28th Jul 2006 12:00
First 2006 product launched, another approved and pipeline progression on trackBasingstoke, UK and Philadelphia, US - July 28, 2006 - Shire plc (LSE: SHP,NASDAQ: SHPGY, TSX: SHQ) announces results for the second quarter 2006 andconfirms good progression in drugs pipeline.Matthew Emmens, Chief Executive Officer, said:"Shire continues to deliver in line with our expectations and we're making goodprogress with our pipeline. The reaction from patients and physicians to thenewly launched DAYTRANA, our Attention Deficit Hyperactivity Disorder (ADHD)patch, has been very positive. Earlier this week, we received Food and DrugAdministration (FDA) approval to launch ELAPRASE in the US. This is asignificant milestone in the advancement of our Human Genetic Therapies' (HGT)business and is the result of our commitment to provide meaningful treatmentsfor patients suffering from genetic diseases. The European launch of FOSRENOL,a treatment for hyperphosphatemia, is also going well and we are looking to thecontinued roll-out of this product in the larger European markets during thesecond half."During the second half, we expect decisions from the FDA for NRP104 (October6) and MESAVANCE (October 21) and from the European authorities for ELAPRASE(December 1). Our development pipeline remains on track with SPD465, atreatment for adult ADHD, filed with the FDA (21 July) and SPD503(non-stimulant, pediatric ADHD) due to be filed in Q3."Discussions are progressing with Barr Laboratories Inc. (Barr) for possiblesettlement of the ADDERALL XR litigation, prior to the scheduled court date ofOctober 30, 2006. The FDA is still reviewing our Citizen Petition and to datehas not awarded any tentative or final approvals to generic copies of ADDERALLXR."We reiterate our previously stated guidance of revenue growth for 2006 to bein the low double-digit range and costs to be within the previously indicatedranges."Q2 2006 Financial Highlights * Product sales of $376.0 million up 7% (28% growth in Q1 2006). * Total revenues of $439.1 million up 3% (23% growth in Q1 2006). * The lower revenue growth rate in Q2 2006 results from wholesaler de-stocking in Q1 2005 and re-stocking in Q2 2005 following the signing of a wholesaler fee for service agreement in March 2005. Revenue growth for the year to date of 12% is a better indicator of revenue performance and is consistent with guidance for the full year 2006. Business highlightsDAYTRANA (ADHD) * Approved by the FDA on April 6, 2006 and launched in the US in June 2006 in 10mg, 15mg, 20mg and 30mg dosage strengths. * Approval triggered a payment of $50 million to Noven Pharmaceuticals, Inc. (Noven). This amount has been capitalized, and together with an upfront milestone payment of $25 million, will be amortized over a 10 year period. Recent eventsELAPRASE (Hunter syndrome) * Approved by the FDA on July 24. Launch of ELAPRASE in the US is expected to occur during August. * The product has a seven-year orphan drug marketing exclusivity in the US. * Second product to reach the market from the TKT acquisition and the first launched under Shire ownership. SPD465 (ADHD) * Filed with the FDA on July 21, 2006. New Management CommitteeRecently we have re-organized our business into two areas: HGT and SpecialtyPharmaceuticals. David Pendergast and Mike Cola have been appointed President,HGT and President, Specialty Pharmaceuticals respectively. The ExecutiveCommittee has been superseded by a new Senior Management Committee to steer theimplementation of Shire's strategy. This is chaired by CEO, Matthew Emmens andcomprises CFO, Angus Russell and the two Presidents of Shire's businesses.New Non Executive DirectorKate Nealon has joined the Shire Board as a Non Executive Director and a memberof the Remuneration Committee.Kate Nealon was Group Head of Legal & Compliance at Standard Chartered plcuntil 2003. She now holds Non-Executive Director positions with HBOS plc, Cable& Wireless plc and Monitor, the independent regulator for NHS foundation trusthospitals in the UK. Ms Nealon is also a Senior Associate at the Judge BusinessSchool at Cambridge University.Ms Nealon, who lives in London, UK, is a lawyer and spent fifteen years in herearly career practising law in New York and is a graduate of GeorgetownUniversity, Washington DC.Q2 2006 Unaudited Results Q2 2006 Q2 2005 US GAAP Adjustments Non GAAP US GAAP Adjustments* Non GAAP (1) (1) $M $M $M $M $M $M _______ ___________ _________ _______ ____________ _______ Revenues 439.1 - 439.1 424.6 - 424.6 Income from 83.8 18.3 102.1 145.0 - 145.0ongoing operations (2) Net income 61.3 13.2 74.5 109.9 - 109.9 Diluted earnings per: Ordinary Share 12.0c 2.6c 14.6c 22.0c - 22.0c ADS 36.1c 7.8c 43.9c 65.9c - 65.9cNote: Average exchange rates for Q2 2006 and 2005 were $1.83: ‚£1.00 and $1.86:‚£1.00 respectively. 