IPXL Impax Laboratories, Inc. (delisted)

Shire plc’s (SHPGY) first quarter 2011 earnings (excluding special items) of $1.23 per ADS surpassed the year-ago earnings by $0.22. Earnings were boosted by higher revenues. A lower adjusted effective tax rate also impacted earnings positively in the reported quarter. The Zacks Consensus Estimate was $1.20.

Quarter in Detail

Quarterly revenues increased 19% to $972 million, well above the Zacks Consensus Estimate of $945 million. Increased product sales helped boost revenues. The rise in product sales more than offset the decline in royalties during the first quarter of 2011.

Product sales went up 24% to $889 million. Product sales were pushed up by strong performances of Vyvanse (up 31% to $202.3 million), Replagal (up 55% to $105.4 million), and Lialda (up 37% to $87.1 million). Newly launched Intuniv and Vpriv also performed well, registering sales of $59 million and $41.9 million, respectively.

However, royalties declined 23% to $73.6 million. Royalty revenue mainly comprises income earned on the sale of the authorized generic version of Adderall XR, 3TC and Zeffix. During the fourth quarter, Shire received royalties from Impax Laboratories Inc. (IPXL) for Adderall XR (down 59%) and GlaxoSmithKline (GSK) for 3TC and Zeffix (down 3%).

Adjusted research & development (R&D) costs climbed 36% to $173.2 million in the reported quarter. Increased investments in R&D programs contributed to the rise. Selling, general & administrative (SG&A) expenses climbed 14% to $352.2 million.

Selling, general & administrative (SG&A) expenses climbed 14% to $352.2 million. The inclusion of the operating expenses of Movetis, acquired late last year, led to the rise in SG&A expenses. Moreover, the costs incurred by Shire to maintain the sales growth displayed by its products also led to the rise.

Outlook

In addition to disclosing financial results, Shire also provided an outlook for 2011. For 2011, Shire is anticipating impressive revenue and earnings growth. Product sales are expected to register growth in line with that witnessed in 2010. The company expects the year-over-year increase in 2011 adjusted R&D and SG&A expenses (combined) to be at the upper end of the 10%-13% range. Adjusted effective tax-rate is forecasted in the range of 22%-24% for 2011.

Our Recommendation

We currently have a Neutral recommendation on Shire, which is supported by a Zacks #3 Rank (short-term Hold rating).

 
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