SHIRE PLC
Press Release
Shire announces second quarter earnings and increases full year Non GAAP
diluted EPS guidance to mid-to-high single digit growth.
July 23, 2015 - Shire (LSE: SHP, NASDAQ: SHPG) announces unaudited results for
the three months to June 30, 2015.
Growth Non GAAP
Financial Highlights Q2 2015 (1) CER(1)
(2)
Product sales $1,476 +0% +6%
million
Product sales excluding INTUNIV® $1,467 +7% +12%
million
Total revenues $1,558 +4% +9%
million
Non GAAP operating income $614 -3% +0%
million
US GAAP operating income from continuing $133 -61%(3)
operations million
Non GAAP EBITDA margin (excluding royalties & 39% -5pps(5)
other revenues)(4)
US GAAP net income margin(6) 10% -25pps
(3)
Non GAAP diluted earnings per ADS $2.63 -2% +3%
US GAAP diluted earnings per ADS $0.81 -70%
Non GAAP cash generation $505 -23%
million
Non GAAP free cash flow $432 -48%
million
US GAAP net cash provided by operating activities $452 -46%
million
(1) Percentages compare to equivalent 2014 period.
(2) On a Constant Exchange Rate ("CER") basis, which is a Non GAAP measure.
(3) Q2 2015 includes a net charge of $243 million related to impairment of
SHP625 & SHP608. Impairment charges of $523 million are partially offset by the
associated credits of $280 million relating to a change in the fair value of
contingent consideration liabilities.
(4) Non GAAP earnings before interest, tax, depreciation and amortization
("EBITDA") as a percentage of product sales, excluding royalties and other
revenues.
(5) Percentage point change ("PPS").
(6) US GAAP net income as a percentage of total revenues.
The Non GAAP financial measures included within this release are explained on
pages 29 - 30, and are reconciled to the most directly comparable financial
measures prepared in accordance with US GAAP on pages 21 - 26.
Highlights:
· Q2 product sales growth of 7% excluding INTUNIV (12% on a Non GAAP CER
basis); first half product sales excluding INTUNIV up 11% (16% on a Non GAAP
CER basis)
· Product sales this quarter driven by strong performance from VYVANSE
®, FIRAZYR®, LIALDA®/MEZAVANT®
· Early positive momentum from NPS Pharmaceuticals ("NPS") products,
NATPARA® and GATTEX®/REVESTIVE®; NPS commercial integration complete
· Significant Q2 investment in future growth drivers including the launch
of the Binge Eating Disorder ("BED") adult indication, market expansion of
VYVANSE in adults and behind GATTEX/REVESTIVE and NATPARA acquired with NPS
· Innovative pipeline advancing, with SHP465 pediatric Phase 3 initiated
ahead of schedule, favorable FDA feedback on path forward for Maribavir Phase
3, and OPUS 3 for lifitegrast fully enrolled
· SHP625 Phase 2 studies in two rare cholestatic liver indications (PBC,
PFIC) did not meet primary endpoints; totality of data under review to
determine path forward
· Non-cash impairments for SHP625 and SHP608 affect US GAAP operating
income; payments related to purchase of NPS impact cash generation([1])
· Non GAAP diluted earnings per ADS growth guidance increased to
mid-to-high single digit percent range for the full year (2015)
Flemming Ornskov, M.D. Chief Executive Officer, commented:
Alongside our strong performance in the first half of 2015, we are progressing
our transformation to becoming a leading global biotech company and are
confident in delivering on our 10x20 ambitions. During the second quarter, we
delivered 7% product sales growth on a reported basis and 12% on a Non GAAP CER
basis, in both cases excluding INTUNIV. This is a solid performance, achieved
amid continued investment in future innovation and growth drivers. I am
especially pleased with the performance of VYVANSE both in the adult ADHD
market and with the launch of the new adult indication for moderate to severe
Binge Eating Disorder. The early performance of the products we gained from NPS
underscores our ability to acquire and integrate assets and deliver value.
Given our first half performance and confidence in the underlying business, we
are increasing our full-year earnings guidance, and now expect Non GAAP diluted
earnings per ADS growth to be in the mid-to-high single digit percent range for
2015. Additionally, we expect to meet our 10x20 target of $6.5 billion of
product sales in 2016, and exceed it with the contribution from our recent
acquisition of NPS.
FINANCIAL SUMMARY
Second Quarter 2015 Unaudited Results
Q2 2015 Q2 2014
US GAAP Adjustments Non US GAAP Adjustments Non
GAAP GAAP
$M $M $M $M $M $M
Total revenues 1,558 - 1,558 1,502 - 1,502
Operating 133 481 614 338 292 630
income
Diluted
earnings per $0.81 $1.82 $2.63 $2.66 $0.01 $2.67
ADS
· Product sales excluding INTUNIV were up 7% (up 12% on a Non GAAP CER
basis), with strong growth from VYVANSE([2]) (up 18% to $425 million), LIALDA/
MEZAVANT (up 10% to $158 million), and FIRAZYR (up 17% to $104 million).
GATTEX/REVESTIVEcontinued to gain positive momentum with $37 million of sales
and NATPARA had strong initial sales of $6 million.
· Total product sales including INTUNIV were broadly flat on Q2 2014 (up
6% on a Non GAAP CER basis) at $1,476 million (Q2 2014: $1,470 million) as
product sales in Q2 2015 were held back by significantly lower INTUNIV sales
(down 91% to $9 million) following the introduction of generic competition from
December 2014.
As expected, product sales growth in Q2 2015 was also held back by over 5
percentage points due to foreign exchange headwinds from the strong US dollar,
primarily affecting sales of ELAPRASE®, REPLAGAL® and VPRIV®.
· Total revenues were up 4% to $1,558 million (Q2 2014: $1,502 million),
as Q2 2015 benefited from higher royalties, principally the first time
inclusion of a full quarter of SENSIPAR® royalties acquired with NPS.
· On a Non GAAP basis:
Operating income was down 3% to $614 million (Q2 2014: $630 million) as
combined R&D and SG&A costs increased at a higher rate (up 16%) than total
revenues (up 4%). Compared to Q2 2014, R&D costs increased by 14% and SG&A
costs increased by 17%, in part due to the inclusion of a first full quarter of
NPS operating costs.
Non GAAP EBITDA margin (excluding royalties and other revenues)was 39%, down 5
percentage points compared to Q2 2014 (Q2 2014: 44%), as we invested behind the
launch of VYVANSE for the treatment of moderate to severe BED in adults,
continued the progression of our pipeline and invested behind GATTEX and
NATPARA acquired with NPS.
On a US GAAP basis (from continuing operations):
Operating income was down 61% to $133 million (Q2 2014: $338 million). US GAAP
operating income in Q2 2015 was impacted by IPR&D impairment charges ($523
million) relating to SHP625([3]) and SHP608([4]), offset by the partial release
of associated contingent consideration liabilities ($280 million).
· Non GAAP diluted earnings per American Depository Share ("ADS")
decreased 2% to $2.63 (Q2 2014: $2.67) primarily due to the lower Non GAAP
operating income partially offset by a lower effective tax rate on Non GAAP
income.
On a US GAAP basis diluted earnings per ADS decreased 70% to $0.81 (Q2 2014:
$2.66) primarily due to lower US GAAP operating income.
· Cash generation, a Non GAAP measure, was 23% lower at $505 million (Q2
2014: $659 million). Underlying strong cash generation was held back by
payments relating to the acquisition and integration of NPS and the timing of
rebate payments in Q2 2015.
Free cash flow, a Non GAAP measure, was down 48% to $432 million (Q2 2014: $830
million), due to lower cash generation and when compared to Q2 2014 which
includes the benefit of a $248 million repayment received from the Canadian
revenue authorities.
On a US GAAP basis, net cash provided by operating activities was down 46% to
$452 million (Q2 2014: $834 million), as Q2 2014 benefited from the $248
million repayment received from the Canadian revenue authorities.
