5th Aug 2009 12:00
Core portfolio of products delivers 20% sales growth
2009 guidance framework reaffirmed
August 5, 2009 - Shire plc the global specialtybiopharmaceutical company, announces results for the three months to June 30,2009.Q2 2009 Financial Highlights Q2 2009(1) Product sales $558 million -21%
Product sales (excluding ADDERALL XR) $491 million
+20%
Product sales growth (excluding ADDERALL XR) at constantexchange rates(2) +27% Non GAAP operating income $116 million -53% US GAAP operating income $35 million
+$102 million Non GAAP diluted earnings per ADS (using actual Q2 2009 tax rate: 2%)
$0.60
-36%
Non GAAP diluted earnings per ADS (using full year expected tax rate: 24%)
$0.47US GAAP diluted earnings per ADS $0.24
+$0.68
(1) Figures compare Q2 2009 results with the same period in 2008.
(2) Sales growth at constant exchange rates ("CER"), which is a Non GAAP measure, is calculated after restating Q2 2009 results using Q2 2008 average foreign exchange rates.
Angus Russell, Chief Executive Officer, commented:
"In the second quarter we delivered strong core product sales, excludingADDERALL XR, of $491 million, representing growth of 20% compared to the samequarter last year. The strategic steps we have taken over the last few yearsare now delivering clear commercial benefits, as we enter a new phase ofShire's development.
We have diversified into a broader portfolio of young products with strong intellectual property and exciting growth prospects. We continue to increase the global reach of our business, and now have a presence in 26 countries worldwide compared to nine countries four years ago.
We have also developed a promising pipeline with encouraging recent news. Withthe receipt of a Complete Response Letter from the US Food and DrugAdministration ("FDA") for INTUNIV, we are confident that we will quickly cometo agreement on the final wording of the product label and will launch in thefourth quarter of 2009 as planned. We are also initiating Phase 2 pilotclinical trials to assess the efficacy and safety of VYVANSE in non ADHD("Attention Deficit Hyperactivity Disorder") indications. Our HGT pipeline hasbeen strengthened by positive results from our trial of velaglucerase in naiveGaucher patients. A treatment protocol for early access has been approved bythe FDA and the agency has approved Fast Track designation for the product.Rolling review of the New Drug Application ("NDA") has started.Our core portfolio has made good progress in the quarter. We are pleased withthe performance of VYVANSE as it has retained market share during thehistorically quieter summer vacation season in contrast to other branded ADHDtreatments that have lost market share. We are anticipating the benefits ofthe back to school season for VYVANSE and are looking forward to increasedsales momentum from our co-promote agreement with GSK for adult ADHD. We arealso expecting further positive newsflow from our pipeline during the secondhalf of this year.
Supported by pro-active cost management, our business is well placed to deliver on our unchanged guidance framework for 2009 and looking ahead we reiterate our aspiration of growing sales in the mid-teens range on average between 2009 and 2015."
Second Quarter 2009 Unaudited Results
Q2 2009 Q2 2008 US GAAP Adjustments Non GAAP(1) US GAAP Adjustments Non GAAP(1) $M $M $M $M $M $MRevenues 630 - 630 776 - 776Operating income/(loss) 35 81 116 (67) 314 247Net income/(loss) 44 65 109 (79) 267 188Diluted earnings/(loss)per ADS 24c 36c 60c (44c) 139c 95cNote: Average exchange rates for Q2 2009 were $1.55: 1.00 and $1.36:EUR1.00, (Q22008: $1.97: 1.00 and $1.57: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 and 23.
FINANCIAL SUMMARY
Second Quarter 2009 (see page 6 for full Financial Results)
- Product sales excluding ADDERALL XR(R) were up 20% (up 27% at CER) to $491 million, following continued growth from VYVANSE(R) (up 75% to $114 million) and LIALDA(R)/MEZAVANT(R) (up 71% to $55 million).
- Total product sales, including ADDERALL XR, were down 21% to $558 million,as ADDERALL XR product sales declined by 77%, or $229 million to $67 million,as a result of the launch by Teva Pharmaceuticals Indutries Ltd ("Teva") of anauthorized generic version of ADDERALL XR, higher sales deductions in Q2 2009(equivalent to 72% of gross sales) and the impact of de-stocking (equivalentto gross sales of $67 million). In the second half of 2009 we expect thede-stocking of ADDERALL XR to reduce significantly and for sales deductions tomoderate to 55-65% of gross sales, depending on sales mix.- Non GAAP operating income decreased by 53%, or $131 million to $116 millionas the lower ADDERALL XR revenues in Q2 2009 were partially offset by higherrevenues on other products and lower operating expenses on a Non GAAP basis.On a US GAAP basis operating income in Q2 2009 was $35 million, compared to aloss of $67 million in 2008.- Non GAAP diluted earnings per ADS were $0.60 for the quarter (Q2 2008:$0.95). The decline in Non GAAP earnings per ADS was less than the decline inNon GAAP operating income due primarily to the effects of certain one off nettax credits recognized in the quarter following the issuance in Q2 2009 of newregulations regarding the Massachusetts State tax regime, which lowered theeffective tax rate in Q2 2009 compared to Q2 2008. Using a full year expectedeffective tax rate of 24%, Non GAAP diluted earnings per ADS for Q2 2009 wouldhave been $0.47 on a pro-forma basis.
SECOND QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS
Products
VYVANSE - for the treatment of ADHD
- On May 1, 2009 Shire and GSK commenced working together on the co-promotion of VYVANSE, with the aim of improving recognition and treatment of ADHD in adults.
- On June 1, 2009 Shire announced that the FDA had approved achange to the prescribing information for VYVANSE, to include supplementaldata that demonstrated significant ADHD symptom control in children aged 6 to12 from the first time point measured (1.5 hours) through 13 hours post-dose.VYVANSE is now the first and only oral ADHD stimulant treatment to have 13hour post-dose efficacy data for pediatric patients included in its productlabeling.
- By July 24, 2009 VYVANSE had achieved a US ADHD market share of 12.3% based on weekly prescription volumes.
ADDERALL XR - for the treatment of ADHD
- On April 2, 2009 Teva announced that it had commenced commercialshipment of its authorized generic version of ADDERALL XR. In Q2 2009 sales ofADDERALL XR declined by 77% to $67 million. A decline in ADDERALL XR salessubsequent to generic launch was anticipated and was already reflected in ourguidance framework.Pipeline
INTUNIV(TM) - for the treatment of ADHD in children and adolescents in the US.
- On May 19, 2009 Shire announced that a randomized placebo controlled trialhad met its primary objective, evaluating the effects of INTUNIV onoppositional symptoms in children aged 6 to 12 years with a diagnosis of ADHDand the presence of oppositional symptoms.- The Prescription Drug User Fee Act date ("PDUFA") for INTUNIV wasJuly 27, 2009. Shire has received a Complete Response Letter from the FDA forINTUNIV. Shire and the FDA were not able to reach agreement on final productlabeling in time to meet the PDUFA date. The FDA did not identify safetyconcerns regarding INTUNIV, request new clinical data or additional analysesin the Complete Response Letter. Shire and the FDA will continue to worktogether to resolve the remaining labeling language over the next 4-8 weeksand we anticipate launch in the fourth quarter of 2009 as planned.
