October 24, 2013 – Shire (LSE: SHP, NASDAQ: SHPG) announces results for the three months to September 30, 2013.
The Non GAAP financial measures included within this release are explained on page 24, and are reconciled to the most directly comparable financial measures prepared in accordance with US GAAP on pages 19 - 23.
STRONG RESULTS DEMONSTRATING GOOD PROGRESS
- Product sales +13% – with eight of our products delivering double digit growth in the quarter – including VYVANSE® (+21%), LIALDA®/MEZAVANT® (+36%) and FIRAZYR® (+107%)
- Non GAAP operating income +30% reflecting strong operating leverage
- Non GAAP earnings per ADS +30%
- Non GAAP cash generation +36%
- Guidance increased to mid-to-high teens Non GAAP earnings growth for the full year in 2013
STRATEGY EXECUTION
- Focused on growth: excellence in commercial execution and investment in newly prioritized pipeline
- ‘One Shire’ reorganization well underway driving greater efficiencies and resetting cost base to deliver sustainable improved operating leverage
- Revenue growth and effective cost management underpins increased guidance for 2013
Flemming Ornskov, M.D., Chief Executive Officer, commented:
“This has been a strong quarter with good growth in revenues, earnings and cash generation.
We’re demonstrating execution of our strategy, which is putting Shire on a path of sustainable growth. Our focus on commercial excellence is improving product sales and we’re excited about the opportunities in our pipeline.
We’re confident in our prospects for the longer term as we continue to execute on commercial delivery, progress our prioritized pipeline and focus on targeted M&A. The benefits of our ‘One Shire’ reorganization are already evident in our year to date performance, we have a simpler, more efficient business and now expect Non GAAP R&D and SG&A spend to be lower than current consensus expectations for this year and in 2014 and 20151.
I am delighted to be increasing our 2013 full year earnings guidance to delivering mid-to-high teens Non GAAP earnings growth and guiding to continuing operating leverage for 2014 and 20151. This strong performance has been overseen by a management team with long term tenure at Shire, supplemented by some recent new senior appointments.”
- Product sales in Q3 2013 grew strongly (up 13% to $1,195 million). On a Constant Exchange Rate (“CER”) basis, which is a Non GAAP measure, product sales were up 13%.
Eight of our products delivered double digit growth including VYVANSE (up 21% to $299 million), LIALDA/MEZAVANT (up 36% to $142 million), ELAPRASE® (up 17% to $129 million), VPRIV® (up 17% to $88 million), INTUNIV® (up 17% to $81 million) and FIRAZYR (up 107% to $63 million). LIALDA/MEZAVANT sales in Q3 2013 were particularly strong, primarily due to growth in US market share.
Growth in total product sales was moderated by DERMAGRAFT® (down 29% to $24 million), ADDERALL XR® (down 20% to $81 million) and REPLAGAL® (down 11% to $109 million). REPLAGAL product sales continue to be impacted by the return of competition to the Fabry market.
- Total revenues were up 12% to $1,237 million (Q3 2012: $1,100 million) as the growth in product sales was partially offset by lower royalties.
- On a Non GAAP basis:
Operating income was up 30% to $422 million (Q3 2012: $325 million), as total operating costs in Q3 2013 increased at a lower rate (up 5%) than total revenues (up 12%) demonstrating our focus on delivering efficient growth. Research and Development expenditure was up 2% and Selling, General and Administrative expenditure was up 1%.
On a US GAAP basis:
Operating income was up 25% to $341 million (Q3 2012: $273 million), a lower rate of increase than on a Non GAAP basis as Q3 2013 included higher acquisition and integration costs as compared to Q3 2012 and reorganization costs of $14 million not incurred in Q3 2012. Research and Development expenditure was up 2% and Selling, General and Administrative expenditure was up 1%.
- Non GAAP diluted earnings per American Depository Share (“ADS”) increased 30% to $1.77 (Q3 2012: $1.36) primarily due to higher Non GAAP operating income.
On a US GAAP basis, diluted earnings per ADS increased 23% to $1.46 (Q3 2012: $1.19), primarily due to higher US GAAP operating income.
- Cash generation, a Non GAAP measure, increased by 36% to $482 million (Q3 2012: $355 million) due to both higher cash receipts from product sales and lower operating expense payments in Q3 2013 as compared to Q3 2012. Cash generation partially benefited from the timing of some receipts from large distributors in the US.
Free cash flow, also a Non GAAP measure, increased by 49% to $388 million (Q3 2012: $261 million) primarily due to higher cash generation and lower tax payments, partially offset by higher capital expenditure payments in Q3 2013 as compared to Q3 2012.
On a US GAAP basis, net cash provided by operating activities was up 50% to $434 million (Q3 2012: $288 million).
- Net cash, which is a Non GAAP measure, was $577 million at September 30, 2013 (December 31, 2012: $373 million). On a US GAAP basis, cash and cash equivalents were $1,686 million at September 30, 2013 (December 31, 2012: $1,482 million).
