23rd Mar 2007 09:45
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
IFRS results for the year ending December 31, 2006.
Basingstoke, UK - March, 23 2007 - Shire plc ("Shire") today publishes its preliminary results for the year ending December 31, 2006 in accordance with International Financial Reporting Standards (IFRS).
It should be noted that on February 20, 2006 Shire announced its results in respect of the same period in accordance with US GAAP.
For further information please contact:
Investor Relations Clĩa Rosenfeld (Rest of the World) +44 1256 894 160
Eric Rojas (North America) +1 484 595 8252 Media Jessica Mann (Rest of the World) +44 1256 894 280 Matthew Cabrey (North America) +1 484 595 8248
Notes to editors
SHIRE PLC
Shire's strategic goal is to become the leading specialty pharmaceutical company that focuses on meeting the needs of the specialist physician. Shire focuses its business on attention deficit and hyperactivity disorder (ADHD), human genetic therapies (HGT), gastrointestinal (GI) and renal diseases. The structure is sufficiently flexible to allow Shire to target new therapeutic areas to the extent opportunities arise through acquisitions. Shire believes that a carefully selected portfolio of products with a strategically aligned and relatively small-scale sales force will deliver strong results.
Shire's focused strategy is to develop and market products for specialty physicians. Shire's in-licensing, merger and acquisition efforts are focused on products in niche markets with strong intellectual property protection either in the US or Europe.
For further information on Shire, please visit the Company's website: www.shire.com
THE "SAFE HARBOR" STATEMENTUNDERTHE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire's results could be materially affected. The risks 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 ADHD franchise; patents, including but not limited to, legal challenges relating to Shire's ADHD franchise; government regulation and approval, including but not limited to the expected product approval dates of SPD503 (guanfacine extended release) (ADHD), SPD465 (extended release triple-bead mixed amphetamine salts) (ADHD); Shire's ability to secure new products for commercialization and/or development; Shire's planned acquisition of New River Pharmaceuticals Inc. (New River) announced on February 20, 2007; and other risks and uncertainties detailed from time to time in Shire's filings with the Securities and Exchange Commission.
The following are trademarks of Shire plc or companies within the Shire Group, which are the subject of trademark registrations in certain countries.
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)FOSRENOL‚® (lanthanum carbonate)LIALDA¢â€ž¢ (mesalamine)LODINE ‚® (etodolac)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))VANIQA‚® (eflornithine hydrochloride)VYVANSE¢â€ž¢ (lisdexamfetamine dimesylate)
XAGRID‚® (anagrelide hydrochloride)
The following are trademarks of third parties referred to in this filing.
3TC (trademark of GlaxoSmithKline (GSK))DYNEPO (trademark of Sanofi Aventis)PENTASA (trademark of Ferring)RAZADYNE (trademark of Johnson & Johnson)RAZADYNE ER (trademark of Johnson & Johnson)REMINYL (trademark of Johnson & Johnson, excluding UK and Republic of Ireland)REMINYL XL (trademark of Johnson & Johnson, excluding UK and Republic ofIreland)ZEFFIX (trademark of GSK)
ZEMPLAR (trademark of Abbott Laboratories)
Results of operations under IFRS
For the year to December 31, 2006 the Group's total revenues increased by 12% to $1,796.5 million, compared to $1,599.3 million in 2005. Net income for the year to December 31, 2006 was $56.2 million compared to a net loss of $179.2 million in 2005. The results for 2006 include a $271.9 million impairment of the goodwill that arose on the acquisition of Biochem Pharma Inc. (2005: $527.0 million).
Total revenues
The following table provides an analysis of the Group's total revenues bycategory:Year to December 31, 2006 2005 Change $M $M % __________ __________ ________ Product sales 1,535.8 1,327.7 +16 Royalties 242.9 242.9 +0 Other revenues 17.8 28.7 -38 __________ __________ ________ Total 1,796.5 1,599.3 +12 _________ _________ ________
All product sales are reported in the Pharmaceutical Products segment, all royalties are reported in the Royalty segment.
Product salesYear to December 31, 2006 2005 Product US sales prescription growth growth $M $M % % _____ ____ ____ ____ CNS ADDERALL XR 863.6 730.8 +18 +8 ADDERALL 23.6 43.1 -45 -20 DAYTRANA 25.1 - n/a n/a CARBATROL 68.3 72.1 -5 -9 GI PENTASA 137.8 136.1 +1 +2 COLAZIDE 9.2 8.6 +7 n/a GP AGRYLIN and XAGRID RoW 53.3 46.8 +14 n/a North America (US & Canada) 7.5 46.0 -84 -91 FOSRENOL 44.8 53.5 -16 +34 CALCICHEW 45.5 38.7 +18 n/a REMINYL/REMINYL XL 21.5 13.5 +59 n/a SOLARAZE 13.2 12.5 +6 n/a VANIQA 7.9 6.3 +25 n/a LODINE 12.6 12.6 - n/a HGT REPLAGAL* 117.7 41.3 n/a n/a ELAPRASE 23.6 - n/a n/a Other 60.6 65.8 -8 _____ _____ _____ Total 1,535.8 1,327.7 +16 _____ _____ _____
* In 2005 this represents REPLAGAL sales for the five-month period following the acquisition of Transkaryotic Therapies, Inc. (TKT). Total sales including pre-acquisition sales of $53.3 million were $94.6 million for the year ending December 31, 2005.
