27th Apr 2006 12:00
Shire announces good start to the year and guidance reaffirmedBasingstoke, UK and Philadelphia, US - April 27, 2006 - Shire plc (LSE: SHP,NASDAQ: SHPGY, TSX: SHQ) announces results for the first quarter 2006.Q1 2006 Financial Highlights * Product sales of $346.0 million up 28% (includes 10% from TKT) * Royalties of $61.0 million up 5% * Total revenues of $411.0 million up 23% (includes 8% from TKT) Matthew Emmens, Chief Executive Officer, said:"In line with our expectations, Shire has made a good start to the year. Ourproducts are performing well with sales up 28% and we have made excellentprogress with our regulatory submissions."In Q2, we expect a response from the FDA for ELAPRASE, our treatment forHunter Syndrome, and later in the year we are expecting the first response fromthe European Authorities. MESAVANCE, for Ulcerative Colitis is now filed withboth the European and the US agencies with the US PDUFA date set for October2006."The US ADHD market is performing as expected, with prescription growth ataround 5%. We have now received approval for the US marketing of DAYTRANA, thefirst transdermal treatment for ADHD, and we are preparing for a mid-yearlaunch."A court date is scheduled for October 30, 2006 for the litigation between BarrLaboratories, Inc. (Barr) and Shire in respect of ADDERALL XR. Meanwhile, wecontinue to negotiate with Barr on a possible settlement."We have a strong pipeline and are planning for the roll-out of five newproducts by mid-2007. There is good momentum in the business and we continue toanticipate revenue growth for 2006 in the low double digit range."Business highlightsELAPRASE, for Hunter Syndrome. Filing of the Biologics License Application(BLA) was accepted for priority review with the US Food and Drug Administration(FDA). The PDUFA date is May 25, 2006.MESAVANCE for Ulcerative Colitis. Filed with Health Canada in January 2006 andwith the European authorities in February 2006.IDB loan repayment. On February 10, 2006 the Company received notice from IDBiomedical Corporation (IDB) that it intended to repay, in full, all of itsloan drawings for injectable flu development of $70.6 million, together withaccrued and capitalized interest of $8.1 million. The Company received the$78.7 million outstanding on February 14, 2006. The loan to IDB for pipelinedevelopment of $29.4 million remains outstanding.ADDERALL XR for Attention Deficit Hyperactivity Disorder (ADHD): * In January 2006 all litigation with Impax Laboratories, Inc. (Impax) regarding Shire's patents was settled. Patent litigation and settlement discussions with Barr continue. * In January 2006 Shire received a third notice letter that Teva Pharmaceuticals, Inc. (Teva) had further amended its initial Abbreviated New Drug Application (ANDA) filed in January 2005, to seek permission to market the 25mg strength generic version of ADDERALL XR prior to the expiration of the Shire US patents, No's 6,322,819 ("the `819 Patent") and 6,605,300 ("the `300 Patent"). On March 2, 2006 Shire filed a lawsuit in the Eastern District of Pennsylvania alleging that all of Teva's ANDA products infringe both the `819 and `300 Patents. The lawsuit will trigger a stay of FDA approval of Teva's 25mg strength product for up to 30 months from the date of Shire's receipt of Teva's notice. CARBATROL for Epilepsy: * In January 2006 a promotional services agreement for the US market with Impax was signed. The agreement will take effect from July 2006. * On March 30, 2006 the Company was notified that Corepharma LLC had filed an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of carbamazepine extended release products in 100mg, 200mg and 300mg strengths. Shire is currently reviewing the details of the notice letter. Recent events * DAYTRANA for ADHD was approved by the FDA on April 6, 2006. As part of the agreement between Shire and Noven Pharmaceuticals, Inc. (Noven) for DAYTRANA, Shire paid $50 million to Noven upon FDA approval in April 2006. * ADDERALL XR - Citizen Petition. On April 20, 2006 Shire received correspondence from the FDA informing Shire that the FDA has not yet resolved the issues raised in Shire's pending ADDERALL XR Citizen Petition. The correspondence states that, due to the complex issues raised requiring extensive review and analysis by the FDA's officials, a decision cannot be reached at this time. The FDA's interim response is in accordance with FDA regulations concerning Citizen Petitions. Q1 2006 Unaudited Results 2006 2005 US GAAP Adjustments Non GAAP US GAAP Adjustments Non GAAP (1) (1) $M $M $M $M $M $M _______ ___________ _________ _______ ____________ _______ Revenues 411.0 - 411.0 333.7 - 333.7 Income from 23.5 75.9 99.4 17.9 52.9 70.8ongoing operations before income taxes (2) Net income 61.1 14.0 75.1 15.4 35.0 50.4 Diluted earnings per: Ordinary Share 12.0c 2.7c 14.7c 3.1c 7.0c 10.1c ADS 35.9c 8.2c 44.1c 9.2c 21.0c 30.2cNote: Average exchange rates for Q1 2006 and 2005 were $1.75: ‚£1.00 and $1.89:‚£1.00 respectively. 