· Net debt, a Non GAAP measure, at June 30, 2015 was $2,253 million
(December 31, 2014: Net cash of $2,119 million) reflecting the use of cash and
cash equivalents and borrowings incurred to fund the acquisition of NPS.
On a US GAAP basis, cash and cash equivalents were $64 million at June 30, 2015
(December 31, 2014: $2,982 million).
OUTLOOK
Following our strong performance in the first half of 2015, we've increased our
guidance for Non GAAP diluted earnings per ADS to mid-to-high single digits
growth in 2015 (prior guidance: mid-single digits).
On a Non GAAP CER basis we now expect product sales growth in the high single
digits (prior guidance: mid-to-high single digits). When excluding INTUNIV, we
anticipate low teens product sales growth on a Non GAAP CER basis (prior
guidance: low double digit).
We now anticipate product sales growth to increase 4-5% on a reported basis
(prior guidance: low-to-mid single digits). We continue to expect product sales
growth to be held back three to four percentage points by foreign exchange
headwinds which continue to most significantly impact ELAPRASE, REPLAGAL and
VPRIV sales.
Royalties and other revenues are now expected to increase by 45-55% in 2015
(prior guidance: 30-40% higher).
Our Non GAAP gross margin is expected to be in line with 2014 (2014: 85.8%).
We continue to expect combined Non GAAP R&D and SG&A to increase in the high
single digits. We expect that operating cost growth will moderate in the
second half of the year as we compare against higher 2014 comparatives.
We expect our Non GAAP net interest and other expense to be in line with 2014
levels.
For 2015, we expect our effective tax rate on Non GAAP income to be in the
range of 15-17%, before reverting to the 17-19% range in 2016 and beyond.
Taken together, we've increased our earnings guidance for the full year 2015,
and now expect to deliver Non GAAP diluted earnings per ADS growth in the
mid-to-high single digits in 2015 (low double digit growth on a Non GAAP CER
basis).
Additionally, we expect to meet our 10x20 target of $6.5 billion of product
sales in 2016, and exceed it with the contribution from our recent acquisition
of NPS.
SECOND QUARTER 2015 AND RECENT PRODUCT AND PIPELINE DEVELOPMENTS
Products
INTUNIV - for the treatment of ADHD in the European Union
· The Committee for Medicinal Products for Human Use ("CHMP") of the
European Medicines Agency ("EMA") is expected to issue an opinion at its July
meeting on whether to recommend a marketing authorization approval for the
INTUNIV (guanfacine) extended release drug product, a non-stimulant proposed to
treat ADHD in paediatric patients. The July CHMP meeting is held July 20-23,
2015.
RESOLOR- for the Symptomatic Treatment of Chronic Constipation in Men
· On May 27, 2015 Shire received the EC decision amending the terms of
the Resolor Marketing Authorisation to the use of RESOLOR in adults for the
symptomatic treatment of chronic constipation for whom laxatives fail to
provide adequate relief. In Europe, RESOLOR was initially approved for use in
women only, so the new variation extends the use of this treatment to male
patients.
VYVANSE - for the treatment of moderate to severe BED in adults
· Topline results from a 39-week, long-term maintenance of efficacy study
(SPD489-346) in adults with moderate to severe BED showed VYVANSE superior to
placebo (p<.001) on the primary efficacy endpoint of time to relapse of binge
eating symptoms. At the conclusion of the trial, patients continuing on VYVANSE
had a lower proportion of relapse of 5/136 (3.7%) as compared to patients
continuing on placebo 42/131 (32.1%).
· The results of a separate, 12-month open-label safety extension study
(SPD489-345) were generally consistent with the safety profile currently
outlined in the United States Prescribing information.
· Based on the results of these studies, the Company plans to submit a
supplemental New Drug Application by year end to the US Food and Drug
Administration ("FDA"). The FDA will evaluate adding this data to the current
labeling for VYVANSE.
Pipeline
We continued to advance our broad and deep pipeline over the course of the
second quarter.
SHP606 (lifitegrast) - for the treatment of Dry Eye Disease
· Shire has fully enrolled a Phase 3 safety and efficacy study (OPUS-3)
in support of potential US and potential international regulatory submissions.
OPUS-3 is a multicenter, randomized, double-masked, placebo-controlled,
parallel arm study with a 14 day open-label placebo screening run-in period
followed by a 12 week randomized, masked treatment period with a primary
efficacy endpoint in subjective patient reported symptoms of dry eye disease as
measured by the eye dryness score.
SHP465 - for the treatment of adults with ADHD
· On April 7, 2015 Shire announced that it had reached an agreement with
the FDA on a clear regulatory path for SHP465. Shire has begun dosing patients
in a Phase 3 study designed to evaluate the efficacy of SHP465 administered as
a daily morning dose compared to a placebo in the treatment of children and
adolescents (6-17 years of age inclusive) diagnosed with ADHD.
SHP620 (maribavir) - for the treatment of cytomegalovirus infection in
transplant patients
· In late June 2015, Shire conducted an end of Phase 2 meeting with the
FDA and received further clarity on the path forward. Based on this feedback,
Shire is considering progressing the program into Phase 3 in 2016.
SHP631 - for the treatment of both the central nervous system ("CNS") and
somatic manifestations in patients with Hunter syndrome ("MPS II")
· In Q2 2015, a Phase 1 trial of SHP631 (also known as AGT-182) was
initiated. SHP631 is an investigational enzyme replacement therapy for the
potential treatment of both the CNS and somatic manifestations in patients with
MPS II.
SHP625 - for the treatment of cholestatic liver disease
· In late May 2015, Shire received results from the CLARITY trial, a 13
week, double-blind, placebo-controlled Phase 2 study in combination with
Ursodeoxycholic Acid in Primary Biliary Cirrhosis. SHP625 did not meet the
primary endpoint as measured by change in pruritus or the secondary endpoint in
level of liver disease as measured by alkaline phosphatase. However, there was
a significant reduction in mean serum bile acid levels versus placebo.
· In June 2015, Shire also received preliminary results from an interim
analysis of the INDIGO study, a 72 week open label Phase 2 study in Progressive
Familial Intraheptic Cholestatis. The interim analysis was based on the first
12 subjects who completed 13 weeks of treatment per protocol. SHP625 was well
tolerated but there was no statistically significant reduction in mean serum
bile levels from baseline. A change from baseline analysis was planned as there
is no placebo treatment arm in this study. The changes from baseline for
pruritus did reach statistical significance. 5 of the 20 patients who received
the drug experienced sustained decreases from baseline in serum bile acids
ranging from 86 to 99% and also experienced marked reductions in pruritus as
evidenced by absence of or only mild scratching at their last evaluation in
this ongoing study. In this subset of patients where biomarkers of liver
damage were elevated at baseline, as assessed by alanine transaminase and Total
Bilirubin, these values were normalized during the study. Shire continues to
analyze the totality of the data to determine an appropriate path forward.
BOARD AND COMMITTEE CHANGES
On June 11, 2015 Shire announced the appointment of Olivier Bohuon to the Shire
Board of Directors as a Non-Executive Director. Olivier will also be a member
of the Science & Technology Committee of the Shire Board. Both appointments
were effective from July 1, 2015.
DIVIDEND
In respect of the six months ended June 30, 2015 the Board resolved to pay an
interim dividend of 4.21 US cents per Ordinary Share (2014: 3.83 US cents per
Ordinary Share).
Dividend payments will be made in Pounds Sterling to holders of Ordinary Shares
and in US Dollars to holders of ADSs. A dividend of 2.69(1) pence per Ordinary
Share (an increase of 20% compared to 2014: 2.24 pence) and 12.63 US cents per
ADS (an increase of 10% compared to 2014: 11.49 US cents) will be paid on
October 2, 2015 to shareholders on the register as at the close of business on
September 4, 2015.