The following discussion includes references to US prescription and US market share data for key products. The source of this data is IMS, December 2006.
ADDERALL XR
ADDERALL XR is the leading brand in the US ADHD market with an average market share of 26% in 2006 (2005: 25%). US ADHD market growth of 4% and the 1% increase in average market share contributed to an 8% increase in US prescriptions for ADDERALL XR for year to December 31, 2006 compared to the same period in 2005.
Sales of ADDERALL XR for the year to December 31, 2006 were $863.6 million, an increase of 18% compared to the same period in 2005 (2005: $730.8 million). Product sales growth was significantly higher than prescription growth due primarily to price increases in August 2005 and April 2006.
During October 2005 Shire filed a Citizen Petition with the US Food and Drug Administration (FDA) requesting that the FDA require more rigorous bioequivalence testing or additional clinical testing for generic or follow-on drug products that reference ADDERALL XR before they can be approved. Shire received correspondence from the FDA in April 2006 stating that, due to the complex issues raised requiring extensive review and analysis by the FDA's officials, a decision cannot yet be reached by the FDA. The FDA did not provide any guidance as to when that decision may be reached.
On August 14, 2006 Shire and Barr Laboratories, Inc. (Barr) announced that all pending litigation in connection with Barr's Abbreviated New Drug Application (ANDA) and its attempt to market generic versions of Shire's ADDERALL XR had been settled. As part of the settlement, Barr entered into consent judgments and agreed to permanent injunctions confirming the validity and enforceability of Shire's US Patents Nos. 6,322,819 (the "`819 Patent"), 6,601,300 (the "`300 Patent") and 6,913,768 (the "`768 Patent"). Barr has also admitted that any generic product made under its ANDA would infringe the `768 patent. Under the terms of the settlement, Barr will not be permitted to market a generic version of ADDERALL XR in the US until April 1, 2009, except in certain limited circumstances, such as the launch of another party's generic version of ADDERALL XR. No payments to Barr are involved in the settlement agreement.
In January 2006, Shire settled its ADDERALL XR patent infringement lawsuits with Impax. Under the terms of the settlement, Impax will be permitted to market generic versions of ADDERALL XR in the US no later than January 1, 2010 and will pay Shire a royalty from those sales. In certain situations, such as the launch of another generic version of ADDERALL XR, Impax may be permitted to enter the market as the Group's authorized generic. No payments to Impax are involved in the settlement agreement.
Litigation proceedings concerning Shire's ADDERALL XR patents are ongoing. Further information can be found in our filings with the US Securities and Exchange Commission, including our Annual Report on Form 10-K for the year to December 31, 2006.
ADDERALL
In September 2006, Shire sold to Duramed Pharmaceuticals, Inc. (Duramed) the product rights to ADDERALL for $63.0 million. The sales in the year of $23.6 million occurred prior to the sale of the product rights.
DAYTRANA
Following its launch in June 2006, DAYTRANA achieved a 2% share of the ADHD market by December 31, 2006. Sales for the year to December 31, 2006 were $25.1 million, a level of sales which triggered the first of three potential $25.0 million sales milestone payments to Noven Pharmaceuticals Inc. (Noven). This milestone, which was paid on February 14, 2007, has been capitalized and will be amortized over 10 years. Net sales for 2006 were impacted by the redemption of $14 million of coupons issued to support the product launch.
The addition of DAYTRANA, combined with growth in ADDERALL XR market share has helped Shire grow its total share of the ADHD market to 28% at December 31, 2006 compared to 26% (which included a 1% share relating to ADDERALL) at December 31, 2005.
Shire has received reports concerning difficulty removing the release liner from a small percentage of DAYTRANA patches. Although the product meets specifications, during the first quarter of 2007 Noven implemented manufacturing enhancements intended to make DAYTRANA easier to use.
CARBATROL
US prescriptions for the year ending December 31, 2006 were down 9% compared to the same period in 2005. This was primarily due to a 6% decline in the US extended release carbamazepine prescription market. CARBATROL's US market share remained at 42%.
Sales of CARBATROL for the year ending December 31, 2006 were $68.3 million, a decrease of 5% compared to the same period in 2005 (2005: $72.1 million). The fall in sales is due to the decrease in the extended release carbamezapine market and a reduction of pipeline inventory in 2006 compared to stocking in 2005, offset by price increases in October 2005 and July 2006.
In July 2006 Impax Laboratories Inc. (Impax) deployed a sales force to begin promotion of CARBATROL under a promotional services agreement for the US market signed in January 2006.
Patent litigation proceedings with Nostrum Pharmaceuticals, Inc. and Corepharma LLC relating to CARBATROL are ongoing. Further information about the ongoing proceedings relating to the Company's CARBATROL patents can be found in our filings with the US Securities and Exchange Commission, including our Annual Report on Form 10-K for the period ended December 31, 2006.
PENTASA
US prescriptions for the year ending December 31, 2006 were up 2% compared to the same period in 2005 primarily due to a 4% increase in the US oral mesalamine prescription market. PENTASA's US market share remained at 18%.
Sales of PENTASA for the year ending December 31, 2006 were $137.8 million, an increase of 1% compared to the same period in 2005 (2005: $136.1 million). Sales growth is marginally lower than prescription growth due to the lower levels of pipeline stocking in 2006, partly offset by the impact of price increases in January 2006 and November 2006.
