DUBLIN, August 5 /PRNewswire-FirstCall/ --
- 2009 Guidance Framework Reaffirmed
Shire plc (LSE: SHP, NASDAQ: SHPGY) the global specialty biopharmaceutical company, announces results for the three months to June 30, 2009.
Q2 2009 Financial Highlights
Q2 2009(1)
Product sales $558 million -21%
Product sales (excluding ADDERALL XR) $491 million +20%
Product sales growth (excluding ADDERALL XR) at
constant exchange rates(2) +27%
Non GAAP operating income $116 million -53%
US GAAP operating income $35 million +$102 million
Non GAAP diluted earnings per ADS (using actual Q2
2009 tax rate: 2%) $0.60 -36%
Non GAAP diluted earnings per ADS (using full year
expected tax rate: 24%) $0.47
US GAAP diluted earnings per ADS $0.24 +$0.68
(1) Figures compare Q2 2009 results with the same period in 2008.(2) Sales growth at constant exchange rates ("CER"), which is a Non GAAP measure, is calculated after restating Q2 2009 results using Q2 2008 average foreign exchange rates.
Angus Russell, Chief Executive Officer, commented:
"In the second quarter we delivered strong core product sales, excluding ADDERALL XR, of $491 million, representing growth of 20% compared to the same quarter last year. The strategic steps we have taken over the last few years are now delivering clear commercial benefits, as we enter a new phase of Shire's development.
We have diversified into a broader portfolio of young products with strong intellectual property and exciting growth prospects. We continue to increase the global reach of our business, and now have a presence in 26 countries worldwide compared to nine countries four years ago.
We have also developed a promising pipeline with encouraging recent news. With the receipt of a Complete Response Letter from the US Food and Drug Administration ("FDA") for INTUNIV, we are confident that we will quickly come to agreement on the final wording of the product label and will launch in the fourth quarter of 2009 as planned. We are also initiating Phase 2 pilot clinical trials to assess the efficacy and safety of VYVANSE in non ADHD ("Attention Deficit Hyperactivity Disorder") indications. Our HGT pipeline has been strengthened by positive results from our trial of velaglucerase in naïve Gaucher patients. A treatment protocol for early access has been approved by the FDA and the agency has approved Fast Track designation for the product. Rolling review of the New Drug Application ("NDA") has started.
Our core portfolio has made good progress in the quarter. We are pleased with the performance of VYVANSE as it has retained market share during the historically quieter summer vacation season in contrast to other branded ADHD treatments that have lost market share. We are anticipating the benefits of the back to school season for VYVANSE and are looking forward to increased sales momentum from our co-promote agreement with GSK for adult ADHD. We are also expecting further positive newsflow from our pipeline during the second half of this year.
Supported by pro-active cost management, our business is well placed to deliver on our unchanged guidance framework for 2009 and looking ahead we reiterate our aspiration of growing sales in the mid-teens range on average between 2009 and 2015."
Second Quarter 2009 Unaudited Results
Q2 2009
US GAAP Adjustments Non GAAP(1)
$M $M $M
Revenues 630 - 630
Operating income/(loss) 35 81 116
Net income/(loss) 44 65 109
Diluted earnings/(loss)
per ADS 24c 36c 60c
continued...
Q2 2008
US GAAP Adjustments Non GAAP(1)
$M $M $M
Revenues 776 - 776
Operating income/(loss) (67) 314 247
Net income/(loss) (79) 267 188
Diluted earnings/(loss)
per ADS (44c) 139c 95c
Note: Average exchange rates for Q2 2009 were $1.55:GBP1.00 and $1.36:EUR1.00, (Q2 2008: $1.97:GBP1.00 and $1.57:EUR1.00).
(1) The Non GAAP financial measures included above are explained on pages 26 and 27, together with an explanation of why Shire's management believes that these measures are useful to investors. For a reconciliation of these Non GAAP financial measures to the most directly comparable financial measures prepared in accordance with US GAAP, see pages 22 and 23.
FINANCIAL SUMMARY
Second Quarter 2009 (see page 6 for full Financial Results)
- Product sales excluding ADDERALL XR(R) were up 20% (up 27% at CER) to
$491 million, following continued growth from VYVANSE(R) (up 75% to
$114 million) and LIALDA(R)/MEZAVANT(R) (up 71% to $55 million).
- Total product sales, including ADDERALL XR, were down 21% to $558
million, as ADDERALL XR product sales declined by 77%, or $229 million
to $67 million, as a result of the launch by Teva Pharmaceuticals
Industries Ltd ("Teva") of an authorized generic version of ADDERALL
XR, higher sales deductions in Q2 2009 (equivalent to 72% of gross
sales) and the impact of de-stocking (equivalent to gross sales of
$67 million). In the second half of 2009 we expect the de-stocking of
ADDERALL XR to reduce significantly and for sales deductions to
moderate to 55-65% of gross sales, depending on sales mix.
- Non GAAP operating income decreased by 53%, or $131 million to $116
million as the lower ADDERALL XR revenues in Q2 2009 were partially
offset by higher revenues on other products and lower operating
expenses on a Non GAAP basis. On a US GAAP basis operating income in Q2
2009 was $35 million, compared to a loss of $67 million in 2008.
- Non GAAP diluted earnings per ADS were $0.60 for the quarter (Q2 2008:
$0.95). The decline in Non GAAP earnings per ADS was less than the
decline in Non GAAP operating income due primarily to the effects of
certain one off net tax credits recognized in the quarter following the
issuance in Q2 2009 of new regulations regarding the Massachusetts
State tax regime, which lowered the effective tax rate in Q2 2009
compared to Q2 2008. Using a full year expected effective tax rate of
24%, Non GAAP diluted earnings per ADS for Q2 2009 would have been
$0.47 on a pro-forma basis.
SECOND QUARTER HIGHLIGHTS AND RECENT DEVELOPMENTS
Products
VYVANSE - for the treatment of ADHD
- On May 1, 2009 Shire and GSK commenced working together on the
co-promotion of VYVANSE, with the aim of improving recognition and
treatment of ADHD in adults.
- On June 1, 2009 Shire announced that the FDA had approved a change to
the prescribing information for VYVANSE, to include supplemental
data that demonstrated significant ADHD symptom control in children
aged 6 to 12 from the first time point measured (1.5 hours) through 13
hours post-dose. VYVANSE is now the first and only oral ADHD stimulant
treatment to have 13 hour post-dose efficacy data for pediatric
patients included in its product labeling.
- By July 24, 2009 VYVANSE had achieved a US ADHD market share
of 12.3% based on weekly prescription volumes.
ADDERALL XR - for the treatment of ADHD
- On April 2, 2009 Teva announced that it had commenced
commercial shipment of its authorized generic version of ADDERALL XR.
In Q2 2009 sales of ADDERALL XR declined by 77% to $67 million. A
decline in ADDERALL XR sales subsequent to generic launch was
anticipated and was already reflected in our guidance framework.
Pipeline
INTUNIV(TM) - for the treatment of ADHD in children and adolescents in the US.
- On May 19, 2009 Shire announced that a randomized placebo controlled
trial had met its primary objective, evaluating the effects of INTUNIV
on oppositional symptoms in children aged 6 to 12 years with a
diagnosis of ADHD and the presence of oppositional symptoms.
- The Prescription Drug User Fee Act date ("PDUFA") for INTUNIV was July
27, 2009. Shire has received a Complete Response Letter from the FDA
for INTUNIV. Shire and the FDA were not able to reach agreement on
final product labeling in time to meet the PDUFA date. The FDA did not
identify safety concerns regarding INTUNIV, request new clinical data or
additional analyses in the Complete Response Letter. Shire and the FDA
will continue to work together to resolve the remaining labeling
language over the next 4-8 weeks and we anticipate launch in the fourth
quarter of 2009 as planned.
VYVANSE - for the treatment of non ADHD indications in adults
- Shire is conducting Phase 2 pilot clinical trials to assess the
efficacy and safety of VYVANSE as adjunctive therapy in depression, for
the treatment of negative symptoms and cognitive impairment in
schizophrenia, and for the treatment of cognitive impairment in
depression.