VYVANSE - for the treatment of non ADHD indications in adults
- Shire is conducting Phase 2 pilot clinical trials to assess the efficacy and safety of VYVANSE as adjunctive therapy in depression, for the treatment of negative symptoms and cognitive impairment in schizophrenia, and for the treatment of cognitive impairment in depression.
Velaglucerase alfa - for the treatment of Gaucher disease
- On July 16, 2009 Shire announced that it had received Fast Track designationfrom the FDA for velaglucerase alfa, its enzyme replacement therapy indevelopment for the treatment of Gaucher disease. On July 30 Shire began therolling submission of a NDA for velaglucerase alfa to treat patients with Type1 Gaucher disease. Fast Track is a process which expedites the review of drugsto treat serious diseases and fill an unmet medical need with the goal ofgetting important new treatments to patients earlier. Shire will fileadditional sections of the NDA as they become available. Results from thefirst of the three Phase 3 trials were positive, and achieved statisticallysignificant improvements in the primary endpoint. Velaglucerase alfa was alsofound to be well tolerated with no drug related serious adverse eventsreported in this trial.- On August 3, 2009 Shire announced that it had received approval from the FDAon the initiation of a treatment protocol for velaglucerase alfa. Thisprotocol was submitted at the request of the FDA, in view of a potentialrestriction on the availability of the current approved and marketed treatmentfor Gaucher disease patients. This will allow physicians to treat Gaucherdisease patients with velaglucerase alfa ahead of commercial availability inthe US. Under the conditions of the treatment protocol, Shire will providevelaglucerase alfa free of charge initially, in order to provide access topatients as quickly as possible.
FIRAZYR(R) - for the treatment of hereditary angioedema ("HAE")
- In June 2009, Shire initiated a Phase 3 study in patients with acute attacks of HAE, known as the FAST-3 trial, which is designed to support filing of a NDA for FIRAZYR in the US.
2009 OUTLOOK
We are reiterating our previously announced guidance framework for Non 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 half of 2009 we have alreadyachieved Non GAAP diluted earnings per ADS of $1.88.We identified that each 10c movement in the EUR:$ 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 fx GBP fx rate Non GAAP diluted rate earnings per ADS range (1) Base guidance $1.52 $1.95 $3.00 to $3.40At average March 2009 exchange $1.30 $1.42 $2.73 to $3.13ratesAt average H1 2009 & July 2009 $1.37 $1.56 $2.80 to $3.20exchange rates(1) Our guidance framework for Non GAAP diluted earnings per ADS is notprepared in accordance with US GAAP. Non GAAP diluted earnings per ADSexcludes the effect of certain cash and non-cash items, both recurring andnon-recurring, that Shire's management believes are not related to the coreperformance of Shire's business. A list of these items can be found on pages26-27.PRODUCT LAUNCHES
Subject to obtaining the relevant regulatory/governmental approvals, product launches planned over the next two years include:
- MEZAVANT for the treatment of ulcerative colitis; launches will continue in certain EU and RoW countries in 2009 and 2010;
- FIRAZYR for the symptomatic treatment of acute attacks of HAE; launches will continue in certain European and Latin American countries during 2009 and 2010;
- INTUNIV for the treatment of ADHD in children and adolescents in the US in the fourth quarter of 2009;
- EQUASYM(R) for the treatment of ADHD; launches will continue in certain EU countries during 2009 and 2010;
- DAYTRANA(R) for the treatment of ADHD in adolescents in the US in 2010;
- Velaglucerase alfa for the treatment of Gaucher disease in the US and the EU in 2010; and
- VYVANSE for the treatment of ADHD, in ex-US and ex-EU regions starting in 2010, and in the EU in 2011.
DIVIDEND
In respect of the six months ended June 30, 2009, the Board resolved to pay an interim dividend of 2.147 US cents per ordinary share (2008: 2.147 US cents per share).
Dividend payments will be made in Pounds Sterling to Ordinary shareholders andin US Dollars to holders of American Depository Shares ("ADS"). A dividend of1.302 pence per ordinary share (2008: 1.085 pence) and 6.441 US cents per ADS(2008: 6.441 US cents) will be paid on October 8, 2009 to persons whose namesappear on the register of members of the Company at the close of business onSeptember 11, 2009.Additional Information
The following additional information is included in this press release:
PageOverview of Financial Results 6Financial Information 13Notes to Editors 26Safe Harbor Statement 26Explanation of Non GAAP Measures 26Trademarks 27
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OVERVIEW OF FINANCIAL RESULTS1. IntroductionSummary of Q2 2009
Revenues from continuing operations for the three months to June 30, 2009 decreased by 19% to $629.7 million (2008: $775.6 million), primarily due to the decline in branded ADDERALL XR product sales in Q2 2009 following the launch of an authorized generic version by Teva in April 2009. Excluding ADDERALL XR, product sales increased by 20% to $491.0 million (2008: $409.3 million).
Non GAAP operating income for the three months to June 30, 2009 decreased by53% to $115.5 million (2008: $246.5 million). The lower product sales ofADDERALL XR in Q2 2009 were partially offset by higher revenues from otherproducts and lower operating expenses, as the Company benefits from its morediversified portfolio and continues to focus on cost management, with someadditional benefits from foreign exchange compared to 2008.US GAAP operating income from continuing operations for the three months toJune 30, 2009 increased by $102.0 million to $34.7 million (2008: $67.3million loss). US GAAP operating income from continuing operations in Q2 2009includes a charge of $36.9 million following the amendment of an in-licenseagreement for INTUNIV. The US GAAP operating loss from continuing operationsin Q2 2008 included in-process R&D charges on acquisition of METAZYM(R) fromZymenex A/S ($135.0 million) and costs associated with the cessation ofcommercialization of DYNEPO(TM) ($150.3 million). Excluding the above charges thefall in US GAAP operating income from continuing operations in Q2 2009principally resulted from lower revenues following declines in brandedADDERALL XR product sales.Net cash provided by operating activities decreased by 60% to $72.0 millionfor the three months to June 30, 2009 (2008: $180.4 million). The cash inflowfrom operating activities was lower in Q2 2009 than the same period in 2008 aslower sales receipts, higher cash tax payments and cash payments on forwardexchange contracts in 2009 were only partially offset by lower operatingexpense payments during the quarter.
Cash, cash equivalents and restricted cash at June 30, 2009 totaled $299.1 million (December 31, 2008: $247.4 million), an increase of $51.7 million. Cash inflows from operating activities, cash received on the disposal of Shire's minority investment in Virochem Pharma Inc. and Jerini's Peptides business have been partially offset by cash outflows to acquire EQUASYM, investment in property, plant and equipment at the HGT campus in Lexington and the dividend payment.