XAGRID
Sales for the year ended December 31, 2006 were $53.3 million, an increase of 14% compared to the same period in 2005 (2005: $46.8 million). Expressed in transaction currencies (XAGRID is primarily sold in Euros), sales increased by 13% due mainly to strong growth in France and Spain. In addition there was a benefit of 1% from favorable exchange rate movements against the US dollar.
AGRYLIN sales in North America (US and Canada) were $7.5 million for the year ended December 31, 2006 (2005: $46.0 million). This reduction was expected following the approval of generic versions of AGRYLIN in the US market in April 2005.
FOSRENOL
US prescriptions for the year ending December 31, 2006 were up 34% compared to 2005 due to FOSRENOL increasing its average share of the total US phosphate binding market to 9% (2005: 7%) and market growth of 9% over the same period. FOSRENOL was launched in the US in January 2005.
US sales of FOSRENOL for the year ending December 31, 2006 were $40.2 million (2005: $53.0 million). The decrease in net sales of 16% compared to prescription growth of 34% is primarily due to destocking in 2006 compared to significant stocking of higher strength formulations at the end of 2005.
An agreement with Abbott Laboratories Inc, (Abbott) was signed in December 2006 for the co-promotion of FOSRENOL in the US. Abbott's US renal care sales team will co-promote FOSRENOL with its own renal product ZEMPLAR. Shire's US sales force will also continue to promote FOSRENOL. This agreement began in Q1 2007 and will continue for a term of five years.
European sales of FOSRENOL for the year ending December 31, 2006 were $4.6 million (2005: $0.5 million), giving total FOSRENOL sales worldwide of $44.8 million (2005: $53.5 million).
FOSRENOL has now been launched in Germany, France and a number of other European countries, including the UK which launched in February 2007. Launches will continue throughout 2007 in the EU including Italy and Spain, subject to finalization of national licensing and conclusion of pricing and re-imbursement negotiations.
On October 18, 2006 Health Canada granted a marketing license application for FOSRENOL. The Canadian launch is planned for Q2 2007.
REPLAGAL
Sales for the year ending December 31, 2006 were $117.7 million, of which 88% were in Europe and 12% in the rest of the world (excluding the US). Sales for REPLAGAL for the year ending December 31, 2005 were $94.6 million, including pre-acquisition sales of $53.3 million. This represents a like-for-like increase in sales of 24% which was due to greater European coverage by an increased number of sales representatives and strong growth in the rest of the world market.
ELAPRASE
ELAPRASE was launched in the US in August 2006 and has had a strong start with over 110 patients receiving treatment by the end of December 2006. In addition, through the pre-approval process, over 100 patients were receiving treatment in Europe by the end of the year. Sales reached $23.6 million by December 31, 2006.
Foreign exchange effect
As many of the Group's sales revenues are earned in currencies other than US dollars (primarily Canadian dollars, Pounds Sterling, Swedish Krona and Euros), revenue growth reported in US dollars includes the impact of translating the sales made in the transaction currency, into US dollars. With the US dollar weakening against these currencies over the last 12 months, the translation of sales made in these currencies into US dollars has benefited reported growth rates. The table below shows the effect of foreign exchange translations on the revenue growth of the key affected products as well as the underlying performance of key products in their transaction currencies:
Year to December 31, 2006 sales 2006 sales Impact of 2006 sales in US growth in translation growth in dollars transaction to US US dollars currency dollars $M _____ _____ ____ ____ XAGRID sales in Euros 32.5 12% +1% 13%
XAGRID sales in Pounds Sterling 20.8 14% +2% 16%
CALCICHEW sales in Pounds 41.0 15% +2% 17% Sterling
REMINYL and REMINYL XL sales in 19.8 64% +3% 67%
Pounds Sterling _____ _____ ____ ____ Notes
Revenue growth analysis does not include REPLAGAL sales of $104.3 million in Euros and Swedish Krona. There is no comparative data for REPLAGAL as it was acquired with TKT in July 2005.
Royalties
Royalty revenue remained constant at $242.9 million for the year to December 31, 2006 (2005: $242.9 million).
Year to December 31, 2006 2005 Change $M $M % ____ ____ ____ 3TC 150.9 159.8 -6 ZEFFIX 34.8 30.5 +14 Others 57.2 52.6 +9 ____ ____ ____ Total 242.9 242.9 +0 ____ ____ ____3TC
Royalties from sales of 3TC for the year to December 31, 2006 were $150.9 million, a decrease of 6% compared to the prior year (2005: $159.8 million).
Shire receives royalties from GSK on worldwide 3TC sales. GSK's worldwide sales of 3TC for the year to December 31, 2006 were $1,138 million, a decrease of 6% compared to prior year (2005: $1,211 million). The nucleoside analogue market for HIV has continued to grow, however competitive pressures within the market have increased, leading to a decline in 3TC sales.
ZEFFIX
Royalties from sales of ZEFFIX for the year to December 31, 2006 were $34.8 million, an increase of 14% compared to the prior year (2005: $30.5 million).
Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK's worldwide sales of ZEFFIX for the year to December 31, 2006 were $301 million, an increase of 13% compared to prior year (2005: $266 million). This increase was mainly due to strong growth in the Korean, Japanese and Chinese markets.