(1) Translated using a GBP:USD exchange rate of 1.5631
ADDITIONAL INFORMATION
The following additional information is included in this press release:
Page
Overview of Second Quarter 2015 8
Financial Results
Financial Information 12
Non GAAP Reconciliation 21
Notes to Editors 27
Forward-Looking Statements 28
Non GAAP Measures 29
Trade Marks 30
For further information please contact:
Investor Relations
- Sarah Elton-Farr seltonfarr@shire.com +44 1256 894
157
Media
- Michele Galen mgalen@shire.com +1 781 482
1867
- Brooke Clarke brclarke@shire.com +44 1256 894
829
Dial in details for the live conference call for investors at 14:00 BST / 09:00
EDT on July 23, 2015:
UK dial in: 0808 237 0030 or 020 3139 4830
US dial in: 1 866 928 7517 or 1 718 873 9077
International Access Click here
Numbers:
Password/Conf ID: 25841912#
Live Webcast: Click here
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
OVERVIEW OF SECOND QUARTER 2015 FINANCIAL RESULTS
1. Product sales
For the three months to June 30, 2015 product sales were broadly flat on Q2
2014 at $1,476 million (Q2 2014: $1,470 million) and represented 95% of total
revenues (Q2 2014: 98%).
Year on year growth US Exit
Market
Product sales Sales $M Sales Non GAAP US Rx(2) Share(2)
CER(1)
VYVANSE 424.8 +18% +20% +8% 16%
LIALDA/MEZAVANT 157.9 +10% +12% +9% 35%
ELAPRASE 146.5 -4% +9% n/a n/a
(3) (3)
CINRYZE 138.8 +7% +8% n/a n/a
(3) (3)
REPLAGAL 116.9 -10% +4% n/a n/a
(4) (4)
FIRAZYR 104.1 +17% +20% n/a n/a
(3) (3)
ADDERALL XR® 86.0 -14% -13% +12% 5%
VPRIV 84.7 -6% +3% n/a n/a
(3) (3)
PENTASA® 66.3 +5% +5% -7% 12%
GATTEX/REVESTIVE® 37.3 n/a n/a n/a n/a
(3) (3)
INTUNIV 9.5 -91% -90% -65% 1%
NATPARA 5.9 n/a n/a n/a n/a
(3) (3)
OTHER 97.5 -13% -2% n/a n/a
Total 1,476.2 0% +6%
(1) On a Constant Exchange Rate ("CER") basis, which is a Non GAAP
measure.
(2) Data provided by IMS Health National Prescription Audit ("IMS
NPA"). Exit market share represents the average US market share in the month
ended June 30, 2015.
(3) IMS NPA Data not available.
(4) Not sold in the US in Q2 2015.
VYVANSE - ADHD and BED
VYVANSE product sales grew strongly (up 18%) in Q2 2015 compared to Q2 2014,
primarily due to higher prescription demand in both the US and ROW markets and
the benefit of a price increase taken since Q2 2014. Sales also benefited from
higher stocking in Q2 2015 compared to Q2 2014. VYVANSE was made available in
mid-February for moderate to severe BED in adults and we have been pleased with
the overall increase in VYVANSE prescriptions since the product became
available for that indication.
LIALDA/MEZAVANT - Ulcerative Colitis
Product sales for LIALDA/MEZAVANT in Q2 2015 were up 10%, primarily driven by
higher prescription demand due to higher market share and the benefit of a
price increase taken since Q2 2014. Growth was partially offset by higher sales
deductions as a percentage of product sales.
ELAPRASE - Hunter syndrome
ELAPRASE product sales in Q2 2015 were down 4% compared to Q2 2014, reflecting
the negative impact of foreign exchange movements partially offset by higher
unit sales from an increase in the number of patients on therapy. On a Non
GAAP CER basis ELAPRASE sales were up 9% compared to Q2 2014.
CINRYZE - for the prophylactic treatment of Hereditary Angioedema ("HAE")
CINRYZE sales were up 7% on Q2 2014 (up 8% on a Non GAAP CER basis), primarily
driven by strong growth in patients on therapy and the benefit of a price
increase taken since Q2 2014, partially offset by destocking in the quarter.
REPLAGAL - Fabry disease
REPLAGAL sales were down 10% compared to Q2 2014, driven primarily by the
negative impact of foreign exchange. On a Non GAAP CER basis REPLAGAL sales
were up 4% compared to Q2 2014.
FIRAZYR - for the treatment of acute HAE attacks
FIRAZYR product sales were up 17% (up 20% on a Non GAAP CER basis), primarily
due to growth in patients on therapy and a price increase taken in January
2015.
ADDERALL XR - ADHD
ADDERALL XR product sales were down 14% in Q2 2015, increased prescription
demand (up 12%) was more than offset by the effect of higher sales deductions
as a percentage of product sales in Q2 2015 compared to Q2 2014.
VPRIV - Gaucher disease
VPRIV product sales in Q2 2015 were down 6% (up 3% on a Non GAAP CER basis).
Continued growth in the number of patients on therapy was more than offset by
the negative impact of foreign exchange movements.
PENTASA - Ulcerative Colitis
PENTASA product sales increased in Q2 2015 (up 5%) driven by price increases
taken since Q2 2014, partially offset by higher sales deductions as a
percentage of product sales and a decrease in prescription demand.
GATTEX/REVESTIVE - Short Bowel Syndrome ("SBS")
Shire acquired GATTEX/REVESTIVE through its acquisition of NPS on February 21,
2015, and recorded sales of $37 million in Q2 2015 (up 70% on a pro-forma basis
(1)).
(1) Sales prior to February 21, 2015 were recorded by NPS, prior to the
acquisition by Shire.
INTUNIV - ADHD
INTUNIV product sales were down 91% in Q2 2015 reflecting the impact of generic
competitors in December 2014 and June 2015, which resulted in lower
prescription demand and significantly higher sales deductions as a percentage
of product sales.
NATPARA - Hypoparathyroidism
Shire made NATPARA available on April 1, 2015, after acquiring the product
through its acquisition of NPS. In Q2 2015 sales of $6 million were recorded.
2. Royalties
Year on year growth
Product Royalties to Royalties CER
Shire $M
SENSIPAR® 34.8 n/a n/a
FOSRENOL® 1.00 10.8 +15% +36%
3TC® and ZEFFIX® 1.00 10.5 +27% +27%
ADDERALL XR 1.00 6.6 +45% +45%
INTUNIV 6.1 n/a n/a
Other 1.00 10.3 +47% +50%
Total 1.00 79.1 +171% +178%
Royalty income increased by 171% in Q2 2015 due to the inclusion of royalty
income receivable from Amgen for SENSIPAR (following the acquisition of NPS by
Shire), and the royalties receivable from Actavis on its generic sales of
INTUNIV.
3. Financial details
Cost of product sales
Q2 2015 % of Q2 2014 % of
product product
sales sales
$M $M
Cost of product sales 228.0 15% 277.0 19%
(US GAAP)
Unwind of inventory (5.1) (33.7)
fair value step-up
Costs of employee
retention awards
following AbbVie's (2.8) -
terminated offer for
Shire
Depreciation (13.1) (17.8)
Cost of product sales 207.0 14% 225.5 15%
(Non GAAP)
Non GAAP cost of product sales as a percentage of product sales decreased by 1
percentage point in Q2 2015 compared to the same period in 2014, reflecting
lower inventory write-offs in Q2 2015.
US GAAP cost of product sales as a percentage of product sales decreased by 4
percentage points in Q2 2015 due to lower charges in relation to the unwind of
the fair value adjustment on acquired inventories.
