products. Additionally, in Q32011 Shire has continued to not recognize royalty income for 3TC for certainterritories due to a disagreement between GSK and Shire about how the relevantroyalty rate should be applied given the expiry dates of certain patents. InQ3 2011 this disagreement extended to ZEFFIX, and accordingly Shire has notrecognized ZEFFIX royalty income for the affected territories. GSK and Shirecontinue to hold discussions in order to clarify this issue.3. Financial detailsCost of product sales % of % of product product Q3 2011 sales Q3 2010 sales $M $MCost of product sales (US 166.5 16% 112.7 14%GAAP)Unwind of DERMAGRAFTinventory fair valuestep-up on acquisition (9.0) -Transfer of manufacturingfrom Owings Mills (3.4) (7.3)Depreciation (8.6) (2.3)Cost of product sales (Non 145.5 14% 103.1 13%GAAP) Non GAAP cost of product sales as a percentage of product sales increased inQ3 2011 compared to the same period in 2010 due to the inclusion of DERMAGRAFTand the impact of a $10.0 million inventory write down of expired ELAPRASEunpurified bulk material, which was not prioritised for purification ascapacity was directed towards meeting demand for REPLAGAL and VPRIV.
US GAAP cost of product sales as a percentage of product sales was two percentage points higher than the same period in 2010 due to the ELAPRASE write down and the inclusion of DERMAGRAFT, including the fair value adjustment for DERMAGRAFT inventories in Q3 2011.
R&D % of % of product product Q3 2011 sales Q3 2010 sales $M $MR&D (US GAAP) 201.5 20% 197.9 25%Impairment of intangible (16.0) -assetsUp-front payment to - (45.0)AcceleronDepreciation (5.6) (4.4)R&D (Non GAAP) 179.9 18% 148.5 19% Non GAAP R&D was up $31.4 million, or 21%, due to growing investment in anumber of targeted R&D programs, including Sanfilippo A and other early stagedevelopment programs, in addition to increased investment in new uses forVYVANSE. Non GAAP R&D in Q3 2011 also included expenditure on the developmentprograms acquired with Movetis and ABH, neither of which were incurred in Q32010.
On a US GAAP basis, R&D costs in Q3 2011 also include an intangible asset impairment charge, and Q3 2010 included the up-front payment to Acceleron.
SG&A % of % of product product Q3 2011 sales Q3 2010 sales $M $MSG&A (US GAAP) 452.1 44% 392.4 49%Intangible asset (46.4) (31.2)amortizationImpairment of intangible - (42.7)
assets
Depreciation (16.7) (16.1)SG&A (Non GAAP) 389.0 38% 302.4 38% Non GAAP SG&A increased by $86.6 million, or 29% as we continue to support thegrowth of our existing and newly launched products. Non GAAP SG&A in Q3 2011included expenditure for ABH and Movetis which was not incurred in the sameperiod in 2010.
On a US GAAP basis, SG&A costs in Q3 2010 included an impairment charge to write down the DAYTRANA intangible asset to its fair value less costs to sell following agreement to divest the product to Noven Pharmaceuticals Inc. ("Noven").
Reorganization costs
For the three months to September 30, 2011 Shire recordedreorganization costs of $5.0 million (Q3 2010: $9.7 million) relating to thetransfer of manufacturing from its Owings Mills facility and the establishmentof an international commercial hub in Switzerland.
Integration and acquisition costs
For the three months to September 30, 2011 Shire recorded integration and acquisition costs of $5.3 million (Q3 2010: $5.8 million), which related to the acquisition and integration of ABH ($3.6 million) and the integration of Movetis ($1.7 million). In 2010 integration and acquisition costs solely related to the acquisition of Movetis.