2. Product salesFor the three months to June 30, 2009 product sales decreased by 21% to $558.4million (2008: $705.7 million) and represented 89% of total revenues (2008:91%). Excluding ADDERALL XR, product sales increased by 20% to $491.0 million(2008: $409.3 million).Product Highlights US Average US Rx Annual Sales CER Growth(1) MarketProduct Sales $M Growth(2) Growth(3) (2) Share(1)SpecialtyPharmaceuticalsVYVANSE 114.2 75% 75% 80% 12.1%ADDERALL XR 67.4 -77% -77% -48% 11.0%DAYTRANA 14.9 -34% -34% -14% 1.4%EQUASYM 4.9 n/a n/a n/a(5) n/a(5)LIALDA / MEZAVANT 54.6 71% 73% 53% 15.9%PENTASA 54.0 21% 21% -2% 15.9%FOSRENOL 49.6 17% 26% -3% 7.8%XAGRID 20.7 0% 12% n/a(5) n/a(5) Human Genetic TherapiesELAPRASE 85.3 6% 15% n/a(4) n/a(4)REPLAGAL 44.4 -1% 14% n/a(5) n/a(5)FIRAZYR 1.5 n/a n/a n/a(5) n/a(5)
(1) Product specific prescription data is provided by IMS Health ("IMS") National Prescription Audit, a leading global provider of business intelligence for the pharmaceutical and healthcare industries. All other US market share data stated in the text below is also provided by IMS.
(2) Compared to Q2 2008.
(3) CER growth is calculated after restating Q2 2009 results using Q2 2008 average foreign exchange rates.
(4) IMS Data not available.(5) Not sold in the US.Specialty PharmaceuticalsUS ADHD market share
Shire's share of the total US ADHD market for the three months to June 30,2009 declined by approximately 8 percentage points to 24.5% (2008: 32.3%),following the launch by Teva in April 2009 of an authorized generic version ofADDERALL XR. Shire continues to have the leading portfolio of branded productsin the US ADHD market.VYVANSE - ADHD
Sales of VYVANSE for the three months to June 30, 2009 increased by 75% to$114.2 million (2008: $65.2 million), with VYVANSE's average share of the USADHD market for Q2 2009 increasing to 12.1% (2008: 7.4%). Product sales growthwas driven by an 80% increase in US prescription demand in Q2 2009 over thesame period in 2008, as a result of increased US ADHD average market share and10% growth in the US ADHD market.
ADDERALL XR - ADHD
Sales of ADDERALL XR for the three months to June 30, 2009 were$67.4 million, a decrease of 77% (2008: $296.4 million) resulting from thelaunch by Teva in April 2009 of its authorized generic version of ADDERALL XR.The launch of the generic version led to a 48% decline in ADDERALL XR USprescription demand, higher US sales deductions and significant de-stocking(equivalent to gross sales of $67 million) by wholesalers and retailpharmacies in Q2 2009 compared to the same period in 2008. These factors morethan offset the positive impacts of price increases taken since Q2 2008, andthe inclusion within product sales of shipments of authorized generic ADDERALLXR to Teva in Q2 2009.
Sales deductions represented 72% of branded ADDERALL XR gross sales in Q2 2009 (2008: 22%), the increase primarily resulting from higher sales deductions for Managed Care and Medicaid rebates as well as the impact of revising estimates made at the end of Q1 and used in the measurement of the rebate liability on the wholesale and retail pipeline. These revisions increased Q2 sales deduction expense by the equivalent of 11% of Q2 2009 ADDERALL XR gross sales.
The Managed Care rebate percentage increased due to higher rebates offered to Managed Care organizations ("MCO") from April 1, 2009.
The Medicaid rebate percentage was higher in Q2 2009 than the same period lastyear due to a higher proportion of gross sales being made through Medicaid andan increased unit rebate amount ("URA"). The rise in URA is a direct result ofprice increases and the inclusion of shipments of authorized generic ADDERALLXR to Teva in the URA calculation.
DAYTRANA - ADHD
Product sales of DAYTRANA for the three months to June 30, 2009 decreased by 34% to $14.9 million (2008: $22.6 million). Product sales declined due to a 14% reduction in US prescription demand, following a decline in DAYTRANA's average share of the US ADHD market to 1.4% (2008: 1.8%) together with the impact of de-stocking in Q2 2009. These declines were partially offset by price increases taken since Q2 2008.
EQUASYM - ADHD
Following the acquisition of EQUASYM from UCB on March 31, 2009 the Company has recorded product sales of EQUASYM for the three months to June 30, 2009 of $4.9 million (2008: $nil).
US oral mesalamine market share
Shire's average market share of the US oral mesalamine market rose to 31.8% for the three months to June 30, 2009 (2008: 27.6%).
LIALDA/MEZAVANT - Ulcerative colitis
Product sales of LIALDA/MEZAVANT for the three months to June 30, 2009increased by 71% to $54.6 million (2008: $32.0 million). US prescriptionsincreased by 53%, due to an increase in LIALDA's average share of the US oralmesalamine market to 15.9% (2008: 10.8%) and underlying growth in the US oralmesalamine market of 4%.
By June 30, 2009 MEZAVANT was available in eight countries outside the US, and further launches are planned in other countries throughout 2009 and 2010, subject to the successful conclusion of pricing and reimbursement negotiations.
PENTASA - Ulcerative colitis
Sales of PENTASA(R) for the three months to June 30, 2009 were $54.0 million, anincrease of 21% compared to the same period in 2008 (2008: $44.8 million).Sales grew despite a 2% decrease in prescriptions primarily due to the impactof price increases.FOSRENOL - HyperphosphatemiaProduct sales of FOSRENOL(R) for the three months to June 30, 2009 were up 17%to $49.6 million (2008: $42.4 million). On a CER basis sales were up 26%. Inmarkets 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 Q2 2009declined to 7.8% (2008: 8.2%) due to a 3% decrease in prescriptions. However,US product sales grew 15% as price increases offset the prescription decline.
XAGRID - Thrombocythemia
Sales of XAGRID(TM) for the three months to June 30, 2009 were $20.7 million (2008: $20.6 million). On a CER basis sales increased by 12% (XAGRID is primarily sold in Euros and Pounds Sterling).
Human Genetic Therapies
ELAPRASE - Hunter syndrome
Product sales for the three months to June 30, 2009 were $85.3 million, an increase of 6% (2008: $80.8 million). Expressed on a CER basis sales increased by 15% (ELAPRASE(R) is primarily sold in US dollars and Euros). The sales growth was driven by increased volumes across all regions where ELAPRASE is sold.
REPLAGAL - Fabry disease
Product sales for the three months to June 30, 2009 were $44.4 million, a decrease of 1% (2008: $44.7 million). Expressed on a CER basis sales increased by 14% (REPLAGAL(R) is primarily sold in Euros and Pounds Sterling). The sales growth was primarily driven by increased volumes in Europe and Asia Pacific.
FIRAZYR - HAE
Sales for the three months to June 30, 2009 were $1.5 million(2008: $nil). Sales of FIRAZYR in Q1 2009 were $0.5 million. With Q2 launchesin France and Portugal, FIRAZYR is now launched in nine countries, includingfour of the five largest European countries. FIRAZYR also received final pricepublication in Italy during June, which will enable launch in Italy during Q3.FIRAZYR is the first new product for HAE in Europe in 30 years and has orphanexclusivity in the EU until 2018.