R&D
Q2 2015 % of Q2 2014 % of
product product
sales sales
$M $M
R&D (US GAAP) 775.9 53% 236.9 16%
Impairment of IPR&D (523.3) (22.0)
intangible assets
Costs of employee
retention awards
following AbbVie's (5.7) -
terminated offer for
Shire
Depreciation (8.9) (5.8)
R&D (Non GAAP) 238.0 16% 209.1 14%
Non GAAP R&D increased by $28.9 million, or 14% in Q2 2015, due to the
inclusion of a first full quarter of NPS R&D and continued investment in
existing pipeline programs.
US GAAP R&D increased by $539.0 million, or 228% as Q2 2015 included intangible
asset impairment charges related to the SHP625 IPR&D asset ($347 million), due
to lower probability of regulatory approval following trial results, and
impairment charges related to the SHP608 IPR&D asset ($177 million), due to
pre-clinical toxicity findings.
SG&A
Q2 2015 % of Q2 2014 % of
product product
sales sales
$M $M
SG&A (US GAAP) 627.3 42% 496.2 34%
Intangible asset (131.3) (61.2)
amortization
Legal and litigation (1.9) (2.2)
costs
Costs incurred in
connection with
AbbVie's terminated (17.5) (19.1)
offer for Shire
(including employee
retention awards)
Depreciation (17.9) (21.1)
SG&A (Non GAAP) 458.7 31% 392.6 27%
Non GAAP SG&A increased by $66.1 million, or 17%, due to increased investment
behind launches, including the successful launch of VYVANSE for the treatment
of moderate to severe BED in adults, and the first time inclusion of a full
quarter of NPS's SG&A costs.
US GAAP SG&A increased by $131.1 million, or 26%, in part as a result of higher
amortization charges on intangible assets acquired with NPS.
Gain on sale of product rights
For the three months to June 30, 2015 Shire recorded a net gain on sale of
non-core product rights of $7.1 million (Q2 2014: $3.8 million) due primarily
to the re-measurement of the contingent consideration receivable relating to
the divestment of DAYTRANA.
Reorganization costs
For the three months to June 30, 2015 Shire recorded reorganization costs of
$13.3 million (Q2 2014: $45.8 million). Costs in the second quarter of 2015
primarily related to the relocation of roles from Chesterbrook to Lexington.
Integration and acquisition costs
For the three months to June 30, 2015 Shire recorded a net credit for
integration and acquisition costs of $212.4 million, which comprised
integration and acquisition costs primarily related to NPS of $45.7 million and
a net credit of $258.1 million for the change in fair value of contingent
consideration liabilities, primarily relating to SHP625 (acquired with Lumena
Pharmaceuticals, Inc.) and SHP608 (acquired with Lotus Tissue Repair Inc).
In Q2 2014 Shire recorded integration and acquisition costs of $112.1 million.
This net charge included costs of $31.5 million related to the acquisition and
integration of ViroPharma and $80.6 million relating to the change in fair
values of contingent consideration liabilities.
Interest expense
For the three months to June 30, 2015 Shire incurred interest expense of $11.3
million (Q2 2014: $11.1 million). Interest expense in Q2 2015 primarily related
to interest and the amortization of financing fees incurred on borrowings to
fund the NPS acquisition. Interest expense in Q2 2014 principally related to
interest and amortization of issue costs incurred on borrowings to fund the
ViroPharma acquisition.
Taxation
The effective rate of tax on Non GAAP income in Q2 2015 was 13% (Q2 2014: 16%),
and on a US GAAP basis the effective rate of tax was -37% (Q2 2014: -51%).
The effective rate of tax in Q2 2015 on Non GAAP income from continuing
operations is lower than the same period in 2014 primarily due to the
re-measurement of uncertain tax positions relating to ongoing tax audits and
the release of certain valuation allowances in the quarter.
The effective rate of tax in Q2 2015 on US GAAP income from continuing
operations is negative primarily due to the reduction in deferred tax
liabilities in relation to the impairment of IPR&D intangible assets, the
re-measurement of uncertain tax positions relating to ongoing tax audits and
the release of certain valuation allowances all recognised during the quarter.
The effective rate of tax in Q2 2014 on US GAAP income was negative primarily
due to the recognition of a net tax credit in relation to the settlement of tax
positions with the Canadian revenue authorities.
Discontinued operations
The loss from discontinued operations for the three months to June 30, 2015 was
$4.5 million net of tax (Q2 2014: $5.2 million) relating to costs associated
with the divestment of the DERMAGRAFT business.
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Unaudited US GAAP Consolidated Balance Sheets 13
Unaudited US GAAP Consolidated Statements of Income 14
Unaudited US GAAP Consolidated Statements of Cash Flows 16
Selected Notes to the Unaudited US GAAP Financial
Statements
(1) Earnings per share 18
(2) Analysis of revenues 19
Non GAAP reconciliation 21
Unaudited US GAAP financial position as of June 30, 2015
Consolidated Balance Sheets
June 30, December 31,
2015 2014
$M $M
ASSETS
Current assets:
Cash and cash equivalents 64.0 2,982.4
Restricted cash 74.0 54.6
Accounts receivable, net 1,099.2 1,035.1
Inventories 632.8 544.8
Deferred tax asset 455.4 344.7
Prepaid expenses and other current assets 221.6 221.5
Total current assets 2,547.0 5,183.1
Non-current assets:
Investments 50.0 43.7
Property, plant and equipment ("PP&E"), net 816.7 837.5
Goodwill 4,173.2 2,474.9
Other intangible assets, net 9,310.4 4,934.4
Deferred tax asset 107.9 112.1
Other non-current assets 25.3 46.4
Total assets 17,030.5 13,632.1
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses 1,939.7 1,909.4
Short term borrowings 2,229.9 850.0
Other current liabilities 145.5 262.5
Total current liabilities 4,315.1 3,021.9
Non-current liabilities:
Long term borrowings 73.9 -
Deferred tax liability 2,808.4 1,210.6
Other non-current liabilities 718.7 736.7
Total liabilities 7,916.1 4,969.2
Equity:
Common stock of 5p par value; 1,000 million
shares authorized; and 600.5 million shares
issued and outstanding (2014: 1,000 million 58.9 58.7
shares authorized; and 599.1 million shares
issued and outstanding)
Additional paid-in capital 4,409.3 4,338.0
Treasury stock: 9.8 million shares (2014: 10.6 (323.5) (345.9)
million)
Accumulated other comprehensive loss (111.5) (31.5)
Retained earnings 5,081.2 4,643.6
Total equity 9,114.4 8,662.9
Total liabilities and equity 17,030.5 13,632.1
Unaudited US GAAP results for the three months and six months to June 30, 2015
Consolidated Statements of Income
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
$M $M $M $M
Revenues:
Product sales 1,476.2 1,469.6 2,899.4 2,777.7
Royalties 79.1 29.2 141.9 61.5
Other revenues 2.3 3.3 4.7 9.7
Total revenues 1,557.6 1,502.1 3,046.0 2,848.9
Costs and expenses:
Cost of product sales 228.0 277.0 455.8 506.5
R&D(1) 775.9 236.9 969.6 597.4
SG&A(2) 627.3 496.2 1,133.9 926.5
Gain on sale of (7.1) (3.8) (12.3) (40.2)
product rights
Reorganization costs 13.3 45.8 28.5 95.2
Integration and (212.4) 112.1 (136.7) 118.7
acquisition costs
Total operating 1,425.0 1,164.2 2,438.8 2,204.1
expenses
Operating income from 132.6 337.9 607.2 644.8
continuing operations
Interest income 0.6 18.7 2.6 19.2
Interest expense (11.3) (11.1) (20.9) (18.9)
Other (expense)/ (2.0) 3.3 2.3 8.0
income, net
Total other (expense)/ (12.7) 10.9 (16.0) 8.3
income, net
Income from continuing
operations before
income taxes and 119.9 348.8 591.2 653.1
equity in earnings/
(losses) of equity
method investees
Income taxes 44.1 176.5 (13.3) 125.9
Equity in earnings/
(losses) of equity 0.1 3.0 (0.9) 2.4
method investees, net
of taxes
Income from continuing 164.1 528.3 577.0 781.4
operations, net of tax
Loss from discontinued
operations, net of (4.5) (5.2) (7.0) (27.9)
taxes
Net income 159.6 523.1 570.0 753.5
(1) R&D costs include impairments of IPR&D intangible assets of $523.3
million for the three months to June 30, 2015 (2014: $22.0 million) and $523.3
million for the six months to June 30, 2015 (2014: $188.0 million).