1. Non GAAP These are non GAAP financial measures.For 2006, this measure for net income excludes costs of $13.2 million asfollows: * Cost of product sales fair value adjustment on acquisition of TKT: $16.7 million; * TKT integration costs: $1.6 million; and * Tax allowances on above adjustments: $(5.1) million. * For 2005, there were no non GAAP adjustments in Q2.On a pre-tax basis, the above non GAAP adjustments relating to ongoingoperations total $18.3 million for 2006 and nil for 2005.The non-GAAP financial measures presented in the above table are used by Shiremanagement to gain an understanding of the comparative performance of theCompany. These measures are presented in order to provide supplementalinformation regarding the operational performance of the Company to enhanceinvestors' understanding of core financial performance. A reconciliation ofthese non GAAP financial measures to the most directly comparable US GAAPfinancial measure can be found on page 24. 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 H2 2006 and H1 2007 Shire anticipates that it will: * Launch ELAPRASE in the US and Europe; * Launch MESAVANCE in the US and in Europe; * Launch NRP104 (ADHD) in the US; * Launch DYNEPO in Europe; * File SPD503 (ADHD) with the FDA; * Continue the roll-out of FOSRENOL in Europe; and * Continue the launch of DAYTRANA in the US. Timings of launches are subject to the regulatory/government approvals process.Financial outlookWe reaffirm the previous guidance given as part of the Q1 2006 results, asfollows: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,including DAYTRANA, in 2006 and H1 2007, in addition to the roll-out ofFOSRENOL across Europe and the new higher strengths of FOSRENOL in the US. * These launches will require additional advertising and promotional spend and, in some cases, additional sales representatives. Also, Shire will be seeking to maximize ADDERALL XR's market share. As a result, SG&A costs are expected to rise during the year to between $770-800 million for the full year. The level of quarterly SG&A expenditure is expected to increase over the Q2 2006 spend as we reflect a full quarter's cost for the new US sales forces for GI (to launch MesavanCE) and HGT (to launch Elaprase); * 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 Q2 2006 spend as we commence phase 3(b)/4 studies to support new product launches (including DAYTRANA, FOSRENOL and MESAVANCE); * 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 capitalized business development milestone payments; and * The tax rate for the full year 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 increased R&D expense in Q1 2006; * A US GAAP adjustment to cost of product sales, of approximately $50 million to reflect the difference between the accounting fair value and book value of acquired REPLAGAL inventory, of which $40.3 million was charged in H1 2006; * Shire HGT integration costs estimated at $7 million in 2006, of which $3.9 million was incurred in H1 2006; 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. $16.7 million was charged across these categories in H1 2006 (2005: $13.0 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 and integration 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 share-based compensation.The Company has adopted SFAS 123R according to the modified retrospectivemethod. As a result, comparatives, including accounting periods in 2005, havebeen retrospectively adjusted.DividendIn respect of the six months ended June 30, 2006, the Board resolved to pay aninterim dividend of 1.9346 US cents per ordinary share (2005: 1.8246 US centsper share).Dividend payments will be made in Pounds Sterling to Ordinary Shareholders, USDollars to ADS holders and Canadian Dollars to Exchangeable Shareholders. Adividend of 1.0475 pence per ordinary share, 5.8038 US cents per ADS and 6.5844Canadian cents per Exchangeable Share respectively will be paid. The Boardresolved to pay the dividend on October 12, 2006 to persons whose names appearon the register of members of the Company (or to persons registered as holdersof Exchangeable Shares in Shire Acquisition Inc.) at the close of business onSeptember 15, 2006.This is consistent with Shire's stated policy of paying a dividendsemi-annually, set in US cents per share / ADS. Dividend growth for the fullyear will be reviewed by the Board when the second interim dividend isdetermined. Shire intends to pursue a progressive dividend policy.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 attention deficit and hyperactivity disorder (ADHD),human genetic therapies (HGT), gastrointestinal (GI) and renal diseases. Thestructure is sufficiently flexible to allow Shire to target new therapeuticareas to the extent opportunities arise through acquisitions. Shire believesthat a carefully selected portfolio of products with a strategically alignedand relatively 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 (ulcerative colitis) and NRP104(ADHD), including its scheduling classification by the Drug EnforcementAdministration in the United States; Shire's ability to benefit from theacquisition of Transkaryotic Therapies Inc.; Shire's ability to secure newproducts for commercialization and/or development; and other risks anduncertainties detailed from time to time in Shire's and its predecessorregistrant Shire Pharmaceuticals Group plc's filings with the Securities andExchange Commission, including its Annual Report on Form 10-K for the yearended December 31, 2005 and its most recent Quarterly Report filed on Form 10-Qfor the financial period ended on March 31, 2006.