3. Royalties
Royalty revenue increased by 3% to $66.9 million for the three months to June 30, 2009 (2008: $64.8 million). The following table provides an analysis of Shire's royalty income:
Product Royalties to Shire $M Year on year change(1)3TC 29.2 -18%ZEFFIX 10.2 -6%ADDERALL XR 13.6 n/aOther 13.9 -25%Total 66.9 3%(1) Compared with Q2 2008
3TC - HIV infection and AIDS
Shire receives royalties from GSK on worldwide sales of 3TC(R) sales. Royaltiesfrom sales of 3TC for the three months to June 30, 2009 were $29.2 million(2008: $35.6 million). Excluding unfavorable foreign exchange movements of 7%,royalties have decreased by 11% mainly due to competition from other HIVtreatments.
ZEFFIX - Chronic hepatitis B infection
Shire receives royalties from GSK on worldwide ZEFFIX(R) sales. Royalties fromsales of ZEFFIX for the three months to June 30, 2009 were $10.2 million, adecrease of 6% (2008: $10.8 million). The impact of foreign exchange movementshas contributed 4% to the reported decrease, with the remainder of thedecrease due to increased competition from other hepatitis B treatments.
ADDERALL XR - ADHD
Royalties from Teva's sales of authorized generic ADDERALL XR for the three months to June 30, 2009 were $13.6 million (2008: $nil). Receipt of this royalty began with Teva's sales of authorized generic ADDERALL XR in April 2009.
OTHER
Other royalties are primarily in respect of REMINYL(R) and REMINYL XL(TM) (known asRAZADYNE(R) and RAZADYNE(R) ER in the US), for the symptomatic treatment of mildto moderately severe dementia of the Alzheimer's type.The range of REMINYL products is marketed worldwide (excluding the UK and theRepublic of Ireland where Shire has exclusive marketing rights) by JanssenPharmaceutical N.V., an affiliate of Johnson & Johnson ("J&J"). Sales of theREMINYL/RAZADYNE range continue to grow in most countries, however the entryof generic versions of RAZADYNE and RAZADYNE ER into the US market in Q3 2008has significantly decreased sales in that region.4. Financial detailsCost of product sales % of % of product product 2009 sales 2008 sales $M $MCost of product sales (US 96.4 17% 142.9 20%GAAP)Accelerated depreciation ontransfer of manufacturingfrom Owings Mills (3.0) -Fair value adjustment foracquired inventories (1.4) -Write down of inventory andexit costs for DYNEPO - (53.4)Depreciation (4.9) (3.0)
Cost of product sales (Non 87.1 16% 86.5 12% GAAP)
After the exclusion of those charges outlined above, Non GAAP cost of productsales as a percentage of product sales increased by 4 percentage points (from12% to 16%) compared to 2008. This increase primarily results from changes tothe product mix following the launch by Teva of an authorized generic versionof ADDERALL XR in April 2009; higher sales deductions on Shire's sales ofbranded ADDERALL XR, together with lower margin sales of the authorizedgeneric version of ADDERALL XR to Teva have both depressed gross margin forthat product.
Research and development ("R&D")
% of % of product product 2009 sales 2008 sales $M $MR&D (US GAAP) 158.7 28% 136.4 19%INTUNIV license payment (36.9) -DYNEPO R&D commitments - (6.5)Depreciation (3.8) (3.1)R&D (Non GAAP) 118.0 21% 126.8 18%
Non GAAP R&D decreased 7% to $118.0 million (2008: $126.8 million). The continued investment in core R&D programs has been offset by the benefit of foreign exchange rates in Q2 2009 over the same period in 2008 and the cessation of certain non-core programs since Q2 2008. As a percentage of product sales, Non GAAP R&D increased to 21% (2008: 18%) due to the lower product sales in Q2 2009.
Selling, general and administrative ("SG&A")
% of % of product product 2009 sales 2008 sales $M $MSG&A (US GAAP) 334.7 60% 437.7 62%Intangible asset (34.3) (31.0)amortizationImpairment of intangible - (90.4)assetsNew holding company costs - (6.6)Depreciation (15.9) (11.2)SG&A (Non GAAP) 284.5 51% 298.5 42%
Non GAAP SG&A declined by 5% to $284.5 million (2008: $298.5 million) as a result of the increased focus on cost management and favorable foreign exchange rates in 2009 over 2008. Non GAAP SG&A increased as a percentage of product sales to 51% (2008: 42%) as cost ratios were adversely affected by lower product sales following the genericization of ADDERALL XR.
Reorganization costs
For the three months to June 30, 2009 Shire recorded reorganization costs of $2.9 million (2008: $nil) relating to the transfer of manufacturing from its Owing Mills facility.
Integration and acquisition costs
For the three months to June 30, 2009 Shire recorded integration and acquisition costs of $2.3 million (2008: $nil) relating to the integration of Jerini AG and charges associated with the acquisition of EQUASYM.
Interest income
For the three months to June 30, 2009 Shire received interest income of $0.6million (2008: $6.5 million), primarily received on cash and cash equivalents.Interest income for the three months to June 30, 2009 is lower than the sameperiod in 2008 due to significantly lower interest rates in 2009 compared to2008, and lower average cash and cash equivalent balances.
Interest expense
For the three months to June 30, 2009 the Company incurred interest expense of$10.1 million (2008: $16.8 million). The higher expense in 2008 was primarilydue to the accrual of interest in respect of the Transkaryotic Therapies, Inc.("TKT") appraisal rights litigation. This litigation was settled in November2008.Taxation
The effective rate of tax for the three months to June 30, 2009 was -78% (2008: -0.3%). The effective tax rate on Non GAAP income is 2% (2008: 20%). The Non GAAP effective tax rate in the three months to June 30, 2009 was 18 percentage points lower than the corresponding period in 2008 principally due to the decrease in valuation allowances held in respect of US State tax credits and losses. Following the interpretation and analysis of the implications of new Massachusetts State tax regulations issued in Q2 2009, Shire determined during the second quarter that it was now more likely than not that these State tax credits and losses were realizable.
Equity in earnings/(losses) of equity method investees
Net earnings of equity method investees of $0.5 million were recorded for thethree months to June 30, 2009 (2008: $1.9 million loss). This comprisedearnings of $1.2 million from the 50% share of the anti-viralcommercialization partnership with GSK in Canada (2008: $1.5 million earnings)and losses of $0.7 million, being the Company's share of losses in theGeneChem, AgeChem and EGS Funds (2008: $3.4 million loss).