(2) SG&A costs include amortization of intangible assets relating to
intellectual property rights acquired of $131.3 million for the three months to
June 30, 2015 (2014: $61.2 million) and $219.6 million for the six months to
June 30, 2015 (2014: $119.0 million).
Unaudited US GAAP results for the three months and six months to June 30, 2015
Consolidated Statements of Income (continued)
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
Earnings per Ordinary
Share - basic
Earnings from continuing 27.8c 90.1c 97.8c 133.6c
operations
Loss from discontinued (0.8c) (0.9c) (1.2c) (4.8c)
operations
Earnings per Ordinary 27.0c 89.2c 96.6c 128.8c
Share - basic
Earnings per ADS - basic 81.0c 267.6c 289.8c 386.4c
Earnings per Ordinary
Share - diluted
Earnings from continuing 27.7c 89.5c 97.3c 132.3c
operations
Loss from discontinued (0.8c) (0.9c) (1.2c) (4.7c)
operations
Earnings per Ordinary 26.9c 88.6c 96.1c 127.6c
Share - diluted
Earnings per ADS - diluted 80.7c 265.8c 288.3c 382.8c
Weighted average number of
shares:
Millions Millions Millions Millions
Basic 590.5 586.4 589.8 585.3
Diluted 593.2 590.3 593.0 590.3
Unaudited US GAAP results for the three months and six months to June 30, 2015
Consolidated Statements of Cash Flows
3 months to June 6 months to June
30, 30,
2015 2014 2015 2014
$M $M $M $M
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income 159.6 523.1 570.0 753.5
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 171.2 108.3 291.8 204.8
Share based compensation 29.0 29.5 44.3 55.7
Change in fair value of (258.1) 80.6 (255.7) 21.4
contingent consideration
Impairment of intangible 523.3 22.0 523.3 188.0
assets
Write down of assets - 0.9 - 13.0
Gain on sale of product rights (7.1) (3.8) (12.3) (40.2)
Unwind of inventory fair value 5.1 33.8 16.3 72.5
step-up
Other, net 10.0 16.2 11.1 14.1
Movement in deferred taxes (96.0) 6.8 (79.4) 25.3
Equity in (earnings)/losses of (0.1) (3.0) 0.9 (2.4)
equity method investees
Changes in operating assets and
liabilities:
Decrease/(increase) in 0.2 40.0 (84.9) (37.3)
accounts receivable
Increase in sales deduction 61.9 35.2 37.3 106.0
accrual
(Increase)/decrease in (15.4) 6.9 (37.4) (11.7)
inventory
(Increase)/decrease in (14.0) (62.9) 28.4 (137.5)
prepayments and other assets
(Decrease)/increase in
accounts payable and other (117.3) 0.4 (39.8) (145.1)
liabilities
Net cash provided by operating 452.3 834.0 1,013.9 1,080.1
activities(A)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Movements in restricted cash (5.0) (1.8) (19.5) (11.9)
Purchases of subsidiary
undertakings and businesses, (49.5) (253.9) (5,249.2) (4,018.3)
net of cash acquired
Purchases of non-current (2.4) (2.8) (4.9) (3.1)
investments
Purchases of PP&E (20.5) (3.8) (39.8) (19.1)
Proceeds from short-term 12.5 9.5 67.0 56.3
investments
Proceeds from disposal of 4.4 - 4.4 8.0
non-current investments
Proceeds received on sale of 4.9 4.8 8.8 52.8
product rights
Other, net (1.3) 0.1 (0.9) (2.8)
Net cash used in investing (56.9) (247.9) (5,234.1) (3,938.1)
activities(B)
Unaudited US GAAP results for the three months and six months to June 30, 2015
Consolidated Statements of Cash Flows (continued)
3 months to June 6 months to June 30,
30,
2015 2014 2015 2014
$M $M $M $M
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving line of
credit, long term and short 695.6 140.8 2,925.6 2,310.8
term borrowings
Repayment of revolving line of
credit and short term (995.7) (601.4) (1,530.9) (1,251.6)
borrowings
Repayment of debt acquired - (17.6) - (551.5)
through business combinations
Proceeds from ViroPharma call - - - 346.7
options
Payment of dividend (110.2) (99.6) (110.2) (99.6)
Excess tax benefit associated 7.1 8.6 27.0 29.1
with exercise of stock options
Contingent consideration (2.1) (2.5) (4.5) (10.3)
payments
Other, net (1.3) (0.5) (4.5) (0.3)
Net cash (used in)/provided by (406.6) (572.2) 1,302.5 773.3
financing activities(C)
Effect of foreign exchange rate
changes on cash and cash 0.9 0.6 (0.7) (1.1)
equivalents (D)
Net (decrease)/increase in cash
and cash equivalents(A) +(B) + (10.3) 14.5 (2,918.4) (2,085.8)
(C) +(D)
Cash and cash equivalents at 74.3 139.1 2,982.4 2,239.4
beginning of period
Cash and cash equivalents at 64.0 153.6 64.0 153.6
end of period
Unaudited US GAAP results for the three months and six months to June 30, 2015
Selected Notes to the Financial Statements
(1) Earnings Per Share ("EPS")
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
$M $M $M $M
Income from continuing 164.1 528.3 577.0 781.4
operations
Loss from discontinued (4.5) (5.2) (7.0) (27.9)
operations
Numerator for EPS 159.6 523.1 570.0 753.5
Weighted average number
of shares:
Millions Millions Millions Millions
Basic(1) 590.5 586.4 589.8 585.3
Effect of dilutive
shares:
Share based awards to 2.7 3.9 3.2 5.0
employees(2)
Diluted 593.2 590.3 593.0 590.3
(1) Excludes shares purchased by the EBT and under the share buy-back
program and presented by Shire as treasury stock.
(2) Calculated using the treasury stock method.