Interest expense
For the three months to September 30, 2011 Shire incurred interest expense of$9.7 million (Q3 2010: $8.3 million). Interest expense principally relates tothe coupon and amortization of issue costs on Shire's $1,100 million 2.75%
convertible bonds due 2014.Other (expense)/income, net Q3 2011 Q3 2010 $M $MOther income, net (US GAAP) 15.6 0.8Gain on sale of investments (23.5) -
Other (expense)/income, net (Non GAAP) (7.9) 0.8
On a US GAAP basis, for the three months to September 30, 2011, Shirerecognized $15.6 million of Other income, net (2010: $0.8 million) whichincludes a gain of $23.5 million arising on the disposal of substantially allof Shire's holding in Vertex (Shire received these shares as partialconsideration for its investment in ViroChem Pharma, Inc. following ViroChemPharma, Inc. being acquired by Vertex).Non GAAP Other expense, net in Q3 2011 (which excludes the gain on disposal ofshares held in Vertex) included the impact of increased foreign exchangelosses arising in the quarter, reflecting volatility in a number of currenciesto which Shire has exposure.Taxation
The Non GAAP effective tax rate in Q3 2011 of 25% was higher than Q3 2010 (24%) due to unfavourable changes in the profit mix in the quarter. We anticipate our Non GAAP effective tax rate to be between 22 and 24% for the full year.
The US GAAP effective rate of tax in Q3 2011 of 27% was lower than Q3 2010(35%) as Q3 2010 included the up-front payment to Acceleron and the intangibleasset impairment charges for DAYTRANA. Taken together, these costs increasedthe US GAAP tax rate in Q3 2010 as they were either incurred in territorieswith tax rates lower than Shire's effective rate or in territories where theestablishment of valuation allowances precluded the recognition of any taxbenefit. Were the impact of these items excluded the effective tax rate in
Q32010 would have been 24%.FINANCIAL INFORMATIONTABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 11
Unaudited US GAAP Consolidated Statements of Income 12
Unaudited US GAAP Consolidated Statements of CashFlows 14 Selected Notes to the Unaudited US GAAP FinancialStatements(1) Earnings per share 16(2) Analysis of revenues 17 Non GAAP reconciliation 19Unaudited US GAAP financial position as of September 30, 2011Consolidated Balance Sheets September 30, December 31, 2011 2010 $M $MASSETSCurrent assets:Cash and cash equivalents 276.4 550.6Restricted cash 21.0 26.8Accounts receivable, net 844.7 692.5Inventories 325.9 260.0Deferred tax asset 179.0 182.0Prepaid expenses and other current assets 159.3 168.4 Total current assets 1,806.3 1,880.3 Non-current assets:Investments 30.1 101.6Property, plant and equipment, net 918.8
853.4
Goodwill 596.2
402.5
Other intangible assets, net 2,561.7 1,978.9Deferred tax asset 109.5 110.4Other non-current assets 43.0 60.5 Total assets 6,065.6 5,387.6 LIABILITIES AND EQUITYCurrent liabilities:Accounts payable and accrued expenses 1,312.7 1,239.3Convertible bonds 1,100.0 -Deferred tax liability 4.3 4.4Other current liabilities 56.0 49.6 Total current liabilities 2,473.0 1,293.3 Non-current liabilities:Convertible bonds - 1,100.0Deferred tax liability 540.4 352.1Other non-current liabilities 97.5 190.8 Total liabilities 3,110.9 2,936.2 Equity:Common stock of 5p par value; 1,000 millionshares authorized; and 562.5 million sharesissued and outstanding (2010: 1,000 millionshares authorized; and 562.2 million sharesissued and outstanding) 55.7
55.7
Additional paid-in capital 2,824.5
2,746.4
Treasury stock: 12.5 million shares (2010: 14.0million) (293.1)
(276.1)
Accumulated other comprehensive income 88.5
85.7
Retained earnings/(accumulated deficit) 279.1 (160.3) Total equity 2,954.7 2,451.4 Total liabilities and equity 6,065.6
