Shire plc Shire Plc : Shire Reports Strong Q2 -8-
TIDMSHP
Shire reports strong Q2 2017 operating results and cash flow; updates
full year guidance
Q2 product sales growth of 7% on a combined pro forma basis; generated
$1.2 billion operating cash flow
Over-delivered Year 1 Baxalta integration cost synergies, recognizing
$400 million vs $300 million target
Exploring strategic review of Neuroscience franchise, including
potential of independent public listing
Significant pipeline progress with SHP643 (lanadelumab); Phase 3 topline
data demonstrates potential to change treatment paradigm for patients
with HAE; U.S. approval of MYDAYIS for patients with ADHD; September
launch planned
August 3, 2017 - Shire plc (Shire) (LSE: SHP, NASDAQ: SHPG) announces
unaudited results for the three months ended June 30, 2017.
Flemming Ornskov, M.D., M.P.H., Shire Chief Executive Officer,
commented:
"During the second quarter, we delivered strong top-line growth of 7% on
a pro forma basis, generating product sales of $3.6 billion. Our
Immunology franchise grew by 18%, and we saw significant contributions
across our broad and diverse portfolio. Shire remains ahead of schedule
to deliver at least $700 million in cost synergies from the Baxalta
integration by Year 3. The Q2 performance resulted in strong operating
cash flow of $1.2 billion and enabled us to reduce Non GAAP net debt by
$880 million in the quarter.
"We also continue to drive the late-stage clinical pipeline. In Q2 we
announced positive topline data from our Phase 3 pivotal trial of SHP643
in HAE, and anticipate submission of the BLA in late 2017 or early 2018.
MYDAYIS, a once-daily treatment for patients with ADHD, received US FDA
approval and will be launched in September.
"We are at an exciting inflection point, with both our rare disease and
neuroscience businesses performing strongly and each having significant
growth potential over the coming years. The strength and scale of our
business provides us with the opportunity to further optimize our
franchise portfolio - one of our key priorities communicated earlier
this year. By year end, we expect to complete a formal evaluation of the
full range of strategic options for the neuroscience franchise,
including the potential for its independent public listing.
"As we enter the second half of 2017, we are focused on generating
strong organic growth while continuing to deliver on our key priorities
- launching more than 80 products globally by leveraging our expanded
commercial platform, progressing our late-stage pipeline, integrating
Baxalta, and paying down debt. We have updated our 2017 full year
guidance and remain very confident about Shire's long-term prospects."
Financial Highlights
Q2 2017(1) Growth(1) Non GAAP CER(1)(2)
Product sales $3,592 million +55% +56%
Product sales excluding legacy
Baxalta $1,882 million +7%
Total revenues $3,746 million +54% +56%
Operating income from
continuing operations $399 million +315%
Non GAAP operating income(2) $1,492 million +53% +54%
Net income margin(3)(4) 6% 13ppc
Non GAAP EBITDA margin(2)(4) 43% 1ppc
Net income $240 million N/M
Non GAAP net income(2) $1,135 million +47%
Diluted earnings per ADS(5) $0.79 N/M
Non GAAP diluted earnings per
ADS(2)(5) $3.73 +10% +11%
Net cash provided by operating
activities $1,223 million +107%
Non GAAP free cash flow(2) $1,064 million +130%
(1) Results include Baxalta Inc. (Baxalta) (acquired on June 3, 2016),
unless otherwise noted. Percentages compare to equivalent 2016 period.
(2) The Non GAAP financial measures included within this release are
explained on pages 28 - 29, and are reconciled to the most directly
comparable financial measures prepared in accordance with US GAAP on
pages 22 - 24. (3) US GAAP net income as a percentage of total revenues.
(4) Percentage point change (ppc). (5) Diluted weighted average number
of ordinary shares 913 million.
Product sales growth
-- Delivered product sales growth of 55% with the inclusion of legacy
Baxalta sales.
-- Achieved combined pro forma product sales growth of 7%; legacy Shire
product sales growth of 7% and legacy Baxalta pro forma product sales
growth of 8%.
-- Strong demand for our immunology products delivered 18% pro forma sales
growth, with significant contributions from our subcutaneous
immunoglobulin portfolio as well as GAMMAGARD LIQUID and our albumin
products.