The share equivalents not included in the calculation of the diluted weighted
average number of shares are shown below:
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
Millions Millions Millions Millions
Share based awards to 1.0 0.3 3.2 1.2
employees(1)
(1) 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 June 30, 2015
Selected Notes to the Financial Statements
(2) Analysis of revenues
3 months to June 30, 2015 2014 2015 2015
% % of total
$M $M change revenue
Net product sales:
VYVANSE 424.8 359.5 18% 27%
LIALDA/MEZAVANT 157.9 143.6 10% 10%
ELAPRASE 146.5 152.1 -4% 9%
CINRYZE 138.8 129.9 7% 9%
REPLAGAL 116.9 130.5 -10% 8%
FIRAZYR 104.1 89.0 17% 7%
ADDERALL XR 86.0 99.8 -14% 6%
VPRIV 84.7 89.7 -6% 5%
PENTASA 66.3 63.2 5% 4%
FOSRENOL 45.1 46.7 -3% 3%
GATTEX/REVESTIVE 37.3 - n/a 2%
XAGRID 22.8 27.9 -18% 1%
INTUNIV 9.5 100.0 -91% 1%
NATPARA 5.9 - n/a <1%
Other product sales 29.6 37.7 -21% 2%
Total product sales 1,476.2 1,469.6 0% 95%
Royalties:
SENSIPAR 34.8 - n/a 2%
FOSRENOL 10.8 9.4 15% <1%
3TC and ZEFFIX 10.5 8.3 27% <1%
ADDERALL XR 6.6 4.5 45% <1%
INTUNIV 6.1 - n/a <1%
Other 10.3 7.0 47% <1%
Total royalties 79.1 29.2 171% 5%
Other revenues 2.3 3.3 -30% <1%
Total revenues 1,557.6 1,502.1 4% 100%
Unaudited US GAAP results for the six months to June 30, 2015
Selected Notes to the Financial Statements
(2) Analysis of revenues
6 months to June 30, 2015 2014 2015 2015
% % of total
$M $M change revenue
Net product sales:
VYVANSE 841.6 710.7 18% 28%
LIALDA/MEZAVANT 306.4 272.5 12% 10%
ELAPRASE 271.5 280.7 -3% 9%
CINRYZE 286.9 215.5 33% 9%
REPLAGAL 214.4 244.8 -12% 7%
FIRAZYR 196.6 163.9 20% 6%
ADDERALL XR 181.7 184.9 -2% 6%
VPRIV 171.1 176.6 -3% 6%
PENTASA 145.0 135.5 7% 5%
FOSRENOL 89.2 88.1 1% 3%
GATTEX/REVESTIVE 52.2 - n/a 2%
XAGRID 48.1 55.0 -13% 2%
INTUNIV 26.9 182.3 -85% 1%
NATPARA 5.9 - n/a <1%
Other product sales 61.9 67.2 -8% 2%
Total product sales 2,899.4 2,777.7 4% 95%
Royalties:
SENSIPAR 45.2 - n/a 1%
INTUNIV 27.8 - n/a 1%
FOSRENOL 19.2 22.2 -14% 1%
3TC and ZEFFIX 18.0 15.8 14% 1%
ADDERALL XR 15.1 13.5 12% <1%
Other 16.6 10.0 66% <1%
Total royalties 141.9 61.5 131% 5%
Other revenues 4.7 9.7 -52% <1%
Total revenues 3,046.0 2,848.9 7% 100%
Unaudited results for the three months to June 30, 2015
Non GAAP reconciliation
3 months to June US GAAP Adjustments Non GAAP
30, 2015
(a) (b) (c) (d) (e) (f)
$M $M $M $M $M $M $M $M
Total revenues 1,557.6 - - - - - - 1,557.6
Costs and expenses:
Cost of product 228.0 - (5.1) - - (2.8) (13.1) 207.0
sales
R&D 775.9 (523.3) - - - (5.7) (8.9) 238.0
SG&A 627.3 (131.3) - - (1.9) (17.5) (17.9) 458.7
Gain on sale of (7.1) - - 7.1 - - - -
product rights
Reorganization 13.3 - - (13.3) - - - -
costs
Integration and (212.4) - 212.4 - - - - -
acquisition costs
Depreciation - - - - - - 39.9 39.9
Total operating 1,425.0 (654.6) 207.3 (6.2) (1.9) (26.0) - 943.6
expenses
Operating income 132.6 654.6 (207.3) 6.2 1.9 26.0 - 614.0
Interest income 0.6 - - - - - - 0.6
Interest expense (11.3) - - - - - - (11.3)
Other income, net (2.0) - - (3.7) - - - (5.7)
Total other (12.7) - - (3.7) - - - (16.4)
expense, net
Income before
income taxes and
equity in earnings 119.9 654.6 (207.3) 2.5 1.9 26.0 - 597.6
of equity method
investees
Income taxes 44.1 (102.5) (6.5) (2.7) (0.6) (9.2) - (77.4)
Equity in earnings
of equity method 0.1 - - - - - - 0.1
investees, net of
tax
Income from
continuing 164.1 552.1 (213.8) (0.2) 1.3 16.8 - 520.3
operations
Loss from
discontinued (4.5) - - 4.5 - - - -
operations, net of
tax
Net income 159.6 552.1 (213.8) 4.3 1.3 16.8 - 520.3
Weighted average
number of shares 593.2 - - - - - - 593.2
(millions) -
diluted
Diluted earnings 80.7c 279.3c (108.0c) 2.1c 0.6c 8.4c - 263.1c
per ADS
The following items are included in Adjustments:
(a) Amortization and asset impairments: Impairment of SHP625 IPR&D
intangible asset ($346.6 million), impairment of SHP608 IPR&D intangible asset
($176.7 million), amortization of intangible assets relating to intellectual
property rights acquired ($131.3 million), and tax effect of adjustments;
(b) Acquisition and integration activities: Unwind of NPS inventory fair
value adjustments ($5.1 million), costs primarily associated with the
acquisition and integration of NPS ($49.1 million), net credit associated with
the integration of ViroPharma ($3.4 million) due to adjustments to estimates
relating to an onerous lease provision, net credit related to the change in
fair value of contingent consideration liabilities ($258.1 million), and tax
effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Gain on
re-measurement of DAYTRANA contingent consideration to fair value ($6.0
million), gain on disposal of non-core product rights ($1.1 million), costs
relating to the One Shire reorganization, including costs relating to the
relocation of staff from Chesterbrook to Lexington ($13.3 million), gain on
sale of long-term investment ($3.7 million), tax effect of adjustments, and
loss from discontinued operations, net of tax ($4.5 million);
(d) Legal and litigation costs: Costs related to litigation, government
investigations, other disputes and external legal costs ($1.9 million), and tax
effect of adjustments;
(e) Other: Costs associated with AbbVie's terminated offer for Shire ($26.0
million), and tax effect of adjustments; and
(f) Depreciation reclassification: Depreciation of $39.9 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 June 30, 2014
Non GAAP reconciliation
3 months to June US GAAP Adjustments Non GAAP
30, 2014
(a) (b) (c) (d) (e) (f)
$M $M $M $M $M $M $M $M
Total revenues 1,502.1 - - - - - - 1,502.1
Costs and expenses:
Cost of product 277.0 - (33.7) - - - (17.8) 225.5
sales
R&D 236.9 (22.0) - - - - (5.8) 209.1
SG&A 496.2 (61.2) - - (2.2) (19.1) (21.1) 392.6
Gain on sale of (3.8) - - 3.8 - - - -
product rights
Reorganization 45.8 - - (45.8) - - - -
costs
Integration and 112.1 - (112.1) - - - - -
acquisition costs
Depreciation - - - - - - 44.7 44.7
Total operating 1,164.2 (83.2) (145.8) (42.0) (2.2) (19.1) - 871.9
expenses
Operating income 337.9 83.2 145.8 42.0 2.2 19.1 - 630.2
Interest income 18.7 - - - - (18.6) - 0.1
Interest expense (11.1) - - - - - - (11.1)
Other income/ 3.3 - - - - - - 3.3
(expense), net
Total other income/ 10.9 - - - - (18.6) - (7.7)
(expense), net
Income before
income taxes and
equity in earnings 348.8 83.2 145.8 42.0 2.2 0.5 - 622.5
of equity method
investees
Income taxes 176.5 (31.5) (15.3) (12.7) (0.8) (216.0) - (99.8)
Equity in earnings
of equity method 3.0 - - - - - - 3.0
investees, net of
tax
Income from
continuing 528.3 51.7 130.5 29.3 1.4 (215.5) - 525.7
operations
Loss from
discontinued (5.2) - - 5.2 - - - -
operations, net of
tax
Net income 523.1 51.7 130.5 34.5 1.4 (215.5) - 525.7
Weighted average
number of shares 590.3 - - - - - - 590.3
(millions) -
diluted
Diluted earnings 265.8c 26.5c 66.4c 17.5c 0.6c (109.5c) - 267.3c
per ADS
The following items are included in Adjustments:
(a) Amortization and asset impairments: Impairment of IPR&D intangible asset
($22.0 million), amortization of intangible assets relating to intellectual
property rights acquired ($61.2 million), and tax effect of adjustments;
(b) Acquisition and integration activities: Unwind of ViroPharma inventory
fair value adjustments ($33.7 million), costs primarily associated with the
acquisition and integration of ViroPharma ($31.5 million), net charge related
to the change in fair value of contingent consideration liabilities ($80.6
million), and tax effect of adjustments;
(c) Divestments, reorganizations and discontinued operations: Gain on
re-measurement of DAYTRANA contingent consideration to fair value ($3.8