5,387.6
Unaudited US GAAP results for the three months and nine months to September 30, 2011 Consolidated Statements of Income
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2011 2010 2011 2010 $M $M $M $MRevenues:Product sales 1,018.4 794.3 2,901.0 2,276.8Royalties 62.8 76.5 199.8 254.5Other revenues 4.9 3.5 20.4 8.6Total revenues 1,086.1 874.3 3,121.2 2,539.9 Costs and expenses:Cost of product sales(1) 166.5 112.7 434.7 333.7Research anddevelopment(1) 201.5 197.9 556.3 475.9Selling, general andadministrative(1) 452.1 392.4 1,295.3 1,106.7Loss/(gain) on sale ofproduct rights 0.3 - 3.8 (4.1)Reorganization costs 5.0 9.7 18.0 23.3Integration andacquisition costs 5.3 5.8 7.9 6.4Total operating expenses 830.7 718.5 2,316.0 1,941.9 Operating income 255.4 155.8 805.2 598.0 Interest income 0.3 1.0 1.5 1.9Interest expense (9.7) (8.3) (28.8) (25.6)Other income, net 15.6 0.8 15.9 9.0Total otherincome/(expense), net 6.2 (6.5) (11.4) (14.7) Income before income taxesand equity inearnings/(losses) ofequity method investees 261.6 149.3 793.8 583.3Income taxes (69.5) (52.7) (187.3) (160.8)Equity inearnings/(losses) ofequity method investees,net of taxes 0.8 (0.3) 3.2 0.2Net income 192.9 96.3 609.7 422.7(1) Cost of product sales includes amortization of intangible assets relatingto favorable manufacturing contracts of $0.5 million for the three months toSeptember 30, 2011 (2010: $0.4 million) and $1.4 million for the nine monthsto September 30, 2011 (2010: $1.3 million). R&D costs include intangibleassets impairment charges of $16.0 million for the three months and ninemonths to September 30, 2011 (2010: $nil). SG&A costs include amortization andimpairment charges of intangible assets relating to intellectual propertyrights acquired of $46.4 million for the three months to September 30, 2011(2010: $73.9 million) and $119.1 million for the nine months to September 30,2011 (2010: $142.3 million).
Unaudited US GAAP results for the three months and nine months to September 30, 2011 Consolidated Statements of Income (continued)
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2011 2010 2011 2010 Earnings per ordinaryshare - basic 35.0c 17.6c 110.6c 77.4c Earnings per ADS - basic 105.0c 52.8c 331.8c 232.2c Earnings per ordinaryshare - diluted 33.9c 17.3c 106.7c 76.0c
Earnings per ADS - diluted 101.7c 51.9c 320.1c
228.0c
Weighted average number ofshares: Millions Millions Millions Millions Basic 551.3 547.0 551.2 546.1Diluted 593.8 556.7 595.0 589.7
Unaudited US GAAP results for the three months and nine months to September 30, 2011 Consolidated Statements of Cash Flows
3 months to
September 30, 9 months to September 30,
2011 2010 2011 2010 $M $M $M $M
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 192.9 96.3 609.7 422.7Adjustments to reconcile net income to net cashprovided by operating activities: Depreciation and amortization 80.0 60.0 212.3 189.2 Share based compensation 19.8 17.5 54.7 44.2 Impairment of intangible assets 16.0 42.7 16.0 42.7 Gain on sale of non-current investments (23.5) - (23.5) (11.1) Loss/(gain) on sale of product rights 0.3 - 3.8 (4.1) Other 11.7 (5.7) 5.9 5.2
Movement in deferred taxes (30.9) (10.0) (13.2) 48.7Equity in (earnings)/losses of equity methodinvestees (0.8) 0.3 (3.2) (0.2)
Changes in operating assets and liabilities:
Increase in accounts receivable (66.7) (94.1) (122.8) (138.0) (Decrease)/increase in sales deduction accrual (19.9) 14.8 46.2 169.0 Increase in inventory (12.2) (4.1) (42.8) (54.1) Decrease/(increase) in prepayments and other assets 31.1 16.2 17.3 (67.0) (Decrease)/increase in accounts payable and other liabilities (24.3) 2.3 (101.4) (41.0)
Returns on investment from joint venture 5.2 5.8 5.2 5.8Net cash provided by operating activities(A) 178.7 142.0 664.2 612.0