Discontinued operations
The loss from discontinued operations for the three months to June 30, 2009was $9.8 million (2008: $nil), relating to net losses on discontinued Jerinibusinesses which were either divested or closed during the second quarter of2009, the loss on divestment of Jerini's Peptides business and the write-offof the fair value less costs to sell of assets previously classified as heldfor sale.FINANCIAL INFORMATIONTABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 14
Unaudited US GAAP Consolidated Statements of Income 15
Unaudited US GAAP Consolidated Statements of CashFlows 17 Selected Notes to the Unaudited US GAAP Financial 19Statements(1) Earnings per share 19(2) Analysis of revenues 20 Non GAAP reconciliation 22Unaudited US GAAP results for the three months and six months to June 30, 2009Consolidated Balance Sheets June 30, December 31, 2009 2008 $M $MASSETSCurrent assets:Cash and cash equivalents 263.3 218.2Restricted cash 35.8 29.2Accounts receivable, net 424.7 395.0Inventories, net 166.6 154.5Assets held for sale 1.7 16.6Deferred tax asset 84.6 89.5
Prepaid expenses and other current assets 174.3 141.4
Total current assets 1,151.0 1,044.4 Non-current assets:Investments 90.2 42.9
Property, plant and equipment, net 598.1 534.2Goodwill 377.6 350.8Other intangible assets, net 1,846.2 1,824.9
Deferred tax asset 145.0 118.1Other non-current assets 13.2 18.4 Total assets 4,221.3 3,933.7 LIABILITIES AND EQUITYCurrent liabilities:
Accounts payable and accrued expenses 807.6 708.6
Deferred tax liability 10.9 10.9Other current liabilities 62.4 104.3 Total current liabilities 880.9 823.8 Non-current liabilities:Convertible bonds 1,100.0 1,100.0Other long-term debt 49.4 43.1Deferred tax liability 346.9 377.0
Other non-current liabilities 275.0 291.3 Total liabilities 2,652.2 2,635.2 Shareholders' equity:Common stock of 5p par value; 1,000 millionshares authorized; and 560.3 million sharesissued and outstanding (2008: 1,000 millionshares authorized; and 560.2 million sharesissued and outstanding) 55.5 55.5Additional paid-in capital 2,628.0 2,594.6Treasury stock: 20.2 million shares (2008: 20.7million) (390.6) (397.2)Accumulated other comprehensive income 119.7 97.0Accumulated deficit (843.8) (1,051.7) Total Shire plc shareholders' equity 1,568.8 1,298.2Noncontrolling interest in subsidiaries 0.3 0.3 Total equity 1,569.1 1,298.5 Total liabilities and equity 4,221.3 3,933.7
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Income
3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2009 2008 2009 2008 $M $M $M $MRevenues:Product sales 558.4 705.7 1,314.3 1,337.4Royalties 66.9 64.8 117.5 129.9Other revenues 4.4 5.1 15.6 10.5Total revenues 629.7 775.6 1,447.4 1,477.8 Costs and expenses:Cost of product sales(1) 96.4 142.9 180.0 233.2Research and development(2) 158.7 136.4 344.6 248.2Selling, general and administrative(1)(2) 334.7 437.7 653.3 782.4Gain on sale of product rights - (9.1)
- (16.7)In-process R&D charge - 135.0 - 135.0Reorganization costs 2.9 - 5.1 -
Integration and acquisition costs 2.3 -
3.8 -Total operating expenses 595.0 842.9 1,186.8 1,382.1 Operating income/(loss) 34.7 (67.3) 260.6 95.7 Interest income 0.6 6.5 1.3 19.2Interest expense (10.1) (16.8) (21.2) (34.1)Other income, net 4.7 0.7 54.9 13.4Total other (expense)/income, net (4.8) (9.6)
35.0 (1.5)
Income/(loss) from continuing operationsbefore income taxes and equity inearnings/(losses) of equity methodinvestees 29.9 (76.9) 295.6 94.2Income taxes 23.4 (0.2) (26.1) (44.3)Equity in earnings/(losses) of equitymethod investees, net of taxes 0.5 (1.9) 0.4 (0.3)Income/(loss) from continuingoperations, net of tax 53.8 (79.0)
269.9 49.6
Loss from discontinued operations (netof income tax expense of $nil in allperiods) (9.8) - (12.4) -Net income/(loss) 44.0 (79.0) 257.5 49.6 Add: Net loss attributable tononcontrolling interest in subsidiaries 0.1 - 0.2 -Net income/(loss) attributable to Shireplc 44.1 (79.0) 257.7 49.6(1) Cost of product sales includes amortization of intangible assets relatingto favorable manufacturing contracts of $0.4 million for the three months toJune 30, 2009 (2008: $0.4 million) and $0.9 million for the six months to June30, 2009 (2008: $0.9 million). Selling, general and administrative costsinclude amortization and impairment charges of intangible assets relating tointellectual property rights acquired of $34.3 million for the three months toJune 30, 2009 (2008: $121.4 million) and $66.8 million for the six months toJune 30, 2009 (2008: $152.3 million).
(2) Promotional costs totaling $8.9 million and $19.1 million have been reclassified from Research and development to Selling, general and administrative costs for the three and six months to June 30, 2008 respectively.
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Income (continued)
3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2009 2008 2009 2008Earnings/(loss) per ordinary share -basicEarnings/(loss) from continuingoperations 10.0c (14.6c) 50.0c 9.1cLoss from discontinued operations (1.8c) - (2.3c) -Earnings/(loss) per ordinary share -basic 8.2c (14.6c)
47.7c 9.1c
Earnings/(loss) per ADS - basic 24.6c (43.8c)
143.1c 27.3c
Earnings/(loss) per ordinary share -dilutedEarnings/(loss) from continuing (14.6c) 8.2coperations 9.9c
49.6c
Loss from discontinued operations (1.8c) - (2.3c) -Earnings/(loss) per ordinary share -diluted 8.1c (14.6c)
47.3c 8.2c
Earnings/(loss) per ADS - diluted 24.3c (43.8c)
141.9c 24.6c
Weighted average number of shares(millions): Basic 539.9 542.5 539.7 543.7Diluted 543.4 542.5 545.0 579.6Unaudited US GAAP results for the three months and six months to June 30, 2009Consolidated Statements of Cash Flows 3 months to 3 months
to 6 months to 6 months to
June 30, June 30, June 30, June 30, 2009 2008 2009 2008 $M $M $M $MCASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss) attributable to Shire plc 44.1 (79.0) 257.7 49.6Adjustments to reconcile net income/(loss)attributable to Shire plc to net cash provided byoperating activities:Loss from discontinued operations 9.8 - 12.4 -Depreciation and amortization 62.3 48.9 117.7 96.3Share based compensation 17.4 19.4 33.2 35.7Amortization of deferred financing charges 1.3 1.2 2.5 2.5Interest on building financing obligation 0.8 0.7 1.3 1.9Impairment of intangible assets - 90.4 - 90.4Impairment of property, plant and equipment 0.5 - 2.7 -Gain on sale of long-lived assets (0.2) (0.4) (0.2) (0.4)Gain on sale of non-current investments - - (55.2) (9.4)Gain on sale of product rights - (9.1) - (16.7)Movement in deferred taxes (79.3) (16.4) (45.7) 17.4Equity in (earnings)/losses of equity methodinvestees (0.5) 1.9 (0.4) 0.3Noncontrolling interest in subsidiaries (0.1) - (0.2) -