Earnings growth
-- Generated Non GAAP earnings per ADS of $3.73, underscoring
continued focus on commercial excellence and operating efficiency.
-- Continued to progress Baxalta integration, while delivering
$400 million in cost synergies in year 1 - exceeding our target of $300
million - which contributed to a Non GAAP EBITDA margin of 43% for the
quarter; on-track to achieve at least $700 million in synergies by year
3.
Strong cash flow
-- Strong operating cash flow enabled $880 million reduction in
Non GAAP net debt since March 31, 2017; remain on-track to achieve our
year-end debt target.
Product and Pipeline Highlights
Regulatory updates
-- Received U.S. Food and Drug Administration (FDA) approval of
MYDAYIS, a new once-daily treatment option for symptom control in
Attention Deficit Hyperactivity Disorder (ADHD) patients 13 years and
older.
-- Granted European Union (EU) Conditional Marketing Authorization
for NATPAR (Parathyroid Hormone) for the treatment of patients with
Chronic Hypoparathyroidism.
-- Received European Medicines Agency (EMA) validation of VEYVONDI
[von Willebrand factor (Recombinant)] Marketing Authorization
Application for treatment of von Willebrand Disease (VWD).
-- Submitted Investigational New Drug (IND) application to FDA for
gene therapy candidate SHP654 for the treatment of hemophilia A.
Clinical and business development updates
-- Reported positive topline data for SHP643 (lanadelumab), which
was acquired with Dyax Corp. (Dyax), an investigational treatment that
reduced Hereditary Angioedema (HAE) monthly attack rate by 87% versus
placebo in a Phase 3 26-week pivotal trial.
-- Entered into an agreement with Parion Sciences to develop and
commercialize SHP659 (formerly known as P-321), an investigational
epithelial sodium channel (ENaC) inhibitor for the potential treatment
of Dry Eye Disease in adults.
-- Expanded broad antibody research platform through license
agreement with Novimmune S.A. to develop and commercialize an innovative,
differentiated bi-specific antibody in pre-clinical development for the
treatment of hemophilia A and hemophilia A patients with inhibitors.
FINANCIAL SUMMARY - SECOND QUARTER 2017 COMPARED TO SECOND QUARTER 2016
Revenues
-- Product sales increased 55% to $3,592 million (Q2 2016: $2,322 million),
primarily due to the inclusion of a full quarter of legacy Baxalta sales
of $1,710 million in Q2 2017.
-- Product sales excluding legacy Baxalta increased 7% primarily due to
growth from our Internal Medicine franchise, up 15%, as well as sales
from our Ophthalmology franchise of $57 million.
-- Royalties and other revenues increased 44% to $154 million, as Q2 2017
benefited from a full quarter of additional revenue acquired with Baxalta,
primarily related to contract manufacturing activities.
Operating results
-- Operating income increased 315% to $399 million (Q2 2016: $96 million),
primarily due to the inclusion of a full quarter of Baxalta operating
income and higher revenue from our Internal Medicine franchise, partially
offset by higher amortization of acquired intangible assets and higher
costs relating to licensing arrangements.
-- Non GAAP operating income increased 53% to $1,492 million (Q2 2016: $972
million), primarily due to the inclusion of a full quarter of Baxalta
operating income and higher revenue from legacy Shire products.
-- Non GAAP EBITDA margin as a percentage of total revenues increased to 43%
(Q2 2016: 42%), primarily due to lower research and development (R&D) and
selling, general and administrative (SG&A) expenditures as a percentage
of revenues, partially offset by a lower Non GAAP gross margin, primarily
due to the inclusion of a full quarter of lower margin product franchises
acquired with Baxalta.
Earnings per share (EPS)
-- Diluted earnings per American Depositary Shares (ADS) increased to $0.79
(Q2 2016: diluted losses per ADS of $0.71), primarily due to higher
operating income due to the inclusion of a full quarter of Baxalta income
and the impact of lower losses from discontinued operations related to
the divested Dermagraft business.
-- Non GAAP diluted earnings per ADS increased 10% to $3.73 (Q2 2016: $3.38),
as higher Non GAAP operating income more than offset the impact of
additional shares issued as consideration for the Baxalta transaction.
Cash flows
-- Net cash provided by operating activities increased 107% to $1,223
million (Q2 2016: $591 million), primarily due to strong cash receipts
from higher sales and operating profitability, partially offset by the
timing of payments of accounts payable and other accruals.