Unaudited US GAAP results for the three months and nine months to September 30, 2011 Consolidated Statements of Cash Flows (continued)
3 months to September 30, 9 months to September 30, 2011 2010 2011 2010 $M $M $M $M
CASH FLOWS FROM INVESTING ACTIVITIES:
Movements in restricted cash 0.9 (553.0) 5.7 (547.0)Purchases of subsidiary undertakings,net of cash acquired (3.8) - (723.5) -Payments on foreign exchange contractsrelated to Movetis - (21.2) - (21.2)Purchases of non-current investments (3.8) (1.0) (8.3) (1.0)Purchases of property, plant andequipment ("PP&E") (40.9) (53.5) (135.9) (261.7)Purchases of intangible assets (5.2) - (5.2) (2.7)Proceeds from disposal of non-currentinvestments and PP&E 94.7 - 94.7 2.1Proceeds/deposits received on sales ofproduct rights 1.9 - 8.8 -Returns of equity investments andproceeds from short term investments 0.1 - 1.7 -Net cash provided by/(used in)investing activities(B) 43.9 (628.7)
(762.0) (831.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from drawing of revolvingcredit facility - - 30.0 -Repayment of revolving credit facility (30.0) - (30.0) -Repayment of debt acquired with ABH - - (13.1) -Payment under building financeobligation (0.6) (0.4) (1.0) (1.8)Extinguishment of building financeobligation - - - (43.1)Tax benefit of stock based compensation 4.9 5.2 23.7 9.6Proceeds from exercise of options 0.1 0.2 0.9 2.1Payment of dividend - - (60.5) (49.8)Payments to acquire shares by EmployeeShare Ownership Trust ("ESOT") (62.9) - (126.8) (1.7)Net cash (used in)/provided byfinancing activities(C) (88.5) 5.0 (176.8) (84.7)Effect of foreign exchange rate changeson cash and cash equivalents (D) (2.3) (7.5) 0.4 (1.4)Net increase/(decrease) in cash andcash equivalents(A) +(B) +(C) +(D) 131.8 (489.2)
(274.2) (305.6)
Cash and cash equivalents at beginningof period 144.6 682.5 550.6 498.9Cash and cash equivalents at end ofperiod 276.4 193.3 276.4 193.3
Unaudited US GAAP results for the three months and nine months to September 30, 2011
Selected Notes to the Financial Statements
(1) Earnings Per Share ("EPS")
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2011 2010 2011 2010 $M $M $M $M Numerator for basic EPS 192.9 96.3 609.7 422.7Interest on convertiblebonds, net of tax (1) 8.4 - 25.2 25.2 Numerator for dilutedEPS 201.3 96.3 634.9 447.9 Weighted average numberof shares: Millions Millions Millions MillionsBasic(2) 551.3 547.0 551.2 546.1Effect of dilutiveshares:Stock options(3) 9.0 9.7 10.4 10.4Convertible bonds 2.75%due 2014(4) 33.5 - 33.4 33.2 Diluted 593.8 556.7 595.0 589.7
(1) For the three month period ended September 30, 2010 interest on the convertible bond has not been added back as the effect would be anti-dilutive.
(2) Excludes shares purchased by ESOT and presented by Shire as treasury stock.
(3) Calculated using the treasury stock method.
(4) Calculated using the "if converted" method.
The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:
3 months to 3 months to 9 months to 9 months to September 30, September 30, September 30, September 30, 2011 2010 2011 2010 Millions Millions Millions MillionsShare awards(1) 3.2 3.6 3.9 8.9Convertible bonds 2.75%due 2014(2) - 33.2 - -(1) Certain stock options have been excluded from the calculationof diluted EPS because (a) their exercise prices exceeded Shire plc's averageshare price during the calculation period or (b) satisfaction of the requiredperformance/market conditions cannot be measured until the conclusion of theperformance period.(2) For the three month period ended September 30, 2010 theordinary shares underlying the convertible bonds have not been included in thecalculation of the diluted weighted average number of shares, as the effect oftheir inclusion would be anti-dilutive.