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable 108.1 22.0 (42.9) (28.4) (Decrease)/increase in sales deduction accrual (4.4) 27.6 117.5 35.5 (Increase)/decrease in inventory (3.3) 19.5 (12.8) 10.4 (Increase)/decrease in prepayments and other current assets (21.5) 3.8 (33.8) 24.3 Decrease/(increase) in other assets 1.0 (2.7) 4.4 (2.4) (Decrease)/increase in accounts and notes payable and other liabilities (60.2) 50.7 (98.5) (66.4) (Decrease)/increase in deferred revenue (0.5) 1.9 (2.7) 5.5
Returns on investment from joint venture - - 4.9 -Cash flows used in discontinued operations (3.3) - (5.9) -Net cash provided by operating activities(A) 72.0 180.4 256.0 246.1Unaudited US GAAP results for the three months and six months to June 30, 2009Consolidated Statements of Cash Flows (continued) 3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2009 2008 2009 2008 $M $M $M $MCASH FLOWS FROM INVESTING ACTIVITIES:Movements in restricted cash 0.2 0.2 (6.6) 5.2Purchases of subsidiary undertakings andbusinesses, net of cash acquired (1.4) - (75.5) -Purchases of non-current investments - (0.1) - (1.1)Purchases of property, plant andequipment (59.8) (61.6) (101.8) (89.4)Purchases of intangible assets - - (6.0) -Proceeds from disposal of non-currentinvestments - - 19.2 10.3Proceeds from disposal of property,plant and equipment - 0.8 0.4 0.9Proceeds/deposits received on sales ofproduct rights - - - 5.0Proceeds from disposal of subsidiaryundertakings 6.7 - 6.7 -Returns from equity investments - 0.4
0.2 0.4 Net cash used in investing activities(B) (54.3) (60.3) (163.4) (68.7)
CASH FLOWS FROM FINANCING ACTIVITIES:Payment under building financingobligation (2.3) (0.2) (3.0) (0.4)Costs of issue of common stock - (2.9) - (2.9)Proceeds from exercise of options 0.9 0.7 1.0 1.0Payment of dividend (43.0) (36.4) (43.0) (36.4)Payments to acquire shares by EmployeeShare Ownership Trust ("ESOT") (1.0) (71.0)
(1.0) (104.1) Net cash used in financing activities(C) (45.4) (109.8) (46.0) (142.8)
Effect of foreign exchange rate changeson cash and cash equivalents (D) (0.1) 0.3
(1.5) 4.1
Net (decrease)/increase in cash and cashequivalents(A) +(B) +(C) +(D) (27.8) 10.6 45.1 38.7Cash and cash equivalents at beginningof period 291.1 790.6 218.2 762.5Cash and cash equivalents at end ofperiod 263.3 801.2
263.3 801.2 Unaudited US GAAP results for the three months and six months to June 30, 2009
Selected Notes to the Financial Statements
(1) Earnings per share 6 months 3 months to 3 months to 6 months to to June June 30, June 30, June 30, 30, 2009 2008 2009 2008 $M $M $M $M
Income/(loss) from continuing operations 53.8 (79.0) 269.9 49.6 Loss from discontinued operations
(9.8) - (12.4) -Noncontrolling interest in subsidiaries 0.1 -
0.2 -
Numerator for basic EPS 44.1 (79.0) 257.7 49.6Interest on convertible bonds, net oftax (1) - - - (2.2) Numerator for diluted EPS 44.1 (79.0) 257.7 47.4
Weighted average number of shares:
Millions Millions Millions MillionsBasic(2) 539.9 542.5 539.7 543.7Effect of dilutive shares:Stock options(3) 3.5 - 5.3 3.2
Convertible bonds 2.75% due 2014(4) - -
- 32.7
Diluted 543.4 542.5
545.0 579.6 (1) For the three and six month periods ended June 30, 2009 and the three month period ended June 30, 2008 interest on the convertible bonds has not been added back as the effect would be anti-dilutive.
(2) Excludes shares purchased by the ESOT and presented by the Company as treasury stock.
(3) Calculated using the treasury stock method.
(4) Calculated using the "if-converted" method.
The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:
3 months to 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2009 2008 2009 2008 Millions(1) Millions(1) (2) Millions(3) (2) Millions(1)Stock options in the money - 1.3 - -
Stock options out of the money 31.3 17.9 18.9
17.4
Convertible bonds 2.75% due 2014 32.7 32.7 32.7
-
(1) For the three month period ended June 30, 2009 and the six month periods ended June 30, 2009 and 2008, certain stock options have been excluded from the calculation of diluted EPS because their exercise prices exceeded Shire plc's average share price during the calculation period.
(2) For the three and six month periods ended June 30, 2009 the ordinary shares underlying the convertible bonds have not been included in the calculation of the diluted weighted average number of shares, because the effect of their inclusion would be anti-dilutive.
(3) For the three month period ended June 30, 2008 no share options or ordinary shares underlying the convertible bonds have been included in the calculation of the diluted weighted average number of shares because the Company made a net loss during the calculation period and the inclusion of these items would be anti-dilutive.
Unaudited US GAAP results for the three months to June 30, 2009
Selected Notes to the Financial Statements
(2) Analysis of revenues3 months to June 30, 2009 2008 2009 2009 % % of total $M $M change revenueNet product sales:Specialty Pharmaceuticals("Specialty")ADHDADDERALL XR 67.4 296.4 -77% 11%VYVANSE 114.2 65.2 75% 18%DAYTRANA 14.9 22.6 -34% 2%EQUASYM 4.9 - n/a 1% 201.4 384.2 -48% 32%GIPENTASA 54.0 44.8 21% 8%LIALDA / MEZAVANT 54.6 32.0 71% 9% 108.6 76.8 41% 17%General productsFOSRENOL 49.6 42.4 17% 8%CALCICHEW(R) 10.8 13.9 -22% 2%CARBATROL(R) 20.8 16.2 28% 3%REMINYL/REMINYL XL 10.9 8.7 25% 2%XAGRID 20.7 20.6 0% 3% 112.8 101.8 11% 18% Other product sales 4.4 17.4 -75% 1%Total Specialty productsales 427.2 580.2 -26% 68% Human Genetic Therapies("HGT")ELAPRASE 85.3 80.8 6% 14%REPLAGAL 44.4 44.7 -1% 7%FIRAZYR 1.5 - n/a 0%Total HGT product sales 131.2 125.5 5% 21% Total product sales 558.4 705.7 -21% 89% Royalty income:3TC 29.2 35.6 -18% 4%ZEFFIX 10.2 10.8 -6% 2%ADDERALL XR 13.6 - n/a 2%Other 13.9 18.4 -25% 2%Total royalty income 66.9 64.8 3% 10% Other revenues 4.4 5.1 -14% 1% Total Revenues 629.7 775.6 -19% 100%
Unaudited US GAAP results for the six months to June 30, 2009
Selected Notes to the Financial Statements