STRATEGIC EXECUTION
Shire continues to focus on its strategic priorities of growing sales of the existing portfolio, bringing new innovative treatments to market through both R&D and business development, while driving greater efficiency and increased operating leverage.
The business has been simplified. Prior to May 2013 Shire had three autonomous divisions, each with their own R&D, supply chain, technical operations and commercial infrastructures. These three divisions have been reorganized so they are now one business, with much reduced overlap.
Shire now has greater collaboration and focus in its commercial operations and this is showing positive results, as evident in the increased product sales. With a single R&D organization now in place, Shire has a more effective process to evaluate holistically all pipeline opportunities as well as business development prospects. Our pipeline has been prioritized to focus on development programs that have the best chance of clinical and commercial success together with early stage research in rare diseases. We believe that these measures will ensure Shire is optimally positioned to enable the continued development of products that serve unmet patient need and to sustain the track record of high growth.
OUTLOOK
We are increasing our guidance to mid-to-high teens Non GAAP earnings growth for the full year in 2013 (previous guidance: double digit Non GAAP earnings growth) as we continue to see operating costs benefit from our reorganization efforts.
We anticipate a similar level of product sales growth in the fourth quarter as we delivered in the third quarter, and continue to expect full year product sales growth in the mid-to-high single digits.
We continue to expect royalties and other revenues to be 35-40% lower than 2012.
Our Non GAAP gross margin for the full year is expected to remain at a similar level to 2012.
With investment prioritized behind our promising pipeline and our late stage clinical trials, we now expect Non GAAP R&D to be 5-7% higher for the full year than in 2012 (previous guidance: growth in the low double digits).
Non GAAP SG&A for the full year is now anticipated to be 5-7% lower than 2012 (previous guidance: 2-4% lower). Non GAAP SG&A in the fourth quarter is expected to be slightly higher than in the third quarter as we provide targeted support to our commercial team to invest behind our key products.
As a result, we now expect combined Non GAAP R&D and SG&A to be 1-3% lower than 2012 (previous guidance: only marginally higher). This translates to a reduced spend of $250 million compared with our guidance forecasts in February 20131.
Our core effective tax rate on Non GAAP income is anticipated to remain in the range of 18-20%.
Taken together, we are increasing our guidance to reflect our expectation of delivering mid-to-high teens Non GAAP earnings growth for the full year in 2013 (previous guidance: double digit Non GAAP earnings growth).
Looking forward, we anticipate continuing operating leverage in 2014 and 2015, from reduced combined Non GAAP R&D and SG&A. We expect this to be around $250 million lower than current consensus in 2014 and $300 million lower than current consensus in 20152.
1 Improvements of approximately $250 million for full year 2013, based on the difference between initial guidance for full year 2013 of high single digit growth in combined Non GAAP R&D and SG&A (guidance provided February 14, 2013) and current guidance expectations of combined Non GAAP R&D and SG&A to be 1-3% lower than 2012.
2 Based on the most recent consensus estimates compiled by Consensus Forecast Ltd, as of the date of this release, of combined Non GAAP R&D and SG&A of $2,662 million and $2,683 million for the years ending December 31, 2014 and 2015 respectively, available on Shire’s website (http://www.shire.com/shireplc/en/investors/forecasts).
THIRD QUARTER 2013 AND RECENT PIPELINE DEVELOPMENTS
Pipeline
ABH001 – for the treatment of Epidermolysis Bullosa
- This program has been discontinued as part of the prioritization of Shire’s pipeline.
OTHER DEVELOPMENTS
Decision to discontinue the construction of the new manufacturing facility in San Diego
- On October 22, 2013 Shire announced that it had decided to discontinue the construction of its new manufacturing facility in San Diego. Shire will continue to manufacture DERMAGRAFT in its existing facility in La Jolla, and Shire’s ability to meet expected future demand for DERMAGRAFT is not impacted by this decision. Shire is currently assessing possible disposal opportunities in relation to this facility.
Share Buy-Back Program
- In Q4 2012 Shire commenced a share buy-back program, for the purpose of returning funds to shareholders, of up to $500 million, through both direct purchases of Ordinary Shares and through the purchase of Ordinary Shares underlying American Depositary Receipts. As of October 22, 2013 Shire had made on-market repurchases totaling 9,807,835 Ordinary Shares at a cost of $299 million (excluding transaction costs).
BOARD AND COMMITTEE CHANGES
- On October 23, 2013 Shire announced that Dominic Blakemore will join the Shire Board of Directors effective January 1, 2014. On joining the Board, Dominic will become a member of the Shire Audit, Compliance & Risk Committee. Dominic’s career experience includes finance and strategy roles with global corporations. He is currently Group Finance Director of Compass Group plc.
For further information please contact:
Investor Relations
- Eric Rojas
erojas@shire.com
+1 781 482 0999
- Sarah Elton-Farr
seltonfarr@shire.com
+44 1256 894 157
Media
- Jessica Mann
jmann@shire.com
+44 1256 894 280
- Gwen Fisher
gfisher@shire.com
+1 484 595 9836
- Jessica Cotrone
jcotrone@shire.com
+1 781 482 9538
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