-- Non GAAP free cash flow increased 130% to $1,064 million (Q2 2016: $463
million), driven by the growth in net cash provided by operating
activities noted above, partially offset by an increase of $51 million in
capital expenditures, primarily related to our continued investment in
manufacturing operations.
Debt
-- Non GAAP net debt at June 30, 2017 decreased $1,143 million since
December 31, 2016, to $21,296 million (December 31, 2016: $22,439
million). The decrease was primarily due to a $1,416 million net cash
repayment of debt, partially offset by a lower cash balance. Non GAAP net
debt represents aggregate long and short term borrowings of $21,209
million, and capital leases of $351 million, partially offset by cash and
cash equivalents of $264 million.
OUTLOOK
Following the strong performance in the first half of the year, we are
updating our guidance for 2017.
The guidance incorporates accelerated synergy capture as well as an
updated view on our product sales, primarily due to a new generic LIALDA
competitor. We have also revised our depreciation estimate to be $450 -
$500 million, based on updates resulting from the Baxalta integration,
and we have lowered our capital expenditure forecast to $800 - $900
million.
Non GAAP EPS has been upgraded by raising the midpoint of our guidance
range by 10 cents to $15.00, driven by cost discipline and accelerated
synergy capture.
The diluted earnings per ADS forecast assumes a weighted average number
of 914 million fully diluted ordinary shares outstanding for 2017.
Our US GAAP diluted earnings per ADS outlook has been updated to reflect
ongoing integration activities, which has accelerated the recognition of
synergies, and the change in fair value of contingent consideration for
SHP643 (lanadelumab) resulting from the positive topline Phase 3
results.
Full Year 2017 US GAAP Outlook Non GAAP Outlook(1)
Total product sales $14.3 - $14.6 billion $14.3 - $14.6 billion
Royalties & other revenues $600 - $700 million $600 - $700 million
Gross margin as a percentage of
total revenue(2) 67.5% - 69.5% 74.5% - 76.5%
Combined R&D and SG&A $5.3 - $5.5 billion $4.9 - $5.1 billion
Net interest/other $500 - $600 million $500 - $600 million
Effective tax rate 7% 16% - 17%
Diluted earnings per ADS(3) $5.65 - $6.05 $14.80 - $15.20
(1) For a list of items excluded from Non GAAP Outlook, refer to pages
28 - 29 of this release.
(2) Gross margin as a percentage of total revenues excludes amortization
of acquired intangible assets.
(3) See page 24 for a reconciliation between US GAAP diluted earnings
per ADS and Non GAAP diluted earnings per ADS.
RECENT DEVELOPMENTS
Corporate Strategy
Shire to assess strategic options for its Neuroscience franchise
-- With the acquisition and integration of Baxalta, Shire has solidified its
leadership position in rare diseases with an unparalleled inline
portfolio, innovative pipeline, and global commercial infrastructure. As
part of the Board's ongoing commitment to optimize Shire's portfolio and
strategic focus, Shire is assessing strategic options for our
Neuroscience franchise to derive even greater value from this
franchise. These options may include the independent public listing of
the Neuroscience franchise. Shire intends to complete this strategic
review by year end.
Business Development
Shire enters into a licensing agreement for Novimmune bi-specific
antibody
-- On July 18, 2017, Shire entered into a licensing agreement with Novimmune
S.A. The license grants Shire exclusive worldwide rights to develop and
commercialize an innovative, bi-specific antibody in pre-clinical
development for the treatment of hemophilia A and hemophilia A patients
with inhibitors.
Products
FIRAZYR for the treatment of HAE in Japan
-- On July 6, 2017, Shire submitted a Japanese New Drug Application to the
Pharmaceutical and Medical Devices Agency in Japan for the treatment of
HAE.
VEYVONDI for the treatment of adults affected by VWD
-- On June 22, 2017, Shire announced that the EMA validated the Marketing
Authorization Application for VEYVONDI to prevent and treat bleeding
episodes and peri-operative bleeding in adults (age 18 and older)
diagnosed with VWD.
MYDAYIS for the treatment of ADHD
-- On June 20, 2017, Shire announced that the FDA has approved MYDAYIS
(mixed salts of a single-entity amphetamine product), a once-daily
treatment comprised of three different types of drug-releasing beads for
patients aged 13 years and older with ADHD.
