Shire (LSE: SHP, NASDAQ: SHPG) announces unaudited results for
the three months to September 30,
2014.
The Non GAAP financial measures included within this release are
explained on page 27, and are reconciled to the most directly
comparable financial measures prepared in accordance with US GAAP
on pages 20 - 25.
"Shire is well-positioned for future growth as we implement our
plan to double product sales to $10
billion by 2020. I am confident that Shire, as an
independent company, will deliver long-term value to our
shareholders and improved outcomes for patients. On behalf of the
Board of Directors, I would like to thank the Shire management team
and employees for the achievement of outstanding financial results
during the third quarter."
"Our third quarter results demonstrate our exceptional track
record of delivering value and growth. We continue to
implement our clear and focused strategy, as we:
"These results are a testament to our ability to drive top line
growth and our continued emphasis on operational discipline.
"We have seen strong sales performance across our portfolio with
all of our top ten products delivering double digit growth in the
quarter. Rare Diseases, our largest business unit, grew by 66%,
aided by our acquisition of ViroPharma. In our Hereditary
Angioedema portfolio, CINRYZE performed strongly with quarterly
sales of $145 million and FIRAZYR was
up 57%.
"Our Neuroscience and Gastrointestinal business units also
contributed to the record quarter with VYVANSE sales up 19% and
LIALDA up 24%.
"We continue to build our international presence and our
expansion into the Japanese market with the approval of VPRIV and
AGRYLIN.
"Our early and late stage pipeline continues to be strengthened,
both internally, and through business development providing us with
new investments in Ophthalmology (BIKAM) and Rare Diseases
(ArmaGen). The US Food and Drug Administration accepted with
priority review our supplemental new drug application for VYVANSE
as a treatment for adults with binge eating disorder and we expect
to learn about the potential expanded indication in February 2015.
"Our strong momentum and performance this quarter is evidence of
our ability to deliver growth, efficiency and innovation through
our commitment to addressing significant unmet need in Rare
Diseases and high-value specialty conditions. As a result, I
am pleased to once again increase our guidance for 2014. We
now expect to deliver Non GAAP diluted earnings per ADS growth in
the high thirty percent range in 2014."
- Product sales grew strongly in Q3 2014, up 33% to
$1,552 million (Q3 2013: $1,171 million). Product sales in Q3 2014
included $153 million for products
acquired with ViroPharma Incorporated ("ViroPharma"), primarily
$145 million from
CINRYZE®. The inclusion of ViroPharma contributed 14% to
reported product sales growth in the quarter.
Product sales grew 19% excluding products acquired with
ViroPharma. Growth was generated across our portfolio but primarily
driven by VYVANSE®[1]
(up 19% to $355 million),
LIALDA®/MEZAVANT® (up 24% to $177 million), ELAPRASE® (up 31% to
$169 million) and
REPLAGAL® (up 25% to $136
million). Sales of ELAPRASE and REPLAGAL in the quarter
benefitted from several large orders from customers who order less
frequently. In 2013 comparable orders were recorded in the fourth
quarter.
- Total revenues were up 32% to $1,597
million (Q3 2013: $1,213
million).
- On a Non GAAP basis:
Operating income grew strongly in Q3 2014, up 60% to $717 million (Q3 2013: $449 million) as combined Research and
Development ("R&D") and Selling, General and Administrative
("SG&A") costs increased at a much lower rate (up 10%) than
total revenues (up 32%).
On a Non GAAP basis:
EBITDA margin (excluding royalties and other
revenues)[2]was 46%, up 8 percentage points
compared to Q3 2013 (Q3 2013: 38%), as we continue to deliver
operating leverage. R&D costs were 5% lower compared to Q3
2013. SG&A costs increased by 19%, due in part to the inclusion
of ViroPharma's SG&A costs and additional commercial spending
in advance of anticipated product launches for certain
products.
On a US GAAP basis (from continuing operations):
Operating income was up 49% to $572
million (Q3 2013: $383
million), a lower rate of increase than on a Non GAAP basis
as Q3 2014 included higher amortization charges, higher costs
associated with acquisitions and integration activities as well as
costs associated with AbbVie's terminated offer for Shire. Combined
R&D and SG&A was up 21%, with R&D up 1% and SG&A up
32% as compared with Q3 2013. Net income margin in Q3 2014 was up 7
percentage points to 30% (Q3 2013: 23%).
- Non GAAP diluted earnings per American Depository Share ("ADS")
increased 60% to $2.93 (Q3 2013:
$1.83) as a result of higher Non GAAP
operating income and a lower Non GAAP effective tax rate of 18% in
Q3 2014 (Q3 2013: 20%).
On a US GAAP basis, diluted earnings per ADS increased 66% to
$2.43 (Q3 2013: $1.46) as a result of higher US GAAP operating
income and a lower US GAAP effective tax rate of 11% in Q3 2014 (Q3
2013: 20%).
- Cash generation, a Non GAAP measure, was up 27% to $612 million (Q3 2013: $482 million) reflecting higher receipts from
product sales and lower operating expense payments. Cash generation
in Q3 2014 was held back by payments of $59
million in respect of the final agreement with the US
Government relating to previously disclosed civil investigations,
as well as payments in respect of the One Shire reorganization,
AbbVie's terminated offer for Shire and the integration of
ViroPharma.
Free cash flow, also a Non GAAP measure, was up 48% to $575 million (Q3 2013: $388 million) due to higher cash generation and
lower capital expenditure in the quarter.
On a US GAAP basis, net cash provided by operating activities was
up 37% to $593 million (Q3 2013:
$434 million).
- Net debt, also a Non GAAP measure, was $396 million at September
30, 2014 (December 31, 2013:
net cash of $2,231 million).
On a US GAAP basis, cash and cash equivalents were $468 million at September
30, 2014 (December 31, 2013:
$2,239 million).
--------------------------------------------------
1. ) Lisdexamfetamine dimesylate ("LDX") currently marketed as
VYVANSE in the US and Canada,
VENVANSE® in Latin America and
ELVANSE® in certain territories in the EU for the treatment of
ADHD.
2. ) EBITDA as a percentage of product sales, excluding royalties
and other revenues.
OUTLOOK
We've delivered a very strong performance so far this year, and
as a result we are increasing our guidance. We now expect to
deliver Non GAAP earnings per ADS growth in the high thirty percent
range in 2014 (previous guidance: low-to-mid thirty percent
growth).
Following our strong product sales performance in the year to
date, we now expect product sales growth for the full year 2014 in
the low twenty percent range (previous guidance: high teens
growth).
We anticipate product sales growth in the fourth quarter to be
lower than we've delivered so far this year, as the third quarter
benefited from Rare Diseases sales to customers who order less
frequently, and as we lap against stronger comparatives in the
fourth quarter.
We expect royalties and other revenues for 2014 to be 0-5% lower
than in 2013, as we now anticipate recognizing additional milestone
income in the fourth quarter of 2014.
We continue to anticipate that our Non GAAP gross margin will be
approximately 1 percentage point lower than in 2013.
We continue to expect Combined Non GAAP R&D and SG&A to
grow by 2-4% compared to 2013. We expect slightly higher operating
costs in the fourth quarter than seen in the third quarter, as we
continue to invest behind our innovative and exciting pipeline. The
fourth quarter will also see an increase in commercial spending on
Binge Eating Disorder disease awareness ahead of anticipated
launch.
We continue to expect Non GAAP net interest expense to be
approximately $10 million lower than
in 2013.
Our core effective tax rate on Non GAAP income is still expected
to be in the range of 17-19%.
Our current assumption of the diluted number of ordinary shares
for full year 2014 is approximately 590 million.
Taken together, we now expect to deliver Non GAAP earnings per
ADS growth in the high thirty percent range in 2014 (previous
guidance: low-to-mid thirty percent growth).
THIRD QUARTER 2014 AND RECENT PRODUCT AND PIPELINE
DEVELOPMENTS
Products
We continue to make progress building our business in
Japan:
- On September 26, 2014 Shire was
granted a marketing authorization by the Ministry of Health, Labour
and Welfare in Japan
for AGRYLIN ®[1] in adult essential
thrombocythaemia patients.