Velaglucerase alfa - for the treatment of Gaucher disease
- On July 16, 2009 Shire announced that it had received Fast Track
designation from the FDA for velaglucerase alfa, its enzyme replacement
therapy in development for the treatment of Gaucher disease. On July 30
Shire began the rolling submission of a NDA for velaglucerase alfa to
treat patients with Type 1 Gaucher disease. Fast Track is a process
which expedites the review of drugs to treat serious diseases and fill
an unmet medical need with the goal of getting important new treatments
to patients earlier. Shire will file additional sections of the NDA as
they become available. Results from the first of the three Phase 3
trials were positive, and achieved statistically significant
improvements in the primary endpoint. Velaglucerase alfa was also found
to be well tolerated with no drug related serious adverse events
reported in this trial.
- On August 3, 2009 Shire announced that it had received approval from
the FDA on the initiation of a treatment protocol for velaglucerase
alfa. This protocol was submitted at the request of the FDA, in view of
a potential restriction on the availability of the current approved and
marketed treatment for Gaucher disease patients. This will allow
physicians to treat Gaucher disease patients with velaglucerase alfa
ahead of commercial availability in the US. Under the conditions of the
treatment protocol, Shire will provide velaglucerase alfa free of
charge initially, in order to provide access to patients as quickly as
possible.
FIRAZYR(R) - for the treatment of hereditary angioedema ("HAE")
- In June 2009, Shire initiated a Phase 3 study in patients with acute attacks of HAE, known as the FAST-3 trial, which is designed to support filing of a NDA for FIRAZYR in the US.
2009 OUTLOOK
We are reiterating our previously announced guidance framework for Non GAAP diluted earnings per ADS for 2009, which remains unchanged from that provided in our Q3 2008 earnings release. At that time, and in subsequent earnings releases, we provided details of the effect of changes in foreign exchange rates on the earnings guidance. Specifically, our plans for 2009, supporting Non GAAP diluted earnings per ADS for 2009 in the range of $3.00 to $3.40, were based on average actual foreign exchange rates (EUR1:$1.52, GBP1:$1.95) for the ten months to October 2008. During the first half of 2009 we have already achieved Non GAAP diluted earnings per ADS of $1.88.
We identified that each 10c movement in the EUR:$$0.10 and $0.01 respectively. Based on the following exchange rate scenarios, which are not forecasts, the impact on our base guidance would be:
Euro fx GBP fx Non GAAP diluted
rate rate earnings per ADS
range (1)
Base guidance $1.52 $1.95 $3.00 to $3.40
At average March 2009 exchange $1.30 $1.42 $2.73 to $3.13
rates
At average H1 2009 & July 2009 $1.37 $1.56 $2.80 to $3.20
exchange rates
(1) Our guidance framework for Non GAAP diluted earnings per ADS is not prepared in accordance with US GAAP. Non GAAP diluted earnings per ADS excludes the effect of certain cash and non-cash items, both recurring and non-recurring, that Shire's management believes are not related to the core performance of Shire's business. A list of these items can be found on pages 26-27.
PRODUCT LAUNCHES
Subject to obtaining the relevant regulatory/governmental approvals, product launches planned over the next two years include:
- MEZAVANT for the treatment of ulcerative colitis; launches will
continue in certain EU and RoW countries in 2009 and 2010;
- FIRAZYR for the symptomatic treatment of acute attacks of HAE; launches
will continue in certain European and Latin American countries during
2009 and 2010;
- INTUNIV for the treatment of ADHD in children and adolescents in the
US in the fourth quarter of 2009;
- EQUASYM(R) for the treatment of ADHD; launches will continue in certain
EU countries during 2009 and 2010;
- DAYTRANA(R) for the treatment of ADHD in adolescents in the US in 2010;
- Velaglucerase alfa for the treatment of Gaucher disease in the US and
the EU in 2010; and
- VYVANSE for the treatment of ADHD, in ex-US and ex-EU regions starting
in 2010, and in the EU in 2011.
DIVIDEND
In respect of the six months ended June 30, 2009, the Board resolved to pay an interim dividend of 2.147 US cents per ordinary share (2008: 2.147 US cents per share).
Dividend payments will be made in Pounds Sterling to Ordinary shareholders and in US Dollars to holders of American Depository Shares ("ADS"). A dividend of 1.302 pence per ordinary share (2008: 1.085 pence) and 6.441 US cents per ADS (2008: 6.441 US cents) will be paid on October 8, 2009 to persons whose names appear on the register of members of the Company at the close of business on September 11, 2009.
Additional Information
The following additional information is included in this press release:
Page
Overview of Financial Results 6
Financial Information 13
Notes to Editors 26
Safe Harbor Statement 26
Explanation of Non GAAP Measures 26
Trademarks 27
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OVERVIEW OF FINANCIAL RESULTS
1. Introduction
Summary of Q2 2009Revenues from continuing operations for the three months to June 30, 2009 decreased by 19% to $629.7 million (2008: $775.6 million), primarily due to the decline in branded ADDERALL XR product sales in Q2 2009 following the launch of an authorized generic version by Teva in April 2009. Excluding ADDERALL XR, product sales increased by 20% to $491.0 million (2008: $409.3 million).
Non GAAP operating income for the three months to June 30, 2009 decreased by 53% to $115.5 million (2008: $246.5 million). The lower product sales of ADDERALL XR in Q2 2009 were partially offset by higher revenues from other products and lower operating expenses, as the Company benefits from its more diversified portfolio and continues to focus on cost management, with some additional benefits from foreign exchange compared to 2008.
US GAAP operating income from continuing operations for the three months to June 30, 2009 increased by $102.0 million to $34.7 million (2008: $67.3 million loss). US GAAP operating income from continuing operations in Q2 2009 includes a charge of $36.9 million following the amendment of an in-license agreement for INTUNIV. The US GAAP operating loss from continuing operations in Q2 2008 included in-process R&D charges on acquisition of METAZYM(R) from Zymenex A/S ($135.0 million) and costs associated with the cessation of commercialization of DYNEPO(TM) ($150.3 million). Excluding the above charges the fall in US GAAP operating income from continuing operations in Q2 2009 principally resulted from lower revenues following declines in branded ADDERALL XR product sales.
Net cash provided by operating activities decreased by 60% to $72.0 million for the three months to June 30, 2009 (2008: $180.4 million). The cash inflow from operating activities was lower in Q2 2009 than the same period in 2008 as lower sales receipts, higher cash tax payments and cash payments on forward exchange contracts in 2009 were only partially offset by lower operating expense payments during the quarter.
Cash, cash equivalents and restricted cash at June 30, 2009 totaled $299.1 million (December 31, 2008: $247.4 million), an increase of $51.7 million. Cash inflows from operating activities, cash received on the disposal of Shire's minority investment in Virochem Pharma Inc. and Jerini's Peptides business have been partially offset by cash outflows to acquire EQUASYM, investment in property, plant and equipment at the HGT campus in Lexington and the dividend payment.
2. Product sales
For the three months to June 30, 2009 product sales decreased by 21% to $558.4 million (2008: $705.7 million) and represented 89% of total revenues (2008: 91%). Excluding ADDERALL XR, product sales increased by 20% to $491.0 million (2008: $409.3 million).
Product Highlights
US
Average
US Rx Annual
Sales CER Growth(1) Market
Product Sales $M Growth(2) Growth(3) (2) Share(1)
Specialty
Pharmaceuticals
VYVANSE 114.2 75% 75% 80% 12.1%
ADDERALL XR 67.4 -77% -77% -48% 11.0%
DAYTRANA 14.9 -34% -34% -14% 1.4%
EQUASYM 4.9 n/a n/a n/a(5) n/a(5)
LIALDA / MEZAVANT 54.6 71% 73% 53% 15.9%
PENTASA 54.0 21% 21% -2% 15.9%
FOSRENOL 49.6 17% 26% -3% 7.8%
XAGRID 20.7 0% 12% n/a(5) n/a(5)
Human Genetic Therapies
ELAPRASE 85.3 6% 15% n/a(4) n/a(4)
REPLAGAL 44.4 -1% 14% n/a(5) n/a(5)
FIRAZYR 1.5 n/a n/a n/a(5) n/a(5)
(1) Product specific prescription data is provided by IMS Health ("IMS") National Prescription Audit, a leading global provider of business intelligence for the pharmaceutical and healthcare industries. All other US market share data stated in the text below is also provided by IMS.