OTHER
Other royalties are primarily in respect of REMINYL and REMINYL ER (known as RAZADYNE and RAZADYNE ER in the US), a product marketed worldwide (excluding the UK and the Republic of Ireland) by Janssen Pharmaceutical N.V. (Janssen), an affiliate of Johnson & Johnson. Shire has the exclusive marketing rights in the UK and the Republic of Ireland.
Sales of the REMINYL/ RAZADYNE range, for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer's type, continue to grow.
In June 2006 Janssen and Synaptech filed a law suit against Barr for infringement of their patent rights relating to RAZADYNE ER as a result of Barr filing an ANDA with the FDA for a generic version of RAZADYNE ER. No court date has been set.
Barr and other companies have filed ANDAs with the FDA for generic versions of RAZADYNE and Janssen and Synaptech have filed law suits against some of those ANDA filers. The court date for the first of these proceedings is May 2007.
Cost of product sales
For the year to December 31, 2006 the cost of product sales was 16% of product sales (2005: 16%). For the year to December 31, 2006 the cost of product sales for REPLAGAL included a $47.0 million adjustment in respect of acquired inventories (2005: $41.9 million). This fair value adjustment increased Shire's cost of product sales as a percentage of sales for the year ended December 31, 2006 by 3% (2005: 3%).
Research and development (R&D)
R&D expenditure increased from $287.1 million in the year to December 31, 2005 to $302.2 million in the year to December 31, 2006, an increase of 5%. The increase was primarily due to the addition of two significant R&D projects following the acquisition of TKT (ELAPRASE and GA-GCB).
Expressed as a percentage of total revenues, R&D expenditure was 17% for the year to December 31, 2006 (2005: 18%).
Selling, general and administrative (SG&A) expenses
SG&A expenses decreased from $1,272.5 million in the year to December 31, 2005 to $1,219.9 million in 2006, a decrease of 4%.
Year to December 31, 2006 (1) Change Restated 2005 $M $M % _____ _____ ____ Sales costs 233.2 186.3 +25 Marketing costs 343.3 255.2 +35 Other SG&A costs 252.9 222.3 +14 _____ _____ ____ 829.4 663.8 +25 Depreciation, amortization and goodwill 390.5 608.7 -36 impairment(2) _____ _____ ____ Total SG&A costs 1,219.9 1,272.5 -4 _____ _____ ____
(1) Restated to reflect an additional intangible amortization charge of $1.8 million in the year to December 31, 2005 to reflect the allocation of the cost of the TKT acquisition as if the accounting for the combination was completed as of the acquisition date, as required by IFRS 3 Business Combinations.
(2) Excludes depreciation from manufacturing plants of $4.8 million (2005: $3.5 million) which is included in cost of product sales.
As a percentage of product sales, these expenses were 79% (2005: 96%). The decrease was primarily due to a lower impairment charge in respect of goodwill in 2006 of $271.9 million (2005: $527.0 million). Excluding depreciation, amortization and goodwill impairment charges, SG&A costs increased by 25% to $829.4 million (2005: $663.8 million), and represented 54% of product sales (2005: 50%). The increase in SG&A expenses was expected, with additional expenditure required for:
* The promotion and launch of DAYTRANA (including an increase in the ADHD sales force); * The recruitment of a new GI sales force in the US; * The recruitment of new US and European sales forces to launch Elaprase; and * Pre-launch activities relating to the 2007 launches of DYNEPO, LIALDA and VYVANSE.
The depreciation charge within SG&A for the year to December 31, 2006 was $36.1 million (2005: $26.0 million), which in 2006 included property, plant and equipment write-downs of $0.5 million (2005: $6.5 million). Amortization charges, including the amortization on acquired products, were $82.5 million for the year to December 31, 2006 (2005: $55.7 million), which included intangible asset impairments for the year to December 31, 2006 of $1.1 million (2005: $4.4 million). In 2006 the impairment charge resulted from a decision to stop selling a non-core product. In 2005 the impairment charge resulted from the approval of generic versions of AGRYLIN in April 2005 and the decision not to support and promote certain non-core products going forward, which resulted in changes to the estimate of the Group's future cash flows.
In 2005 within SG&A costs the Group recorded reorganization costs of $9.4 million as a result of a consolidation of its North American sites. No reorganization costs were incurred in 2006.
For the year to December 31, 2006 the Group incurred $5.6 million of costs associated with the integration of the TKT business into the Shire Group (2005: $9.7 million). This included retention payments for key staff of $3.0 million, IT costs of $1.2 million and other costs of $1.4 million. These costs have been recorded within SG&A.
Gain on sale of product rights
For the year to December 31, 2006 the Group recognized a pre-tax gain of $63.0 million (2005: $nil) on the disposal of ADDERALL to Duramed for $63.0 million in cash.
Investment revenues
For the year to December 31, 2006 the Group received interest income of $50.5 million (2005: $35.3 million). This income primarily related to interest received on Shire's cash balances. Interest income for the year ending December 31, 2006 is higher than for the year ending December 31, 2005 primarily as a result of increases in US dollar interest rates.