- On September 2, 2014 Shire
launched VPRIV® in Japan, for the improvement of symptoms of
Gaucher disease, following approval of a marketing authorization on
July 4, 2014 by the Ministry of
Health, Labor and Welfare in Japan.
VYVANSE - for the treatment of Binge Eating Disorder ("BED") in
adults
- On September 15, 2014 Shire
announced that the US Food and Drug Administration ("FDA") has
accepted for filing with priority review a supplemental New Drug
Application ("sNDA") for VYVANSE as a treatment for adults with
BED. The FDA is expected to provide a decision in February 2015, based on the anticipated
Prescription Drug User Fee Act action date.
Pipeline
SHP607 - for the prevention of
retinopathy of prematurity ("ROP")
- On October 17, 2014 Shire
submitted an Investigational New Drug ("IND") application for
SHP607 with the FDA. The IND is
subject to a 30-day review period.
SHP465 - for the treatment of ADHD
in adults
- On October 9, 2014 Shire
announced that it has received further guidance from the FDA on the
regulatory path for SHP465, an
investigational oral stimulant medication being evaluated as a
potential treatment for ADHD in adults. This information will
impact Shire's plans for a 2014 New Drug Application ("NDA")
resubmission for SHP465.
SHP620 (maribavir) for the
treatment of cytomegalovirus infection ("CMV") in transplant
patients
- SHP620 was acquired as part of
the acquisition of ViroPharma in Q1 2014. Shire is currently
conducting two Phase 2 studies in transplant recipients, both of
which are fully enrolled. The first is a trial in first-line
treatment of asymptomatic CMV in transplant recipients. The results
showed that maribavir, at all doses, was at least as effective as
valganciclovir in the reduction of circulating CMV to below the
limits of assay detection (undetectable CMV). The second study is a
trial for the treatment of resistant/refractory CMV
infection/disease in transplant recipients. The purpose of this
study is to determine whether maribavir is efficacious and safe in
patients with clinically refractory disease to standard of care CMV
therapy (e.g., valganciclovir, foscarnet) with or without genotypic
resistance to those agents. Preliminary results are expected in
early 2015. This product has been granted orphan drug designation
in both the US and EU.
[1] Currently marketed as
XAGRID® in the EU for the treatment of essential
thrombocythaemia.
EXECUTIVE COMMITTEE CHANGES
- On October 20, 2014 Shire
announced that James Bowling,
Interim Chief Financial Officer ("CFO"), had notified the Board of
Directors of his decision to step down from his current role to
pursue a new career opportunity. James will leave Shire at the end
of Q1 2015 and Shire has commenced a search for a new CFO.
OTHER DEVELOPMENTS
Termination of AbbVie's offer for Shire
- On October 15, 2014 the Board of
AbbVie confirmed that it had withdrawn its recommendation of its
offer for Shire as a result of the anticipated impact of the US
Treasury Notice on the benefits that AbbVie expected from its
offer. As AbbVie's offer was conditional on the approval of its
stockholders, and given their Board's decision to change its
recommendation and to advise AbbVie's stockholders to vote against
the offer, there was no realistic prospect of satisfying this
condition. Accordingly, Shire's Board agreed with AbbVie to
terminate the cooperation agreement on October 20, 2014. The UK Takeover Panel has
confirmed that the offer period has ended. Shire has entered
into a termination agreement with AbbVie, pursuant to which AbbVie
has paid the break fee under the cooperation agreement of
approximately $1.635 billion.
Divestment of non-core product rights
During the third quarter Shire divested rights to three non-core
products for total cash consideration of $65
million.
- On September 30, 2014 Shire sold
its rights to EXPUTEX® to Phoenix Labs along with other
specified assets.
- On August 1, 2014 Shire sold its
rights to VANCOCIN® to ANI Pharmaceuticals Inc. along
with other specified assets.
- On July 17, 2014 Shire sold its
rights to ESTRACE® to Trimel Pharmaceuticals Inc. along
with other specified assets.
Strategic licensing and collaboration agreement with ArmaGen
Technologies, Inc. ("ArmaGen")
- On July 23, 2014 Shire and
ArmaGen, a US-based privately held biotechnology company, announced
a worldwide licensing and collaboration agreement to develop and
commercialize AGT-182, an investigational enzyme replacement
therapy for the potential treatment of both the central nervous
system and somatic manifestations in patients with Hunter syndrome.
This collaboration strengthens Shire's rare disease pipeline of
innovative therapies where there is high unmet need, and
underscores Shire's long standing commitment to the Hunter syndrome
community.
Strategic acquisition of BIKAM Pharmaceuticals Inc.
("BIKAM")
- On July 9, 2014 Shire acquired
BIKAM, a US-based privately held biotechnology company. The lead
asset, SHP630 (formerly BIK-406), is
in pre-clinical development for the potential treatment of
autosomal dominant retinitis pigmentosa.
Legal Proceedings
Shire reaches final agreement with US Government relating to
previously disclosed civil investigation
- On September 24, 2014 Shire
announced that it had resolved all matters with the US federal
government, the 50 states and the District of Columbia relating to a previously
disclosed civil investigation of its US sales and marketing
practices relating to ADDERALL XR®, VYVANSE,
DAYTRANA®, LIALDA and PENTASA®. The
investigation was led by the US Attorney's Office for the Eastern
District of Pennsylvania. Under the agreement, Shire has paid
$56.5 million, and interest, fees,
and costs, to resolve all issues investigated by the
government. This final settlement includes the resolution of
two related qui tam complaints filed against Shire and a voluntary
disclosure relating to LIALDA and PENTASA. In addition, Shire
has paid $2.9 million to resolve a
previously disclosed civil complaint filed by the State of Louisiana alleging that Shire's
sales, marketing, and promotion of ADDERALL, ADDERALL XR, DAYTRANA,
VYVANSE and INTUNIV® violated state law. Shire
recorded a $57.5 million provision
related to these matters which was charged to SG&A in the
fourth quarter of 2012. As part of the resolution, Shire has
entered into a Corporate Integrity Agreement with the Office of
Inspector General for the Department of Health and Human Services
for a term of five years.
ADDITIONAL INFORMATION
The following additional information is included in this press
release:
Page
Overview of Third Quarter 2014 Financial Results 7
Financial Information 11
Non GAAP Reconciliation 20
Notes to Editors 25
Safe Harbor Statement 26
Explanation of Non GAAP Measures 27
Trade Marks 28
Dial in details for the live conference
call for investors at 14:00
BST / 09:00 EDT on
October 24, 2014:
UK dial in:
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US dial in:
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International Access Numbers: Click here
Password/Conf ID:
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Live Webcast:
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The quarterly earnings presentation will be available today at
13:00 BST / 08:00 EDT on:
- Shire.com Investors section
- Shire's IR Briefcase in the iTunes Store
Shire R&D day
Shire will hold an R&D day on December 10, 2014 in New York City. For further details please
contact the Shire Investor Relations team.
OVERVIEW OF THIRD QUARTER 2014 FINANCIAL
RESULTS
1. Product sales
For the three months to September 30,
2014 product sales increased by
33%[1] to $1,552 million (Q3 2013: $1,171 million) and represented 97% of total
revenues (Q3 2013: 97%).
US Exit
Market
Year on year growth Share[3]
Non GAAP
Product sales[1] Sales $M Sales CER [2] US Rx [3]
VYVANSE 354.9 +19% +19% +5% 16%
LIALDA/MEZAVANT 176.6 +24% +24% +22% 32%
ELAPRASE 168.8 +31% +33% n/a[5] n/a[5]
CINRYZE[4] 145.1 n/a n/a n/a[5] n/a[5]
REPLAGAL 135.9 +25% +27% n/a[6] n/a[6]
FIRAZYR 98.4 +57% +57% n/a[5] n/a[5]
INTUNIV 96.7 +20% +20% +0% 4%
VPRIV 96.4 +10% +10% n/a[5] n/a[5]
ADDERALL XR 95.3 +17% +17% +12% 5%
PENTASA 78.3 +11% +11% -5% 13%
OTHER 105.6 -3% -5% n/a n/a
Total 1,552.0 +33% +33%
- Product sales from continuing operations, including ViroPharma
acquired January 24, 2014, and
excluding DERMAGRAFT which has been treated as discontinued
operations following divestment on January
17, 2014.