(2) Compared to Q2 2008.
(3) CER growth is calculated after restating Q2 2009 results using Q2 2008 average foreign exchange rates.
(4) IMS Data not available.
(5) Not sold in the US.
Specialty Pharmaceuticals
US ADHD market shareShire's share of the total US ADHD market for the three months to June 30, 2009 declined by approximately 8 percentage points to 24.5% (2008: 32.3%), following the launch by Teva in April 2009 of an authorized generic version of ADDERALL XR. Shire continues to have the leading portfolio of branded products in the US ADHD market.
VYVANSE - ADHD
Sales of VYVANSE for the three months to June 30, 2009 increased by 75% to $114.2 million (2008: $65.2 million), with VYVANSE's average share of the US ADHD market for Q2 2009 increasing to 12.1% (2008: 7.4%). Product sales growth was driven by an 80% increase in US prescription demand in Q2 2009 over the same period in 2008, as a result of increased US ADHD average market share and 10% growth in the US ADHD market.
ADDERALL XR - ADHD
Sales of ADDERALL XR for the three months to June 30, 2009 were $67.4 million, a decrease of 77% (2008: $296.4 million) resulting from the launch by Teva in April 2009 of its authorized generic version of ADDERALL XR. The launch of the generic version led to a 48% decline in ADDERALL XR US prescription demand, higher US sales deductions and significant de-stocking (equivalent to gross sales of $67 million) by wholesalers and retail pharmacies in Q2 2009 compared to the same period in 2008. These factors more than offset the positive impacts of price increases taken since Q2 2008, and the inclusion within product sales of shipments of authorized generic ADDERALL XR to Teva in Q2 2009.
Sales deductions represented 72% of branded ADDERALL XR gross sales in Q2 2009 (2008: 22%), the increase primarily resulting from higher sales deductions for Managed Care and Medicaid rebates as well as the impact of revising estimates made at the end of Q1 and used in the measurement of the rebate liability on the wholesale and retail pipeline. These revisions increased Q2 sales deduction expense by the equivalent of 11% of Q2 2009 ADDERALL XR gross sales.
The Managed Care rebate percentage increased due to higher rebates offered to Managed Care organizations ("MCO") from April 1, 2009.
The Medicaid rebate percentage was higher in Q2 2009 than the same period last year due to a higher proportion of gross sales being made through Medicaid and an increased unit rebate amount ("URA"). The rise in URA is a direct result of price increases and the inclusion of shipments of authorized generic ADDERALL XR to Teva in the URA calculation.
DAYTRANA - ADHD
Product sales of DAYTRANA for the three months to June 30, 2009 decreased by 34% to $14.9 million (2008: $22.6 million). Product sales declined due to a 14% reduction in US prescription demand, following a decline in DAYTRANA's average share of the US ADHD market to 1.4% (2008: 1.8%) together with the impact of de-stocking in Q2 2009. These declines were partially offset by price increases taken since Q2 2008.
EQUASYM - ADHD
Following the acquisition of EQUASYM from UCB on March 31, 2009 the Company has recorded product sales of EQUASYM for the three months to June 30, 2009 of $4.9 million (2008: $nil).
US oral mesalamine market share
Shire's average market share of the US oral mesalamine market rose to 31.8% for the three months to June 30, 2009 (2008: 27.6%).
LIALDA/MEZAVANT - Ulcerative colitis
Product sales of LIALDA/MEZAVANT for the three months to June 30, 2009 increased by 71% to $54.6 million (2008: $32.0 million). US prescriptions increased by 53%, due to an increase in LIALDA's average share of the US oral mesalamine market to 15.9% (2008: 10.8%) and underlying growth in the US oral mesalamine market of 4%.
By June 30, 2009 MEZAVANT was available in eight countries outside the US, and further launches are planned in other countries throughout 2009 and 2010, subject to the successful conclusion of pricing and reimbursement negotiations.
PENTASA - Ulcerative colitis
Sales of PENTASA(R) for the three months to June 30, 2009 were $54.0 million, an increase of 21% compared to the same period in 2008 (2008: $44.8 million). Sales grew despite a 2% decrease in prescriptions primarily due to the impact of price increases.
FOSRENOL - Hyperphosphatemia
Product sales of FOSRENOL(R) for the three months to June 30, 2009 were up 17% to $49.6 million (2008: $42.4 million). On a CER basis sales were up 26%. In markets outside the US FOSRENOL sales increased as the product entered new countries, and continued to grow in countries entered in the last two years. In the US, FOSRENOL's average share of the phosphate binder market in Q2 2009 declined to 7.8% (2008: 8.2%) due to a 3% decrease in prescriptions. However, US product sales grew 15% as price increases offset the prescription decline.
XAGRID - Thrombocythemia
Sales of XAGRID(TM) for the three months to June 30, 2009 were $20.7 million (2008: $20.6 million). On a CER basis sales increased by 12% (XAGRID is primarily sold in Euros and Pounds Sterling).
Human Genetic Therapies
ELAPRASE - Hunter syndrome
Product sales for the three months to June 30, 2009 were $85.3 million, an increase of 6% (2008: $80.8 million). Expressed on a CER basis sales increased by 15% (ELAPRASE(R) is primarily sold in US dollars and Euros). The sales growth was driven by increased volumes across all regions where ELAPRASE is sold.
REPLAGAL - Fabry disease
Product sales for the three months to June 30, 2009 were $44.4 million, a decrease of 1% (2008: $44.7 million). Expressed on a CER basis sales increased by 14% (REPLAGAL(R) is primarily sold in Euros and Pounds Sterling). The sales growth was primarily driven by increased volumes in Europe and Asia Pacific.
FIRAZYR - HAE
Sales for the three months to June 30, 2009 were $1.5 million (2008: $nil). Sales of FIRAZYR in Q1 2009 were $0.5 million. With Q2 launches in France and Portugal, FIRAZYR is now launched in nine countries, including four of the five largest European countries. FIRAZYR also received final price publication in Italy during June, which will enable launch in Italy during Q3. FIRAZYR is the first new product for HAE in Europe in 30 years and has orphan exclusivity in the EU until 2018.
3. Royalties
Royalty revenue increased by 3% to $66.9 million for the three months to June 30, 2009 (2008: $64.8 million). The following table provides an analysis of Shire's royalty income:
Product Royalties to Shire $M Year on year change(1)
3TC 29.2 -18%
ZEFFIX 10.2 -6%
ADDERALL XR 13.6 n/a
Other 13.9 -25%
Total 66.9 3%
(1) Compared with Q2 2008
3TC - HIV infection and AIDSShire receives royalties from GSK on worldwide sales of 3TC(R) sales. Royalties from sales of 3TC for the three months to June 30, 2009 were $29.2 million (2008: $35.6 million). Excluding unfavorable foreign exchange movements of 7%, royalties have decreased by 11% mainly due to competition from other HIV treatments.
ZEFFIX - Chronic hepatitis B infection
Shire receives royalties from GSK on worldwide ZEFFIX(R) sales. Royalties from sales of ZEFFIX for the three months to June 30, 2009 were $10.2 million, a decrease of 6% (2008: $10.8 million). The impact of foreign exchange movements has contributed 4% to the reported decrease, with the remainder of the decrease due to increased competition from other hepatitis B treatments.