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‚®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‚® (epoetin delta)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 Q2 2006Revenues from continuing operations for the three months to June 30, 2006increased by 3% to $439.1 million (2005: $424.6 million).Income from continuing operations (before income taxes and equity methodinvestees) for the three months to June 30, 2006 was $83.8 million (2005:$145.0 million). This reduction was expected following the increase in salescosts and promotional spend related to the pre-launch activities of DAYTRANAand ELAPRASE.Cash inflow from operating activities for the three months to June 30, 2006 was$137.4 million (2005: $181.2 million). This reduction related primarily to thedecrease in income from continuing operations referred to above. Cash and cashequivalents, restricted cash and short-term investments at June 30, 2006totaled $916.1 million (December 31, 2005: $694.0 million). 2. Product sales For the three months to June 30, 2006 product sales increased by 7% to $376.0million (2005: $351.6 million) and represented 85% of total revenues (2005:83%).Product HighlightsProduct Sales Sales Growth US Rx Growth US Market (2) (2) Share (1) $M ADDERALL XR 220.7 +7% +8% 26% CARBATROL 16.2 -25% -10% 42% PENTASA 34.5 +11% -4% 17% REPLAGAL (3) 28.3 n/a n/a n/a AGRYLIN and XAGRID 2.0 -88% -88% 2% North America (4) 14.1 +14% n/a n/a Rest of World FOSRENOL 6.2 -38% +23% 8% 1. IMS Prescription Data-Product specific (June 2006) 2. Compared to Q2 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 June 30, 2005 were $22.6 million 4. Includes US and Canada ADDERALL XR for the treatment of ADHDADDERALL XR is the leading brand in the US ADHD market with a market share of26% in June 2006 (2005: 24%). The US ADHD market grew 2% overall compared tothe same period in 2005. These factors contributed to an 8% increase in USprescriptions for ADDERALL XR for the three months to June 30, 2006 compared tothe same period in 2005.Sales of ADDERALL XR for the three months to June 30 2006 were $220.7 million,an increase of 7% compared to the same period in 2005 (2005: $205.4 million).Product sales growth was marginally less than prescription growth, with theAugust 2005 and April 2006 price increases being offset by higher salesdeductions and lower levels of pipeline stocking compared with Q2 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.As previously disclosed in the Quarterly Report filed on Form 10-Q for thefinancial reporting period ending March 31, 2006, two FDA Advisory Committeesmet in February and March 2006 to discuss cardiovascular and psychiatricadverse events associated with ADHD medicines. In May 2006, the FDA sentrevised labels to manufacturers of ADHD stimulant medicines, changing on aclass basis the safety warnings related to cardiovascular and psychiatricevents. The FDA did not make changes to the existing black box warning or addnew black box warnings to the medicines. Shire has revised the labels on allits ADHD medicines (ADDERALL XR, ADDERALL and DAYTRANA) to include these classwarnings.As previously disclosed in the Quarterly Report filed on Form 10-Q for thefinancial reporting period ending March 31, 2006, Shire announced in October2005 that it had filed a lawsuit against Barr Laboratories, Inc. (Barr) withrespect to Patent No. 6,913,768 (the `768 Patent). Barr moved to dismiss the`768 Patent lawsuit asserting that there was no subject matter jurisdiction. Ahearing on this motion was heard on February 17, 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 and our most recent Quarterly Report on Form 10-Q for theperiod ended March 31, 2006.CARBATROL for the treatment of EpilepsyUS prescriptions for the three months to June 30, 2006 were down 10% comparedto the same period in 2005. This was primarily due to a 7% decrease in the USextended release carbamazepine prescription market. In addition, limitedpromotion of the product during 2006 led to a 1% decrease in Shire's marketshare to 42% in June 2006 (2005: 43%).Sales of CARBATROL for the three months to June 30, 2006 were $16.2 million, adecrease of 25% compared to the same period in 2005 (2005: $21.8 million). Thedifference between the decreases in sales and prescriptions is due to the lowerlevels of pipeline stocking compared with Q2 2005, being only partially offsetby a price increase in October 2005.In July 2006 Impax Laboratories, Inc. (Impax) deployed a sales force to beginpromotion of CARBATROL under the promotional services agreement for the USmarket signed in January 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, once it meets all regulatoryrequirements.On July 17, 2006 the Court entered