1. Non GAAP These are non GAAP financial measures.For 2006, this measure for net income excludes a net negative amount of $14.0mas follows: * Cost of product sales fair value adjustment following the acquisition of TKT: $23.6m; * New River milestone payment: $50.0m; * TKT integration costs: $2.3m; * Tax allowances on above adjustments: $(21.3)m; * Income from discontinued operations: $(40.6)m. For 2005, this measure for net income excludes a net negative amount of $35.0mas follows: * New River upfront payment: $50.0m; * Reorganization costs resulting from Shire's North American site consolidation: $2.9m; * Tax allowances on above adjustments: $(14.8)m; * Income from discontinued operations: $(3.1)m. On a pre-tax basis, excluding discontinued operations, the above non GAAPadjustments relating to ongoing operations total $75.9m for 2006 and $52.9m for2005.Management believes that the presentation of these non GAAP financial measuresprovides useful information to investors regarding Shire's performance, as theexcluded items are not indicative of the ongoing business in 2006 and 2005. Areconciliation of these non GAAP financial measures to the most directlycomparable US GAAP financial measure can be found on page 23. 2. Income from continuing operations before income taxes and equity method investees. 2006 OutlookR&D pipeline and new product launchesShire has a strong product pipeline to support the medium and long-term futuregrowth of the Company. In 2006 and H1 2007 Shire anticipates that it will: * Launch DAYTRANA in the US; * Launch ELAPRASE in the US and Europe; * Launch MESAVANCE in the US and Europe; * Launch NRP104 for ADHD in the US; * File SPD503 for ADHD with the FDA; * File SPD465 for ADHD with the FDA; * Undertake additional pre-launch preparations and activities during Q4 2006 in order to maximize commercial opportunities for DYNEPO, a treatment for anemia in chronic renal failure, with a full European launch of this product during H1 2007; * Continue the roll-out of FOSRENOL in Europe; and * Continue the launch of FOSRENOL higher strength formulations in the US. These timings are subject to the regulatory/government approvals process.Financial outlookWe reaffirm the previous guidance given as part of the 2005 year-end results,as follows:The following statements are based on the assumption that there will be nogeneric launch of ADDERALL XR during 2006 and that prescription growth in theUS ADHD market will be 5%.We expect 2006 revenue growth to be in the low double-digit range.As previously announced, earnings for 2006 will be impacted by the costsassociated with the continued development and launch of five new products in2006 and H1 2007, in addition to the roll-out of FOSRENOL across Europe and thenew higher strengths of FOSRENOL in the US. * These launches will require additional advertising and promotional spend and, in some cases, additional sales representatives. In addition, Shire will be seeking to maximize ADDERALL XR's market share. Consequently, SG&A costs are expected to rise during the year to between $770-800 million. The level of quarterly SG&A expenditure is expected to increase over the Q1 2006 spend as we recruit new US sales forces for GI (to launch Mesavance) and HGT (to launch Elaprase) as well as expanding the CNS sales force (to launch DAYTRANA); * The planned regulatory filings, Phase 3(b) and Phase 4 studies to support new product launches, the transfer of two HGT projects into pre-clinical development and the commencement of Phase 3 trials on Gene Activated Glucocerebrosidase (GA-GCB), are expected to result in R&D spend in the range of $310-330 million. The level of quarterly R&D expenditure is expected to increase over the Q1 2006 spend (excluding the NRP payment) as we commence new phase 3(b)/4 studies to support new product launches (including DAYTRANA and FOSRENOL); * The depreciation and amortization charge for the year will increase by approximately 50% compared to 2005 reflecting the acquisition of TKT and the amortization of anticipated capitalized business development milestone payments; and * The tax rate is expected to remain at a rate of approximately 28%. The financial outlook for the full year stated above excludes the accountingimpact under US GAAP of the following items, as previously announced: * The milestone payment of $50 million paid to New River Pharmaceuticals, Inc. (New River) in February 2006 following the FDA's acceptance of the filing of NRP104. This has increased R&D expense in Q1 2006; * A US GAAP adjustment of approximately $50 million to reflect the difference between the accounting fair value and book value of acquired REPLAGAL inventory, of which $23.6 million was charged in Q1 2006. This will increase cost of product sales; * Shire HGT integration costs estimated at $10 million in 2006, of which $2.3 million was incurred in Q1 2006. This will increase SG&A costs; and * The adoption from January 1, 2006 of US GAAP accounting standard SFAS 123R for share based compensation. This is expected to give rise to additional charges estimated at approximately $45 million, which will be split between costs of product sales, R&D and SG&A in approximate ratios of 10%, 15% and 75% respectively. $9.0 million was charged across these categories in Q1 2006 (2005: $5.1 million adjusted retrospectively). Including these items would result, under US GAAP, in an estimated increase incost of product sales of $50 million, R&D spend in the range of $370-390million and SG&A costs between $810-840 million.Any launch of a generic version of ADDERALL XR during 2006 would have amaterial impact on the Company's performance and would materially impact therevenue growth guidance given above.New Accounting Standard - SFAS 123RShire's primary basis of financial reporting is US GAAP. From January 1, 2006Shire has been required to adopt SFAS 123R in accounting for share-basedcompensation. This accounting standard applies a fair value