million), costs relating to the One Shire reorganization ($45.8 million), tax
effect of adjustments, and loss from discontinued operations, net of tax ($5.2
million);
(d) Legal and litigation costs: Costs related to litigation, government
investigations, other disputes and external legal costs ($2.2 million), and tax
effect of adjustments;
(e) Other: Net income tax credit related to the settlement of certain tax
positions with the Canadian revenue authorities ($216.0 million), related
interest income received in respect of cash deposited with the Canadian revenue
authorities ($18.6 million), costs associated with AbbVie's terminated offer
for Shire ($19.1 million), and tax effect adjustments; and
(f) Depreciation reclassification: Depreciation of $44.7 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 six months to June 30, 2015
Non GAAP reconciliation
6 months to June US GAAP Adjustments Non GAAP
30, 2015
(a) (b) (c) (d) (e) (f)
$M $M $M $M $M $M $M $M
Total revenues 3,046.0 - - - - - - 3,046.0
Costs and expenses:
Cost of product 455.8 - (16.3) - - (5.5) (24.8) 409.2
sales
R&D 969.6 (523.3) - - - (11.5) (11.7) 423.1
SG&A 1,133.9 (219.6) - - (2.7) (31.0) (35.7) 844.9
Gain on sale of (12.3) - - 12.3 - - - -
product rights
Reorganization 28.5 - - (28.5) - - - -
costs
Integration and (136.7) - 136.7 - - - - -
acquisition costs
Depreciation - - - - - - 72.2 72.2
Total operating 2,438.8 (742.9) 120.4 (16.2) (2.7) (48.0) - 1,749.4
expenses
Operating income 607.2 742.9 (120.4) 16.2 2.7 48.0 - 1,296.6
Interest income 2.6 - - - - (1.1) - 1.5
Interest expense (20.9) - - - - - - (20.9)
Other income/ 2.3 - - (3.7) - - - (1.4)
(expense), net
Total other (16.0) - - (3.7) - (1.1) - (20.8)
expense, net
Income before
income taxes and
equity in losses of 591.2 742.9 (120.4) 12.5 2.7 46.9 - 1,275.8
equity method
investees
Income taxes (13.3) (135.6) (20.1) (7.1) (1.0) (17.0) - (194.1)
Equity in losses of
equity method (0.9) - - - - - - (0.9)
investees, net of
tax
Income from
continuing 577.0 607.3 (140.5) 5.4 1.7 29.9 - 1,080.8
operations
Loss from
discontinued (7.0) - - 7.0 - - - -
operations, net of
tax
Net income 570.0 607.3 (140.5) 12.4 1.7 29.9 - 1,080.8
Weighted average
number of shares 593.0 - - - - - - 593.0
(millions) -
diluted
Diluted earnings 288.3c 307.3c (71.0c) 6.4c 0.9c 15.0c - 546.9c
per ADS
The following items are included in Adjustments:
(a) Amortization and asset impairments: Impairment of SHP625 IPR&D
intangible asset ($346.6 million), impairment of SHP608 IPR&D intangible asset
($176.7 million), amortization of intangible assets relating to intellectual
property rights acquired ($219.6 million), and tax effect of adjustments;
(b) Acquisitions and integration activities: Unwind of NPS inventory fair
value adjustments ($15.0 million), unwind of ViroPharma inventory fair value
adjustments ($1.3 million), costs associated with acquisition and integration
activities, principally NPS ($119.0 million), net credit related to the change
in fair values of contingent consideration liabilities ($255.7 million), and
tax effect of adjustments;
(c) 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 ($11.2 million), gain on disposal of
non-core product rights ($1.1 million), costs relating to the One Shire
reorganization, including costs relating to the relocation of staff from
Chesterbrook to Lexington ($28.5 million), gain on sale of long term
investments ($3.7 million), tax effect of adjustments and loss from
discontinued operations, net of tax ($7.0 million);
(d) Legal and litigation costs: Costs related to litigation, government
investigations, other disputes and external legal costs ($2.7 million), and tax
effect of adjustments;
(e) Other: Costs associated with AbbVie's terminated offer for Shire ($48.0
million), interest income received in respect of cash deposited with the
Canadian revenue authorities ($1.1 million); and
(f) Depreciation reclassification: Depreciation of $72.2 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 six months to June 30, 2014
Non GAAP reconciliation
6 months to June US GAAP Adjustments Non GAAP
30, 2014
(a) (b) (c) (d) (e) (f)
$M $M $M $M $M $M $M $M
Total revenues 2,848.9 - - - - - - 2,848.9
Costs and expenses:
Cost of product 506.5 - (72.5) - - - (28.0) 406.0
sales
R&D 597.4 (188.0) - - - - (11.6) 397.8
SG&A 926.5 (119.0) - - (3.9) (19.1) (41.9) 742.6
Gain on sale of (40.2) - - 40.2 - - - -
product rights
Reorganization 95.2 - - (95.2) - - - -
costs
Integration and 118.7 - (118.7) - - - - -
acquisition costs
Depreciation - - - - - - 81.5 81.5
Total operating 2,204.1 (307.0) (191.2) (55.0) (3.9) (19.1) - 1,627.9
expenses
Operating income 644.8 307.0 191.2 55.0 3.9 19.1 - 1,221.0
Interest income 19.2 - - - - (18.6) - 0.6
Interest expense (18.9) - - - - - - (18.9)
Other expense, net 8.0 - - (5.0) - - - 3.0
Total other 8.3 - - (5.0) - (18.6) - (15.3)
expense, net
Income before
income taxes and
equity in earnings 653.1 307.0 191.2 50.0 3.9 0.5 - 1,205.7
of equity method
investees
Income taxes 125.9 (76.0) (25.5) (25.4) (1.4) (216.0) - (218.4)
Equity in earnings
of equity method 2.4 - - - - - - 2.4
investees, net of
tax
Income from
continuing 781.4 231.0 165.7 24.6 2.5 (215.5) - 989.7
operations
Loss from
discontinued (27.9) - - 27.9 - - - -
operations, net of
tax
Net income 753.5 231.0 165.7 52.5 2.5 (215.5) - 989.7
Weighted average
number of shares 590.3 - - - - - - 590.3
(millions) -
diluted
Diluted earnings 382.8c 117.4c 84.4c 26.8c 1.2c (109.5c) - 503.1c
per ADS
The following items are included in Adjustments:
(a) Amortization and asset impairments: Impairment of IPR&D intangible
assets ($188.0 million), amortization of intangible assets relating to
intellectual property rights acquired ($119.0 million), and tax effect of
adjustments;
(b) Acquisitions and integration activities: Unwind of ViroPharma inventory
fair value adjustments ($72.5 million), costs primarily associated with the
acquisition of ViroPharma ($97.3 million), charge related to the change in fair
values of contingent consideration liabilities ($21.4 million), and tax effect
of adjustments;
(c) Divestments, reorganizations and discontinued operations: Gain on sale
of CALCICHEW product rights and on re-measurement of DAYTRANA contingent
consideration to fair value ($40.2 million), costs relating to the One Shire
reorganization ($95.2 million), gain on sale of long term investments ($5.0
million), tax effect of adjustments and loss from discontinued operations, net
of tax ($27.9 million);
(d) Legal and litigation costs: Costs related to litigation, government
investigations, other disputes and external legal costs ($3.9 million), and tax
effect of adjustments;
(e) Other: Net income tax credit related to the settlement of certain tax
positions with the Canadian revenue authorities ($216.0 million), related
interest income received in respect of cash deposited with the Canadian revenue
authorities ($18.6 million), costs associated with AbbVie's terminated offer
for Shire ($19.1 million), and tax effect of adjustment; and
(f) Depreciation reclassification: Depreciation of $81.5 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 six months to June 30, 2015
Non GAAP reconciliation
The following table reconciles US GAAP net income to Non GAAP EBITDA:
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
$M $M $M $M
US GAAP Net Income 159.6 523.1 570.0 753.5
(Deduct) / add back:
Loss from
discontinued 4.5 5.2 7.0 27.9
operations, net of
tax
Equity in (earnings)
/losses of equity (0.1) (3.0) 0.9 (2.4)
method investees,
net of taxes
Income taxes (44.1) (176.5) 13.3 (125.9)
Other expense/ 2.0 (3.3) (2.3) (8.0)
(income), net
Interest expense 11.3 11.1 20.9 18.9