an order staying discovery in this caseuntil and through September 15, 2006.On March 30, 2006 the Company was notified that Corepharma LLC (Corepharma) hadfiled an ANDA under the Hatch-Waxman Act seeking permission to market itsgeneric version of carbamazepine extended release products in 100mg, 200mg and300mg strengths. Shire Laboratories, Inc. filed suit against Corepharma for theinfringement of the US Patent No. 5,912,013 and US Patent No. 5,326,570 in theDistrict Court for the District of New Jersey on May 17, 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 periodended December 31, 2005 and our most recent Quarterly Report on Form 10-Q forthe period ended March 31, 2006.PENTASA for the treatment of Ulcerative ColitisUS prescriptions for the three months to June 30, 2006 were down 4% compared tothe same period in 2005. This was primarily due to lower levels of promotionalactivity compared to Q2 2005, leading to a 2% decrease in Shire's market shareof the total US oral mesalamine prescription market to 17% in June 2006 (2005:19%), partly offset by a 2% increase in the market as a whole.Sales of PENTASA for the three months to June 30, 2006 were $34.5 million, anincrease of 11% compared to the same period in 2005 (2005: $31.0 million). Thedifference between sales growth and the lower levels of prescriptions is due tothe impact of the January 2006 price increase and higher levels of pipelinestocking in Q2 2006 compared to Q2 2005 following production shortages lastyear.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 June 30, 2006were $28.3 million, the majority of which were in Europe. Pre-acquisition salesfor the three months to June 30, 2005 were $22.6 million. The increase in salesof 25% is due to greater European coverage by an increased number of salesrepresentatives, and strong growth in the Rest of the World market.AGRYLIN/XAGRID for the treatment of ThrombocythemiaAGRYLIN/XAGRID sales worldwide for the three months to June 30, 2006 were $16.1million, down 46% compared to the same period in 2005 (2005: $29.6 million).North American sales were $2.0 million (2005: $17.2 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 up by14% to $14.1 million (2005: $12.4 million). Sales increased by 15% as expressedin the transaction currencies (XAGRID is primarily sold in Euros), due mainlyto strong growth in France and Spain, offset by unfavorable exchange ratemovements of 1%.FOSRENOL for the treatment of HyperphosphatemiaUS prescriptions for the three months to June 30, 2006 were up 23% compared tothe same period in 2005. This was primarily due to FOSRENOL increasing itsshare of the total US phosphate binding market, which in June 2006 was 8.4%(2005: 7.8%), in a market that had itself grown 9% over the same period.FOSRENOL was launched in the US in January 2005.Sales of FOSRENOL for the three months to June 30, 2006 were $6.2 million(2005: $9.9 million). Although prescription growth continued, sales revenue isdown due to a combination of pipeline de-stocking in Q2 2006, pipeline stockingin Q2 2005 and higher sales deductions.FOSRENOL was launched in Austria, Ireland, Sweden and Denmark in December 2005and in South Korea in June 2006. On July 11, 2006 Shire received confirmationthat FOSRENOL had been recommended for approval through the Mutual RecognitionProcedure in 11 markets in Europe (the UK, Germany, Spain, Norway, Hungary,Estonia, Lithuania, Malta, Latvia, Slovenia and Slovakia). FOSRENOL is alreadyapproved in all other European Union countries (Sweden, Portugal, Italy,Poland, Austria, Finland, Czech Republic, Denmark, France, Belgium, Cyprus,Greece, Luxembourg, Netherlands, Ireland) and Iceland. The product launcheswill continue throughout 2006 and 2007, subject to national licensing andre-imbursement negotiations. 3. Royalties Royalty revenues decreased by 4% to $60.4 million for the three months to June30, 2006 (2005: $62.6 million).Royalty HighlightsProduct Royalties to Shire Royalty growth1 Worldwide in-market sales by licensee2 $M % in Q2 2006 $M 3TC 38.3 -5%* 290 ZEFFIX 8.4 +9%** 73 Other 13.7 -5%*** n/a Total 60.4 -4% n/a * The impact of foreign exchange movements has contributed +1% to the reportedgrowth** The impact of foreign exchange movements has contributed +2% to the reportedgrowth*** Includes REMINYL/RAZADYNE and the impact of RAZADYNE ER US launch stockingduring Q2 051 Compared to Q2 20052 GSK3TCRoyalties from sales of 3TC for the three months to June 30, 2006 were $38.3million (2005: $40.5 million).Shire receives royalties from GSK on worldwide 3TC sales. GSK's worldwide salesof 3TC for the three months to June 30, 2006 were $290 million, a decrease of6% compared to the same period in 2005 (2005: $309 million). The nucleosideanalogue market for HIV has continued to grow, however competitive pressureswithin the market have increased, leading to GSK's decline in sales.ZEFFIXRoyalties from the sales of ZEFFIX for the three months to June 30, 2006 were$8.4 million (2005: $7.7 million).Shire receives royalties from GSK on worldwide ZEFFIX sales. GSK's worldwidesales of ZEFFIX for the three months to June 30, 2006 were $73 million, anincrease of 7% compared to the same period in 2005 (2005: $68 million). Thisincrease was primarily due to strong growth in the Chinese, Japanese and Koreanmarkets.