methodology inquantifying the accounting charge associated with the grant of share-basedcompensation.The Company has adopted SFAS 123R according to the modified retrospectivemethod. As a result, comparatives including the accounting period for the yearto December 31, 2005 have been retrospectively adjusted.For further information please contact:Investor Relations Clƒ©a Rosenfeld (Rest of the World) +44 1256 894 160 Brian Piper (North America) +1 484 595 8252 Media Jessica Mann (Rest of the World) +44 1256 894 280 Matthew Cabrey (North America) +1 484 595 8248Notes to editorsSHIRE plcShire's strategic goal is to become the leading specialty pharmaceuticalcompany that focuses on meeting the needs of the specialist physician. Shirefocuses its business on central nervous system (CNS), gastrointestinal (GI),human genetic therapies (HGT) and general products (GP). The structure issufficiently flexible to allow Shire to target new therapeutic areas to theextent opportunities arise through acquisitions. Shire believes that acarefully selected portfolio of products with a strategically aligned andrelatively small-scale sales force will deliver strong results.Shire's focused strategy is to develop and market products for specialtyphysicians. Shire's in-licensing, merger and acquisition efforts are focused onproducts in niche markets with strong intellectual property protection eitherin the US or Europe.For further information on Shire, please visit the Company's website: www.shire.com."SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF1995Statements included herein that are not historical facts are forward-lookingstatements. Such forward-looking statements involve a number of risks anduncertainties and are subject to change at any time. In the event such risks oruncertainties materialize, Shire's results could be materially affected. Therisks and uncertainties include, but are not limited to, risks associated with:the inherent uncertainty of pharmaceutical research, product development,manufacturing and commercialization; the impact of competitive products,including, but not limited to the impact of those on Shire's Attention Deficitand Hyperactivity Disorder (ADHD) franchise; patents, including but not limitedto, legal challenges relating to Shire's ADHD franchise; government regulationand approval, including but not limited to the expected product approval datesof SPD503 (ADHD), SPD465 (ADHD), MESAVANCE (SPD476) (ulcerative colitis),ELAPRASE (idursulfase) (Hunter syndrome) and NRP104 (ADHD), including itsscheduling classification by the Drug Enforcement Administration in the UnitedStates; Shire's ability to benefit from the acquisition of TranskaryoticTherapies Inc.; Shire's ability to secure new products for commercializationand/or development; and other risks and uncertainties detailed from time totime in Shire's and its predecessor registrant Shire Pharmaceuticals Groupplc's filings with the Securities and Exchange Commission, including its AnnualReport on Form 10-K for the year ended December 31, 2005.The following are trademarks of Shire or companies within the Shire Group,which are the subject of trademark registrations in certain territories:ADDERALL XR‚® (mixed salts of a single-entity amphetamine)ADDERALL‚® (mixed salts of a single-entity amphetamine)AGRYLIN‚® (anagrelide hydrochloride)CALCICHEW‚® range (calcium carbonate with or without vitamin D3)CARBATROL‚® (carbamazepine extended-release capsules)COLAZIDE‚® (balsalazide)DAYTRANA¢â€ž¢ (methylphenidate transdermal system)ELAPRASE¢â€ž¢ (idursulfase)EQUETRO¢â€ž¢ (carbamazepine extended-release capsules)FOSRENOL‚® (lanthanum carbonate)GENE-ACTIVATED‚® (glucocerebrosidase)LODINE ‚® (etodolac)MESAVANCE¢â€ž¢ (mesalamine)REMINYL‚® (galantamine hydrobromide) (UK and Republic of Ireland)REMINYL XL¢â€ž¢ (galantamine hydrobromide) (UK and Republic of Ireland)REPLAGAL‚® (agalsidase alfa)SOLARAZE‚® (3%, gel diclofenac sodium (3%w/w))XAGRID‚® (anagrelide hydrochloride)The following are trademarks of third parties referred to in this press issue:3TC (trademark of GlaxoSmithKline (GSK))DYNEPO (trademark of Aventis Pharma Holdings GmbH)PENTASA (trademark of Ferring AS)RAZADYNE (trademark of Johnson & Johnson)RAZADYNE ER (trademark of Johnson & Johnson)REMINYL (trademark of Johnson & Johnson, excluding UK and Republic of Ireland)REMINYL XL (galantamine hydrobromide) (trademark of Johnson & Johnson,excluding UKand Republic of Ireland)ZEFFIX (trademark of GSK)OVERVIEW OF US GAAP FINANCIAL RESULTS 1. Introduction Summary of Q1 2006Revenues from continuing operations for the three months to March 31, 2006increased by 23% to $411.0 million (2005: $333.7 million), of which $25.8million was derived from the sales of REPLAGAL which was acquired with TKT.Income from continuing operations (before income taxes and equity methodinvestees) for the three months to March 31, 2006 was $23.5 million (2005:$17.9 million). Included in this amount was a $50 million milestone payment toNew River on acceptance of the filing of NRP104 with the FDA (2005: included anupfront payment to New River of $50 million on initial signing of thein-licensing agreement).Cash inflow from operating activities for the three months to March 31, 2006increased by $117.1 million to $123.4 million (2005: $6.3 million). Cash inflowbetween the two periods was affected by the timing of working capital payments.Cash and cash equivalents, restricted cash and short-term investments at March31, 2006 totaled $874.8 million (December 31, 2005: $694.0 million).This increase results mainly from positive cash flows from Shire's operationsduring the quarter, and $78.7 million received from IDB, being the repayment of$70.6 million of the loan for injectable flu development out of the total$100.0 million development loan provided to IDB as part of their acquisition ofShire's vaccine business, plus interest of $8.1 million. 