- On a Constant Exchange Rate ("CER") basis, which is a Non GAAP
measure.
- Data provided by IMS Health National Prescription Audit ("IMS
NPA") relates solely to US-based prescriptions. Exit market share
represents the average monthly US market share in the month ended
September 30, 2014.
- CINRYZE product sales in Q3 2014 were up 36% on Q3 2013. Q3
2013 sales were recorded by ViroPharma, prior to the acquisition of
ViroPharma by Shire.
- IMS NPA Data not available.
- Not sold in the US in Q3 2014.
VYVANSE - ADHD
VYVANSE product sales grew strongly in Q3 2014 (up 19% compared
to Q3 2013) due to a price increase taken since Q3 2013 and to a
lesser extent higher US prescription demand and growth in
international markets.
LIALDA/MEZAVANT - Ulcerative Colitis
Product sales for LIALDA/MEZAVANT in Q3 2014 were up 24%,
primarily due to higher US prescription demand (up 22%) and to a
lesser extent a price increase taken since Q3 2013. Q3 2014 also
benefited from higher stocking than seen in Q2 2014.
ELAPRASE- Hunter syndrome
ELAPRASE product sales in Q3 2014 were up 31% compared to Q3
2013 driven by continued growth in the number of treated patients,
especially in emerging markets. Growth in Q3 2014 also benefited
from the timing of large shipments to certain markets which order
less frequently. Many of these comparable orders in 2013 were made
in the fourth quarter and therefore we expect ELAPRASE year-on-year
sales growth to moderate in Q4 2014.
CINRYZE - for the prophylactic treatment of Hereditary
Angioedema ("HAE")
Shire acquired CINRYZE through its acquisition of ViroPharma in
Q1 2014. CINRYZE sales were $145.1
million in Q3 2014, growing 36% on Q3
2013[(1)]primarily driven by more
patients on therapy, inventory build at specialty pharmacies
favourably impacting sales and to a lesser extent, a price increase
in the US.
[1] Q3 2013 recorded by
ViroPharma, prior to the acquisition of ViroPharma by Shire.
REPLAGAL - Fabry disease
REPLAGAL sales were up 25% compared to Q3 2013 as we continue to
see good growth in emerging markets and to a lesser extent higher
volume demand in Europe. Q3 2014
also benefited from larger orders for certain markets which order
less frequently. A comparable order in 2013 was made in the fourth
quarter and therefore we expect REPLAGAL year-on-year sales growth
to moderate in Q4 2014.
FIRAZYR - for the treatment of acute HAE
attacks
FIRAZYR's strong product sales growth (up 57%) was primarily due
to growth in patients on therapy and the effect of a price increase
in the US market.
INTUNIV - ADHD
The growth in INTUNIV product sales (up 20%) in Q3 2014 was
driven by price increases taken since Q3 2013, partially offset by
destocking in Q3 2014 as compared to stocking in Q3 2013. We expect
generic competition to enter the market starting in December 2014, which would impact US sales of
INTUNIV.
VPRIV - Gaucher disease
VPRIV product sales in Q3 2014 were up 10% compared to Q3 2013
as we continue to add naïve patients and gain patients switching
from other therapies.
ADDERALL XR - ADHD
ADDERALL XR product sales increased (up 17%) in Q3 2014,
primarily due to increased prescription demand, and lower sales
deductions as a percentage of product sales in Q3 2014 as compared
to Q3 2013.
PENTASA - Ulcerative Colitis
PENTASA product sales increased in Q3 2014 (up 11%) driven by
price increases taken since Q3 2013 and a slight increase in
stocking.
2. Royalties
Year on year growth
Royalties to
Product Shire $M Royalties CER
FOSRENOL(R) 14.6 +6% +6%
ADDERALL XR 9.5 +53% +53%
3TC(R) and ZEFFIX(R) 8.8 -13% -13%
Other 7.0 -7% -7%
Total 39.9 +6% +6%
3. Financial details
Cost of product sales
% of % of
product product
Q3 2014 sales Q3 2013 sales
$M $M
Cost of product sales (US
GAAP) 254.3 16% 180.5 15%
Unwind of ViroPharma
inventory fair value
step-up (18.1) -
Depreciation (16.9) (10.2)
Cost of product sales (Non
GAAP) 219.3 14% 170.3 15%
Non GAAP cost of product sales as a percentage of product sales
decreased marginally in Q3 2014 as compared with Q3 2013.
US GAAP cost of product sales as a percentage of product sales
increased marginally in 2014 as Q3 2014 included charges on the
unwind of the fair value adjustment on acquired ViroPharma
inventories.
R&D
% of % of
product product
Q3 2014 sales Q3 2013 sales
$M $M
R&D (US GAAP) 228.6 15% 226.2 19%
Payments in respect of
in-licensed and acquired
products (12.5) -
Depreciation (6.1) (6.3)
R&D (Non GAAP) 210.0 14% 219.9 19%
Non GAAP R&D decreased by $9.9
million, or 5% in Q3 2014, following the completion of
several large Phase 3 programs since Q3 2013 including new uses for
LDX and the effect of portfolio prioritization decisions taken
during 2013. These decreases were partially offset by the inclusion
of programs acquired through business development in 2014.
US GAAP R&D increased by $2.4
million, or 1% as compared to Q3 2013.
SG&A
% of % of
product product
Q3 2014 sales Q3 2013 sales
$M $M
SG&A (US GAAP) 522.9 34% 396.3 34%
Intangible asset
amortization (62.9) (34.5)
Legal and litigation costs (3.3) (4.7)
Costs incurred in
connection with AbbVie's
terminated offer for Shire (28.4) -
Depreciation (20.7) (15.9)
SG&A (Non GAAP) 407.6 26% 341.2 29%
Non GAAP SG&A increased by $66.4
million, or 19%. The inclusion of ViroPharma SG&A in Q3
2014 and commercial spending in advance of anticipated product
launches for certain products offset lower ongoing overheads
following the One Shire reorganization. Non GAAP SG&A as a
percentage of product sales was 3 percentage points lower than Q3
2013 as we continue to see benefits from the One Shire
reorganization and the focus on operational discipline in Q3
2014.
US GAAP SG&A increased by $126.6
million, or 32%, as it also includes higher amortization of
intangible assets acquired with ViroPharma, and costs incurred in
connection with AbbVie's terminated offer for Shire.
Gain on sale of product rights
For the three months to September 30,
2014 Shire recorded a net gain on sale of non-core product
rights of $46.0 million (2013:
$3.6 million) following the
divestment of VANCOCIN, ESTRACE and EXPUTEX. The gain on sale of
product rights also included the gain on re-measurement of the
contingent consideration receivable relating to the divestment of
DAYTRANA.
Reorganization costs
For the three months to September 30,
2014 Shire recorded reorganization costs of $28.2 million (Q3 2013: $12.0 million)
related to the One Shire reorganization as we continue the
implementation of our new operating structure.
Integration and acquisition costs
For the three months to September 30,
2014 Shire recorded integration and acquisition costs of
$37.1 million, comprising a
$4.9 million charge relating to the
change in fair value of contingent consideration liabilities and
costs of $32.2 million primarily
related to the acquisition and integration of ViroPharma.
In Q3 2013 integration and acquisition costs ($18.4 million) primarily related to the change in
fair values of contingent consideration liabilities and the cost of
integrating SARcode BioSciences Inc. ("SARcode") and Premacure AB
("Premacure").
Interest expense
For the three months to September 30,
2014 Shire incurred interest expense of $6.8 million (Q3 2013: $9.2 million). Interest expense in Q3 2014
primarily related to interest and the amortization of issue costs
incurred on borrowings to fund the ViroPharma acquisition. Interest
expense in Q3 2013 principally related to the coupon and
amortization of costs on Shire's convertible bonds which were fully
redeemed or converted in Q4 2013.