Finance costs
For the year to December 31, 2006 the Group incurred interest expense of $27.0million (2005: $12.4 million). In 2006, this expense included a $24.7 million(2005: $7.7 million) provision for interest, which may be awarded by the courtin respect of amounts due to former holders of approximately 11.3 millionshares of TKT common stock who have submitted written demands for appraisal ofthese shares.Other incomeYear to December 31, 2006 2005 $M $M _____ _____ Impairment of long term investments (2.1) (2.0) GeneChem Funds management fee 4.6 4.3 Gain on sale of drug formulation business - 3.6 Gain on sale of available for sale security - 3.9 Foreign exchange 3.1 (1.4) Other 3.8 1.5 _____ _____ Total 9.4 9.9 _____ _____
The impairment of long term investments in 2006 and 2005 resulted from events and circumstances that indicated there was an other-than-temporary impairment of investments and, accordingly, management recorded an impairment based on its assessment of fair value.
Share of post tax (loss)/profit from associates and joint ventures
Net earnings of equity method investees of $5.8 million were recorded for the year to December 31, 2006 (2005: net losses of $1.0 million). This comprised earnings of $6.3 million from the 50% share of the antiviral commercialization partnership with GSK in Canada (2005: $5.3 million), offset by losses of $0.5 million being the Group's share of losses in the GeneChem and EGS Healthcare Funds (2005: losses of $6.3 million).
Taxation
The effective tax rate for the year to December 31, 2006 was 88.0% (2005: 26.8%). The effective rate has increased as a result of an increase in the current tax charge, offset by an increase in deferred tax credits. The increase in the current tax charge was primarily a result of additional tax contingencies of $187 million recognized in relation to ongoing tax audits, partially offset by the decrease in the non-deductible goodwill impairment charge in the current year. The increase in the deferred tax credit is due to recognition of additional deferred tax assets following changes in estimates as to the realization, and by the crystallization of additional losses. No tax deduction is available on the impairment of goodwill that was created on the acquisition of BioChem Pharma Inc.
Discontinued operations
During the year to December 31, 2006 the gain on disposal of discontinued operations totaled $40.6 million (2005: $3.1 million). During 2006, ID Biomedical Corporation (IDB) repaid $70.6 million, being the injectable flu development tranche of the $100.0 million development loan facility provided to IDB as part of their acquisition of Shire's vaccine business. The repayment followed GSK's acquisition of IDB, after which IDB was provided with resources by GSK to fund the early repayment of the injectable flu tranche. The $29.4 million pipeline development tranche of the loan facility is still outstanding.
At the time of the disposal, a provision of $70.0 million was charged to discontinued operations on the basis that there was no certainty of recovery of this amount. The $70.0 million provision was allocated against all of the pipeline development tranche ($29.4 million) and against $40.6 million of the $70.6 million injectable flu development tranche. Accordingly, a gain on disposition 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.
Principal Differences: IFRS and US GAAP Net Income for the years ending December 31, 2006 and 2005.
The primary differences between net income as reported under US GAAP and that reported under IFRS for the year ended December 31, 2006 and 2005 related to:
* An impairment of the goodwill that arose on the acquisition of Biochem Pharma Inc. of $271.9 million (2005 $527.0 million). The US GAAP treatment of the combination as a pooling of interests resulted in no goodwill arising and therefore no impairment charge is recorded under US GAAP; and * Product milestone payments of $83.2 million (2005: $50.0 million) which were capitalized as intangible assets under IFRS but expensed as research and development costs under US GAAP. Consolidated income statementYear to December 31, Notes 2006 (1) Restated $M 2005 $M _____ _____ ____ Continuing operations: Revenue 1,796.5 1,599.3 Cost of sales (246.5) (215.3) _____ _____ Gross profit 1,550.0 1,384.0 Research and development (302.2) (287.1) Selling, general and administrative (including (1,219.9) (1,272.5)$271.9m goodwill impairment (2005: $527.0m)) Gain on sale of product rights 63.0 - _____ _____ Operating profit/(loss) 90.9 (175.6) Investment revenues 50.5 35.3 Finance costs (27.0) (12.4) Other income 9.4 9.9 Share of post tax profit/(loss) from associates and 5.8 (1.0)joint ventures _____ _____ Profit/(loss) before tax 129.6 (143.8) Taxation 4 (114.0) (38.5) _____ _____ Profit/(loss) for the year from continuing 15.6 (182.3)operations Discontinued operations: 40.6 3.1 Profit for the year from discontinued operations _____ _____ Profit/(loss) for the year 56.2 (179.2) _____ _____ Earnings/(loss) per share (expressed in cents per 5 share) - Basic 11.2c (35.8c) - Diluted 11.0c (35.8c) _____ _____ Earnings/(loss) per share from continuing 5 operations (expressed in cents per share) - Basic 3.1c (36.4c) - Diluted 3.0c (36.4c) _____ _____
(1) Restated to reflect the allocation of the cost of the acquisition of TKT. See Note 3.
The profit/(loss) for the year is all attributable to the equity holders of the parent.
The accompanying notes are an integral part of this consolidated income statement.
Consolidated statement of recognized income and expense
Year to December 31, 2006 (1) Restated $M 2005 $M _____ _____ Profit/(loss) for the year 56.2 (179.2) _____ _____ Exchange differences on translation of foreign 26.7 (28.8)operations Unrealized holding (loss)/gain on (1.8) 9.2available-for-sale securities _____ _____ Net gain/(loss) recognized directly in equity 24.9 (19.6) _____ _____ Total recognized income/(expense) for the year 81.1 (198.8) _____ _____
(1) Restated to reflect the allocation of the cost of the acquisition of TKT. See Note 3.
The accompanying notes are an integral part of this consolidated statement of recognized income and expense.