ADDERALL XR - ADHD
Royalties from Teva's sales of authorized generic ADDERALL XR for the three months to June 30, 2009 were $13.6 million (2008: $nil). Receipt of this royalty began with Teva's sales of authorized generic ADDERALL XR in April 2009.
OTHER
Other royalties are primarily in respect of REMINYL(R) and REMINYL XL(TM) (known as RAZADYNE(R) and RAZADYNE(R) ER in the US), for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer's type.
The range of REMINYL products is marketed worldwide (excluding the UK and the Republic of Ireland where Shire has exclusive marketing rights) by Janssen Pharmaceutical N.V., an affiliate of Johnson & Johnson ("J&J"). Sales of the REMINYL/RAZADYNE range continue to grow in most countries, however the entry of generic versions of RAZADYNE and RAZADYNE ER into the US market in Q3 2008 has significantly decreased sales in that region.
4. Financial details
Cost of product sales
% of % of
product product
2009 sales 2008 sales
$M $M
Cost of product sales (US
GAAP) 96.4 17% 142.9 20%
Accelerated depreciation on
transfer of manufacturing
from Owings Mills (3.0) -
Fair value adjustment for
acquired inventories (1.4) -
Write down of inventory and
exit costs for DYNEPO - (53.4)
Depreciation (4.9) (3.0)
Cost of product sales (Non
GAAP) 87.1 16% 86.5 12%
After the exclusion of those charges outlined above, Non GAAP cost of product sales as a percentage of product sales increased by 4 percentage points (from 12% to 16%) compared to 2008. This increase primarily results from changes to the product mix following the launch by Teva of an authorized generic version of ADDERALL XR in April 2009; higher sales deductions on Shire's sales of branded ADDERALL XR, together with lower margin sales of the authorized generic version of ADDERALL XR to Teva have both depressed gross margin for that product.
Research and development ("R&D")
% of % of
product product
2009 sales 2008 sales
$M $M
R&D (US GAAP) 158.7 28% 136.4 19%
INTUNIV license payment (36.9) -
DYNEPO R&D commitments - (6.5)
Depreciation (3.8) (3.1)
R&D (Non GAAP) 118.0 21% 126.8 18%
Non GAAP R&D decreased 7% to $118.0 million (2008: $126.8 million). The continued investment in core R&D programs has been offset by the benefit of foreign exchange rates in Q2 2009 over the same period in 2008 and the cessation of certain non-core programs since Q2 2008. As a percentage of product sales, Non GAAP R&D increased to 21% (2008: 18%) due to the lower product sales in Q2 2009.
Selling, general and administrative ("SG&A")
% of % of
product product
2009 sales 2008 sales
$M $M
SG&A (US GAAP) 334.7 60% 437.7 62%
Intangible asset
amortization (34.3) (31.0)
Impairment of intangible
assets - (90.4)
New holding company costs - (6.6)
Depreciation (15.9) (11.2)
SG&A (Non GAAP) 284.5 51% 298.5 42%
Non GAAP SG&A declined by 5% to $284.5 million (2008: $298.5 million) as a result of the increased focus on cost management and favorable foreign exchange rates in 2009 over 2008. Non GAAP SG&A increased as a percentage of product sales to 51% (2008: 42%) as cost ratios were adversely affected by lower product sales following the genericization of ADDERALL XR.
Reorganization costs
For the three months to June 30, 2009 Shire recorded reorganization costs of $2.9 million (2008: $nil) relating to the transfer of manufacturing from its Owing Mills facility.
Integration and acquisition costs
For the three months to June 30, 2009 Shire recorded integration and acquisition costs of $2.3 million (2008: $nil) relating to the integration of Jerini AG and charges associated with the acquisition of EQUASYM.
Interest income
For the three months to June 30, 2009 Shire received interest income of $0.6 million (2008: $6.5 million), primarily received on cash and cash equivalents. Interest income for the three months to June 30, 2009 is lower than the same period in 2008 due to significantly lower interest rates in 2009 compared to 2008, and lower average cash and cash equivalent balances.
Interest expense
For the three months to June 30, 2009 the Company incurred interest expense of $10.1 million (2008: $16.8 million). The higher expense in 2008 was primarily due to the accrual of interest in respect of the Transkaryotic Therapies, Inc. ("TKT") appraisal rights litigation. This litigation was settled in November 2008.
Taxation
The effective rate of tax for the three months to June 30, 2009 was -78% (2008: -0.3%). The effective tax rate on Non GAAP income is 2% (2008: 20%). The Non GAAP effective tax rate in the three months to June 30, 2009 was 18 percentage points lower than the corresponding period in 2008 principally due to the decrease in valuation allowances held in respect of US State tax credits and losses. Following the interpretation and analysis of the implications of new Massachusetts State tax regulations issued in Q2 2009, Shire determined during the second quarter that it was now more likely than not that these State tax credits and losses were realizable.
Equity in earnings/(losses) of equity method investees
Net earnings of equity method investees of $0.5 million were recorded for the three months to June 30, 2009 (2008: $1.9 million loss). This comprised earnings of $1.2 million from the 50% share of the anti-viral commercialization partnership with GSK in Canada (2008: $1.5 million earnings) and losses of $0.7 million, being the Company's share of losses in the GeneChem, AgeChem and EGS Funds (2008: $3.4 million loss).
Discontinued operations
The loss from discontinued operations for the three months to June 30, 2009 was $9.8 million (2008: $nil), relating to net losses on discontinued Jerini businesses which were either divested or closed during the second quarter of 2009, the loss on divestment of Jerini's Peptides business and the write-off of the fair value less costs to sell of assets previously classified as held for sale.
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Unaudited US GAAP Consolidated Balance Sheets 14
Unaudited US GAAP Consolidated Statements of Income 15
Unaudited US GAAP Consolidated Statements of Cash
Flows 17
Selected Notes to the Unaudited US GAAP Financial 19
Statements
(1) Earnings per share 19
(2) Analysis of revenues 20
Non GAAP reconciliation 22
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Balance Sheets
June 30, December 31,
2009 2008
$M $M
ASSETS
Current assets:
Cash and cash equivalents 263.3 218.2
Restricted cash 35.8 29.2
Accounts receivable, net 424.7 395.0
Inventories, net 166.6 154.5
Assets held for sale 1.7 16.6
Deferred tax asset 84.6 89.5
Prepaid expenses and other current assets 174.3 141.4
Total current assets 1,151.0 1,044.4
Non-current assets:
Investments 90.2 42.9
Property, plant and equipment, net 598.1 534.2
Goodwill 377.6 350.8
Other intangible assets, net 1,846.2 1,824.9
Deferred tax asset 145.0 118.1
Other non-current assets 13.2 18.4
Total assets 4,221.3 3,933.7
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses 807.6 708.6
Deferred tax liability 10.9 10.9
Other current liabilities 62.4 104.3
Total current liabilities 880.9 823.8
Non-current liabilities:
Convertible bonds 1,100.0 1,100.0
Other long-term debt 49.4 43.1
Deferred tax liability 346.9 377.0
Other non-current liabilities 275.0 291.3
Total liabilities 2,652.2 2,635.2
Shareholders' equity:
Common stock of 5p par value; 1,000 million
shares authorized; and 560.3 million shares
issued and outstanding (2008: 1,000 million
shares authorized; and 560.2 million shares
issued and outstanding) 55.5 55.5
Additional paid-in capital 2,628.0 2,594.6
Treasury stock: 20.2 million shares (2008: 20.7
million) (390.6) (397.2)
Accumulated other comprehensive income 119.7 97.0
Accumulated deficit (843.8) (1,051.7)
Total Shire plc shareholders' equity 1,568.8 1,298.2
Noncontrolling interest in subsidiaries 0.3 0.3
Total equity 1,569.1 1,298.5
Total liabilities and equity 4,221.3 3,933.7
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Income
3 6
months months
3 months to to 6 months to to
June June
June 30, 30, June 30, 30,
2009 2008 2009 2008
$M $M $M $M
Revenues:
Product sales 558.4 705.7 1,314.3 1,337.4
Royalties 66.9 64.8 117.5 129.9
Other revenues 4.4 5.1 15.6 10.5
Total revenues 629.7 775.6 1,447.4 1,477.8
Costs and expenses:
Cost of product sales(1) 96.4 142.9 180.0 233.2
Research and development(2) 158.7 136.4 344.6 248.2
Selling, general and
administrative(1) (2) 334.7 437.7 653.3 782.4
Gain on sale of product rights - (9.1) - (16.7)
In-process R&D charge - 135.0 - 135.0
Reorganization costs 2.9 - 5.1 -
Integration and acquisition
costs 2.3 - 3.8 -
Total operating expenses 595.0 842.9 1,186.8 1,382.1
Operating income/(loss) 34.7 (67.3) 260.6 95.7
Interest income 0.6 6.5 1.3 19.2
Interest expense (10.1) (16.8) (21.2) (34.1)
Other income, net 4.7 0.7 54.9 13.4
Total other (expense)/income, net (4.8) (9.6) 35.0 (1.5)
Income/(loss) from continuing
operations before income taxes
and equity in earnings/(losses)
of equity method investees 29.9 (76.9) 295.6 94.2
Income taxes 23.4 (0.2) (26.1) (44.3)
Equity in earnings/(losses) of
equity method investees, net of
taxes 0.5 (1.9) 0.4 (0.3)
Income/(loss) from continuing
operations, net of tax 53.8 (79.0) 269.9 49.6
Loss from discontinued
operations (net of income tax
expense of $nil in all periods) (9.8) - (12.4) -
Net income/(loss) 44.0 (79.0) 257.5 49.6
Add: Net loss attributable to
noncontrolling interest in
subsidiaries 0.1 - 0.2 -
Net income/(loss) attributable
to Shire plc 44.1 (79.0) 257.7 49.6
(1) Cost of product sales includes amortization of intangible assets relating to favorable manufacturing contracts of $0.4 million for the three months to June 30, 2009 (2008: $0.4 million) and $0.9 million for the six months to June 30, 2009 (2008: $0.9 million). Selling, general and administrative costs include amortization and impairment charges of intangible assets relating to intellectual property rights acquired of $34.3 million for the three months to June 30, 2009 (2008: $121.4 million) and $66.8 million for the six months to June 30, 2009 (2008: $152.3 million).