INTUNIV for the treatment of ADHD in Japan
-- On May 29, 2017, Shire's partner in Japan, Shionogi & Co., Ltd, launched
INTUNIV for the treatment of ADHD in children and adolescents from 6 to
17 years old.
Pipeline
SHP654 for the treatment of hemophilia A
-- On July 6, 2017, Shire announced the submission of an IND application to
the FDA for SHP654, an investigational factor VIII (FVIII) gene therapy
for the treatment of hemophilia A.
SHP643 for the treatment of HAE
-- On May 18, 2017, Shire announced positive topline Phase 3 results for the
HELP Study, which evaluated the efficacy and safety of subcutaneously
administered lanadelumab in patients 12 years of age or older with HAE.
The study met its primary endpoint and all secondary endpoints.
SHP647 for the treatment of ulcerative colitis
-- On May 17, 2017, Shire announced the publication of positive Phase 2
results for the TURANDOT Study. The study met its primary endpoint,
demonstrating significantly greater remission rates in patients receiving
the anti-MAdCAM antibody. Shire continues to work towards the initiation
of a pivotal Phase 3 trial for SHP647 in the second half of 2017.
SHP680 for the treatment of multiple neurological conditions
-- Shire is advancing clinical development of SHP680, targeting indications
for multiple neurological conditions with high unmet need. SHP680 is a
new chemical entity prodrug of d-amphetamine, which has previously been
studied in Phase 1 clinical trials, demonstrating a unique PK profile. It
belongs to a class of molecules with an established and well understood
safety profile.
Board Changes
In accordance with Shire's normal succession planning, the Company
announces that the following Non-Executive Directors will retire from
the Board with effect from the conclusion of the 2018 Annual General
Meeting ("AGM"):
-- William M. Burns, Senior Independent Director
-- David Ginsburg, Chairman of the Science & Technology Committee
-- Anne Minto, Chairman of the Remuneration Committee
Al Stroucken, Non-Executive Director, will assume the position of
Chairman of the Remuneration Committee effective August 3, 2017. Anne
Minto will continue to serve as a member of the Remuneration Committee
to enable a period of transition until her retirement from the Board.
Anne will fully support Al in the shareholder consultation process ahead
of the publication of the new Directors' Remuneration Policy that will
be put forward for shareholder approval at the 2018 AGM. The Board,
supported by the Nomination & Governance Committee, will continue to
evaluate Board and committee membership, including succession plans for
the roles of Senior Independent Director and Chairman of the Science &
Technology Committee, and will announce further changes once finalized.
Dividend
In respect of the six months ended June 30, 2017, the Board resolved to
pay an interim dividend of 5.09 U.S. cents per Ordinary Share (2016:
4.63 U.S. cents per Ordinary Share).
Dividend payments will be made in Pounds Sterling to holders of Ordinary
Shares and in U.S. Dollars to holders of ADSs. A dividend of 3.85(1)
pence per Ordinary Share (2016: 3.51 pence) and 15.27 U.S. cents per ADS
(2016: 13.89 U.S. cents) will be paid on October 20, 2017, to
shareholders on the register as of the close of business on September 8,
2017.
Holders of Ordinary Shares are notified that, in order to receive UK
sourced dividends via Shire's Income Access Share arrangements ("IAS
Arrangements"), they need to have submitted a valid IAS Arrangements
election form to the Company's Registrar, Equiniti, by no later than 5pm
(BST) on September 22, 2017. Holders of Ordinary Shares are advised
that:
-- any previous elections made using versions of the IAS Arrangements
election form in use prior to February 16, 2016, and any elections deemed
to have been made prior to April 28, 2016, are no longer valid; and
-- if they do not elect, or have not elected using the newly formatted IAS
Arrangements election forms published on or after February 16, 2016, to
receive UK sourced dividends via Shire's IAS Arrangements, their
dividends will be Irish sourced and therefore incur Irish dividend
withholding tax, subject to applicable exemptions.
Internet links to the newly formatted IAS Arrangements election forms
can be found at:
http://investors.shire.com/shareholder-information/shareholder-forms.aspx
(1) Translated using a GBP:USD exchange rate of 1.3221.