2. Product sales For the three months to March 31, 2006 product sales increased by 28% to $346.0million (2005: $269.4 million) and represented 84% of total revenues (2005:81%).Product HighlightsProduct Sales Sales Growth US Rx Growth US Market (2) (1) (2) Share (1) $M ADDERALL XR 206.1 +42% +10% 26% CARBATROL 14.1 -17% -13% 42% PENTASA 28.1 +7% -1% 17% REPLAGAL (3) 25.8 n/a n/a n/a AGRYLIN and XAGRID 1.4 -93% -90% 2% North America (4) 12.1 (5) 0% n/a n/a Rest of World FOSRENOL 7.8 +59% +128% 9% 1. IMS Prescription Data-Product specific (March 2006) 2. Compared to Q1 2005 3. REPLAGAL was acquired as part of the TKT acquisition in July 2005 and therefore there are no Shire comparatives. Sales of REPLAGAL by TKT in the 3 months ended March 31, 2005 were $22.5 million 4. Includes US and Canada 5. The impact of foreign exchange movements contributed -6% to the reported growth ADDERALL XR for the treatment of ADHDADDERALL XR is the leading brand in the US ADHD market with a market share of26% in March 2006 (2005: 25%). The US ADHD market grew 5% overall compared tothe same period in 2005. These factors contributed to a 10% growth in USprescriptions for ADDERALL XR for the three months to March 31, 2006 comparedto the same period in 2005.Sales of ADDERALL XR for the three months to March 31, 2006 were $206.1million, an increase of 42% compared to the same period in 2005 (2005: $145.6million). Product sales growth was higher than prescription growth due mainlyto the impact of price increases in August 2005 and significantly lower levelsof pipeline de-stocking compared with Q1 2005.During October 2005 Shire filed a Citizen Petition with the FDA requesting thatthe FDA require more rigorous bioequivalence testing or additional clinicaltesting for generic or follow-on drug products that reference ADDERALL XRbefore they can be approved. Shire believes that these requested criteria willensure that generic formulations of ADDERALL XR or follow-on drug products willbe clinically effective and safe. In January 2006 Shire chose to file asupplemental amendment to its original Citizen Petition, which includedadditional clinical data in support of the original filing. On April 20, 2006Shire received correspondence from the FDA informing Shire that the FDA has notyet resolved the issues raised in Shire's pending ADDERALL XR Citizen Petition.The correspondence states that, due to the complex issues raised requiringextensive review and analysis by the FDA's officials, a decision cannot bereached at this time. The FDA's interim response is in accordance with FDAregulations concerning Citizen Petitions.On February 9, 2006 an FDA Advisory Committee recommended to the FDA that riskinformation about cardiovascular events be included in a "black box warning"for all stimulant medicines used to treat ADHD. In making its recommendation,the Advisory Committee recognized that the reported incidence rates of the rareserious cardiovascular adverse events that were discussed by the Committee aregenerally within the rates that would be expected from the untreated generalpopulation. ADDERALL XR and ADDERALL already include a "black box warning" intheir labels for safety concerns related to amphetamine abuse or misuse andalso warn of the risk of sudden death in patients with structural cardiacabnormalities. On March 22, 2006 another FDA Advisory Committee met anddiscussed the same issue, as well as psychiatric adverse events for allmedicines used to treat ADHD. This second Advisory Committee determined that a"black box warning," as recommended at the February 9, 2006 meeting, was notwarranted. In addition, this second Advisory Committee recommended thatincreased warnings for certain psychiatric events should be incorporated asclass labeling for all ADHD medicines. The FDA is not obligated to follow therecommendations of the Advisory Committees. Shire will work with the FDA tocontinue to ensure that the prescribing information for ADDERALL and ADDERALLXR is appropriate and takes into account the available safety data.In October 2005 Shire announced that it had filed a lawsuit against Barr andImpax with respect to US patent No. 6,913,768 (`768). Shire believes that bothBarr's and Impax's generic ADDERALL XR products infringe the `768 patentclaims. The case was filed in the Southern District of New York. On January 19,2006 Shire settled all of its ADDERALL XR patent infringement lawsuits withImpax. There will be no 30-month stay associated with the filing of the `768patent case. The `768 patent is directed to pharmaceutical compositionscomprising a once-a-day sustained release formulation of at least oneamphetamine salt for the treatment of ADHD. Barr has moved to dismiss the `768lawsuit action asserting that there is no subject matter jurisdiction. Ahearing on this motion was held on February 17, 2006. No decision has yet beenmade. The earlier filed case against Barr involving the `819 and `300 patentsis scheduled to go to trial on October 30, 2006.Further information can be found in our filings with the US Securities andExchange Commission, including