(2) Promotional costs totaling $8.9 million and $19.1 million have been reclassified from Research and development to Selling, general and administrative costs for the three and six months to June 30, 2008 respectively.
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Income (continued)
3 6
months months
3 months to to 6 months to to
June June
June 30, 30, June 30, 30,
2009 2008 2009 2008
Earnings/(loss) per ordinary
share - basic
Earnings/(loss) from continuing
operations 10.0c (14.6c) 50.0c 9.1c
Loss from discontinued
operations (1.8c) - (2.3c) -
Earnings/(loss) per ordinary
share - basic 8.2c (14.6c) 47.7c 9.1c
Earnings/(loss) per ADS - basic 24.6c (43.8c) 143.1c 27.3c
Earnings/(loss) per ordinary
share - diluted
Earnings/(loss) from continuing (14.6c) 8.2c
operations 9.9c 49.6c
Loss from discontinued
operations (1.8c) - (2.3c) -
Earnings/(loss) per ordinary
share - diluted 8.1c (14.6c) 47.3c 8.2c
Earnings/(loss) per ADS -
diluted 24.3c (43.8c) 141.9c 24.6c
Weighted average number of
shares (millions):
Basic 539.9 542.5 539.7 543.7
Diluted 543.4 542.5 545.0 579.6
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Cash Flows
3 6
3 months months 6 months months
to to to to
June June
June 30, 30, June 30, 30,
2009 2008 2009 2008
$M $M $M $M
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) attributable to
Shire plc 44.1 (79.0) 257.7 49.6
Adjustments to reconcile net
income/(loss) attributable to Shire
plc to net cash provided by operating
activities:
Loss from discontinued operations 9.8 - 12.4 -
Depreciation and amortization 62.3 48.9 117.7 96.3
Share based compensation 17.4 19.4 33.2 35.7
Amortization of deferred financing
charges 1.3 1.2 2.5 2.5
Interest on building financing
obligation 0.8 0.7 1.3 1.9
Impairment of intangible assets - 90.4 - 90.4
Impairment of property, plant and
equipment 0.5 - 2.7 -
Gain on sale of long-lived assets (0.2) (0.4) (0.2) (0.4)
Gain on sale of non-current
investments - - (55.2) (9.4)
Gain on sale of product rights - (9.1) - (16.7)
Movement in deferred taxes (79.3) (16.4) (45.7) 17.4
Equity in (earnings)/losses of equity
method investees (0.5) 1.9 (0.4) 0.3
Noncontrolling interest in
subsidiaries (0.1) - (0.2) -
Changes in operating assets and
liabilities:
Decrease/(increase) in
accounts receivable 108.1 22.0 (42.9) (28.4)
(Decrease)/increase in sales
deduction accrual (4.4) 27.6 117.5 35.5
(Increase)/decrease in
inventory (3.3) 19.5 (12.8) 10.4
(Increase)/decrease in
prepayments and other
current assets (21.5) 3.8 (33.8) 24.3
Decrease/(increase) in other
assets 1.0 (2.7) 4.4 (2.4)
(Decrease)/increase in
accounts and notes payable
and other liabilities (60.2) 50.7 (98.5) (66.4)
(Decrease)/increase in
deferred revenue (0.5) 1.9 (2.7) 5.5
Returns on investment from joint
venture - - 4.9 -
Cash flows used in discontinued
operations (3.3) - (5.9) -
Net cash provided by operating
activities(A) 72.0 180.4 256.0 246.1
Unaudited US GAAP results for the three months and six months to June 30, 2009 Consolidated Statements of Cash Flows (continued)
3 6
months months
3 months to to 6 months to to
June June
June 30, 30, June 30, 30,
2009 2008 2009 2008
$M $M $M $M
CASH FLOWS FROM INVESTING
ACTIVITIES:
Movements in restricted cash 0.2 0.2 (6.6) 5.2
Purchases of subsidiary
undertakings and businesses,
net of cash acquired (1.4) - (75.5) -
Purchases of non-current
investments - (0.1) - (1.1)
Purchases of property, plant
and equipment (59.8) (61.6) (101.8) (89.4)
Purchases of intangible assets - - (6.0) -
Proceeds from disposal of
non-current investments - - 19.2 10.3
Proceeds from disposal of
property, plant and equipment - 0.8 0.4 0.9
Proceeds/deposits received on
sales of product rights - - - 5.0
Proceeds from disposal of
subsidiary undertakings 6.7 - 6.7 -
Returns from equity investments - 0.4 0.2 0.4
Net cash used in investing
activities(B) (54.3) (60.3) (163.4) (68.7)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment under building
financing obligation (2.3) (0.2) (3.0) (0.4)
Costs of issue of common stock - (2.9) - (2.9)
Proceeds from exercise of
options 0.9 0.7 1.0 1.0
Payment of dividend (43.0) (36.4) (43.0) (36.4)
Payments to acquire shares by
Employee Share Ownership Trust
("ESOT") (1.0) (71.0) (1.0) (104.1)
Net cash used in financing
activities(C) (45.4) (109.8) (46.0) (142.8)
Effect of foreign exchange rate
changes on cash and cash
equivalents (D) (0.1) 0.3 (1.5) 4.1
Net (decrease)/increase in cash
and cash equivalents(A) +(B)
+(C) +(D) (27.8) 10.6 45.1 38.7
Cash and cash equivalents at
beginning of period 291.1 790.6 218.2 762.5
Cash and cash equivalents at
end of period 263.3 801.2 263.3 801.2
Unaudited US GAAP results for the three months and six months to June 30, 2009
Selected Notes to the Financial Statements
(1) Earnings per share
3 months 3 months 6 months 6 months
to June to June to June to June
30, 30, 30, 30,
2009 2008 2009 2008
$M $M $M $M
Income/(loss) from continuing
operations 53.8 (79.0) 269.9 49.6
Loss from discontinued operations (9.8) - (12.4) -
Noncontrolling interest in
subsidiaries 0.1 - 0.2 -
Numerator for basic EPS 44.1 (79.0) 257.7 49.6
Interest on convertible bonds, net
of tax (1) - - - (2.2)
Numerator for diluted EPS 44.1 (79.0) 257.7 47.4
Weighted average number of shares:
Millions Millions Millions Millions
Basic(2) 539.9 542.5 539.7 543.7
Effect of dilutive shares:
Stock options(3) 3.5 - 5.3 3.2
Convertible bonds 2.75% due 2014(4) - - - 32.7
Diluted 543.4 542.5 545.0 579.6
(1) For the three and six month periods ended June 30, 2009 and the three month period ended June 30, 2008 interest on the convertible bonds has not been added back as the effect would be anti-dilutive.