ADDITIONAL INFORMATION
The following additional information is included in this press release:
Page
Overview of Second Quarter 2017 Financial Results 9
Financial Information 14
Non GAAP Reconciliations 22
Notes to Editors 25
Forward-Looking Statements 26
Non GAAP Measures 28
Trademarks 29
For further information please contact:
Investor Relations
Ian Karp ikarp@shire.com +1 781 482 9018
Robert Coates rcoates@shire.com +44 1256 894874
Media
Lisa Adler lisa.adler@shire.com +1 617 588 8607
Debbi Ford debbi.ford@shire.com +1 617 949 9083
Dial in details for the live conference call for investors at 14:00 BST
/ 9:00 EDT on August 3, 2017:
UK dial in: 0808 237 0030 or 020 3139 4830
US dial in: 1 866 928 7517 or 1 718 873 9077
International Click here:
Access http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access
Numbers: _List.pdf
Password/Conf 96350792#
ID:
Live Webcast: Click here
http://investors.shire.com/presentations-and-reports/quarterly-resul
ts-and-presentations%20
The quarterly earnings presentation will be available today at 13:00 BST
/ 8:00 EDT on:
- Shire.com Investors section
http://investors.shire.com/presentations-and-reports/quarterly-results-and-presentations%20
- Shire's IR Briefcase in the iTunes Store
https://itunes.apple.com/us/app/shire-ir-briefcase/id529486874?mt=8
OVERVIEW OF SECOND QUARTER 2017 FINANCIAL RESULTS COMPARED TO SECOND
QUARTER 2016
1. Product sales
Product sales increased 55% to $3,592 million (Q2 2016: $2,322 million),
primarily due to the inclusion of a full quarter of legacy Baxalta sales
in Q2 2017. Excluding legacy Baxalta, product sales increased 7%.
Total Sales
(in millions) Year on year growth
Product sales by U.S. International Total
franchise Sales Sales Sales Reported Non GAAP CER
HEMOPHILIA $ 383.1 $ 360.8 $ 743.9 N/M N/M
INHIBITOR
THERAPIES 76.1 144.6 220.7 N/M N/M
Hematology total 459.2 505.4 964.6 N/M N/M
CINRYZE 164.7 11.2 175.9 +2% +2%
ELAPRASE 39.8 121.2 161.0 +5% +5%
FIRAZYR 118.1 19.3 137.4 +1% +1%
REPLAGAL - 122.1 122.1 +3% +6%
VPRIV 37.3 50.6 87.9 -0% +2%
KALBITOR 20.6 - 20.6 +16% +16%
Genetic Diseases
total 380.5 324.4 704.9 +2% +3%
IMMUNOGLOBULIN
THERAPIES 407.9 102.6 510.5 N/M N/M
BIO THERAPEUTICS 75.9 96.3 172.2 N/M N/M
Immunology total 483.8 198.9 682.7 N/M N/M
VYVANSE 460.1 58.1 518.2 +0% +0%
ADDERALL XR 67.2 4.2 71.4 -30% -30%
MYDAYIS 15.7 - 15.7 N/A N/A
Other Neuroscience 5.2 24.9 30.1 -16% -12%
Neuroscience total 548.2 87.2 635.4 -3% -2%
LIALDA/MEZAVANT 187.5 20.3 207.8 +7% +8%
PENTASA 83.3 - 83.3 +14% +14%
GATTEX/REVESTIVE 63.7 11.6 75.3 +69% +70%
NATPARA 34.5 - 34.5 +73% +73%
Other Internal
Medicine 31.2 52.2 83.4 -6% -3%
Internal Medicine
total 400.2 84.1 484.3 +15% +16%
Oncology total 45.8 16.7 62.5 N/M N/M
Ophthalmology
total 57.4 - 57.4 N/A N/A
Total product
sales $2,375.1 $ 1,216.7 $3,591.8 +55% +56%
Hematology
Hematology, acquired with Baxalta in June 2016, reported product sales
of $965 million. Hematology includes sales of recombinant and
plasma-derived hemophilia products (primarily factor VIII and factor IX)
and inhibitor therapies. Pro forma Q2 2017 growth in Hematology was
approximately 1%. U.S. sales growth in Hemophilia, which benefited from
stocking in the quarter, was partially offset by overall hematology
performance in our international markets due to the timing of large
orders.