our Annual Report on Form 10-K for the year toDecember 31, 2005.CARBATROL for the treatment of EpilepsyUS prescriptions for the three months to March 31, 2006 were down 13% comparedto the same period in 2005. This was primarily due to limited promotion of theproduct and supply constraints during 2005 leading to a 3% decrease in Shire'smarket share of the total US extended release carbamazepine prescription marketto 42% in March 2006 (2005: 45%) and a 6% decrease in that market as a whole.Sales of CARBATROL for the three months to March 31, 2006 were $14.1 million, adecrease of 17% compared to the same period in 2005 (2005: $16.9 million). Thedifference between the decrease in sales and the lower levels of prescriptionsis due to higher sales deductions in Q1 2006.Patent litigation proceedings with Nostrum Pharmaceuticals, Inc. (Nostrum)relating to CARBATROL are ongoing. No trial date has been set. Nostrum's30-month stay under the Hatch-Waxman Act expired on February 6, 2006.Accordingly, the FDA may approve Nostrum's ANDA.On March 30, 2006 the Company was notified that Corepharma LLC had filed anANDA under the Hatch-Waxman Act seeking permission to market its genericversion of carbamazepine extended release products in 100mg, 200mg and 300mgstrengths. Shire is currently reviewing the details of the notice letter.Further information can be found in our filings with the US Securities andExchange Commission, including our Annual Report on Form 10-K for the periodended December 31, 2005.PENTASA for the treatment of Ulcerative ColitisPENTASA had a 17% share of the total US oral mesalamine prescription market inMarch 2006 (March 2005: 18%), a market that grew 4% compared with the sameperiod in 2005. US prescriptions for the three months to March 31, 2006, weredown 1% compared to the same period in 2005, due to reduced promotionalactivity in Q1 2006.Sales of PENTASA for the three months to March 31, 2006 were $28.1 million, anincrease of 7% compared to the same period in 2005 (2005: $26.2 million). Thedifference between sales growth and the lower levels of prescriptions is due tothe impact of the January 2006 price increase and a change in the product salesmix from the 250mg to 500mg dose strength.REPLAGAL for the treatment of Fabry DiseaseREPLAGAL was acquired by Shire as part of the TKT acquisition, which wascompleted on July 27, 2005. Product sales for the three months to March 31,2006 were $25.8 million. The majority of REPLAGAL sales are in Europe.Pre-acquisition sales for the three months to March 31, 2005 were $22.5million. The increase in sales of 15% is primarily due to greater Europeancoverage by an increased number of sales representatives.AGRYLIN/XAGRID for the treatment of ThrombocythemiaAGRYLIN/XAGRID sales worldwide for the three months to March 31, 2006 were$13.5 million, down 58% compared to the same period in 2005 (2005: $32.0million).North American sales were $1.4 million (2005: $19.9 million). This reductionwas expected following the approval of generic versions of AGRYLIN in the USmarket in April 2005.For the Rest of the World (all sales outside North America) sales were $12.1million, (2005: $12.1 million). The impact of unfavorable exchange ratemovements during the quarter offset a 6% increase in sales as expressed in thetransaction currencies (XAGRID is primarily sold in Euros).FOSRENOL for the treatment of HyperphosphatemiaUS prescriptions for the three months to March 31, 2006 were up 128% comparedto the same period in 2005. This was primarily due to FOSRENOL increasing itsshare of the total US phosphate binding market, which in March 2006 was 9%(2005: 6%), in a market that had itself grown 10% over the same period.FOSRENOL was launched in the US in January 2005.Sales of FOSRENOL for the three months to March 31, 2006 were $7.8 million, anincrease of 59% compared to the same period in 2005. The difference betweensales growth and prescription growth is due mainly to a decrease in pipelineinventory as the new higher dose strengths launch stocks shipped to wholesalersin the US in December 2005 were sold in Q1 2006, and higher sales deductions.FOSRENOL was launched in Austria, Ireland, Sweden and Denmark in December 2005.Shire continues its discussions relating to FOSRENOL with regulatoryauthorities and reimbursement agencies across Europe and other regions andfurther launches are expected in European markets over the next few months,subject to obtaining national approvals and concluding pricing andreimbursement negotiations. 3. Royalties Royalty revenue increased by 5% to $61.0 million for the three months to March31, 2006 (2005: $58.3 million), as a result of growth in sales.Royalty HighlightsProduct Royalties to Shire Royalty growth1 Worldwide in-market sales by licensee2 $M % in 2005 $M 3TC 39.5 0%* 305 ZEFFIX 7.7 +18%* 67 Other 13.8 +11% n/a Total 61.0 5% n/a * The impact of foreign exchange movements has contributed -2% to the reportedgrowth1 Compared to Q1 20052 GSK3TCRoyalties from sales of 3TC for the three months to March 31, 2006 were $39.5million (2005: $39.4 million). This increase was due to the continued growth inthe nucleoside analog market for HIV, offset by the impact of unfavorableexchange rate movements during the quarter.Shire receives royalties from GSK on worldwide 3TC sales. GSK's worldwide salesof 3TC for the three months to March 31, 2006 were $305 million, an increase of2% compared to the same period in 2005 (2005: $298 million).ZEFFIXRoyalties from sales of ZEFFIX for the three months to March 31, 2006 were $7.7million (2005: $6.5 million). This increase was primarily due to strong growthin the Chinese, Japanese and Korean markets.Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK's worldwidesales of ZEFFIX for the three months to March 31, 2006 were $67 million, anincrease of 20% compared to the same period in 2005 (2005: $56 million).OTHEROther royalties are primarily in respect of REMINYL and REMINYL XL (nowmarketed as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwideby Janssen Pharmaceutical N.V. (Janssen), an affiliate of Johnson and Johnson,with the exception of the United Kingdom and the Republic of Ireland whereShire previously co-promoted REMINYL with Janssen and acquired the exclusivemarketing rights from May 2004.Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild tomoderately severe dementia of the Alzheimer's type, are growing well in theAlzheimer's market. 4. Financial details Cost of product salesFor the three months to March 31, 2006 the cost of product sales amounted to18% of product sales (2005: 12%). The decrease in gross margin is primarily dueto the addition of REPLAGAL to Shire's product portfolio following theacquisition of TKT. REPLAGAL's cost of product sales relates entirely toacquired inventories, which in accordance with US GAAP have been accounted forat fair value, estimated to be 97% of the expected sales price of REPLAGAL.Accordingly, little or no margin will be reflected for REPLAGAL sales until allacquired finished goods have been sold (anticipated Q3 2006). For the threemonths to March 31, 2006 the cost of product sales for REPLAGAL included a$23.6 million adjustment in respect of the acquired inventory. This fair valueadjustment increased Shire's cost of product sales by 7%.Research and Development (R&D)R&D expenditure increased from $112.1 million in the three months to March 31,2005 to $127.4 million for the three months to March 31, 2006. The increase wasprimarily due to the addition of two significant R&D projects following theacquisition of TKT (ELAPRASE and GA-GCB).Expressed as a percentage of total revenues, R&D expenditure was 31% for thethree months to March 31, 2006 (2005: 34%). In both periods payments have beenmade to New River of $50.0 million for in-licensing NRP104, representing 12% oftotal revenues in Q1 2006 (2005: 15%); these have been expensed in accordancewith the Company's accounting policy. In line with our guidance, the level ofquarterly R&D expenditure is expected to increase over the Q1 2006 spend(excluding the NRP payment) as we commence new phase 3(b)/4 studies to supportnew product launches (including DAYTRANA and FOSRENOL).Shire's pipeline is now well advanced with six projects in late stagedevelopment or registration.Selling, general and administrative (SG&A)SG&A expenses increased from $163.2 million in the three months to March 31,2005 to $182.0 million in the three months to March 31, 2006, an increase of12%.In line with our guidance, the level of quarterly SG&A expenditure is expectedto increase over the Q1 2006 spend as we recruit new US sales forces for GI (tolaunch Mesavance) and HGT (to launch Elaprase) as well as expanding the CNSsales force (to launch DAYTRANA).As a percentage of product sales, SG&A expenses were 53% (2005: 61%) reflectingthe increased ADDERALL XR sales for the quarter. This ratio of SG&A to productsales should remain broadly consistent for the whole year.Depreciation and amortizationThe depreciation charge for the three months to March 31, 2006 was $9.2 million(2005: $4.4 million). Amortization charges, including the amortization onacquired products, were $13.7 million for the three months to March 31, 2006(2005: $9.2 million). The increase in both depreciation and amortization isprimarily due to the increase in the asset base as a result of the TKTacquisition.Integration costsFor the three months to March 31, 2006 the Company incurred $2.3 million ofcosts associated with the integration of the TKT business into the Shire group(2005: $nil). This included retention payments for key staff of $1.6 million,IT costs of $0.3 million and other costs of $0.4 million.Interest incomeFor the three months to March 31, 2006 the Company received interest income of$14.2 million (2005: $9.7 million).In Q1 2005, interest income primarily related to interest received on Shire'scash balances.In Q1 2006, interest income comprised $7.9 million of interest received on cashbalances together with $6.3 million of interest recognized following therepayment by IDB of a $70.6 million loan (of the $8.1 million of interestreceived from IDB in the quarter, $1.8 million was recognized in previousperiods). Interest received on cash balances is lower than in Q1 2005 due tothe interest foregone on net TKT acquisition payments of $1.1 billion beingpartially offset by higher interest rates in Q1 2006.Interest expenseFor the three months to March 31, 2006 the Company incurred interest expense of$5.6 million (2005: $nil). In 2006, this expense primarily relates to aprovision for interest, which may be awarded by the court in respect of amountsdue to those ex-TKT shareholders who have requested appraisal of theacquisition consideration payable for their TKT shares.TaxationThe effective rate of tax for the three months to March 31, 2006 was 28% (2005:30%). At March 31, 2006 net deferred tax assets of $126.0 million wererecognized (December 2005: $116.2 million).Equity in earnings/(losses) of