Unaudited US GAAP results for the three months to September 30, 2011
Selected Notes to the Financial Statements
(2) Analysis of revenues3 months to September 30, 2011 2010 2011 2011 % % of total $M $M change RevenueNet product sales:Specialty Pharmaceutical ("SP")ADHDVYVANSE 199.7 151.2 32% 18%ADDERALL XR 149.9 99.7 50% 14%INTUNIV 56.1 37.3 50% 5%EQUASYM 5.1 5.7 -11%
Unaudited US GAAP results for the nine months to September 30, 2011
Selected Notes to the Financial Statements
(2) Analysis of revenues9 months to September 30, 2011 2010 2011 2011 % % of total $M $M change RevenueNet product sales:SPADHDVYVANSE 587.9 453.6 30% 19%ADDERALL XR 408.0 271.9 50% 13%INTUNIV 157.6 123.0 28% 5%EQUASYM 15.6 16.3 -4%
Unaudited results for the three months to September 30, 2011
Non GAAP reconciliation
US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations & asset integration &
discontinued Reclassify 3 months to, September 30, impairments activities operations depreciation September 30,
2011 2011 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 1,086.1 - - - - 1,086.1 Costs and expenses:Cost of productsales 166.5 - (9.0) (3.4) (8.6) 145.5Research anddevelopment 201.5 (16.0) - - (5.6) 179.9Selling, general andadministrative 452.1 (46.4) - (16.7) 389.0Loss on sale ofproduct rights 0.3 - - (0.3) - -Reorganization costs 5.0 - - (5.0) - -Integration andacquisition costs 5.3 - (5.3) - - -Depreciation - - - - 30.9 30.9Total operatingexpenses 830.7 (62.4) (14.3) (8.7) - 745.3 Operating income 255.4 62.4 14.3 8.7 - 340.8 Interest income 0.3 - - - - 0.3Interest expense (9.7) - - - - (9.7)Otherincome/(expense),net 15.6 - - (23.5) - (7.9)Total otherincome/(expense),net 6.2 - - (23.5) - (17.3)Income before incometaxes and equity inearnings of equitymethod investees 261.6 62.4 14.3 (14.8) - 323.5Income taxes (69.5) (16.4) (2.9) 9.2 (79.6)Equity in earningsof equity methodinvestees, net oftax 0.8 - - - - 0.8Net income 192.9 46.0 11.4 (5.6) - 244.7Impact ofconvertible debt,net of tax 8.4 - - - - 8.4Numerator fordiluted EPS 201.3 46.0 11.4 (5.6) - 253.1Weighted averagenumber of shares(millions) - diluted 593.8 - - - - 593.8Diluted earnings perADS 101.7c 23.2c 5.8c (2.8c) - 127.9c
The following items are included in Adjustments:
(a) Amortization and asset impairments: Impairment of intangible assets ($16.0million), amortization of intangible assets relating to intellectual propertyrights acquired ($46.4 million), and tax effect of adjustments;
(b) Acquisition and integration activities: Unwind of ABH inventory step-up ($9.0 million), costs associated with the acquisition and integration of ABH ($3.6 million) and integration of Movetis ($1.7 million), and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerateddepreciation ($2.2 million) and dual running costs ($1.2 million) on thetransfer of manufacturing from Owings Mills to a third party, re-measurementof DAYTRANA contingent consideration to fair value ($0.3 million),reorganization costs ($5.0 million) on the transfer of manufacturing fromOwings Mills to a third party and establishment of an international commercialhub in Switzerland, gain on disposal of investment in Vertex ($23.5 million),and tax effect of adjustments; and
(d) Depreciation: Depreciation of $30.9 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, 2010
Non GAAP reconciliation
US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations September & asset integration & discontinued Reclassify September3 months to, 30, impairments activities operations depreciation 30, 2010 2010 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 874.3 - - - - 874.3 Costs and expenses:Cost of product sales 112.7 - - (7.3) (2.3) 103.1Research anddevelopment 197.9 - (45.0) - (4.4) 148.5Selling, general andadministrative 392.4 (73.9) - - (16.1) 302.4Reorganization costs 9.7 - - (9.7) - -Integration andacquisition costs 5.8 - (5.8) - - -Depreciation - - - - 22.8 22.8Total operatingexpenses 718.5 (73.9) (50.8) (17.0) - 576.8 Operating income 155.8 73.9 50.8 17.0 - 297.5 Interest income 1.0 - - - - 1.0Interest expense (8.3) - - - - (8.3)Other income, net 0.8 - - - - 0.8Total other expense,net (6.5) - - - - (6.5)Income before incometaxes and equity inlosses of equity methodinvestees 149.3 73.9 50.8 17.0 - 291.0Income taxes (52.7) (10.1) (3.5) (4.1) - (70.4)Equity in losses ofequity methodinvestees, net of tax (0.3) - - - - (0.3)Net income 96.3 63.8 47.3 12.9 - 220.3Impact of convertibledebt, net of tax (1) - 8.4 - - - 8.4Numerator for dilutedEPS 96.3 72.2 47.3 12.9 - 228.7