Consolidated balance sheet December 31, (1) Restated December 31, 2006 2005 $M $M _____ _____ ASSETS Non-current assets Goodwill 1,805.9 2,078.5 Other intangible assets 1,747.8 1,624.8 Property, plant and equipment 259.1 218.2 Deferred tax assets 120.0 72.5 Investments accounted for using 24.2 23.0equity method Available-for-sale investments 31.6 27.1 Other receivables 12.3 43.0 _____ _____ 4,000.9 4,087.1 _____ _____ Current assets Inventories 131.1 136.1 Trade and other receivables 396.1 392.1 Current tax assets 11.8 28.0 Trading investments - 6.9 Cash and cash equivalents 1,126.9 656.5 Restricted cash 29.8 30.6 _____ _____ 1,695.7 1,250.2 _____ _____ Total assets 5,696.6 5,337.3 _____ _____ LIABILITIES AND SHAREHOLDERS' EQUITY Non-current liabilities Borrowings 6.9 4.7 Trade and other payables 24.6 18.1 Deferred tax liabilities 147.2 224.9 Long-term provisions 27.6 25.4 _____ _____ 206.3 273.1 _____ _____ Current liabilities Borrowings 3.5 2.7 Trade and other payables 585.5 449.7 Liability to dissenting shareholders 452.3 427.6 Current tax liabilities 295.3 94.4 Provisions 8.3 8.5 _____ _____ 1,344.9 982.9 _____ _____ Total liabilities 1,551.2 1,256.0 _____ _____
Consolidated balance sheet (continued)
Notes December 31, (1) Restated December 31, 2006 2005 $M $M _____ _____ ____ Shareholders' equity Share capital 43.7 42.7 Share premium 125.7 3.0 Treasury shares (94.8) (2.8) Exchangeable shares 59.5 101.2 Capital reduction reserve 2,946.5 2,946.5 Other reserve 2,099.7 2,099.7 Retained earnings (1,034.9) (1,109.0) _____ _____ Total shareholders' equity 6 4,145.4 4,081.3 _____ _____ Total liabilities and shareholders' 5,696.6 5,337.3equity _____ _____
(1) Restated to reflect the allocation of the cost of the acquisition of TKT. See Note 3.
The accompanying notes are an integral part of this consolidated balance sheet.
Consolidated cash flow statement
Year to December 31, Notes 2006 2005 $M $M _____ _____ ____ Net cash flows from operating activities 7 565.0 401.2 Cash flow from investing activities Movement in restricted cash 0.7 (0.8) Purchase of subsidiary undertaking, net of cash (0.8) (1,114.0)and cash equivalents Expense of acquisitions - (37.5) Loan repaid by/(made to) ID Biomedical 70.6 (43.1)Corporation (IDB) Purchase of property, plant and equipment (68.7) (67.3) Purchase of intangible assets (173.6) (92.1) Purchases of financial assets (9.8) (7.7) Net decrease in current financial assets 6.9 366.7 Proceeds from sale of property, plant and 3.4 1.2equipment (PP&E) Proceeds from sale of intangible assets 0.4 - Proceeds from sale of financial assets - 10.1 Proceeds from sale of product rights 63.0 - Proceeds from sale of drug formulation business - 0.6 Proceeds from sale of vaccines business - 92.2 Interest received 47.2 34.2 Dividend received from associates 0.4 3.7 Dividend from joint venture 5.8 4.7 _____ _____ Net cash used in investing activities (54.5) (849.1) _____ _____ Cash flows from financing activities Proceeds from exercise of share options 82.0 37.1 Purchase of treasury shares (92.0) (2.5) Redemption of 2% guaranteed convertible loan (0.1) -notes 2011 Repayment of finance lease obligations (5.5) (3.9) Dividends paid (32.4) (28.5) _____ _____ Net cash (used in)/provided by financing (48.0) 2.2activities _____ _____ Net increase/(decrease) in cash and cash 462.5 (445.7)equivalents Cash and cash equivalents at beginning of year 656.5 1,111.5 Effect of foreign currency translation 7.9 (9.3) _____ _____ Cash and cash equivalents at end of year 1,126.9 656.5 _____ _____
The accompanying notes are an integral part of this consolidated cash flow statement.
* General information
Shire plc (the "Company") and its subsidiaries (together the "Group" or "Shire") researches, develops and markets prescription medicines. The Company is a public limited company incorporated under the Companies Act, 1985 and domiciled in the United Kingdom. The address of its registered office is Hampshire International Business Park, Chineham, Basingstoke, Hampshire, United Kingdom, RG24 8EP.
The Company has its primary listing on the London Stock Exchange and its secondary listing on the NASDAQ National Market in the United States of America.
These accounts are presented in US dollars as this is the currency of the primary economic environment in which the Group operates.
2. Accounting Presentation and Policies
These preliminary financial statements for the year ending December 31, 2006 have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as adopted by the EU. The accounting policies adopted are consistent with those followed in the preparation of the Group's Annual Report for the year ended December 31, 2005. Certain amounts reported in previous periods have been reclassified to conform to the 2006 presentation and have also been adjusted for the allocation of the cost of business combinations as outlined in Note 3.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2006 or 2005, but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s. 237(2) or (3) Companies Act 1985.