Genetic Diseases
Genetic Diseases product sales increased 2%. Growth was primarily driven
by our lysosomal storage diseases (LSD) portfolio.
ELAPRASE sales increased by 5%, while REPLAGAL sales increased by 3%.
Both products benefited from an increase in the number of patients on
therapy.
Immunology
Immunology, acquired with Baxalta in June 2016, reported product sales
of $683 million. Immunology includes sales of antibody-replacement
immunoglobulin and bio therapeutics therapies. Pro forma Q2 2017 growth
in Immunology was approximately 18% (20% at Non GAAP CER) as the
franchise benefited from growth in both immunoglobulin therapies and bio
therapeutics. The U.S. benefited from growth in demand for our
subcutaneous portfolio. International experienced growth across most
regions with some benefit due to the timing of large orders.
Neuroscience
Neuroscience product sales decreased 3%, primarily driven by ADDERALL
XR.
ADDERALL XR sales decreased 30%, primarily due to additional generic
competition since August 2016. VYVANSE sales growth was impacted by
destocking in the second quarter of 2017 compared to stocking in the
same period in the prior year.
MYDAYIS, approved by the FDA on June 20, 2017, contributed $16 million
of product sales related to launch stocking.
Internal Medicine
Internal Medicine product sales increased 15%, with strong growth from
GATTEX/REVESTIVE and NATPARA.
GATTEX/REVESTIVE and NATPARA continued to perform well with sales
increasing 69% and 73%, respectively, primarily due to an increase in
the numbers of patients on therapy.
During Q2 2017, a generic version of LIALDA was approved by the FDA;
Shire expects generic competition to negatively impact future LIALDA
product sales.
Oncology
Oncology, acquired with Baxalta in June 2016, reported sales of $63
million. Oncology includes sales of ONCASPAR and ONIVYDE, the latter of
which was approved in the EU on October 18, 2016 and has contributed to
international growth in 2017.
Ophthalmology
Ophthalmology product sales relate to XIIDRA, which was made available
to patients starting on August 29, 2016. XIIDRA contributed $57 million
of product sales with 13% prescription growth since Q1 2017.
Baxalta pro forma product sales growth
The following table presents Q2 2017 reported legacy Baxalta product
sales compared with Q2 2016 pro forma legacy Baxalta sales.
Pro forma
(in millions) Year on year growth
Product sales U.S. International Total
by franchise Sales Sales Sales Reported Non GAAP CER
HEMOPHILIA $383.1 $ 360.8 $ 743.9 +3% +5%
INHIBITOR
THERAPIES 76.1 144.6 220.7 -7% -5%
Hematology total 459.2 505.4 964.6 +1% +2%
IMMUNOGLOBULIN
THERAPIES 407.9 102.6 510.5 +19% +20%
BIO THERAPEUTICS 75.9 96.3 172.2 +18% +20%
Immunology total 483.8 198.9 682.7 +18% +20%
Oncology total 45.8 16.7 62.5 +18% +20%
Total $988.8 $ 721.0 $1,709.8 +8% +9%
1. Royalties and other revenues
(in millions) Year on year growth
Revenue Reported Non GAAP CER
SENSIPAR royalties $ 46.4 +30% +31%
ADDERALL XR royalties 13.4 +158% +157%
FOSRENOL royalties 12.1 +6% +7%
3TC and ZEFFIX royalties 8.2 -32% -32%
Other royalties and revenues 73.9 +73% +77%
Total royalties and other
revenues $ 154.0 +44% +46%
Royalties and Other Revenues increased 44%, primarily due to the
inclusion of a full quarter of contract manufacturing revenue acquired
with Baxalta.
1. Financial details
Cost of sales
% of total % of total
(in millions) Q2 2017 revenues Q2 2016 revenues
Cost of sales (US GAAP) $1,108.9 30% $778.1 32%
Expense related to the unwind of inventory fair value
adjustments (145.0) (280.7)
Depreciation (67.0) (22.4)
Non GAAP cost of sales $ 896.9 24% $475.0 20%
Cost of sales as a percentage of total revenues decreased to 30%
primarily due to lower expense related to the unwind of inventory fair
value adjustments.
Non GAAP cost of sales as a percentage of total revenues increased to
24%, primarily due to the impact of a full quarter of lower margin
product franchises acquired with Baxalta.