Weighted average numberof shares (millions) -diluted 556.7 33.2 - - - 589.9Diluted earnings perADS 51.9c 33.8c 24.0c 6.6c - 116.3c
(1) The impact of convertible debt, net of tax has a dilutive effect on 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 ($31.2 million), impairment charges to record DAYTRANA assets at fair value less costs to sell ($42.7 million) and tax effect of adjustments;
(b) Acquisitions and integration activities: Upfront payment to Acceleron ($45.0 million), acquisition costs are principally costs associated with the acquisition of Movetis ($5.8 million) and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerated depreciation ($6.2 million) and dual running costs ($1.1 million) on the transfer of manufacturing from Owings Mills and reorganization costs ($9.7 million) on the transfer of manufacturing from Owings Mills and establishment of an international commercial hub in Switzerland, and tax effect of adjustments; and
(d) Depreciation: Depreciation of $22.8 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, 2011
Non GAAP reconciliation
US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations & asset integration &
discontinued Reclassify 9 months to, September 30, impairments activities operations depreciation September 30,
2011 2011 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 3,121.2 - - - - 3,121.2
Costs and expenses:Cost of productsales 434.7 - (9.0) (9.0) (22.4) 394.3Research anddevelopment 556.3 (16.0) - - (16.4) 523.9Selling, general andadministrative 1,295.3 (119.1) - - (46.4) 1,129.8Loss on sale ofproduct rights 3.8 - - (3.8) - -Reorganization costs 18.0 - - (18.0) - -Integration &acquisition costs 7.9 - (7.9) - - -Depreciation - - - - 85.2 85.2Total operatingexpenses 2,316.0 (135.1) (16.9) (30.8) - 2,133.2 Operating income 805.2 135.1 16.9 30.8 - 988.0 Interest income 1.5 - - - - 1.5Interest expense (28.8) - - - - (28.8)Otherincome/(expense),net 15.9 2.4 - (23.5) - (5.2)Total other expense,net (11.4) 2.4 - (23.5) - (32.5)Income before incometaxes and equity inearnings of equitymethod investees 793.8 137.5 16.9 7.3 - 955.5Income taxes (187.3) (35.6) (4.2) 4.5 (222.6)Equity in earningsof equity methodinvestees, net oftax 3.2 - - - - 3.2Net income 609.7 101.9 12.7 11.8 - 736.1Impact ofconvertible debt,net of tax 25.2 - - - - 25.2Numerator fordiluted EPS 634.9 101.9 12.7 11.8 - 761.3Weighted averagenumber of shares(millions) - diluted 595.0 - - - - 595.0Diluted earnings perADS 320.1c 51.4c 6.4c 5.9c - 383.8c
The following items are included in Adjustments:
(a) Amortization and asset impairments: Impairment of intangible assets ($16.0million), amortization of intangible assets relating to intellectual propertyrights acquired ($119.1 million), impairment of available for sale securities($2.4 million), and tax effect of adjustments;(b) Acquisitions and integration activities: Unwind of ABH inventory step-up($9.0 million), costs associated with acquisition and integration of ABH($10.5 million) and integration of Movetis ($5.6 million), less adjustment tocontingent consideration payable for EQUASYM ($8.2 million), and tax effect ofadjustments;(c) Divestments, reorganizations and discontinued operations: Accelerateddepreciation ($6.6 million) and dual running costs ($2.4 million) on thetransfer of manufacturing from Owings Mills to a third party, re-measurementof DAYTRANA contingent consideration to fair value ($3.8 million),reorganization costs ($18.0 million) on the transfer of manufacturing fromOwings Mills to a third party and the establishment of an internationalcommercial hub in Switzerland, gain on disposal of investment in Vertex ($23.5million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $85.2 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.