3. Business acquisitions
The allocation of the purchase price for the TKT acquisition was completed on July 27, 2006 and has been allocated to assets acquired and liabilities assumed. Goodwill in respect of the TKT acquisition decreased by $131.0 million from $493.4 million as provisionally determined at December 31, 2005 to $362.4 million at December 31, 2006. This decrease in goodwill recognized in respect of the TKT acquisition has primarily resulted from incremental value of $232.0 million relating to tax amortization benefit being ascribed to intangible assets and in-process research and development, offset by the recognition of certain other assets and liabilities where fair value is now determinable of $9.0 million and net related deferred tax liabilities of $92.0 million.
As of the end of the allocation period on July 27, 2006 the fair values of the pre-acquisition contingency relating to the Purported Class Action Shareholder Suit had not been determined. The fair value of this contingency continues to be subject to change based on the outcome of the Purported Class Action Shareholder Suit. As the allocation period has ended on July 27, 2006 the contingency will be recorded as a liability in accordance with the criteria in IAS 37, Provisions, Contingent Liabilities and Contingent Assets, with any loss arising recognized in the income statement.
4. Taxation
The Group earns profits in various territories, which have different tax rates compared to the UK. The tax expense for the year to December 31, 2006 consists of a UK taxation credit of $43.4 million (2005: $50.1 million credit) and overseas tax expenses of $157.4 million (2005: $88.6 million expense).
The effective tax rate for the year to December 31, 2006 was 88.0% (2005: 26.8%). The effective rate has increased as a result of an increase in the current tax charge, offset by an increase in deferred tax credits. The increase in the current tax charge was primarily a result of additional tax contingencies of $187 million recognized in relation to ongoing tax audits, partially offset by the decrease in the non-deductible goodwill impairment charge in the current year. The increase in the deferred tax credit is due to the recognition of additional deferred tax assets following changes in estimates as to the realization, and by the crystallization of additional losses. No tax deduction is available on the impairment of goodwill that was created on the acquisition of BioChem Pharma Inc.
5. Earnings/(loss) per ordinary share (EPS)
Basic EPS is calculated by dividing the earnings/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those ordinary shares held in the employee share trust which are treated as cancelled.
For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.
For the year to December 31, 2006 share options to purchase approximately 7.7 million ordinary shares were not dilutive (2005: 20.7 million share options and 1.3 million warrants) and were therefore excluded from the computation of diluted EPS.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.
2006 Earnings Weighted Per share $M average amount number of shares ________________ _____ _____ ____ Basic EPS Earnings attributable to ordinary 56.2 503,359,162 11.2cshareholders _____ _____ ____ Effect of dilutive securities Share options - 5,324,980 (0.2c) Warrants - 601,485 - _____ _____ ____ Diluted EPS 56.2 509,285,627 11.0c _____ _____ ____ 2005 ________________ _____ _____ ____ Basic and Diluted EPS Loss attributable to ordinary (179.2) 500,243,137 (35.8c) shareholders _____ _____ ____
Earnings/(loss) per share from continuing and discontinued operations:
2006 Earnings/(loss Weighted Per share ) amount average $M number of shares _______________ _____ _____ ____ Basic EPS Profit from continuing operations 15.6 503,359,162 3.1c Gain from discontinued operations 40.6 503,359,162 8.1c _______________ _____ _____ ____ Diluted EPS Profit from continuing operations 15.6 509,285,627 3.0c Gain from discontinued operations 40.6 509,285,627 8.0c _______________ _____ _____ ____ 2005 _______________ _____ _____ ____ Basic and Diluted EPS Loss from continuing operations (182.3) 500,243,137 (36.4c) Gain from discontinued operations 3.1 500,243,137 0.6c _______________ _____ _____ ____
6. Condensed statement of changes in shareholders' equity
Total Total $M $M _____ _____
Shareholders' equity at January 1, 2006 and 2005 4,081.3 4,244.8
Foreign currency translation differences 26.7 (28.8)
Unrealized holding (loss)/gain on available-for-sale (1.8) 9.2 securities
_____ _____ Net income/(loss) recognized directly in equity 24.9 (19.6) Employee share option scheme: - value of employee services 20.4 27.4 - proceeds from shares issued 82.0 37.2 Purchase of treasury shares (92.0) (2.5) Dividends (32.4) (28.5)
Tax benefit associated with exercise of stock options 5.0 1.7
Profit/(loss) for the year 56.2 (179.2) _____ _____ Shareholders' equity at December 31, 2006 and 4,145.4 4,081.3December 31, 2005 _____ _____
Shareholders' equity at December 31, 2005 has been restated to reflect the allocation of the cost of the acquisition of TKT, see Note 3.
7. Cash generated from operations
For the year Restated (1) ended December 31, 2006 For the year ended December $M 31, 2005 $M _____ _____ Profit/(loss) for the year 56.2 (179.2) Profit for the year from discontinued (40.6) (3.1)operations Adjustments for: Taxation 114.0 38.5 Finance costs 27.0 12.4 Investment revenues (50.5) (35.3) Share of post tax profit from associates and (5.8) 1.0joint ventures Depreciation of property, plant and equipment 40.4 23.0 Amortization of intangible assets 81.5 51.3 Impairment of property, plant and equipment 0.5 6.4 Impairment of intangible assets 1.1 4.4 Impairment of goodwill 271.9 527.0 Movements in financial assets 2.2 2.0 (Profit)/loss on disposal of non-financial (0.8) 0.1assets Profit on disposal of financial assets - (4.1) Gain on sale of drug formulation business - (3.5) Gain on sale of product rights (63.0) - Share-based compensation 20.4 27.4 _____ _____ Operating cash flows before movements in 454.5 468.3working capital Decrease in inventories 7.2 8.5 Decrease/(increase) in trade and other 4.6 (146.7)receivables Decrease/(increase) in other assets 0.7 (0.7) Increase in trade and other payables 107.7 144.0 Decrease in deferred income (1.8) (13.5) Cash flow from discontinued operations - (0.3) _____ _____ Cash generated from operations 572.9 459.6 _____ _____ Interest paid (2.3) (4.3) Income tax paid (5.6) (54.1) _____ _____ Net cash flows from operating activities 565.0 401.2 _____ _____
(1) Restated to reflect the allocation of the cost of the acquisition of TKT. See Note 3.