(2) Analysis of revenues6 months to June 30, 2009 2008 2009 2009 % % of total $M $M change revenueNet product sales:Specialty Pharmaceuticals("Specialty")ADHDADDERALL XR 363.3 557.9 -35% 25%VYVANSE 230.7 119.6 93% 16%DAYTRANA 34.8 42.9 -19% 2%EQUASYM 4.9 - n/a 0% 633.7 720.4 -12% 43%GIPENTASA 105.2 89.0 18% 7%LIALDA / MEZAVANT 104.0 59.2 76% 7% 209.2 148.2 41% 14%General productsFOSRENOL 89.5 78.6 14% 6%CALCICHEW 20.4 27.5 -26% 2%CARBATROL 38.9 34.1 14% 3%REMINYL/REMINYL XL 18.3 17.0 8% 1%XAGRID 40.8 39.3 4% 3% 207.9 196.5 6% 15% Other product sales 8.9 32.8 -73% 1%Total Specialty productsales 1,059.7 1,097.9 -3% 73% Human Genetic Therapies("HGT")ELAPRASE 168.0 152.3 10% 12%REPLAGAL 84.6 87.2 -3% 6%FIRAZYR 2.0 - n/a 0%Total HGT product sales 254.6 239.5 6% 18% Total product sales 1,314.3 1,337.4 -2% 91% Royalty income:3TC 59.1 72.9 -19% 4%ZEFFIX 19.2 21.2 -9% 1%ADDERALL XR 13.6 - n/a 1%Other 25.6 35.8 -28% 2%Total royalty income 117.5 129.9 -10% 8% Other revenues 15.6 10.5 49% 1% Total Revenues 1,447.4 1,477.8 -2% 100%
Unaudited results for the three months to June 30, 2009
Non GAAP reconciliation
Non US GAAP Adjustments GAAP Acquisitions Divestments, Amortization & re-organizations June June 30, & asset integration & discontinued Reclassify 30,3 months to, 2009 impairments activities
operations depreciation 2009
(a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 629.7 - - - - 629.7 Costs and expenses:Cost of product sales 96.4 - (1.4) (3.0) (4.9) 87.1Research and development 158.7 - (36.9) - (3.8) 118.0Selling, general andadministrative 334.7 (34.3) - - (15.9) 284.5Reorganization costs 2.9 - - (2.9) - -Integration andacquisition costs 2.3 - (2.3) - - -Depreciation - - - - 24.6 24.6Total operating expenses 595.0 (34.3) (40.6) (5.9) - 514.2 Operating income 34.7 34.3 40.6 5.9 - 115.5 Interest income 0.6 - - - - 0.6Interest expense (10.1) - - - - (10.1)Other income, net 4.7 - - - - 4.7Total other expense, net (4.8) - - - - (4.8)Income from continuingoperations before incometaxes and equity inearnings of equitymethod investees 29.9 34.3 40.6 5.9 - 110.7Income taxes 23.4 (9.4) (14.1) (2.1) - (2.2)Equity in earnings ofequity method investees,net of tax 0.5 - - - - 0.5Income from continuingoperations, net of tax 53.8 24.9 26.5 3.8 - 109.0Loss from discontinuedoperations (9.8) - - 9.8 - - Net income 44.0 24.9 26.5 13.6 - 109.0Add: Net lossattributable tononcontrolling interestin subsidiaries 0.1 - - - - 0.1Net income attributableto Shire plc 44.1 24.9 26.5 13.6 - 109.1Numerator for dilutedEPS(1) 44.1 24.9 26.5 13.6 - 109.1Weighted average numberof shares (millions) -diluted 543.4 - - - - 543.4Diluted earnings per ADS 24.3c 13.8c 14.7c 7.5c - 60.3c
(1) For the three months to June 30, 2009 interest expense on the convertible bonds has not been added back as the effect would be anti-dilutive.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($34.3 million) and tax effect of adjustment;
(b) Acquisitions and Integration activities Inventory fair value adjustmentrelated to the acquisition of Jerini ($1.4 million); payment on amendment ofINTUNIV in-licence agreement ($36.9 million), costs associated with theintegration and acquisition of Jerini AG and EQUASYM from UCB ($2.3 million),and tax effect of adjustments;
(c) Divestments, Reorganizations and Discontinued Operations: Accelerated depreciation ($3.0 million) and reorganization costs ($2.9 million) for the transition of manufacturing from Owings Mills, discontinued operations in respect of non-core Jerini operations ($9.8 million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $24.6 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 three months to June 30, 2008
Non GAAP reconciliation Non US GAAP Adjustments GAAP Acquisitions Divestments, Amortization & re-organizations June June 30, & asset integration & discontinued Reclassify 30,3 months to, 2008 impairments activities operations depreciation 2008 (a) (b) (c) $M $M $M $M $M $MTotal revenues 775.6 - - - - 775.6Costs and expenses:Cost of product sales 142.9 - - (53.4) (3.0) 86.5Research anddevelopment(1) 136.4 - - (6.5) (3.1) 126.8Selling, general andadministrative(1) 437.7 (121.4) - (6.6) (11.2) 298.5Gain on sale of productrights (9.1) - - 9.1 - -In-process R&D charge 135.0 - (135.0) - - -Depreciation - - - - 17.3 17.3Total operatingexpenses 842.9 (121.4) (135.0) (57.4) - 529.1 Operating (loss)/income (67.3) 121.4 135.0 57.4 - 246.5 Interest income 6.5 - - - - 6.5Interest expense (16.8) - - - - (16.8)Other income, net 0.7 - - - - 0.7Total other expenses,net (9.6) - - - - (9.6)(Loss)/income fromcontinuing operationsbefore income taxes andequity in losses ofequity method investees (76.9) 121.4 135.0 57.4 - 236.9Income taxes (0.2) (47.8) - 1.1 - (46.9)Equity in losses ofequity methodinvestees, net of tax (1.9) - - - - (1.9)Net (loss)/incomeattributable to Shireplc (79.0) 73.6 135.0 58.5 - 188.1Impact of convertibledebt, net of tax (2) - (5.8) - - - (5.8)Numerator for dilutedEPS (79.0) 67.8 135.0 58.5 - 182.3Weighted average numberof shares (millions) -diluted(2) 542.5 34.0 - - - 576.5Diluted earnings perADS (43.8c) 38.1c 70.2c 30.3c - 94.8c
(1) $8.9m of promotional costs have been reclassified from Research and development to Selling, general and administrative costs for the three months to June 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 deducted from 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 ($31.0 million), impairmentcharge in respect of DYNEPO intangible asset ($90.4 million) and tax effect ofadjustments;
(b) Acquisitions & integration activities: In-process R&D in respect of METAZYM acquired from Zymenex A/S ($135.0 million);
(c) Divestments, Re-organizations and Discontinued Operations: Costs associated with inventory write down and other exit costs in respect of DYNEPO ($53.4 million), R&D commitment in respect of DYNEPO ($6.5 million), costs associated with the introduction of a new holding company ($6.6 million), gains on the disposal of non core product rights ($9.1 million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $17.3 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 six months to June 30, 2009
Non GAAP reconciliation Non US GAAP Adjustments GAAP Acquisitions Divestments, Amortization & re-organizations June June 30, & asset integration & discontinued Reclassify 30,6 months to, 2009 impairments activities operations depreciation 2009 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 1,447.4 - - - - 1,447.4Costs and expenses:Cost of product sales 180.0 - (1.4) (3.0) (8.5) 167.1Research and development 344.6 - (36.9) (65.0) (7.8) 234.9Selling, general andadministrative 653.3 (66.8) - - (30.7) 555.8Reorganization costs 5.1 - - (5.1) - -Integration &acquisition costs 3.8 - (3.8) - - -Depreciation - - -