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 has the exclusive marketing rights.Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild tomoderately severe dementia of the Alzheimer's type, continue to grow in theAlzheimer's market. Revenue in Q2 2006 was marginally lower than in the sameperiod in 2005 due to the impact of wholesalers stocking for the launch ofRAZADYNE ER in the US in Q2 2005.In June 2006 Janssen and Synaptech, Inc. filed suit against Barr LaboratoriesInc for infringement of their patent rights relating to RAZADYNE ER as a resultof Barr filing an ANDA ("Abbreviated New Drug Application") with the FDA forRAZADYNE ER. No court date has been set.Barr and other generics have filed ANDAs with the FDA as regards RAZADYNE andJanssen and Synaptech have filed suit against some of those ANDA filers. Thecourt date for these proceedings is June 2007.Financial detailsCost of product salesFor the three months to June 30, 2006 the cost of product sales amounted to 16%of product sales (2005: 12%). The decrease in gross margin is primarily due tothe addition of REPLAGAL to Shire's product portfolio following the acquisitionof TKT. REPLAGAL's cost of product sales includes acquired inventories, whichin accordance with US GAAP have been accounted for at fair value. Accordingly,lower margins will be reflected for REPLAGAL sales until all acquired inventoryhas been sold (anticipated Q3 2006). For the three months to June 30, 2006 thecost of product sales for REPLAGAL included a $16.7 million adjustment inrespect of the acquired inventory. This fair value adjustment increased Shire'scost of product sales by 4%.Research and Development (R&D)R&D expenditure increased from $66.0 million in the three months to June 30,2005 to $72.6 million for the three months to June 30, 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 17% for thethree months to June 30, 2006 (2005: 16%). In line with our guidance, the levelof quarterly R&D expenditure is expected to increase over the Q2 2006 spend aswe commence phase 3(b)/4 studies to support new product launches (includingDAYTRANA, FOSRENOL and MESAVANCE).Selling, general and administrative (SG&A)SG&A expenses increased from $159.1 million in the three months to June 30,2005 to $197.3 million in the three months to June 30, 2006, an increase of24%. This increase is primarily related to the promotion and launch of DAYTRANA(including an increase in the ADHD sales force) and the recruitment of new USsales forces for GI (to launch MESAVANCE) and HGT (to launch Elaprase). In linewith our guidance, the level of SG&A expenditure is expected to increase overthe Q2 2006 spend, as the full quarterly cost of these new sales forces isincurred.As a percentage of product sales, SG&A expenses were 52% (2005: 45%),reflecting the recruitment of the new US sales forces prior to the launch oftheir associated products. This ratio of SG&A to product sales should remainbroadly consistent for the full year.Depreciation and amortizationThe depreciation charge for the three months to June 30, 2006 was $10.5 million(2005: $11.1 million, including property, plant and equipment write-downs of$5.9 million). Amortization charges were $13.3 million for the three months toJune 30, 2006 (2005: $9.0 million). The increase in both depreciation(excluding write downs) and amortization is primarily due to the increase inthe asset base as a result of the TKT acquisition.Integration costsFor the three months to June 30, 2006 the Company incurred $1.6 million ofcosts associated with the integration of the TKT business into Shire (2005:$nil). This included retention payments for key staff of $0.4 million, IT costsof $0.5 million and other costs of $0.7 million.Interest incomeFor the three months to June 30, 2006 the Company received interest income of$10.0 million (2005: $11.3 million). For both periods this income primarilyrelated to interest received on Shire's cash balances. Although cash balancesreduced following the acquisition of TKT, interest income is only marginallylower than Q2 2005 due to an increase in US dollar interest rates.Interest expenseFor the three months to June 30, 2006 the Company incurred interest expense of$6.5 million (2005: $1.2 million). 