(2) Excludes shares purchased by the ESOT and presented by the Company as treasury stock.
(3) Calculated using the treasury stock method.
(4) Calculated using the "if-converted" method.
The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:
3 months to 3 months to 6 months to 6 months to
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
Millions(1) Millions(1)
(2) Millions(3) (2) Millions(1)
Stock options in the
money - 1.3 - -
Stock options out of
the money 31.3 17.9 18.9 17.4
Convertible bonds 2.75%
due 2014 32.7 32.7 32.7 -
(1) For the three month period ended June 30, 2009 and the six month periods ended June 30, 2009 and 2008, certain stock options have been excluded from the calculation of diluted EPS because their exercise prices exceeded Shire plc's average share price during the calculation period.
(2) For the three and six month periods ended June 30, 2009 the ordinary shares underlying the convertible bonds have not been included in the calculation of the diluted weighted average number of shares, because the effect of their inclusion would be anti-dilutive.
(3) For the three month period ended June 30, 2008 no share options or ordinary shares underlying the convertible bonds have been included in the calculation of the diluted weighted average number of shares because the Company made a net loss during the calculation period and the inclusion of these items would be anti-dilutive.
Unaudited US GAAP results for the three months to June 30, 2009
Selected Notes to the Financial Statements
(2) Analysis of revenues
3 months to June 30, 2009 2008 2009 2009
% % of total
$M $M change revenue
Net product sales:
Specialty Pharmaceuticals
("Specialty")
ADHD
ADDERALL XR 67.4 296.4 -77% 11%
VYVANSE 114.2 65.2 75% 18%
DAYTRANA 14.9 22.6 -34% 2%
EQUASYM 4.9 - n/a 1%
201.4 384.2 -48% 32%
GI
PENTASA 54.0 44.8 21% 8%
LIALDA / MEZAVANT 54.6 32.0 71% 9%
108.6 76.8 41% 17%
General products
FOSRENOL 49.6 42.4 17% 8%
CALCICHEW(R) 10.8 13.9 -22% 2%
CARBATROL(R) 20.8 16.2 28% 3%
REMINYL/REMINYL XL 10.9 8.7 25% 2%
XAGRID 20.7 20.6 0% 3%
112.8 101.8 11% 18%
Other product sales 4.4 17.4 -75% 1%
Total Specialty product
sales 427.2 580.2 -26% 68%
Human Genetic Therapies
("HGT")
ELAPRASE 85.3 80.8 6% 14%
REPLAGAL 44.4 44.7 -1% 7%
FIRAZYR 1.5 - n/a 0%
Total HGT product sales 131.2 125.5 5% 21%
Total product sales 558.4 705.7 -21% 89%
Royalty income:
3TC 29.2 35.6 -18% 4%
ZEFFIX 10.2 10.8 -6% 2%
ADDERALL XR 13.6 - n/a 2%
Other 13.9 18.4 -25% 2%
Total royalty income 66.9 64.8 3% 10%
Other revenues 4.4 5.1 -14% 1%
Total Revenues 629.7 775.6 -19% 100%
Unaudited US GAAP results for the six months to June 30, 2009
Selected Notes to the Financial Statements
(2) Analysis of revenues
6 months to June 30, 2009 2008 2009 2009
% % of total
$M $M change revenue
Net product sales:
Specialty Pharmaceuticals
("Specialty")
ADHD
ADDERALL XR 363.3 557.9 -35% 25%
VYVANSE 230.7 119.6 93% 16%
DAYTRANA 34.8 42.9 -19% 2%
EQUASYM 4.9 - n/a 0%
633.7 720.4 -12% 43%
GI
PENTASA 105.2 89.0 18% 7%
LIALDA / MEZAVANT 104.0 59.2 76% 7%
209.2 148.2 41% 14%
General products
FOSRENOL 89.5 78.6 14% 6%
CALCICHEW 20.4 27.5 -26% 2%
CARBATROL 38.9 34.1 14% 3%
REMINYL/REMINYL XL 18.3 17.0 8% 1%
XAGRID 40.8 39.3 4% 3%
207.9 196.5 6% 15%
Other product sales 8.9 32.8 -73% 1%
Total Specialty product
sales 1,059.7 1,097.9 -3% 73%
Human Genetic Therapies
("HGT")
ELAPRASE 168.0 152.3 10% 12%
REPLAGAL 84.6 87.2 -3% 6%
FIRAZYR 2.0 - n/a 0%
Total HGT product sales 254.6 239.5 6% 18%
Total product sales 1,314.3 1,337.4 -2% 91%
Royalty income:
3TC 59.1 72.9 -19% 4%
ZEFFIX 19.2 21.2 -9% 1%
ADDERALL XR 13.6 - n/a 1%
Other 25.6 35.8 -28% 2%
Total royalty income 117.5 129.9 -10% 8%
Other revenues 15.6 10.5 49% 1%
Total Revenues 1,447.4 1,477.8 -2% 100%
Unaudited results for the three months to June 30, 2009
Non GAAP reconciliation
US Non
GAAP Adjustments GAAP
Acquis Divest
Amort -itions -ments,
June -ization & re-organ- June
30, & asset inte- izations & Reclassify 30,
3 months to, 2009 impair gration discont- depreci- 2009
-ments activities inued ation
operat-
ions
(a) (b) (c) (d)
$M $M $M $M $M $M
Total revenues 629.7 - - - - 629.7
Costs and
expenses:
Cost of
product sales 96.4 - (1.4) (3.0) (4.9) 87.1
Research and
development 158.7 - (36.9) - (3.8) 118.0
Selling,
general and
administrative 334.7 (34.3) - - (15.9) 284.5
Reorganization
costs 2.9 - - (2.9) - -
Integration
and
acquisition
costs 2.3 - (2.3) - - -
Depreciation - - - - 24.6 24.6
Total
operating
expenses 595.0 (34.3) (40.6) (5.9) - 514.2
Operating
income 34.7 34.3 40.6 5.9 - 115.5
Interest
income 0.6 - - - - 0.6
Interest
expense (10.1) - - - - (10.1)
Other income,
net 4.7 - - - - 4.7
Total other
expense, net (4.8) - - - - (4.8)
Income from
continuing
operations
before income
taxes and
equity in
earnings of
equity method
investees 29.9 34.3 40.6 5.9 - 110.7
Income taxes 23.4 (9.4) (14.1) (2.1) - (2.2)
Equity in
earnings of
equity method
investees, net
of tax 0.5 - - - - 0.5
Income from
continuing
operations,
net of tax 53.8 24.9 26.5 3.8 - 109.0
Loss from
discontinued
operations (9.8) - - 9.8 - -
Net income 44.0 24.9 26.5 13.6 - 109.0
Add: Net loss
attributable
to
noncontrolling
interest in
subsidiaries 0.1 - - - - 0.1
Net income
attributable
to Shire plc 44.1 24.9 26.5 13.6 - 109.1
Numerator for
diluted EPS(1) 44.1 24.9 26.5 13.6 - 109.1
Weighted
average number
of shares
(millions) -
diluted 543.4 - - - - 543.4
Diluted
earnings per
ADS 24.3c 13.8c 14.7c 7.5c - 60.3c
(1) For the three months to June 30, 2009 interest expense on the convertible bonds has not been added back as the effect would be anti-dilutive.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($34.3 million) and tax effect of adjustment;
(b) Acquisitions and Integration activities Inventory fair value adjustment related to the acquisition of Jerini ($1.4 million); payment on amendment of INTUNIV in-licence agreement ($36.9 million), costs associated with the integration and acquisition of Jerini AG and EQUASYM from UCB ($2.3 million), and tax effect of adjustments;
(c) Divestments, Reorganizations and Discontinued Operations: Accelerated depreciation ($3.0 million) and reorganization costs ($2.9 million) for the transition of manufacturing from Owings Mills, discontinued operations in respect of non-core Jerini operations ($9.8 million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $24.6 million included in Cost of Product Sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the three months to June 30, 2008
Non GAAP reconciliation
US Non
GAAP Adjustments GAAP
Acquis Divest
Amort -itions -ments,
June -ization & re-organ- June
30, & asset inte- izations & Reclassify 30,
3 months to, 2008 impair gration discont- depreci- 2008
-ments activities inued ation
operat-
ions
(a) (b) (c)
$M $M $M $M $M $M
Total revenues 775.6 - - - - 775.6
Costs and
expenses:
Cost of product
sales 142.9 - - (53.4) (3.0) 86.5
Research and
development(1) 136.4 - - (6.5) (3.1) 126.8
Selling, general
and
administrative
(1) 437.7 (121.4) - (6.6) (11.2) 298.5