- 47.0 47.0 Total operating expenses 1,186.8 (66.8) (42.1) (73.1)
- 1,004.8 Operating income 260.6 66.8 42.1 73.1 - 442.6 Interest income 1.3 - - - - 1.3Interest expense (21.2) - - - - (21.2)Other income/(expense),net 54.9 - - (55.2) - (0.3)Total otherincome/(expense), net 35.0 - - (55.2) - (20.2)Income from continuingoperations before incometaxes and equity inearnings of equitymethod investees 295.6 66.8 42.1 17.9 - 422.4Income taxes (26.1) (19.3) (14.3) (17.3) - (77.0)Equity in earnings ofequity method investees,net of tax 0.4 - - - - 0.4Income from continuingoperations, net of tax 269.9 47.5 27.8 0.6 - 345.8Loss from discontinuedoperations (12.4) - - 12.4 - -Net income 257.5 47.5 27.8 13.0 - 345.8Add: Net lossattributable tononcontrolling interestin subsidiaries 0.2 - - - - 0.2Net income attributableto Shire plc 257.7 47.5 27.8 13.0 - 346.0Impact of convertibledebt, net of tax (1) - 16.8 - - - 16.8Numerator for dilutedEPS 257.7 64.3 27.8 13.0 - 362.8Weighted average numberof shares (millions) -diluted(1) 545.0 32.7 - - - 577.7Diluted earnings per ADS 141.9c 25.2c 14.4c 6.9c - 188.4c
(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 ($66.8 million) and tax effect of adjustment;
(b) Acquisitions and Integration activities Inventory fair value adjustmentrelated to the acquisition of Jerini AG ($1.4 million); payment on amendmentof INTUNIV in-licence agreement ($36.9 million); costs associated with theintegration and acquisition of Jerini AG and EQUASYM from UCB ($3.8 million);and tax effect of adjustments;(c) Divestments, Reorganizations and Discontinued Operations: Accelerateddepreciation ($3.0 million) and reorganization costs ($5.1 million) for thetransition of manufacturing from Owings Mills, costs associated with agreementto terminate Women's Health products with Duramed ($65.0 million), gain ondisposal of the investment in Virochem ($55.2 million); discontinuedoperations in respect of non core Jerini operations ($12.4 million), and taxeffect of adjustments; and
(d) Depreciation: Depreciation of $47.0 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 six months to June 30, 2008
Non GAAP reconciliation Non US GAAP Adjustments GAAP Acquisitions Divestments, Amortization & re-organizations June June 30, & asset integration & discontinued Reclassify 30,6 months to, 2008 impairments activities operations depreciation 2008 (a) (b) (c) (d) $M $M $M $M $M $MTotal revenues 1,477.8 - - - - 1,477.8Costs and expenses:Cost of product sales 233.2 - - (53.4) (5.6) 174.2Research anddevelopment(1) 248.2 - - (6.5) (6.0) 235.7Selling, general andadministrative(1) 782.4 (152.3) - (12.2) (22.0) 595.9Gain on sale of productrights (16.7) - - 16.7 - -In-process R&D charge 135.0 - (135.0) - - -Depreciation - - - - 33.6 33.6Total operating expenses 1,382.1 (152.3) (135.0) (55.4) - 1,039.4 Operating income 95.7 152.3 135.0 55.4 - 438.4 Interest income 19.2 - - - - 19.2Interest expense (34.1) - - - - (34.1)Other income/(expense),net 13.4 - - (9.4) - 4.0Total other expenses,net (1.5) - - (9.4) - (10.9)Income from continuingoperations before incometaxes and equity inlosses of equity methodinvestees 94.2 152.3 135.0 46.0 - 427.5Income taxes (44.3) (58.5) - 3.4 - (99.4)Equity in losses ofequity method investees,net of tax (0.3) - - - - (0.3)Net Income attributableto Shire plc 49.6 93.8 135.0 49.4 - 327.8Impact of convertibledebt, net of tax (2.2) - - - - (2.2)Numerator for dilutedEPS 47.4 93.8 135.0 49.4 - 325.6Weighted average numberof shares (millions) -diluted 579.6 - - - - 579.6Diluted earnings per ADS 24.6c 48.6c 69.9c 25.5c - 168.6c
(1) Promotional costs totaling $19.1 million have been reclassified from Research and development to Selling, general and administrative costs for the six months to June 30, 2008.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assetsrelating to intellectual property rights acquired ($61.9 million), impairmentcharge in respect of DYNEPO intangible asset ($90.4 million) and tax effect ofadjustments;
(b) Acquisitions & integration activities: In-process R&D in respect of METAZYM acquired from Zymenex A/S ($135.0 million);
(c) Divestments, Re-organizations and Discontinued Operations: Costsassociated with inventory write down and other exit costs in respect of DYNEPO($53.4 million), R&D commitment in respect of DYNEPO ($6.5 million), and costsassociated with the introduction of a new holding company ($12.2 million),gains on the disposal of non core assets ($16.7 million), gain on disposal ofminority equity investment ($9.4 million) and tax effect of adjustments; and
(d) Depreciation: Depreciation of $33.6 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.
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 equity method investees ("Effective tax rate on Non GAAPincome"); Non GAAP Cost of product sales; Non GAAP Research and development;Non GAAP Selling, general and administrative; Non GAAP operating expenses; andNon GAAP other income. These Non GAAP measures exclude the effect of certaincash and non-cash items, both recurring and non-recurring, that Shire'smanagement believes are not related to the core performance of Shire'sbusiness. In the case of product sales, growth at constant exchange rates iscalculated after restating current period product sales using the comparativeperiods 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 its 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.
A reconciliation of US GAAP diluted earnings per ADS for Q2 2009, to the measure of diluted EPS (ADS) computed using the full year 2009 expected tax rate of 24% is presented below:
$M cents/ADS US GAAP Net income 44.1 24.3cNon GAAP adjustments (as detailed on page 22) 65.0
36.0c
Non GAAP Net income/ Diluted EPS(ADS) 109.1
60.3c
Add: Non GAAP income taxes 2.2
1.2c
Less: Non GAAP income taxes (computed using effective rate of 24%)
(26.6)
(14.7c)
Pro forma Non GAAP Net income/ diluted EPS(ADS) ateffective tax rate of 24% 84.7 46.8c 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, PENTASA(R) which is a trademark of Ferring A/S Corp, RAZADYNE(R)and RAZADYNE(R) ER which are trademarks of J&J and REMINYL(R) and REMINYL XL(TM)which are trademarks 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 three monthsended March 31, 2009.
1 REMINYL(R) and REMINYL XL(TM) are both trademarks of Shire in the UK and Republic of Ireland.
vendorRelated Shares:
Shire