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. For the three months toJune 30, 2005 the expense primarily related to a bridging loan to finance theTKT acquisition.The trial date for the appraisal rights litigation has been set for April 23,2007.TaxationThe effective rate of tax for the three months to June 30, 2006 was 28% (2005:25%). The lower rate in Q2 2005 followed the conclusion of a routine tax audit.At June 30, 2006 net deferred tax assets of $118.1 million were recognized(December 31, 2005: $116.2 million).Equity in earnings of equity method investeesNet earnings of $0.8 million were recorded for the three months to June 30,2006 (2005: $0.9 million). This comprised earnings of $1.6 million from the 50%share of the antiviral commercialization partnership with GSK in Canada (2005:$1.3 million), offset by losses of $0.8 million being the Company's share oflosses in the GeneChem and EGS Healthcare Funds (2005: losses of $0.4 million).5. R&D Pipeline * On July 11, 2006 Shire entered into an exclusive, worldwide, royalty-bearing license with Yissum, the technology transfer company of the Hebrew University of Jerusalem, Israel for valrocemide and other related compounds. Efficacy as an anti-epileptic drug has been demonstrated in a small proof of concept clinical study. Shire intends to study valrocemide in a number of Central Nervous System (CNS) disorders. Valrocemide was discovered by a team led by Meir Bialer, Ph.D.,MBA, a David H. Eisenberg Professor of Pharmacy at Hebrew University of Jerusalem. Dr. Bialer is a leader in the discovery of anti-epileptic agents and has authored over 180 publications in the area of pharmacokinetics, anti-epileptics and CNS drugs. He is also one of the organizers of the Eilat Conferences on anti-epileptic drugs. * DYNEPO: Shire has performed an initial review of the two Phase 3 studies carried out by Sanofi-Aventis investigating the role of DYNEPO (epoetin delta) in the treatment of anemia in cancer patients. The main trial was a placebo-controlled, 12-week study. In this study, twoco-primary endpoints, the increase in hemoglobin level from baseline to week 12and the reduction in number of red blood cell transfusions from weeks 5-12compared to placebo were pre-specified. The results showed consistentimprovement in hematacrit and hemoglobin levels following treatment with DYNEPOcompared to placebo. However, no difference was seen in the number of red bloodcell transfusions. This may have been due to a number of factors in the studydesign including the short period of the observations. In the follow-upextension study, patients who had received DYNEPO for 12 weeks in theplacebo-controlled study maintained their hemoglobin levels for a further 12weeks with DYNEPO treatment. The number of red blood cell transfusions waslower in the group who had received DYNEPO for 24 weeks compared to those whohad received DYNEPO treatment for 12 weeks.Although the placebo-controlled study met only one of its predefined clinicalendpoints, both trials clearly demonstrated the ability of DYNEPO to raisehemoglobin levels in patients with cancer-related anemia. There were no newsafety concerns and DYNEPO was well tolerated with no unexpected adverseevents. Shire is continuing to review the results and assess the types ofadditional studies that may be needed. * Familial Hypercholesterolemia (FH) - Human Genetics Therapies (HGT). Preliminary results of proof of concept research studies demonstrated that SHG1501 had a more modest lowering impact on cholesterol levels than expected and it is likely that this program will be discontinued, pending a final analysis of the data. 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 Flows 19 Selected notes to the unaudited US GAAP Financial Statements 21 (1) Earnings per share 21 (2) Analysis of revenues 22 Non GAAP reconciliation of numerator for diluted EPS 24 Non GAAP reconciliation of reported EPS 24 Unaudited US GAAP results for the 3 months and 6 months to June 30, 2006Consolidated Balance Sheets June 30, ‚¹ Adjusted 2006 December 31, $M 2005 $M ASSETS Current assets: Cash and cash equivalents 885.1 656.5 Restricted cash 29.5 30.6 Short-term investments 1.5 6.9 Accounts receivable, net 309.2 329.9 Inventories 123.5 136.0 Deferred tax asset 72.3 54.2 Prepaid expenses and other current 77.2 98.1assets Total current assets 1,498.3 1,312.2 Investments 62.8 50.2 Property, plant and equipment, net 267.3 234.0 Goodwill 376.4 367.6 Other intangible assets, net 755.5 729.3 Deferred tax asset 45.8 62.0 Other non-current assets 10.1 42.9 Total assets 3,016.2 2,798.2 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 448.9 431.8 Liability to dissenting shareholders 439.2 427.6 Other current liabilities 137.0 106.0 Total current liabilities 1,025.1 965.4 Long-term debt, excluding current - 0.1installments Other non-current liabilities 37.3 43.4 Total liabilities 1,062.4 1,008.9 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months and 6 months to June 30, 2006Consolidated Balance Sheets (continued) June 30, ‚¹ Adjusted 2006 December 31, $M 2005 $M Shareholders' equity: Common stock of 5p par value: 18,314.0 43.0 42.7million shares authorized; and 499.2 million shares issued and outstanding (2005: 495.7 million) Exchangeable shares: 1.8 million shares 84.8 101.2issued and outstanding (2005: 2.2 million) Treasury stock (4.8) (2.8) Additional paid-in capital 1,380.0 1,327.5 Accumulated other comprehensive income 101.8 71.5 Retained earnings 349.0 249.2 Total shareholders' equity 1,953.8 1,789.3 Total liabilities and shareholders' 3,016.2 2,798.2equity ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited USGAAP results for the 3 months and 6 months to June 30, 2006Consolidated Statements of Operations 3 months to ‚¹ Adjusted 6 months to ‚¹ Adjusted June 30, June 30, 3 months to 6 months 2006 June 30, 2006 to June 30, $M 2005 $M 2005 $M $M Revenues: Product sales 376.0 351.6 722.0 621.0 Royalties 60.4 62.6 121.4 120.9 Other revenues 2.7 10.4 6.7 16.4 Total revenues 439.1 424.6 850.1 758.3 Costs and expenses: Cost of product sales 61.6 42.3 123.6 75.9 Research and development 72.6 66.0 200.0 178.1 Selling, general and 197.3 159.1 379.3 322.3administration Depreciation and amortization 23.8 20.1 46.7 33.7 Intangible asset impairment - 3.0 - 3.0 Integration costs 1.6 - 3.9 - Reorganization costs - - - 2.9 Total operating expenses 356.9 290.5 753.5 615.9 Operating income 82.2 134.1 96.6 142.4 Interest income 10.0 11.3 24.2 21.0 Interest expense (6.5) (1.2) (12.1) (1.2) Other (expense)/income, net (1.9) 0.8 (1.4) 0.7 Total other income, net 1.6 10.9 10.7 20.5 Income from continuing 83.8 145.0 107.3 162.9operations before income taxes and equity in earnings of equity method investees Income taxes (23.3) (36.0) (29.8) (41.4) Equity in earnings of equity 0.8 0.9 4.3 0.7method investees Income from continuing 61.3 109.9 81.8 122.2operations Gain on disposition of - - 40.6 3.1discontinued operations (net of income tax expense of $nil and $nil) Net income 61.3 109.9 122.4 125.3 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months and 6 months to June 30, 2006Consolidated Statements of Operations (continued) 3 months ‚¹ Adjusted 6 months to ‚¹ Adjusted to June June 30, 30, 3 months 6 months to to June 2006 June 30, 2006 30, 2005 2005 Earnings per share - basic Income from continuing operations 12.2c 22.0c 16.2c 24.5c Gain on disposition of - - 8.1c 0.6cdiscontinued operations Earning per ordinary share - 12.2c 22.0c 24.3c 25.1cbasic Earnings per share - diluted Income from continuing operations 12.0c 22.0c 16.0c 24.5c Gain on disposition of - - 8.0c 0.6cdiscontinued operations Earnings per ordinary share - 12.0c 22.0c 24.0c 25.1cdiluted Earning per ADS - diluted 36.1c 65.9c 72.0c 75.1c Weighted average number of shares (millions): Basic 504.4 499.7 503.7 499.3 Diluted 509.5 500.2 509.8 499.8 ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months and 6 months to June 30, 2006Consolidated Statements of Cash Flows 3 months to ‚¹ Adjusted 6 months to ‚¹ Adjusted June 30, June 30, 3 months to 6 months 2006 June 30, 2006 to June 30, $M 2005 $M 2005 $M $M CASH FLOWS FROM OPERATING ACTIVITIES: Net income 61.3 109.9 122.4 125.3 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - cost of product sales 1.0 0.9 2.1 1.7 - SG&A 23.8 14.2 46.7 27.8 Share based compensation 7.7 6.5 16.7 13.0 Movement in deferred taxes 9.2 (6.5) (1.0) (11.0) Write-down of long term assets 2.0 10.5 2.0 10.5 Equity in earnings of equity (0.8) (0.9) (4.3) (0.8)method investees Gain on disposition of - - (40.6) (3.1)discontinued operations Changes in operating assets and liabilities, net of acquisitions: (Increase)/decrease in accounts (42.6) (17.1) 13.8 (27.8)receivable Increase in sales deductions 8.1 12.5 13.0 20.4accrual Decrease/(increase) in inventory 3.2 (1.9) 8.3 (6.5) (Increase)/decrease in (4.5) 25.1 18.1 8.4prepayments and other current assets Decrease/(increase) in other 0.4 (0.7) 2.8 (0.7)assets Increase in accounts payable and 59.3 35.5 54.8 38.5other liabilities Increase/(decrease) in deferred 9.3 (6.4) 6.0 (7.8)revenue Cash flow from discontinued - (0.4) - (0.4)operations Net cash provided by operating 137.4 181.2 260.8 187.5activities (A) ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Unaudited US GAAP results for the 3 months and 6 months to June 30, 2006Consolidated Statements of Cash Flows (continued) 3 months to ‚¹ Adjusted 6 months ‚¹ June 30, to June Adjusted 3 months 30, 2006 to June 6 months 30, 2006 to June $M 30, 2005 $M 2005 $M $M CASH FLOWS FROM INVESTING ACTIVITIES: Movement in short-term investments - 236.7 5.5 244.0 Movement in restricted cash 1.4 (1.3) 1.1 (0.3) Purchase of subsidiary undertaking, - - (0.8) -net of cash acquired Purchase of long-term investments (8.8) (5.7) (9.3) (7.5) Purchase of property, plant and (24.1) (24.2) (50.6) (44.1)equipment Purchase of intangible assets (50.0) - (50.2) (20.0) Proceeds from sale of property, 0.8 0.1 0.8 0.1plant and equipment Loan repaid by/(made to) IDB - (9.6) 70.6 (29.9) Proceeds from sale of the vaccines - - - 62.2business Returns of investments 0.3 2.4 0.3 2.4 Net cash (absorbed)/provided by (80.4) 198.4 (32.6) 206.9investing activities (B) CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of 2% convertible loan - - (0.1) - Proceeds from exercise of options 3.9 2.3 17.7 18.5 Excess tax benefit of share based 0.8 1.2 2.0 1.4compensation, charged directly to equity Payment of dividend (22.6) (19.1) (22.6) (19.1) Payments to acquire treasury stock - - (2.0) - Net cash (absorbed)/provided by (17.9) (15.6) (5.0) 0.8financing activities (C ) Effect of foreign exchange rate 3.6 (2.9) 5.4 (4.5)changes