Gain on sale of
product rights (9.1) - - 9.1 - -
In-process R&D
charge 135.0 - (135.0) - - -
Depreciation - - - - 17.3 17.3
Total operating
expenses 842.9 (121.4) (135.0) (57.4) - 529.1
Operating
(loss)/income (67.3) 121.4 135.0 57.4 - 246.5
Interest income 6.5 - - - - 6.5
Interest
expense (16.8) - - - - (16.8)
Other income,
net 0.7 - - - - 0.7
Total other
expenses, net (9.6) - - - - (9.6)
(Loss)/income
from continuing
operations before
income taxes and
equity in losses
of equity method
investees (76.9) 121.4 135.0 57.4 - 236.9
Income taxes (0.2) (47.8) - 1.1 - (46.9)
Equity in losses
of equity method
investees, net of
tax (1.9) - - - - (1.9)
Net (loss)/income
attributable to
Shire plc (79.0) 73.6 135.0 58.5 - 188.1
Impact of
convertible debt,
net of tax (2) - (5.8) - - - (5.8)
Numerator for
diluted EPS (79.0) 67.8 135.0 58.5 - 182.3
Weighted average
number of shares
(millions) -
diluted(2) 542.5 34.0 - - - 576.5
Diluted earnings
per ADS (43.8c) 38.1c 70.2c 30.3c - 94.8c
(1) $8.9m of promotional costs have been reclassified from Research and development to Selling, general and administrative costs for the three months to June 30, 2008.
(2) After the above adjustments, the Company made non GAAP net income during the calculation period. As a result (i) the after tax impact of the convertible bonds has been deducted from the numerator and (ii) in the money share options and convertible bonds are now included in the calculation of the diluted weighted average number of shares as they have a dilutive effect.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($31.0 million), impairment charge in respect of DYNEPO intangible asset ($90.4 million) and tax effect of adjustments;
(b) Acquisitions & integration activities: In-process R&D in respect of METAZYM acquired from Zymenex A/S ($135.0 million);
(c) Divestments, Re-organizations and Discontinued Operations: Costs associated with inventory write down and other exit costs in respect of DYNEPO ($53.4 million), R&D commitment in respect of DYNEPO ($6.5 million), costs associated with the introduction of a new holding company ($6.6 million), gains on the disposal of non core product rights ($9.1 million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $17.3 million included in Cost of Product Sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the six months to June 30, 2009
Non GAAP reconciliation
US Non
GAAP Adjustments GAAP
Acquis Divest
Amort -itions -ments,
June -ization & re-organ- June
30, & asset inte- izations & Reclassify 30,
6 months to, 2009 impair gration discont- depreci- 2009
-ments activities inued ation
operat-
ions
(a) (b) (c) (d)
$M $M $M $M $M $M
Total
revenues 1,447.4 - - - - 1,447.4
Costs and
expenses:
Cost of
product
sales 180.0 - (1.4) (3.0) (8.5) 167.1
Research and
development 344.6 - (36.9) (65.0) (7.8) 234.9
Selling,
general
and
administ-
rative 653.3 (66.8) - - (30.7) 555.8
Reorganization
costs 5.1 - - (5.1) - -
Integration &
acquisition
costs 3.8 - (3.8) - - -
Depreciation - - - - 47.0 47.0
Total
operating
expenses 1,186.8 (66.8) (42.1) (73.1) - 1,004.8
Operating
income 260.6 66.8 42.1 73.1 - 442.6
Interest
income 1.3 - - - - 1.3
Interest
expense (21.2) - - - - (21.2)
Other
income/(expense),
net 54.9 - - (55.2) - (0.3)
Total other
income/(expense),
net 35.0 - - (55.2) - (20.2)
Income from
continuing
operations before
income taxes and
equity in
earnings of
equity method
investees 295.6 66.8 42.1 17.9 - 422.4
Income taxes (26.1) (19.3) (14.3) (17.3) - (77.0)
Equity in
earnings of
equity method
investees, net
of
tax 0.4 - - - - 0.4
Income from
continuing
operations,
net
of tax 269.9 47.5 27.8 0.6 - 345.8
Loss from
discontinued
operations (12.4) - - 12.4 - -
Net income 257.5 47.5 27.8 13.0 - 345.8
Add: Net loss
attributable to
noncontrolling
interest in
subsidiaries 0.2 - - - - 0.2
Net income
attributable
to
Shire plc 257.7 47.5 27.8 13.0 - 346.0
Impact of
convertible debt,
net of tax (1) - 16.8 - - - 16.8
Numerator for
diluted EPS 257.7 64.3 27.8 13.0 - 362.8
Weighted
average
number of
shares
(millions)
- diluted(1) 545.0 32.7 - - - 577.7
Diluted
earnings
per ADS 141.9c 25.2c 14.4c 6.9c - 188.4c
(1) The impact of convertible debt, net of tax has a dilutive effect on a Non GAAP basis.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($66.8 million) and tax effect of adjustment;
(b) Acquisitions and Integration activities Inventory fair value adjustment related to the acquisition of Jerini AG ($1.4 million); payment on amendment of INTUNIV in-licence agreement ($36.9 million); costs associated with the integration and acquisition of Jerini AG and EQUASYM from UCB ($3.8 million); and tax effect of adjustments;
(c) Divestments, Reorganizations and Discontinued Operations: Accelerated depreciation ($3.0 million) and reorganization costs ($5.1 million) for the transition of manufacturing from Owings Mills, costs associated with agreement to terminate Women's Health products with Duramed ($65.0 million), gain on disposal of the investment in Virochem ($55.2 million); discontinued operations in respect of non core Jerini operations ($12.4 million), and tax effect of adjustments; and
(d) Depreciation: Depreciation of $47.0 million included in Cost of Product Sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Unaudited results for the six months to June 30, 2008
Non GAAP reconciliation
US Non
GAAP Adjustments GAAP
Acquis Divest
Amort -itions -ments,
June -ization & re-organ- June
30, & asset inte- izations & Reclassify 30,
6 months to, 2008 impair gration discont- depreci- 2008
-ments activities inued ation
operat-
ions
(a) (b) (c) (d)
$M $M $M $M $M $M
Total
revenues 1,477.8 - - - - 1,477.8
Costs and
expenses:
Cost of
product
sales 233.2 - - (53.4) (5.6) 174.2
Research and
development
(1) 248.2 - - (6.5) (6.0) 235.7
Selling,
general
and
administrative
(1) 782.4 (152.3) - (12.2) (22.0) 595.9
Gain on sale
of
product
rights (16.7) - - 16.7 - -
In-process R&D
charge 135.0 - (135.0) - - -
Depreciation - - - - 33.6 33.6
Total
operating
expenses 1,382.1 (152.3) (135.0) (55.4) - 1,039.4
Operating
income 95.7 152.3 135.0 55.4 - 438.4
Interest
income 19.2 - - - - 19.2
Interest
expense (34.1) - - - - (34.1)
Other
income/
(expense),
net 13.4 - - (9.4) - 4.0
Total other
expenses, net (1.5) - - (9.4) - (10.9)
Income from
continuing
operations before
income taxes and
equity in losses
of equity
method
investees 94.2 152.3 135.0 46.0 - 427.5
Income taxes (44.3) (58.5) - 3.4 - (99.4)
Equity in losses
of equity method
investees, net
of
tax (0.3) - - - - (0.3)
Net Income
attributable
to
Shire plc 49.6 93.8 135.0 49.4 - 327.8
Impact of
convertible
debt,
net of tax (2.2) - - - - (2.2)
Numerator for
diluted EPS 47.4 93.8 135.0 49.4 - 325.6
Weighted average
number of shares
(millions) -
diluted 579.6 - - - - 579.6
Diluted
earnings
per ADS 24.6c 48.6c 69.9c 25.5c - 168.6c
(1) Promotional costs totaling $19.1 million have been reclassified from Research and development to Selling, general and administrative costs for the six months to June 30, 2008.