Interest income (0.6) (18.7) (2.6) (19.2)
US GAAP Operating
income from 132.6 337.9 607.2 644.8
continuing
operations
Amortization 131.3 61.2 219.6 119.0
Depreciation 39.9 44.7 72.2 81.5
Asset impairments 523.3 22.0 523.3 188.0
Acquisition and
integration (207.3) 145.8 (120.4) 191.2
activities
Divestments,
reorganizations and 6.2 42.0 16.2 55.0
discontinued
operations
Legal and litigation 1.9 2.2 2.7 3.9
costs
Other 26.0 19.1 48.0 19.1
Non GAAP EBITDA 653.9 674.9 1,368.8 1,302.5
Depreciation (39.9) (44.7) (72.2) (81.5)
Non GAAP Operating
income from 614.0 630.2 1,296.6 1,221.0
continuing
operations
Net income margin(1) 10% 35% 19% 26%
Non GAAP EBITDA 39% 44% 42% 44%
margin(2)
(1) Net income as a percentage of total revenues
(2) Non GAAP EBITDA as a percentage of product sales, excluding
royalties and other revenues
Unaudited results for the three months and six months to June 30, 2015
Non GAAP reconciliation
The following table reconciles US GAAP product sales to Non GAAP Gross Margin:
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
$M $M $M $M
US GAAP Product Sales 1,476.2 1,469.6 2,899.4 2,777.7
(Deduct) / add back:
Cost of product sales (228.0) (277.0) (455.8) (506.5)
(US GAAP)
Unwind of inventory 5.1 33.7 16.3 72.5
fair value step-up
Costs of employee
retention awards
following AbbVie's 2.8 - 5.5 -
terminated offer for
Shire
Depreciation 13.1 17.8 24.8 28.0
Non GAAP Gross Margin 1,269.2 1,244.1 2,490.2 2,371.7
Non GAAP Gross Margin 86.0% 84.7% 85.9% 85.4%
% (1)
(1) Gross Product Margin as a
percentage of product sales
The following table reconciles US GAAP net cash provided by operating
activities to Non GAAP cash generation:
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
$M $M $M $M
Net cash provided by 452.3 834.0 1,013.9 1,080.1
operating activities
Tax and interest 53.0 72.6 7.2 157.8
payments, net
Receipt from the
Canadian revenue - (248.0) - (248.0)
authorities
Non GAAP cash 505.3 658.6 1,021.1 989.9
generation
The following table reconciles US GAAP net cash provided by operating
activities to Non GAAP free cash flow:
3 months to June 30, 6 months to June 30,
2015 2014 2015 2014
$M $M $M $M
Net cash provided by 452.3 834.0 1,013.9 1,080.1
operating activities
Capital expenditure (20.5) (3.8) (39.8) (19.1)
Non GAAP free cash 431.8 830.2 974.1 1,061.0
flow
Non GAAP net (debt)/cash comprises:
June 30, December 31,
2015 2014
$M $M
Cash and cash equivalents 64.0 2,982.4
Long term borrowings (73.9) -
Short term borrowings (2,229.9) (850.0)
Other debt (13.6) (13.7)
Non GAAP net (debt)/cash (2,253.4) 2,118.7
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 Rare Diseases, Neuroscience,
Gastrointestinal and Internal Medicine and are developing treatments for
symptomatic conditions treated by specialist physicians in other targeted
therapeutic areas, such as Ophthalmics.
www.shire.com
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Statements included herein that are not historical facts, including without
limitation statements concerning our 10x20 ambitions and targets, are
forward-looking statements. Such forward-looking statements involve a number of
risks and uncertainties and are subject to change at any time. In the event
such risks or uncertainties materialize, Shire's results could be materially
adversely affected. The risks and uncertainties include, but are not limited
to, that:
· Shire's products may not be a commercial success;
· product sales from ADDERALL XR and INTUNIV are subject to generic
competition;
· the failure to obtain and maintain reimbursement, or an adequate
level of reimbursement, by third-party payers in a timely manner for Shire's
products may affect 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 contract manufacturers 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 manufacture of Shire's products is subject to extensive oversight
by various regulatory agencies. Regulatory approvals or interventions
associated with changes to manufacturing sites, ingredients or manufacturing
processes could lead to significant delays, an increase in operating costs,
lost product sales, an interruption of research activities or the delay of new
product launches;
· Shire has a portfolio of products in various stages of research and
development. The successful development of these products is highly uncertain
and requires significant expenditures and time, and there is no guarantee that
these products will receive regulatory approval;
· 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 affect Shire's revenues, financial condition 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 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 and organizations. Shire is undergoing a corporate
reorganization and was the subject of an unsuccessful acquisition proposal and
the consequent uncertainty could adversely affect 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 NPS Pharmaceuticals Inc. 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 Securities and Exchange Commission, including those risks outlined in
"Item 1A: Risk Factors" in Shire's Annual Report on Form 10-K for the year
ended December 31, 2014.
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 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 gross margin; 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)([5]). 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 directors.
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 2015 and 2014, 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, including
costs of employee retention awards; and
· Break fee received in relation to 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 2015
and 2014 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.
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 21 to 26.
Growth at CER, which is a Non GAAP measure, is computed by restating 2015
results using average 2014 foreign exchange rates for the relevant period.
Average exchange rates used by Shire for the six months to June 30, 2015 were
$1.53:£1.00 and $1.13:€1.00 (2014: $1.67:£1.00 and $1.37:€1.00). Average
exchange rates used by Shire for Q2 2015 were $1.52:£1.00 and $1.10:€1.00
(2014: $1.68:£1.00 and $1.38:€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, PENTASA® which is a trade mark of
FERRING B.V. Corp, LIALDA® which is a trade mark of Nogra International
Limited, MEZAVANT® which is a trade mark of Guiliani International Limited,
CALCICHEW® which is a trade mark of Takeda and DAYTRANA® which is a trade mark
of Noven Pharmaceutical Inc. Certain trade marks of Shire plc or companies
within the Shire group are set out in Shire's most recent Annual Report on Form
10-K for the year ended December 31, 2014.
([1]) Q2 2015 includes a net charge of $243 million related to impairment of
SHP625 & SHP608. Impairment charges of $523 million are partially offset by the
associated credits of $280 million relating to a change in the fair value of
contingent consideration liabilities.
([2]) Lisadexamfetamine dimesylate ("LDX") currently marketed as VYVANSE in the
US & Canada, VENVANSE® in Latin America and ELVANSE® in certain territories in
the EU for the treatment of Attention Deficit Hyperactivity Disorder ("ADHD")
and in the US for the treatment of moderate to severe Binge Eating Disorder in
adults.
([3]) For the treatment of Cholestatic Liver Disease.
([4]) For the treatment of Dystrophic Epidermolysis Bullosa.
([5]) Non GAAP EBITDA (as calculated on page 25 of this announcement) as a
percentage of product sales, excluding royalties and other revenues.
SHIRE : Second Quarter Results
July 23, 2015 at 07:03 am EDT
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