Cash and cash equivalents (which are presented as a single category of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
8. Dividends 2006 2005 $M $M _____ _____ Equity shares:
- Interim dividend of 2.54 pence (4.42 cents equivalent) 22.6 19.1 per share paid in April 2006 (2005: 2.0 pence paid in
April 2005 ($3.85 cents equivalent))
- Interim dividend of 1.05 pence (1.93 cents equivalent) 9.8 9.4 per share paid in October 2006 (2005: 1.05 pence paid in
October 2005 (1.82 cents equivalent)) _____ _____ 32.4 28.5 _____ _____
In accordance with IAS10 "Events after the Balance Sheet Date", the proposed second interim dividend of 2.69 pence (5.25 cents equivalent) per share has not been included as a liability in these financial statements. The Board has resolved to pay the dividend on April 5, 2007 to persons whose names appear on the register of members of the Group at the close of business on March 16, 2007.
During 2006 Shire Acquisition Inc. has paid dividends totalling CAD $0.4 million. These dividends qualify as eligible dividends under sub section 89(1) of the Income Tax Act (Canada) and hence would be eligible for the enhanced gross up and dividend tax credit afforded to eligible dividends paid by resident Canadian corporations.
9 Related-party transactions
The Group incurred professional fees with Stikeman Elliott, a law firm in which the Hon. James Grant is a partner, totaling $0.6 million for the year to December 31, 2006 (2005: $0.5 million; 2004: $2.1 million).
In April 2004, the Group contributed cash of $3.7 million (CAD $5.0 million) and equipment and intellectual property to the start-up of a new Canadian-based pharmaceutical research and development organization, ViroChem Pharma Inc. (ViroChem), in return for an equity interest and royalties on the sale of certain products subsequently launched by ViroChem. Dr Bellini, a non-executive director of BioChem and, until May 10, 2003, a non-executive director of Shire, had, at the time of the transaction, an indirect substantial interest in a company, which is a co-investor of ViroChem. In April 2006 and April 2005, the Group contributed cash of $8.0 million (CAD $9 million) and $4.1 million (CAD $5 million) respectively to ViroChem in return for an additional equity interest. The Group has undertaken to invest an additional $5.0 million (CAD $6.0 million) in ViroChem.
In October 2005, the Group sub-leased its office premises in Newport to Xanodyne Pharmaceuticals Inc. Dr James Cavanaugh, the non-executive Chairman of the Group, was the Chairman of the Board of Directors of Xanodyne Pharmaceuticals Inc. up to February 9, 2007 and remains a Board Director of Xanodyne Pharmaceuticals Inc. As a result of the transaction the Group will receive $7.8 million (net of inducements) in lease income over the sub-lease period from Xanodyne Pharmaceuticals Inc.
10. Post balance sheet events
Acquisition of New River Pharmaceuticals Inc. (New River)
On February 20, 2007 Shire announced that it has agreed to acquire New River for $64 per New River share, or approximately $2.6 billion for the fully diluted equity interest, in an all cash transaction unanimously recommended by the Boards of both companies. The acquisition is structured as a tender offer for all outstanding shares of New River followed by a merger. The acquisition is subject to the approval of the Company's shareholders as well as the satisfaction of certain customary conditions, including the tender of a majority of the outstanding New River shares on a fully-diluted basis. On March 19, 2007 the Hart-Scott-Rodino waiting period expired, satisfying one of the conditions of the tender offer. For accounting purposes, the acquisition of New River will be accounted for as a purchase business combination in accordance with IFRS 3.
The total consideration for the acquisition of New River amounts to approximately $2.6 billion in cash. Shire has entered into new bank facilities of $2.3 billion to provide part of the financing for the acquisition. This new facility is conditional upon, amongst other things, approval being given by Shire plc's shareholders at an Extraordinary General Meeting for the Company to increase the limit on its aggregate borrowings set out in its Articles of Association.
The Company has also raised approximately $900 million through the private placement of 42,883,721 new ordinary shares to certain institutional investors worldwide at a price of 1075 pence per share. The newly issued shares represent approximately 8.4 per cent of the Company's issued ordinary share capital prior to the placing.
VYVANSE (previously known as NRP104)
On February 23, 2007, the US Food and Drug Administration (FDA) approved VYVANSE, indicated for the treatment of ADHD. The FDA has proposed that VYVANSE be classified as a Schedule II controlled substance. This proposal was submitted to and accepted by the US Drug Enforcement Administration (DEA). A final scheduling decision is expected from the DEA following a 30-day period for public comment. Pending final scheduling designation, product launch is anticipated in Q2 2007.
SHIRE PLCRelated Shares:
Shire