The following items are included in Adjustments:
(a) Amortization and asset impairments: Amortization of intangible assets relating to intellectual property rights acquired ($61.9 million), impairment charge in respect of DYNEPO intangible asset ($90.4 million) and tax effect of adjustments;
(b) Acquisitions & integration activities: In-process R&D in respect of METAZYM acquired from Zymenex A/S ($135.0 million);
(c) Divestments, Re-organizations and Discontinued Operations: Costs associated with inventory write down and other exit costs in respect of DYNEPO ($53.4 million), R&D commitment in respect of DYNEPO ($6.5 million), and costs associated with the introduction of a new holding company ($12.2 million), gains on the disposal of non core assets ($16.7 million), gain on disposal of minority equity investment ($9.4 million) and tax effect of adjustments; and
(d) Depreciation: Depreciation of $33.6 million included in Cost of Product Sales, R&D costs and SG&A costs for US GAAP separately disclosed for the presentation of Non GAAP earnings.
Notes to Editors
SHIRE PLC
Shire's strategic goal is to become the leading specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician. Shire focuses its business on attention deficit and hyperactivity disorder, human genetic therapies and gastrointestinal diseases as well as opportunities in other therapeutic areas to the extent they arise through acquisitions. Shire's in-licensing, merger and acquisition efforts are focused on products in specialist markets with strong intellectual property protection and global rights. Shire believes that a carefully selected and balanced portfolio of products with strategically aligned and relatively small-scale sales forces will deliver strong results.
For further information on Shire, please visit the Company's website: http://www.shire.com
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts are forward-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, the Company's results could be materially adversely affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of research, development, approval, reimbursement, manufacturing and commercialization of the Company's Specialty Pharmaceutical and Human Genetic Therapies products, as well as the ability to secure and integrate new products for commercialization and/or development; government regulation of the Company's products; the Company's ability to manufacture its products in sufficient quantities to meet demand; the impact of competitive therapies on the Company's products; the Company's ability to register, maintain and enforce patents and other intellectual property rights relating to its products; the Company's ability to obtain and maintain government and other third-party reimbursement for its products; and other risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission.
Non GAAP Measures
This press release contains financial measures not prepared in accordance with US GAAP. These measures are referred to as "Non GAAP" measures and include: Non GAAP operating income; Non GAAP net income; Non GAAP diluted earnings per ADS; effective tax rate on Non GAAP income from continuing operations before income taxes and equity method investees ("Effective tax rate on Non GAAP income"); Non GAAP Cost of product sales; Non GAAP Research and development; Non GAAP Selling, general and administrative; Non GAAP operating expenses; and Non GAAP other income. These Non GAAP measures exclude the effect of certain cash and non-cash items, both recurring and non-recurring, that Shire's management believes are not related to the core performance of Shire's business. In the case of product sales, growth at constant exchange rates is calculated after restating current period product sales using the comparative periods average foreign exchange rates.
These Non GAAP financial measures are used by Shire's management to make operating decisions because they facilitate internal comparisons of the Company's performance to historical results and to competitors' results. These measures are also considered by Shire's Remuneration Committee in assessing the performance and compensation of employees, including its executive directors.
The Non GAAP measures are presented in this press release as the Company's management believe that they will provide investors with a means of evaluating, and an understanding of how Shire's management evaluates, the Company's performance and results on a comparable basis that is not otherwise apparent on a US GAAP basis, since many one-time, infrequent or non-cash items that the Company's management believe are not indicative of the core performance of the business may not be excluded when preparing financial measures under US GAAP.
These Non GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP.
The following items, including their tax effect, have been excluded from both 2008 and 2009 Non GAAP earnings, and from our 2009 guidance for Non GAAP diluted earnings per ADS:
Amortization and asset impairments:
- Intangible asset amortization and impairment charges; and
- Other than temporary impairment of investments.
Acquisitions and integration activities:
- Upfront payments and milestones in respect of in-licensed and acquired
products;
- Costs associated with acquisitions, including transaction costs, and
fair value adjustments on contingent consideration and acquired
inventory;
- Costs associated with the integration of companies; and
- Incremental interest charges arising on the settlement of litigation
with the former dissenting shareholders of TKT.
Divestments, re-organizations and discontinued operations
- Gains and losses on the sale of non-core assets;
- Costs associated with restructuring and re-organization activities;
- Termination costs;
- Costs associated with the introduction of the new holding company; and
- Income / (losses) from discontinued operations.
Depreciation, which is included in Cost of product sales, Research and development costs and Selling, general and administrative costs in our US GAAP results, has been separately disclosed for the presentation of 2008 and 2009 Non GAAP earnings. A reconciliation of Non GAAP financial measures to the most directly comparable measure under US GAAP is presented on pages 22-25.
A reconciliation of US GAAP diluted earnings per ADS for Q2 2009, to the measure of diluted EPS (ADS) computed using the full year 2009 expected tax rate of 24% is presented below:
$M cents/ADS
US GAAP Net income 44.1 24.3c
Non GAAP adjustments (as detailed on page 22) 65.0 36.0c
Non GAAP Net income/ Diluted EPS(ADS) 109.1 60.3c
Add: Non GAAP income taxes 2.2 1.2c
Less: Non GAAP income taxes (computed using effective
rate of 24%) (26.6) (14.7c)
Pro forma Non GAAP Net income/ diluted EPS(ADS) at
effective tax rate of 24% 84.7 46.8c
TRADEMARKS
All trademarks defined as (R) and (TM) used in this press release are trademarks of Shire plc or companies within the Shire group except for:
3TC(R) and ZEFFIX(R) which are trademarks of GSK, DYNEPO(TM) which is a trademark of Sanofi Aventis, PENTASA(R) which is a trademark of Ferring A/S Corp, RAZADYNE(R) and RAZADYNE(R) ER which are trademarks of J&J and REMINYL(R) and REMINYL XL(TM) which are trademarks of J&J (except in the UK and Republic of Ireland) (1).
A full list of the trademarks of Shire plc or companies within the Shire group is set out in the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2009.
(1) REMINYL(R) and REMINYL XL(TM) are both trademarks of Shire in the UK and Republic of Ireland.
For further information please contact:
Investor Relations Clea Rosenfeld (Rest of the World) +44-1256-894-160
Eric Rojas (North America) +1-617-551-9715
Media Jessica Mann (Rest of the World) +44-1256-894-280
Jessica Cotrone (North America) +1-617-613-4640
SOURCE Shire Plc