Taxation
The effective rate of tax on Non GAAP income in Q3 2014 was 18%
(Q3 2013: 20%), and on a US GAAP basis the effective rate of tax
was 11% (Q3 2013: 20%).
The effective rate of tax in Q3 2014 on Non GAAP income from
continuing operations is lower than the same period in 2013
primarily due to changes in profit mix.
The effective rate of tax in Q3 2014 on US GAAP income from
continuing operations is lower than the same period in 2013
primarily due to changes in profit mix and the recognition of a
further tax credit of $27.7 million
related to the settlement of an additional position with the
Canadian revenue authorities in Q3 2014.
Discontinued operations
The loss from discontinued operations for the three months to
September 30, 2014 was $36.1 million net of tax (2013: $22.9 million) relating to costs associated with
the divestment of the DERMAGRAFT business, including a loss on
re-measurement of contingent consideration receivable from
Organogenesis to its fair value.
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Unaudited US GAAP Consolidated Balance Sheets 12
Unaudited US GAAP Consolidated Statements of Income 13
Unaudited US GAAP Consolidated Statements of Cash
Flows 15
Selected Notes to the Unaudited US GAAP Financial
Statements
(1) Earnings per share 17
(2) Analysis of revenues 18
Non GAAP reconciliation 20
Unaudited US GAAP financial position as of September 30, 2014
Consolidated Balance Sheets
September 30, December 31,
2014 2013
$M $M
ASSETS
Current assets:
Cash and cash equivalents 467.7 2,239.4
Restricted cash 54.5 22.2
Accounts receivable, net 1,079.3 961.2
Inventories 548.9 455.3
Assets held for sale - 31.6
Deferred tax asset 315.3 315.6
Prepaid expenses and other current assets 402.4 263.0
Total current assets 2,868.1 4,288.3
Non-current assets:
Investments 46.8 31.8
Property, plant and equipment ("PP&E"), net 845.6 891.8
Goodwill 2,373.7 624.6
Other intangible assets, net 5,227.4 2,312.6
Deferred tax asset 136.7 141.1
Other non-current assets 42.2 32.8
Total assets 11,540.5 8,323.0
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses 1,725.8 1,688.4
Other current liabilities 276.6 119.5
Total current liabilities 2,002.4 1,807.9
Non-current liabilities:
Long term borrowings 850.0 -
Deferred tax liability 1,378.2 560.6
Other non-current liabilities 771.6 588.5
Total liabilities 5,002.2 2,957.0
Equity:
Common stock of 5p par value; 1,000 million
shares authorized; and 598.6 million shares
issued and outstanding (2013: 1,000 million
shares authorized; and 597.5 million shares
issued and outstanding) 58.7 58.6
Additional paid-in capital 4,302.0 4,186.3
Treasury stock: 10.8 million shares (2013: 13.4
million) (350.8) (450.6)
Accumulated other comprehensive income 30.8 110.2
Retained earnings 2,497.6 1,461.5
Total equity 6,538.3 5,366.0
Total liabilities and equity 11,540.5 8,323.0
Unaudited US GAAP results for the three months and nine
months to September 30, 2014
Consolidated Statements of Income
3 months to September 30, 9 months to September 30,
2014 2013 2014 2013
$M $M $M $M
Revenues:
Product sales 1,552.0 1,171.0 4,329.7 3,477.1
Royalties 39.9 37.6 101.4 112.4
Other revenues 5.2 4.1 14.9 18.8
Total revenues 1,597.1 1,212.7 4,446.0 3,608.3
Costs and expenses:
Cost of product sales 254.3 180.5 760.8 492.2
R&D[1] 228.6 226.2 826.0 703.3
SG&A[1] 522.9 396.3 1,449.4 1,198.0
Goodwill impairment charge - - - 7.1
Gain on sale of product
rights (46.0) (3.6) (86.2) (14.6)
Reorganization costs 28.2 12.0 123.4 47.2
Integration and acquisition
costs 37.1 18.4 155.8 39.9
Total operating expenses 1,025.1 829.8 3,229.2 2,473.1
Operating income from
continuing operations 572.0 382.9 1,216.8 1,135.2
Interest income 3.6 0.4 22.8 1.6
Interest expense (6.8) (9.2) (25.7) (27.5)
Other income/(expense), net 6.8 0.7 14.8 (1.6)
Total other
income/(expense), net 3.6 (8.1) 11.9 (27.5)
Income from continuing
operations before income
taxes and equity in
earnings/(losses) of equity
method investees 575.6 374.8 1,228.7 1,107.7
Income taxes (61.2) (73.4) 64.7 (235.3)
Equity in earnings/(losses)
of equity method investees,
net of taxes 1.4 (0.3) 3.8 0.6
Income from continuing
operations, net of tax 515.8 301.1 1,297.2 873.0
Loss from discontinued
operations, net of taxes (36.1) (22.9) (64.0) (271.9)
Net income 479.7 278.2 1,233.2 601.1
- R&D includes intangible asset impairment charges of
$188.0 million for the nine months to
September 30, 2014 (2013:
$19.9 million). SG&A costs
include amortization charges of intangible assets relating to
intellectual property rights acquired of $62.9 million for the three months to
September 30, 2014 (2013:
$34.5 million) and $181.9 million for the nine months to
September 30, 2014 (2013:
$106.5 million).
Unaudited US GAAP results for the three months and nine
months to September 30, 2014
Consolidated Statements of Income (continued)
3 months to September 30, 9 months to September 30,
2014 2013 2014 2013
Earnings per Ordinary Share
- basic
Earnings from continuing
operations 87.8c 54.9c 221.3c 158.8c
Loss from discontinued
operations (6.1c) (4.2c) (10.9c) (49.5c)
Earnings per Ordinary Share
- basic 81.7c 50.7c 210.4c 109.3c
Earnings per ADS - basic 245.1c 152.1c 631.2c 327.9c
Earnings per Ordinary Share
- diluted
Earnings from continuing
operations 87.0c 52.7c 219.1c 152.5c
Loss from discontinued
operations (6.1c) (3.9c) (10.8c) (46.3c)
Earnings per Ordinary Share
- diluted 80.9c 48.8c 208.3c 106.2c
Earnings per ADS - diluted 242.7c 146.4c 624.9c 318.6c
Weighted average number of
shares:
Millions Millions Millions Millions
Basic 587.6 548.4 586.1 549.8
Diluted 592.6 585.7 592.1 587.5
Unaudited US GAAP results for the three months and nine
months to September 30, 2014
Consolidated Statements of Cash Flows
3 months to 9 months to
September 30, September 30,
2014 2013 2014 2013
$M $M $M $M
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 479.7 278.2 1,233.2 601.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 106.6 78.2 307.1 229.4
Share based compensation 22.6 18.8 78.3 55.2
Change in fair value of contingent
consideration 4.9 14.7 26.3 28.4
Impairment of intangible assets - - 188.0 19.9
Goodwill impairment charge - - - 198.9
Write down of assets 1.0 - 14.0 8.3
Gain on sale of product rights (12.4) (3.6) (52.6) (14.6)
Unwind of ViroPharma inventory fair
value step-up 18.1 - 90.6 -
Other, net (1.9) (2.8) 16.5 (3.9)
Movement in deferred taxes 37.8 (5.1) 63.1 16.1
Equity in (earnings)/losses of equity method
investees (1.4) 0.3 (3.8) (0.6)
Changes in operating assets and liabilities:
Increase in accounts receivable (54.8) (112.6) (92.1) (215.2)
(Decrease)/increase in sales
deduction accrual (77.8) 68.7 28.2 108.7
(Increase)/decrease in inventory (4.1) 14.0 (15.8) (39.9)
Decrease/(increase) in prepayments
and other assets 22.8 (4.4) (114.7) (70.9)
Increase/(decrease) in accounts
payable and other liabilities 52.3 89.3 (92.8) (71.4)
Returns on investment from joint venture - - - 3.2
Net cash provided by operating
activities[A] 593.4 433.7 1,673.5 852.7
CASH FLOWS FROM INVESTING ACTIVITIES:
Movements in restricted cash (20.4) 1.0 (32.3) 0.5
Purchases of subsidiary undertakings and
businesses, net of cash acquired (86.1) - (4,104.4) (227.8)
Purchases of non-current investments (19.7) (3.1) (22.8) (9.9)
Purchases of PP&E (30.7) (45.3) (49.8) (110.3)
Proceeds from short-term investments 1.5 - 57.8 -
Proceeds from disposal of non-current
investments 13.3 0.9 21.3 8.6
Proceeds received on sale of product
rights 69.9 4.7 122.7 15.0
Other, net 4.1 0.1 1.3 2.9
Net cash used in investing
activities[B] (68.1) (41.7) (4,006.2) (321.0)
Unaudited US GAAP results for the three months and nine
months to September 30, 2014
Consolidated Statements of Cash Flows (continued)