on cash and cash equivalents (D) Net increase in cash and cash 42.7 361.1 228.6 390.7equivalents (A+B+C+D) Cash and cash equivalents at 842.4 1,141.1 656.5 1,111.5beginning of period Cash and cash equivalents at end of 885.1 1,502.2 885.1 1,502.2period ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.US GAAP results for the 3 months and 6 months to June 30, 2006Selected notes to the Unaudited US GAAP Financial Statements(1) Earnings per share 3 months to ‚¹ Adjusted 6 months to ‚¹ Adjusted June 30, June 30, 3 months to 6 months to 2006 June 30, 2006 June 30, $M 2005 $M 2005 $M $M Income from continuing 61.3 109.9 81.8 122.2operations Gain on disposition of - - 40.6 3.1discontinued operations Numerator of basic and 61.3 109.9 122.4 125.3diluted EPS ‚¹ Retrospectively adjusted following the adoption of SFAS 123R.Weighted average number of No of No of No of No ofshares: shares shares shares shares Millions Millions Millions Millions Basic 504.4 499.7 503.7 499.3 Effect of dilutive shares: Stock options 4.6 0.3 5.5 0.2 Warrants 0.5 0.2 0.6 0.3 Diluted 509.5 500.2 509.8 499.8 The stock 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 3 months to 6 months to 6 months to June 30, June 30, June 30, June 30, 2006 2005 2006 2005 No of No of No of No of shares shares shares shares Millions Millions Millions Millions Stock options 2.9 6.9 2.9 6.9 Unaudited US GAAP results for the 3 months to June 30, 2006Selected notes to the US GAAP Financial Statements (continued)(2) Analysis of revenues 3 months to 3 months 3 months to 3 months to June 30 to June June 30, June 30, 30, 2006 2006 2006 2005 $M % change % of total $M revenue Net product sales: CNS ADDERALL XR 220.7 205.4 +7% 50% ADDERALL 9.8 12.0 -18% 2% CARBATROL 16.2 21.8 -25% 4% 246.7 239.2 +3% 56% GI PENTASA 34.5 31.0 +11% 8% COLAZIDE 2.4 2.1 +14% 1% 36.9 33.1 +11% 9% HGT REPLAGAL 28.3 - n/a 6% GP AGRYLIN/XAGRID North America 2.0 17.2 -88% - Rest of world 14.1 12.4 +14% 3% FOSRENOL 6.2 9.9 -38% 1% CALCICHEW 11.7 10.1 +16% 3% REMINYL/REMINYL XL 5.1 3.2 +59% 1% SOLARAZE 3.6 3.0 +20% 1% VANIQA 2.1 1.4 +50% 1% LODINE 3.3 3.3 - 1% 48.1 60.5 -20% 11% Other product sales 16.0 18.8 -15% 3% Total product sales 376.0 351.6 +7% 85% Royalty income: 3TC 38.3 40.5 -5% 9% ZEFFIX 8.4 7.7 +9% 2% Others 13.7 14.4 -5% 3% 60.4 62.6 -4% 14% Other revenues 2.7 10.4 -74% 1% Total revenues 439.1 424.6 +3% 100% Unaudited US GAAP results for the 6 months to June 30, 2006Selected notes to the US GAAP Financial Statements (continued)(2) Analysis of revenues 6 months to 6 months 6 months to 6 months to June 30 to June June 30, June 30, 30, 2006 2006 2006 2005 $M % change % of total $M revenue Net product sales: CNS ADDERALL XR 426.8 351.0 +22% 50% ADDERALL 18.9 21.4 -12% 2% CARBATROL 30.3 38.7 -22% 4% 476.0 411.1 +16% 56% GI PENTASA 62.6 57.2 +9% 7% COLAZIDE 4.6 4.2 +10% 1% 67.2 61.4 +9% 8% HGT REPLAGAL 54.0 - n/a 6% GP AGRYLIN/XAGRID North America 3.4 37.1 -91% - Rest of world 26.2 24.5 +7% 3% FOSRENOL 13.9 14.8 -6% 2% CALCICHEW 22.1 18.2 +21% 3% REMINYL/REMINYL XL 9.3 6.1 +52% 1% SOLARAZE 6.9 5.4 +28% 1% VANIQA 4.0 2.5 +60% 1% LODINE 6.4 6.3 +2% 1% 92.2 114.9 -20% 12% Other product sales 32.6 33.6 -4% 3% Total product sales 722.0 621.0 +16% 85% Royalty income: 3TC 77.8 79.9 -3% 9% ZEFFIX 16.1 14.2 +13% 2% Others 27.5 26.8 +3% 3% 121.4 120.9 +1% 14% Other revenues 6.7 16.4 -59% 1% Total revenues 850.1 758.3 +12% 100% Non GAAP reconciliation of numerator for diluted EPSfor the 3 months and 6 months to June 30, 2006 3 months to ‚¹ Adjusted 6 months ‚¹ Adjusted June 30, to June 3 months 30, 6 months 2006 to June to June 30, 2006 30, $M 2005 $M 2005 $M $M Net income for basic EPS 61.3 109.9 122.4 125.2 Add back: TKT cost of product sales fair 16.7 - 40.3 -value adjustment New River milestone payment - - 50.0 - New River upfront payment - - - 50.0 TKT integration costs 1.6 - 3.9 - Reorganization costs - - - 2.9 Taxes on above adjustments (5.1) - (26.4) (14.8) Gain on disposition of - - (40.6) (3.1)discontinued operations Total non GAAP adjustment 13.2 - 27.2 35.0 Numerator for non GAAP - diluted 74.5 109.9 149.6 160.2EPS Non GAAP reconciliation of reported EPSfor the 3 months and 6 months to June 30, 2006 3 months to ‚¹ Adjusted 6 months ‚¹ Adjusted June 30, to June 3 months 30, 6 months 2006 to June to June 30, 2006 30, 2005 2005 Diluted EPS per ordinary share 12.0c 22.0c 24.0c 25.1c Add back: Gain on disposition of discontinued - - (8.0c) (0.6c)operations Diluted EPS from continuing 12.0c 22.0c 16.0c 24.5coperations Add back: TKT cost of product sales fair 3.3c - 7.9c -value adjustment New River milestone payment - - 9.8c - New River upfront payment - - - 10.0c TKT integration costs 0.3c - 0.8c - Reorganization costs - - - 0.5c Taxes on above investments (1.0c) - (5.2c) (3.0c) Non GAAP - diluted EPS per ordinary 14.6c 22.0c 29.3c 32.0cshare Non GAAP - diluted EPS per ADS 43.9c 65.9c 88.0c 96.1c Total non GAAP adjustments - 2.6c - 13.3c 7.5cdiluted EPS 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:
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