Unaudited results for the nine months to September 30, 2010
Non GAAP reconciliation
US GAAP Adjustments Non GAAP Acquisitions Divestments, Amortization & reorganizations September & asset integration & discontinued Reclassify9 months to, 30, impairments activities
operations depreciation September 30,
2010 2010 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 2,539.9 - - - - 2,539.9Costs and expenses:Cost of product sales 333.7 - - (21.9) (8.6) 303.2Research anddevelopment 475.9 - (45.0) - (11.6) 419.3Selling, general andadministrative 1,106.7 (142.3) - - (49.0) 915.4Gain on sale of productrights (4.1) - - 4.1 - -Reorganization costs 23.3 - - (23.3) - -Integration andacquisition costs 6.4 - (6.4) - - -Depreciation - - - - 69.2 69.2Total operatingexpenses 1,941.9 (142.3) (51.4) (41.1) - 1,707.1 Operating income 598.0 142.3 51.4 41.1 - 832.8 Interest income 1.9 - - - - 1.9Interest expense (25.6) - - - - (25.6)Other income/(expense),net 9.0 - - (11.1) - (2.1)Total other expense,net (14.7) - - (11.1) - (25.8)Income before incometaxes and equity inearnings of equitymethod investees 583.3 142.3 51.4 30.0 - 807.0Income taxes (160.8) (29.4) (3.6) (9.1) - (202.9)Equity in earnings ofequity methodinvestees, net of tax 0.2 - - - - 0.2Net income 422.7 112.9 47.8 20.9 - 604.3Impact of convertibledebt, net of tax 25.2 - - - - 25.2Numerator for dilutedEPS 447.9 112.9 47.8 20.9 - 629.5Weighted average numberof shares (millions) -diluted 589.7 - - - - 589.7Diluted earnings perADS 228.0c 57.3c 24.3c 10.6c - 320.2c
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($99.6 million), impairment charges to record DAYTRANA assets at fair value less costs to sell ($42.7 million) and tax effect of adjustments;
(b) Acquisitions and integration activities: Up-front payment to Acceleron ($45.0 million), acquisition costs are principally costs associated with the acquisition of Movetis ($6.4 million) and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Accelerated depreciation ($18.3 million) and dual running costs ($3.6 million) on the transfer of manufacturing from Owings Mills, gain on sale of product rights relating to the disposal of non core products to Laboratorios Almirall S.A. ($4.1 million), reorganization costs ($23.3 million) on the transfer of manufacturing from Owings Mills and the establishment of an international commercial hub in Switzerland, gain on disposal of the investment in Virochem ($11.1 million) and tax effect of adjustments; and
(d) Depreciation: Depreciation of $69.2 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.
Unaudited results for the three months and nine months to September 30, 2011
Non GAAP reconciliation
The following table reconciles US GAAP net cash provided by operating activities to Non GAAP cash generation:
3 months to September 30, 9 months to September 30, 2011 2010 2011 2010 $M $M $M $MNet cash provided byoperating activities 178.7 142.0 664.2 612.0Tax and interest payments,net 117.2 83.6 280.0
301.6
Payments for acquired andin-licensed products - 45.0 -
45.0
Non GAAP cash generation 295.9 270.6 944.2
958.6
The following table reconciles US GAAP net cash provided by operating activities to Non GAAP free cashflow:
3 months to September 30, 9 months to September 30, 2011 2010 2011 2010 $M $M $M $MNet cash provided byoperating activities 178.7 142.0 664.2 612.0Capital expenditure (1) (40.9) (53.5) (135.9) (139.7)Non GAAP free cash flow 137.8 88.5 528.3 472.3(1) Capital expenditure for the nine months ended September 30,2010 excludes capital expenditure relating to the acquisition of LexingtonTechnology Park.Non GAAP net debt comprises: September 30, December 31, 2011 2010 $M $MCash and cash equivalents 276.4 550.6Restricted cash 21.0 26.8 Convertible bonds (1,100.0) (1,100.0)Building finance obligation (8.3) (8.4)Non GAAP net debt (810.9) (531.0)NOTES TO EDITORS