3 months to September 9 months to September
30, 30,
2014 2013 2014 2013
$M $M $M $M
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving line of
credit, long term and short term
borrowings - - 2,310.8 -
Repayment of revolving line of
credit and short term borrowings (210.2) - (1,461.8) -
Repayment of debt acquired through
business combinations - - (551.5) -
Proceeds from ViroPharma call
options - - 346.7 -
Payment of dividend - - (99.6) (79.2)
Payments to acquire shares by the
Employee Benefit Trust ("EBT") - - - (50.3)
Payments to acquire shares under
the share buy-back program - (12.8) - (190.5)
Excess tax benefit associated with
exercise of stock options 8.3 3.4 37.4 9.5
Contingent consideration payments (2.5) (2.5) (12.8) (11.3)
Other, net (1.7) 1.7 (2.0) (5.5)
Net cash (used in)/provided by
financing activities[C] (206.1) (10.2) 567.2 (327.3)
Effect of foreign exchange rate
changes on cash and cash
equivalents [D] (5.1) 2.4 (6.2) (0.5)
Net increase/(decrease) in cash and
cash equivalents[(A) +(B) +(C)
+(D)] 314.1 384.2 (1,771.7) 203.9
Cash and cash equivalents at
beginning of period 153.6 1,301.9 2,239.4 1,482.2
Cash and cash equivalents at end of
period 467.7 1,686.1 467.7 1,686.1
Unaudited US GAAP results for the three months and nine
months to September 30,
2014
Selected Notes to the Financial Statements
(1) Earnings Per Share ("EPS")
3 months to September 30, 9 months to September 30,
2014 2013 2014 2013
$M $M $M $M
Income from continuing
operations 515.8 301.1 1,297.2 873.0
Loss from discontinued
operations (36.1) (22.9) (64.0) (271.9)
Numerator for basic EPS 479.7 278.2 1,233.2 601.1
Interest on convertible
bonds, net of tax - 7.6 - 22.7
Numerator for diluted EPS 479.7 285.8 1,233.2 623.8
Weighted average number of
shares:
Millions Millions Millions Millions
Basic[1] 587.6 548.4 586.1 549.8
Effect of dilutive shares:
Share based awards to
employees[2] 5.0 3.5 6.0 3.9
Convertible bonds[3] - 33.8 - 33.8
Diluted 592.6 585.7 592.1 587.5
- Excludes shares purchased by the EBT and under the share
buy-back program and presented by Shire as treasury stock.
- Calculated using the treasury stock method.
- 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 September 30, 9 months to September 30,
2014 2013 2014 2013
Millions Millions Millions Millions
Share based awards to
employees[1] 0.3 0.5 0.3 4.5
- Certain stock options have been excluded from the calculation
of diluted EPS because (a) their exercise prices exceeded Shire's
average share price during the calculation period or (b) the
required performance conditions were not satisfied as at the
balance sheet date.
Unaudited US GAAP results for the three months to
September 30, 2014
Selected Notes to the Financial Statements
(2) Analysis of revenues
3 months to September 30, 2014 2013 2014 2014
% % of total
$M $M change revenue
Net product sales:
VYVANSE 354.9 299.2 19% 22%
LIALDA/MEZAVANT 176.6 141.9 24% 11%
ELAPRASE 168.8 129.1 31% 11%
CINRYZE 145.1 - n/a 9%
REPLAGAL 135.9 108.5 25% 9%
FIRAZYR 98.4 62.6 57% 6%
INTUNIV 96.7 80.8 20% 6%
VPRIV 96.4 87.8 10% 6%
ADDERALL XR 95.3 81.4 17% 6%
PENTASA 78.3 70.6 11% 5%
FOSRENOL 48.1 51.9 -7% 3%
XAGRID 27.1 24.2 12% 2%
Other product sales 30.4 33.0 -8% 2%
Total product sales 1,552.0 1,171.0 33% 97%
Royalties:
FOSRENOL 14.6 13.8 6% <1%
ADDERALL XR 9.5 6.2 53% <1%
3TC and ZEFFIX 8.8 10.1 -13% <1%
Other 7.0 7.5 -7% <1%
Total royalties 39.9 37.6 6% 2%
Other revenues 5.2 4.1 27% <1%
Total revenues 1,597.1 1,212.7 32% 100%
Unaudited US GAAP results for the nine months to September 30, 2014
Selected Notes to the Financial Statements
(2) Analysis of revenues
9 months to September 30, 2014 2013 2014 2014
% % of total
$M $M change revenue
Net product sales:
VYVANSE 1,065.6 897.9 19% 24%
LIALDA/MEZAVANT 449.1 379.9 18% 10%
ELAPRASE 449.5 392.6 14% 10%
CINRYZE 360.6 - n/a 8%
REPLAGAL 380.7 336.6 13% 9%
FIRAZYR 262.3 153.8 71% 6%
INTUNIV 279.0 248.9 12% 6%
VPRIV 273.0 251.9 8% 6%
ADDERALL XR 280.2 293.5 -5% 6%
PENTASA 213.8 215.2 -1% 5%
FOSRENOL 136.2 136.3 0% 3%
XAGRID 82.1 74.1 11% 2%
Other product sales 97.6 96.4 1% 2%
Total product sales 4,329.7 3,477.1 25% 97%
Royalties:
FOSRENOL 36.8 33.6 10% 1%
ADDERALL XR 23.0 19.2 20% <1%
3TC and ZEFFIX 24.6 33.9 -27% 1%
Other 17.0 25.7 -34% <1%
Total royalties 101.4 112.4 -10% 2%
Other revenues 14.9 18.8 -21% <1%
Total revenues 4,446.0 3,608.3 23% 100%
Unaudited results for the three months to September 30, 2014
Non GAAP reconciliation
3 months to September
30, 2014 US GAAP Adjustments Non GAAP
(a) (b) (c) (d) (e) (f)
$M $M $M $M $M $M $M $M
Total revenues 1,597.1 - - - - - - 1,597.1
Costs and expenses:
Cost of product sales 254.3 - (18.1) - - - (16.9) 219.3
R&D 228.6 - (12.5) - - - (6.1) 210.0
SG&A 522.9 (62.9) - - (3.3) (28.4) (20.7) 407.6
Gain on sale of product
rights (46.0) - - 46.0 - - - -
Reorganization costs 28.2 - - (28.2) - - - -
Integration and
acquisition costs 37.1 - (37.1) - - - - -
Depreciation - - - - - - 43.7 43.7
Total operating expenses 1,025.1 (62.9) (67.7) 17.8 (3.3) (28.4) - 880.6
Operating income 572.0 62.9 67.7 (17.8) 3.3 28.4 - 716.5
Interest income 3.6 - - - - (2.8) - 0.8
Interest expense (6.8) - - - - - - (6.8)
Other expense, net 6.8 - (4.7) (10.8) - - - (8.7)
Total other
income/(expense), net 3.6 - (4.7) (10.8) - (2.8) - (14.7)
Income before income
taxes and equity in
earnings of equity
method investees 575.6 62.9 63.0 (28.6) 3.3 25.6 - 701.8
Income taxes (61.2) (29.5) (17.9) 13.9 (1.2) (27.7) - (123.6)
Equity in earnings of
equity method investees,
net of tax 1.4 - - - - - - 1.4
Net income from
continuing operations 515.8 33.4 45.1 (14.7) 2.1 (2.1) - 579.6
Loss from discontinued
operations, net of tax (36.1) - - 36.1 - - - -
Net income 479.7 33.4 45.1 21.4 2.1 (2.1) - 579.6
Weighted average number
of shares (millions) -
diluted 592.6 - - - - - - 592.6
Diluted earnings per ADS 242.7c 16.9c 22.9c 10.9c 1.2c (1.2c) - 293.4c
The following items are included in Adjustments:
- Amortization and asset impairments: Amortization of intangible
assets relating to intellectual property rights acquired
($62.9 million), and tax effect of
adjustments;
- Acquisition and integration activities: Unwind of ViroPharma
inventory fair value adjustments ($18.1
million), payments in respect of in-licensed and acquired
products ($12.5 million), costs
primarily associated with the acquisition and integration of
ViroPharma ($32.2 million), net
charge related to the change in fair value of contingent
consideration liabilities ($4.9
million), gain on settlement of pre-existing relationship
with an acquired business ($4.7
million), and tax effect of adjustments;
- Divestments, reorganizations and discontinued operations: Net
gain on divestment of non-core product rights and on re-measurement
of DAYTRANA contingent consideration to fair value ($46.0 million), costs relating to the One Shire
reorganization ($28.2 million), gain
on sale of long term investments ($10.8
million), tax effect of adjustments, and loss from
discontinued operations, net of tax ($36.1
million);
- Legal and litigation costs: Costs related to litigation,
government investigations, other disputes and external legal costs
($3.3 million), and tax effect of
adjustments;
- Other: Costs associated with AbbVie's terminated offer for
Shire ($28.4 million), interest
income received in respect of cash deposited with the Canadian
revenue authorities ($2.8 million),
net income tax credit related to the settlement of certain tax
positions with the Canadian revenue authorities ($27.7 million), and tax effect of adjustments;
and
- Depreciation reclassification: Depreciation of $43.7 million included in Cost of product sales,
R&D and SG&A for US GAAP separately disclosed for the
presentation of Non GAAP earnings.