R&D
% of total % of total
(in millions) Q2 2017 revenues Q2 2016 revenues
R&D (US GAAP) $542.4 14% $294.8 12%
Impairment of
IPR&D
intangible
assets (20.0) (8.9)
Costs relating
to license
arrangements (123.7) -
Depreciation (12.8) (5.8)
Non GAAP R&D $385.9 10% $280.1 12%
R&D increased by $248 million, or 84%, primarily due to milestone and
upfront payments associated with license arrangements, and the inclusion
of a full quarter of Baxalta costs.
Non GAAP R&D increased by $106 million, or 38%, primarily due to the
inclusion of a full quarter of Baxalta costs. Non GAAP R&D expense as a
percentage of total revenues decreased 2 percentage points.
SG&A
% of total % of total
(in millions) Q2 2017 revenues Q2 2016 revenues
SG&A (US GAAP) $899.1 24% $675.3 28%
Legal and
litigation
costs (7.6) (1.6)
Depreciation (40.9) (19.7)
Non GAAP SG&A $850.6 23% $654.0 27%
SG&A increased by $224 million, or 33%, primarily due to the inclusion
of a full quarter of Baxalta related costs and increased XIIDRA
marketing costs.
Non GAAP SG&A increased by $197 million, or 30%, primarily due to the
inclusion of a full quarter of Baxalta related costs and increased
XIIDRA marketing costs. Non GAAP SG&A as a percentage of total revenues
decreased 4 percentage points.
Amortization of acquired intangible assets
Shire recorded amortization of acquired intangible assets of $434
million (Q2 2016: $213 million). The increase is primarily related to
amortization on the intangible assets acquired with the Baxalta
transaction.
Integration and acquisition costs
In Q2 2017, Shire recorded integration and acquisition costs of $344
million. Integration costs of $193 million, primarily related to Baxalta,
including employee severance and acceleration of stock compensation,
third-party professional fees and expenses associated with facility
consolidations. Additionally, integration and acquisition costs included
a net charge of $151 million, relating to the change in fair value of
contingent consideration, primarily related to SHP643 which was acquired
from Dyax in 2016.
In Q2 2016, Shire recorded integration and acquisition costs of $363
million. Integration and acquisition costs related to the Baxalta and
Dyax transactions were $417 million, and included costs relating to
investment banking and other transaction-related fees, as well as
integration costs related to employee severance and acceleration of
stock compensation, and third-party professional fees. These costs were
partially offset by a net credit of $58 million relating to the change
in fair value of contingent consideration.
Other expense, net
(in millions) Q2 2017 Q2 2016
Other expense, net (US GAAP) $(137.7) $(79.6)
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 1.7 25.9
Gain on sale of long term investments (13.2) -
Non GAAP Other expense, net $(149.2) $(53.7)
Other expense, net increased by $58 million, primarily due to higher
interest expense incurred on borrowings used to fund the acquisitions of
Dyax and Baxalta.
Non GAAP Other expense, net increased by $96 million, primarily due to
higher interest expense as noted above.
Taxation
(in millions)
Effective Effective
Q2 2017 tax rate Q2 2016 tax rate
Income tax
expense (US
GAAP) $ (24.3) 9% $ 70.9 (427%)
Tax effect of
adjustments (187.6) (215.8)
Non GAAP Income
tax expense $(211.9) 16% $(144.9) 16%
The effective tax rate on US GAAP income in Q2 2017 was 9% (Q2 2016:
-427%) and on a Non GAAP basis was 16% (Q2 2016: 16%).
The effective rate in Q2 2017 on US GAAP income from continuing
operations is low primarily due to the combined impact of the relative
quantum of profit before tax for the period by jurisdiction and the
reversal of deferred tax liabilities from the Baxalta acquisition, as
well as acquisition and integration costs in higher tax territories.
Discontinued operations
The loss from discontinued operations in Q2 2017 was $1 million, net of
taxes, associated with the divested DERMAGRAFT business. The loss in Q2
2016 was $249 million, net of taxes of $101 million, primarily due to
the establishment of legal contingencies related to the divested
DERMAGRAFT business.