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, Shire's results could be materially adverselyaffected. The risks and uncertainties include, but are not limited to, risksassociated with: the inherent uncertainty of research, development, approval,reimbursement, manufacturing and commercialization of Shire's SpecialtyPharmaceuticals, Human Genetic Therapies and Regenerative Medicines products,as well as the ability to secure new products for commercialization and/ordevelopment; government regulation of Shire's products; Shire's ability tomanufacture its products in sufficient quantities to meet demand; the impactof competitive therapies on Shire's products; Shire's ability to register,maintain and enforce patents and other intellectual property rights relatingto its products; Shire's ability to obtain and maintain government and otherthird-party reimbursement for its products; and other risks and uncertaintiesdetailed from time to time in Shire's filings with the Securities and ExchangeCommission.Non GAAP MeasuresThis 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 before income taxes and earnings ofequity method investees ("Effective tax rate on Non GAAP income"); Non GAAPcost of product sales; Non GAAP research and development; Non GAAP selling,general and administrative; Non GAAP other income; Non GAAP cash generation;Non GAAP free cashflow and Non GAAP net debt. These Non GAAP measures excludethe effect of certain cash and non-cash items, that Shire's managementbelieves are not related to the core performance of Shire's business.
These Non GAAP financial measures are used by Shire's management to make operating decisions because they facilitate internal comparisons of Shire's performance to historical results and to competitors' results. Shire's Remuneration Committee uses certain key Non GAAP measures when assessing the performance and compensation of employees, including Shire's executive directors.
The Non GAAP measures are presented in this press release as Shire'smanagement believe that they will provide investors with a means ofevaluating, and an understanding of how Shire's management evaluates, Shire'sperformance and results on a comparable basis that is not otherwise apparenton a US GAAP basis, since many non-recurring, infrequent or non-cash itemsthat Shire's management believe are not indicative of the core performance ofthe business may not be excluded when preparing financial measures under USGAAP.
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.
Where applicable the following items, including their tax effect, have been excluded from both 2011 and 2010 Non GAAP earnings, and from our 2011 Outlook:
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, fair value adjustments on contingent consideration and acquired inventory;
- Costs associated with the integration of companies; and
- Noncontrolling interests in consolidated variable interest entities.
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; and
- Income/(losses) from discontinued operations.
Depreciation, which is included in Cost of product sales, R&D and SG&A costsin our US GAAP results, has been separately disclosed for the presentation of2010 and 2011 Non GAAP earnings.
Cash generation represents net cash provided by operating activities, excluding up-front and milestone payments for in-licensed and acquired products, tax and interest payments.
Free cashflow represents net cash provided by operating activities, excluding up-front and milestone payments for in-licensed and acquired products, but including capital expenditure in the ordinary course of business.
A reconciliation of Non GAAP financial measures to the most directly comparable measure under US GAAP is presented on pages 19 to 23.
Sales growth at CER, which is a Non GAAP measure, is computed by restating 2011 results using average 2010 foreign exchange rates for the relevant period.
Average exchange rates for the nine months to September 30, 2011 were$1.61:£1.00 and $1.41:€1.00 (2010: $1.54:£1.00 and $1.32:€1.00). Averageexchange rates for Q3 2011 were $1.61:£1.00 and $1.41:€1.00 (2010: $1.55:£1.00and $1.29:€1.00).TRADEMARKSAll trademarks designated ® and â„¢ used in this press release are trademarks ofShire plc or companies within the Shire group except for 3TC® and ZEFFIX®which are trademarks of GSK, PENTASA® which is a registered trademark ofFERRING B.V., CONCERTA® which is a trademark of ALZA Corporation, FABRAZYME®and CEREZYME® which are trademarks of GENZYME Therapeutic Products LimitedPartnership and DAYTRANA® which is a trade mark of Noven Pharmaceuticals Inc.Certain trademarks of Shire plc or companies within the Shire group are setout in Shire's Annual Report on Form 10-K for the year ended December 31, 2010and the Quarterly Report on Form 10-Q for the three months ended June 30,2011.
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