Unaudited results for the three months to September 30, 2013
Non GAAP reconciliation
3 months to September 30, 2013 US GAAP Adjustments Non GAAP
(a) (b) (c) (d) (e)
$M $M $M $M $M $M $M
Total revenues 1,212.7 - - - - - 1,212.7
Costs and expenses:
Cost of product sales 180.5 - - - - (10.2) 170.3
R&D 226.2 - - - - (6.3) 219.9
SG&A 396.3 (34.5) - - (4.7) (15.9) 341.2
Gain on sale of product rights (3.6) - - 3.6 - - -
Reorganization costs 12.0 - - (12.0) - - -
Integration and acquisition
costs 18.4 - (18.4) - - - -
Depreciation - - - - - 32.4 32.4
Total operating expenses 829.8 (34.5) (18.4) (8.4) (4.7) - 763.8
Operating income 382.9 34.5 18.4 8.4 4.7 - 448.9
Interest income 0.4 - - - - - 0.4
Interest expense (9.2) - - - - - (9.2)
Other expense, net 0.7 - - - - - 0.7
Total other expense, net (8.1) - - - - - (8.1)
Income before income taxes and
equity in losses of equity
method investees 374.8 34.5 18.4 8.4 4.7 - 440.8
Income taxes (73.4) (10.5) (1.0) (3.6) (1.8) - (90.3)
Equity in losses of equity
method investees, net of tax (0.3) - - - - - (0.3)
Income from continuing
operations 301.1 24.0 17.4 4.8 2.9 - 350.2
Loss from discontinued
operations, net of tax (22.9) - - 22.9 - - -
Net income 278.2 24.0 17.4 27.7 2.9 - 350.2
Impact of convertible debt, net
of tax 7.6 - - - - - 7.6
Numerator for diluted EPS 285.8 24.0 17.4 27.7 2.9 - 357.8
Weighted average number of
shares (millions) - diluted 585.7 - - - - - 585.7
Diluted earnings per ADS 146.4c 12.3c 8.9c 14.2c 1.5c - 183.3c
The following items are included in Adjustments:
- Amortization and asset impairments: Amortization of intangible
assets relating to intellectual property rights acquired
($34.5 million), and tax effect of
adjustments;
- Acquisition and integration activities: Costs primarily
associated with the integration of SARcode and Premacure
($3.8 million), charges related to
the change in fair values of contingent consideration liabilities
($14.6 million), and tax effect of
adjustments;
- Divestments, reorganizations and discontinued operations: Gain
on re-measurement of DAYTRANA contingent consideration to fair
value ($3.6 million), costs relating
to the One Shire reorganization and the collective dismissal and
closure of Shire's facility at Turnhout, Belgium ($12.0
million), tax effect of adjustments, and loss from
discontinued operations, net of tax ($22.9
million);
- Legal and litigation costs: Costs related to litigation,
government investigations, other disputes and external legal costs
($4.7 million), and tax effect of
adjustments; and
- Depreciation reclassification: Depreciation of $32.4 million included in Cost of product sales,
R&D and SG&A for US GAAP separately disclosed for the
presentation of Non GAAP earnings.
Unaudited results for the nine months to September 30, 2014
Non GAAP reconciliation
9 months to September
30, 2014 US GAAP Adjustments Non GAAP
(a) (b) (c) (d) (e) (f)
$M $M $M $M $M $M $M $M
Total revenues 4,446.0 - - - - - - 4,446.0
Costs and expenses:
Cost of product sales 760.8 - (90.6) - - - (44.9) 625.3
R&D 826.0 (188.0) (12.5) - - - (17.7) 607.8
SG&A 1,449.4 (181.9) - - (7.2) (47.5) (62.6) 1,150.2
Gain on sale of
product rights (86.2) - - 86.2 - - - -
Reorganization costs 123.4 - - (123.4) - - - -
Integration and
acquisition costs 155.8 - (155.8) - - - - -
Depreciation - - - - - - 125.2 125.2
Total operating
expenses 3,229.2 (369.9) (258.9) (37.2) (7.2) (47.5) - 2,508.5
Operating income 1,216.8 369.9 258.9 37.2 7.2 47.5 - 1,937.5
Interest income 22.8 - - - - (21.4) - 1.4
Interest expense (25.7) - - - - - - (25.7)
Other
income/(expense), net 14.8 - (4.7) (15.8) - - - (5.7)
Total other
income/(expense), net 11.9 - (4.7) (15.8) - (21.4) - (30.0)
Income before income
taxes and equity in
earnings of equity
method investees 1,228.7 369.9 254.2 21.4 7.2 26.1 - 1,907.5
Income taxes 64.7 (105.5) (43.4) (11.5) (2.6) (243.7) - (342.0)
Equity in earnings of
equity method
investees, net of tax 3.8 - - - - - - 3.8
Income from
continuing operations 1,297.2 264.4 210.8 9.9 4.6 (217.6) - 1,569.3
Loss from
discontinued
operations, net of
tax (64.0) - - 64.0 - - - -
Net income 1,233.2 264.4 210.8 73.9 4.6 (217.6) - 1,569.3
Weighted average
number of shares
(millions) - diluted 592.1 - - - - - - 592.1
Diluted earnings per
ADS 624.9c 134.0c 106.7c 37.4c 2.4c (110.4c) - 795.0c
The following items are included in Adjustments:
- Amortization and asset impairments: Impairment of IPR&D
intangible assets ($188.0 million),
amortization of intangible assets relating to intellectual property
rights acquired ($181.9 million), and
tax effect of adjustments;
- Acquisitions and integration activities: Unwind of ViroPharma
inventory fair value adjustments ($90.6
million), payments in respect of in-licensed and acquired
products ($12.5 million), costs
primarily associated with the acquisition and integration of
ViroPharma ($129.5 million), net
charge related to the change in fair values of contingent
consideration liabilities ($26.3
million), gain on settlement of pre-existing relationship
with an acquired business ($4.7
million), and tax effect of adjustments;
- Divestments, reorganizations and discontinued operations: Net
gain on divestment of non-core product rights and on re-measurement
of DAYTRANA contingent consideration to fair value ($86.2 million), costs relating to the One Shire
reorganization ($123.4 million), gain
on sale of long term investments ($15.8
million), tax effect of adjustments and loss from
discontinued operations, net of tax ($64.0
million);
- Legal and litigation costs: Costs related to litigation,
government investigations, other disputes and external legal costs
($7.2 million), and tax effect of
adjustments;
- Other: Costs associated with AbbVie's terminated offer for
Shire ($47.5 million), interest
income received in respect of cash deposited with the Canadian
revenue authorities ($21.4 million),
net income tax credit related to the settlement of certain tax
positions with the Canadian revenue authorities ($243.7 million), and tax effect of adjustment;
and
- Depreciation reclassification: Depreciation of $125.2 million included in Cost of product sales,
R&D and SG&A for US GAAP separately disclosed for the
presentation of Non GAAP earnings.