equity method investeesNet earnings of $3.5 million were recorded for the three months to March 31,2006 (2005: net losses of $0.2 million). This comprised earnings of $1.6million from the 50% share of the antiviral commercialization partnership withGSK in Canada (2005: $1.4 million), and $1.9 million being the Company's shareof earnings in the GeneChem and EGS Healthcare Funds (2005: loss of $1.6million).Discontinued operationsDuring the three months to March 31, 2006, IDB repaid $70.6 million, being theinjectable flu development tranche of the $100.0 million development loanfacility provided to IDB as part of their acquisition of Shire's vaccinebusiness. The repayment followed GSK's acquisition of IDB, after which IDB wasprovided with resources by GSK to fund the early repayment of the injectableflu tranche. The $29.4 million pipeline development tranche of the loanfacility is still outstanding.At the time of the disposal, a provision of $70.0 million was charged todiscontinued operations on the basis that there was no certainty of recovery ofthis amount. The $70.0 million provision was allocated against all of thepipeline development tranche ($29.4 million) and against $40.6 million of the$70.6 million injectable flu development tranche. Accordingly, a gain ondisposition of discontinued operations of $40.6 million (2005: $3.1 million)was recognized on repayment of the loan by IDB.The repayment of the $70.6 million injectable flu tranche had no tax effect.FINANCIAL INFORMATIONTABLE OF CONTENTS Page Unaudited US GAAP Consolidated Balance Sheets 15 Unaudited US GAAP Consolidated Statements of Operations 17 Unaudited US GAAP Consolidated Statements of Cash Flow 19 Selected notes to the unaudited Financial Statements 21 (1) Earnings per share 21 (2) Analysis of revenues 22 Non GAAP reconciliation of numerator for diluted EPS 23 Non GAAP reconciliation of reported EPS 23 Unaudited US GAAP results for the 3 months to March 31, 2006Consolidated Balance Sheets March 31, ‚¹ Adjusted 2006 December 31, $M 2005 $M ASSETS Current assets: Cash and cash equivalents 842.4 656.5 Restricted cash 30.9 30.6 Short-term investments 1.5 6.9 Accounts receivable, net 272.8 329.9 Inventories 130.2 136.0 Deferred tax asset 68.8 54.2 Prepaid expenses and other current 75.0 98.1assets Total current assets 1,421.6 1,312.2 Investments 54.4 50.2 Property, plant and equipment, net 252.9 234.0 Goodwill 368.9 367.6 Other intangible assets, net 714.1 729.3 Deferred tax asset 57.2 62.0 Other non-current assets 10.6 42.9 Total assets 2,879.7 2,798.2 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 401.4 431.8 Liability to dissenting shareholders 432.9 427.6 Other current liabilities 125.9 106.0 Total current liabilities 960.2 965.4 Long-term debt, excluding current - 0.1installments Other non-current liabilities 41.5 43.4 Total liabilities 1,001.7 1,008.9 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months to March 31, 2006Consolidated Balance Sheets (continued) March 31, ‚¹ Adjusted 2006 December 31, $M 2005 $M Shareholders' equity Common stock of 5p par value: 18,314.0 42.9 42.7million shares authorized; and 498.5 million shares issued and outstanding (2005: 495.7 million) Exchangeable shares: 1.9 million shares 86.7 101.2issued and outstanding (2005: 2.2 million) Treasury stock (4.7) (2.8) Additional paid-in capital 1,365.8 1,327.5 Accumulated other comprehensive income 77.0 71.5 Retained earnings 310.3 249.2 Total shareholders' equity 1,878.0 1,789.3 Total liabilities and shareholders' 2,879.7 2,798.2equity ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited USGAAP results for the 3 months to March 31, 2006Consolidated Statement of Operations 3 months to ‚¹ Adjusted March 31, 3 months to 2006 March 31, $M 2005 $M Revenues: Product sales 346.0 269.4 Royalties 61.0 58.3 Other revenues 4.0 6.0 Total revenues 411.0 333.7 Costs and expenses: Cost of product sales 62.0 33.6 Research and development 127.4 112.1 Selling, general and 182.0 163.2administration Depreciation and amortization 22.9 13.6 Integration costs 2.3 - Reorganization costs - 2.9 Total operating expenses 396.6 325.4 Operating income 14.4 8.3 Interest income 14.2 9.7 Interest expense (5.6) - Other income/(expense), net 0.5 (0.1) Total other income, net 9.1 9.6 Income from continuing 23.5 17.9operations before income taxes and equity in earnings/(losses) of equity method investees Income taxes (6.5) (5.4) Equity in earnings/(losses) of 3.5 (0.2) equity method investees Income from continuing 20.5 12.3operations Gain on disposition of 40.6 3.1discontinued operations Net income 61.1 15.4 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months to March 31, 2006Consolidated Statement of Operations (continued) 3 months to ‚¹ Adjusted March 31, 3 months to 2006 March 31, 2005 Earnings per share - basic Income from continuing operations 4.0c 2.5c Gain on disposition of discontinued 8.1c 0.6coperations Earning per ordinary share - basic 12.1c 3.1c Earnings per share - diluted Income from continuing operations 4.0c 2.5c Gain on disposition of discontinued 8.0c 0.6coperations Earnings per ordinary share - diluted 12.0c 3.1c Earning per ADS - diluted 35.9c 9.2c Weighted average number of shares (Millions): Basic 503.2 499.0 Diluted 510.3 500.6 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months to March 31, 2006Consolidated Statement of Cash Flows 3 months to ‚¹ Adjusted March 31, 3 months to 2006 March 31, $M 2005 $M CASH FLOWS FROM OPERATING ACTIVITIES: Net income 61.1 15.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - cost of product sales 1.1 0.8 - SG&A 22.9 13.6 Share based compensation 9.0 5.1 Movement in deferred taxes (10.2) (3.1) Equity in (earnings)/losses on (3.5) 0.2equity method investees Gain on disposition of discontinued (40.6) (3.1)operations Changes in operating assets and liabilities, net of acquisitions: Decrease/(increase) in accounts 56.4 (10.7)receivable Increase in sales deductions accrual 4.9 7.9 Decrease/(increase) in inventory 5.1 (4.6) Decrease/(increase) in prepayments 22.6 (16.7)and other current assets Decrease in other assets 2.4 - (Decrease)/increase in accounts and (4.5) 2.9notes payable and other liabilities Decrease in deferred revenue (3.3) (1.4) Net cash provided by operating 123.4 6.3activities (A) ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months to March 31, 2006Consolidated Statement of Cash Flows (continued) 3 months to ‚¹ Adjusted March 31, 3 months to 2006 March 31, $M 2005 $M CASH FLOWS FROM INVESTING ACTIVITIES: Movement in short-term investments 5.5 7.3 Movement in restricted cash (0.3) 1.0 Purchase of subsidiary undertaking (0.8) - Purchase of long-term investments (0.5) (1.8) Purchase of property, plant and (26.5) (19.9) equipment Purchase of intangible assets (0.2) (20.0) Loan repaid by/(made to) IDB 70.6 (20.3) Proceeds from sale of the vaccines - 62.2 business Net cash provided by investing 47.8 8.5 activities (B) CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of 2% convertible loan (0.1) - Proceeds from exercise of options 13.8 16.2 Tax benefit of share based 1.2 0.2compensation, charged directly to reserves Payments to acquire treasury stock (2.0) - Net cash provided by financing 12.9 16.4activities (C ) Effect of foreign exchange rate changes 1.8 (1.6)on cash and cash equivalents (D) Net increase in cash and cash 185.9 29.6equivalents (A+B+C+D) Cash and cash equivalents at beginning 656.5 1,111.5of period Cash and cash equivalents at end of 842.4 1,141.1period ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.US GAAP results for the 3 months to March 31, 2006Selected notes to the Unaudited US GAAP Financial Statements(1) Earnings per share 3 months to ‚¹ Adjusted March 31, 3 months to 2006 March 31, $M 2005 $M Income from continuing operations 20.5 12.3 Gain on disposition of discontinued 40.6 3.1operations Numerator of basic and diluted EPS 61.1 15.4 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Weighted average number of shares: No of shares No of Millions shares Millions Basic 503.2 499.0 Effect of dilutive shares: Stock options 6.5 1.3 Warrants 0.6 0.3 Diluted 510.3 500.6 The share options not included in the calculation of the diluted weightedaverage number of shares because the exercise prices exceeded Shire's averageshare price during the calculation period, are shown below: 3 months to Adjusted March 31, 3 months to 2006 March 31, No. of shares 2005 Millions No. of shares Millions Stock options 2.2 7.7 Unaudited US GAAP results for the 3 months to March 31, 2006Selected notes to the US GAAP Financial Statements (continued)(2) Analysis of revenues 3 months to 3 months 3 months to 3 months to March 31, to March March 31, March 31, 31, 2006 2006 2006 2005 $M % change % of total $M revenue Net product sales: CNS ADDERALL XR 206.1 145.6 +42% 50% ADDERALL 9.1 9.4 -3% 2% CARBATROL 14.1 16.9 -17% 4% 229.3 171.9 +33% 56% GI PENTASA 28.1 26.2 +7% 6% COLAZIDE 2.3 2.1 +10% 1% 30.4 28.3 +7% 7% HGT REPLAGAL 25.8 - n/a 6% GP AGRYLIN/XAGRID North America 1.4 19.9 -93% - Rest of world 12.1 12.1 - 3% FOSRENOL 7.8 4.9 +59% 2% CALCICHEW 10.4 8.1 +28% 3% REMINYL/REMINYL XL 4.2 2.9 +45% 1% SOLARAZE 3.3 2.4 +38% 1% LODINE 3.0 3.0 - 1% 42.2 53.3 -21% 11% Other product sales 18.3 15.9 +15% 4% Total product sales 346.0 269.4 +28% 84% Royalty income: 3TC 39.5 39.4 - 10% ZEFFIX 7.7 6.5 +18% 2% Others 13.8 12.4 +11% 3% 61.0 58.3 +5% 15% Other revenues 4.0 6.0 -33% 1% Total revenues 411.0 333.7 +23% 100% Non GAAP reconciliation of numerator for diluted EPSfor the 3 months to March 31, 2006 3 months to Adjusted March 31, 3 months to 2006 March 31, $M 2005 $M Net income for basic EPS 61.1 15.4 Add back: TKT cost of product sales fair value 23.6 -adjustment New River milestone payment 50.0 - New River upfront payment - 50.0 TKT integration costs 2.3 - Reorganization costs - 2.9 Taxes on above adjustments (21.3) (14.8) Gain on disposition of discontinued (40.6) (3.1)operations Total non GAAP adjustment 14.0 35.0 Numerator for non GAAP - diluted EPS 75.1 50.4 Non GAAP reconciliation of reported EPSfor the 3 months to March 31, 2006 3 months to Adjusted March 31, 3 months to 2006 March 31, 2005 Diluted EPS per ordinary share 12.0c 3.1c Add back: Gain on disposition of discontinued (8.0c) (0.6c)operations Diluted EPS from continuing 4.0c 2.5coperations Add back: TKT cost of product sales fair value 4.6c -adjustment New River milestone payment 9.8c - New River upfront payment - 10.0c TKT integration costs 0.5c - Reorganization costs - 0.6c Taxes on above investments (4.2c) (3.0c) Non GAAP - diluted EPS per ordinary 14.7c 10.1cshare Non GAAP - diluted EPS per ADS 44.1c 30.2c Total non GAAP adjustments - diluted 2.7c 7.0cEPS per ordinary share Hampshire International Business Park Chineham Basingstoke Hampshire RG24 8EP United Kingdom Tel +44 (0)1256 894000 Fax +44 (0)1256 894708 www.shire.com Press Release Registered in England 5492592 Registered Office as aboveENDSHIRE PLCRelated Shares:
Shire