Unaudited results for the nine months to September 30, 2013
Non GAAP reconciliation
9 months to September 30, 2013 US GAAP Adjustments Non GAAP
(a) (b) (c) (d) (e)
$M $M $M $M $M $M $M
Total revenues 3,608.3 - - - - - 3,608.3
Costs and expenses:
Cost of product sales 492.2 - - - - (26.5) 465.7
R&D 703.3 (19.9) - - - (15.2) 668.2
SG&A 1,198.0 (106.5) - - (8.1) (47.6) 1,035.8
Goodwill impairment charge 7.1 (7.1) - - - - -
Gain on sale of product rights (14.6) - - 14.6 - - -
Reorganization costs 47.2 - - (47.2) - - -
Integration and acquisition
costs 39.9 - (39.9) - - - -
Depreciation - - - - - 89.3 89.3
Total operating expenses 2,473.1 (133.5) (39.9) (32.6) (8.1) - 2,259.0
Operating income 1,135.2 133.5 39.9 32.6 8.1 - 1,349.3
Interest income 1.6 - - - - - 1.6
Interest expense (27.5) - - - - - (27.5)
Other expense, net (1.6) - - - - - (1.6)
Total other expense, net (27.5) - - - - - (27.5)
Income before income taxes and
equity in earnings of equity
method investees 1,107.7 133.5 39.9 32.6 8.1 - 1,321.8
Income taxes (235.3) (32.4) (3.1) (9.4) (3.1) - (283.3)
Equity in earnings of equity
method investees, net of tax 0.6 - - - - - 0.6
Income from continuing
operations 873.0 101.1 36.8 23.2 5.0 - 1,039.1
Loss from discontinued
operations, net of tax (271.9) - - 271.9 - - -
Net income 601.1 101.1 36.8 295.1 5.0 - 1,039.1
Impact of convertible debt, net
of tax 22.7 - - - - - 22.7
Numerator for diluted EPS 623.8 101.1 36.8 295.1 5.0 - 1,061.8
Weighted average number of
shares (millions) - diluted 587.5 - - - - - 587.5
Diluted earnings per ADS 318.6c 51.6c 18.8c 150.6c 2.5c - 542.1c
The following items are included in Adjustments:
- Amortization and asset impairments: Impairment of IPR&D
intangible assets acquired with Movetis ($19.9 million), impairment of goodwill relating
to Shire's Regenerative Medicine Business relating to continuing
operations ($7.1 million),
amortization of intangible assets relating to intellectual property
rights acquired ($106.5 million), and
tax effect of adjustments;
- Acquisitions and integration activities: Costs primarily
associated with the acquisition of SARcode, Lotus Tissue Repair,
Inc. and Premacure ($11.5 million),
charges related to the change in fair values of contingent
consideration liabilities ($28.4
million), and tax effect of adjustments;
- Divestments, reorganizations and discontinued operations:
Re-measurement of DAYTRANA contingent consideration to higher fair
value ($14.6 million), costs relating
to the One Shire reorganization and the collective dismissal and
closure of Shire's facility at Turnhout, Belgium ($47.2
million), tax effect of adjustments, and loss from
discontinued operations, net of tax ($271.9
million);
- Legal and litigation costs: Costs related to litigation,
government investigations, other disputes and external legal costs
($8.1 million), and tax effect of
adjustments; and
- Depreciation reclassification: Depreciation of $89.3 million included in Cost of product sales,
R&D and SG&A for US GAAP separately disclosed for the
presentation of Non GAAP earnings.
Unaudited results for the three months and nine months to
September 30, 2014
Non GAAP reconciliation
The following table reconciles US GAAP net income to Non GAAP
EBITDA:
3 months to September 30, 9 months to September 30,
2014 2013 2014 2013
$M $M $M $M
US GAAP Net Income 479.7 278.2 1,233.2 601.1
(Deduct) / add back:
Loss from discontinued
operations, net of tax 36.1 22.9 64.0 271.9
Equity in
(earnings)/losses of
equity method investees,
net of taxes (1.4) 0.3 (3.8) (0.6)
Income taxes 61.2 73.4 (64.7) 235.3
Other expense/ (income),
net (6.8) (0.7) (14.8) 1.6
Interest expense 6.8 9.2 25.7 27.5
Interest income (3.6) (0.4) (22.8) (1.6)
US GAAP Operating income
from continuing operations 572.0 382.9 1,216.8 1,135.2
Amortization 62.9 34.5 181.9 106.5
Depreciation 43.7 32.4 125.2 89.3
Asset impairments - - 188.0 27.0
Acquisition and
integration activities 67.7 18.4 258.9 39.9
Divestments,
reorganizations and
discontinued operations (17.8) 8.4 37.2 32.6
Legal and litigation costs 3.3 4.7 7.2 8.1
Other 28.4 - 47.5 -
Non GAAP EBITDA 760.2 481.3 2,062.7 1,438.6
Depreciation (43.7) (32.4) (125.2) (89.3)
Non GAAP Operating income
from continuing operations 716.5 448.9 1,937.5 1,349.3
Net income margin[1] 30% 23% 28% 17%
Non GAAP EBITDA
margin[2] 46% 38% 45% 38%
[1] Net income margin as a percentage of total revenues
[2] Non GAAP EBITDA margin as a percentage of product sales, excluding
royalties and other revenues
Unaudited results for the three months and nine months to
September 30, 2014
Non GAAP reconciliation
The following table reconciles US GAAP net cash provided by
operating activities to Non GAAP cash generation:
3 months to September 30, 9 months to September 30,
2014 2013 2014 2013
$M $M $M $M
Net cash provided by
operating activities 593.4 433.7 1,673.5 852.7
Tax and interest payments,
net 5.9 48.1 163.7 260.6
Receipt from the Canadian
revenue authorities - - (248.0) -
Up-front payments in
respect of in-licensed and
acquired products 12.5 - 12.5 -
Non GAAP cash generation 611.8 481.8 1,601.7 1,113.3
The following table reconciles US GAAP net cash provided by
operating activities to Non GAAP free cash flow:
3 months to September 30, 9 months to September 30,
2014 2013 2014 2013
$M $M $M $M
Net cash provided by
operating activities 593.4 433.7 1,673.5 852.7
Up-front payments in
respect of in-licensed and
acquired products 12.5 - 12.5 -
Capital expenditure (30.7) (45.3) (49.8) (110.3)
Non GAAP free cash flow 575.2 388.4 1,636.2 742.4
Non GAAP net (debt)/cash comprises:
September 30, December 31,
2014 2013
$M $M
Cash and cash equivalents 467.7 2,239.4
Long term borrowings (850.0) -
Other debt (14.0) (8.9)
Non GAAP net (debt)/cash (396.3) 2,230.5
NOTES TO EDITORS
Shire enables people with life-altering conditions to lead
better lives.
Our strategy is to focus on developing and marketing innovative
specialty medicines to meet significant unmet patient needs.
We focus on providing treatments in Neuroscience, Rare Diseases,
Gastrointestinal, and Internal Medicine and we are developing
treatments for symptomatic conditions treated by specialist
physicians in other targeted therapeutic areas, such as
Ophthalmology.
http://www.shire.com
FORWARD-LOOKING STATEMENTS - "SAFE HARBOR" STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included in this announcement that are not historical
facts are forward-looking statements. Forward-looking statements
involve a number of risks and uncertainties and are subject to
change at any time. In the event such risks or uncertainties
materialize, Shire's results could be materially adversely
affected. The risks and uncertainties include, but are not limited
to, that:
- Shire's products may not be a commercial success;
- revenues from ADDERALL XR are subject to generic erosion and
revenues from INTUNIV will become subject to generic competition
starting in December 2014;
- the failure to obtain and maintain reimbursement, or an
adequate level of reimbursement, by third-party payors in a timely
manner for Shire's products may impact future revenues, financial
condition and results of operations;
- Shire conducts its own manufacturing operations for certain of
its products and is reliant on third party contractors to
manufacture other products and to provide goods and services. Some
of Shire's products or ingredients are only available from a single
approved source for manufacture. Any disruption to the supply chain
for any of Shire's products may result in Shire being unable to
continue marketing or developing a product or may result in Shire
being unable to do so on a commercially viable basis for some
period of time.
- the development, approval and manufacturing of Shire's products
is subject to extensive oversight by various regulatory agencies.
Submission of an application for regulatory approval of any of our
product candidates, such as our planned submission of a New Drug
Application to the FDA for lifitegrast as a treatment for the signs
and symptoms of dry eye disease in adults, may be delayed for any
number of reasons and, once submitted, may be subjected to lengthy
review and ultimately rejected. Moreover, regulatory approvals or
interventions associated with changes to manufacturing sites,
ingredients or manufacturing processes could lead to significant
delays, increase in operating costs, lost product sales, an
interruption of research activities or the delay of new product
launches;
- the actions of certain customers could affect Shire's ability
to sell or market products profitably. Fluctuations in buying or
distribution patterns by such customers can adversely impact
Shire's revenues, financial conditions or results of
operations;
- investigations or enforcement action by regulatory authorities
or law enforcement agencies relating to Shire's activities in the
highly regulated markets in which it operates may result in the
distraction of senior management, significant legal costs and the
payment of substantial compensation or fines;
- adverse outcomes in legal matters and other disputes, including
Shire's ability to enforce and defend patents and other
intellectual property rights required for its business, could have
a material adverse effect on Shire's revenues, financial condition
or results of operations;
- Shire faces intense competition for highly qualified personnel
from other companies, academic institutions, government entities
and other organizations. Shire is undergoing a corporate
reorganization and the consequent uncertainty could adversely
impact Shire's ability to attract and/or retain the highly skilled
personnel needed for Shire to meet its strategic objectives;
- failure to achieve Shire's strategic objectives with respect to
the acquisition of ViroPharma Incorporated may adversely affect
Shire's financial condition and results of operations;
and other risks and uncertainties detailed from time to time in
Shire's filings with the US Securities and Exchange Commission,
including its most recent Annual Report on Form 10-K
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;
effectivetax rate on Non GAAP income before income taxes and
earnings/(losses) of equity method investees
("effective tax rate on Non GAAP
income"); Non GAAP cost of product sales; Non
GAAP R&D; Non
GAAP SG&A; Non GAAP other income/(expense);
Non GAAP interest income; Non GAAP cash generation; Non GAAP free
cash flow, Non GAAP net cash/(debt), Non GAAP EBITDA and Non
GAAP EBITDA margin (excluding royalties and other
revenues)[1]. These Non GAAP
measures exclude the effect of certain cash and non-cash items that
Shire's management believes are not related to the core performance
of Shire's business.
These Non GAAP financial measures are used by Shire's management
to make operating decisions because they facilitate internal
comparisons of Shire's performance to historical results and to
competitors' results. Shire's Remuneration Committee uses
certain key Non GAAP measures when assessing the performance and
compensation of employees, including Shire's executive
director.
The Non GAAP measures are presented in this press release as
Shire's management believe that they will provide investors with a
means of evaluating, and an understanding of how Shire's management
evaluates, Shire's performance and results on a comparable basis
that is not otherwise apparent on a US GAAP basis, since many
non-recurring, infrequent or non-cash items that Shire'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.
Where applicable the following items, including their tax
effect, have been excluded when calculating Non GAAP earnings for
both 2014 and 2013, and from our Outlook:
Amortization and asset impairments:
- Intangible asset amortization and impairment charges; and
- Other than temporary impairment of investments.
Acquisitions and integration activities:
- Up-front payments and milestones in respect of in-licensed and
acquired products;
- Costs associated with acquisitions, including transaction
costs, fair value adjustments on contingent consideration and
acquired inventory;
- Costs associated with the integration of companies; and
- Noncontrolling interests in consolidated variable interest
entities.
Divestments, reorganizations and discontinued
operations:
- Gains and losses on the sale of non-core assets;
- Costs associated with restructuring and reorganization
activities;
- Termination costs; and
- Income/(losses) from discontinued operations.
Legal and litigation costs:
- Net legal costs related to the settlement of litigation,
government investigations and other disputes (excluding internal
legal team costs).
Other:
- Net income tax credit (being income tax, interest and estimated
penalties) related to the settlement of certain tax positions with
the Canadian revenue authorities.
- Costs associated with AbbVie's terminated offer for Shire.
Depreciation, which is included in Cost of product sales,
R&D and SG&A costs in our US GAAP results, has been
separately disclosed for the presentation of 2014 and 2013 Non GAAP
earnings.
Cash generation represents net cash provided by operating
activities, excluding up-front and milestone payments for
in-licensed and acquired products, tax and interest payments.
[1] EBITDA as a
percentage of product sales, excluding royalties and other
revenues.
Free cash flow represents net cash provided by operating
activities, excluding up-front and milestone payments for
in-licensed and acquired products, but including capital
expenditure in the ordinary course of business.
A reconciliation of Non GAAP financial measures to the most
directly comparable measure under US GAAP is presented on pages 20
to 25.
Growth at CER, which is a Non GAAP measure, is computed by
restating 2014 results using average 2013 foreign exchange rates
for the relevant period.
Average exchange rates used by Shire for the nine months to
September 30, 2014 were $1.67:£1.00 and $1.36:€1.00 (2013: $1.55:£1.00 and $1.31:€1.00). Average exchange rates used by
Shire for Q3 2014 were $1.69:£1.00
and $1.34:€1.00 (2013: $1.53:£1.00 and $1.32:€1.00).
TRADE MARKS
All trade marks designated ® and ™ used in this press
release are trade marks of Shire plc or companies within the Shire
group except for 3TC® and ZEFFIX® which are
trade marks of GlaxoSmithKline, DERMAGRAFT® which is a
trade mark of Organogenesis, Inc., PENTASA® which is a
registered trade mark of FERRING B.V., LIALDA® and
MEZAVANT® which are trade marks of Nogra Pharma Limited,
ESTRACE® which is a trade mark of Trimel,
VANCOCIN® which is a trade mark of ANI Pharmaceuticals
Inc., EXPUTEX® which is a trade mark of Phoenix Labs and
DAYTRANA® which is a trade mark of Noven Therapeutics,
LLC. Certain trade marks of Shire plc or companies within the Shire
group are set out in Shire's Annual Report on Form 10-K for the
year ended December 31, 2013 and the
Quarterly Report on Form 10-Q for the three months and six months
ended June 30, 2014.
For further information please contact:
Investor Relations
- Jeff Poulton jpoulton@shire.com +1-781-482-0945
- Sarah Elton-Farr seltonfarr@shire.com +44-1256-894-157
Media
- Stephanie Fagan sfagan@shire.com +1-781-482-0460
- Gwen Fisher gfisher@shire.com +1-484-595-9836