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Unaudited US GAAP Consolidated Balance Sheets 15
Unaudited US GAAP Consolidated Statements of Operations 16
Unaudited US GAAP Consolidated Statements of Cash
Flows 18
Selected Notes to the Unaudited US GAAP Financial
Statements
(1) Earnings per share 20
(2) Analysis of revenues 21
Non GAAP reconciliations 22
Unaudited US GAAP Consolidated Balance Sheets
(in millions, except par value of shares)
June 30, December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 263.7 $ 528.8
Restricted cash 34.2 25.6
Accounts receivable, net 2,755.2 2,616.5
Inventories 3,325.3 3,562.3
Prepaid expenses and other current assets 778.5 806.3
Total current assets 7,156.9 7,539.5
Non-current assets:
Investments 197.0 191.6
Property, plant and equipment (PP&E), net 6,554.5 6,469.6
Goodwill 19,482.1 17,888.2
Intangible assets, net 33,434.3 34,697.5
Deferred tax asset 132.2 96.7
Other non-current assets 233.9 152.3
Total assets $67,190.9 $67,035.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,842.0 $ 4,312.4
Short term borrowings and capital leases 3,204.9 3,068.0
Other current liabilities 389.6 362.9
Total current liabilities 7,436.5 7,743.3
Non-current liabilities:
Long term borrowings and capital leases 18,355.1 19,899.8
Deferred tax liability 7,788.0 8,322.7
Other non-current liabilities 2,346.2 2,121.6
Total liabilities 35,925.8 38,087.4
Equity:
Common stock of 5p par value; 1,500 shares authorized;
and 915.3 shares issued and outstanding (2016: 1,500
shares authorized; and 912.2 shares issued and outstanding) 81.5 81.3
Additional paid-in capital 24,951.2 24,740.9
Treasury stock: 8.4 shares (2016: 9.1 shares) (283.0) (301.9)
Accumulated other comprehensive income/(loss) 200.1 (1,497.6)
Retained earnings 6,315.3 5,925.3
Total equity 31,265.1 28,948.0
Total liabilities and equity $67,190.9 $67,035.4
Unaudited US GAAP Consolidated Statements of Operations
(in millions)
3 months ended June 30, 6 months ended June 30,
2017 2016 2017 2016
Revenues:
Product sales $3,591.8 $2,322.1 $7,004.1 $3,949.4
Royalties & other revenues 154.0 107.0 314.0 189.0
Total revenues 3,745.8 2,429.1 7,318.1 4,138.4
Costs and expenses:
Cost of sales 1,108.9 778.1 2,435.9 1,026.7
Research and development 542.4 294.8 921.7 511.9
Selling, general and administrative 899.1 675.3 1,788.0 1,150.2
Amortization of acquired intangible assets 434.1 213.0 798.1 347.6
Integration and acquisition costs 343.7 363.0 459.7 454.1
Reorganization costs 13.6 11.0 19.1 14.3
Loss/(gain) on sale of product rights 4.8 (2.3) (0.7) (6.5)
Total operating expenses 3,346.6 2,332.9 6,421.8 3,498.3
Operating income from continuing operations 399.2 96.2 896.3 640.1
Interest income 1.1 1.6 4.2 2.6
Interest expense (141.3) (87.2) (283.6) (131.9)
Other income/(expense), net 2.5 6.0 7.0 (2.5)
Total other expense, net (137.7) (79.6) (272.4) (131.8)
Income from continuing operations before income taxes
and equity in earnings/(losses) of equity method investees 261.5 16.6 623.9 508.3
Income taxes (24.3) 70.9 (31.1) (11.2)
Equity in earnings/(losses) of equity method investees,
net of taxes 4.3 (0.9) 3.5 (1.0)
Income from continuing operations, net of taxes 241.5 86.6 596.3 496.1
(Loss)/gain from discontinued operations, net of taxes (1.2) (248.7) 19.0 (239.2)
Net income/(loss) $ 240.3 $ (162.1) $ 615.3 $ 256.9
Unaudited US GAAP Consolidated Statements of Operations (continued)
(in millions, except per share amounts)
3 months ended June
30, 6 months ended June 30,
2017 2016 2017 2016
Earnings/(loss)
per Ordinary
Share - basic
Earnings from
continuing
operations $ 0.27 $ 0.12 $ 0.66 $ 0.78
(Loss)/gain from
discontinued
operations - (0.36) 0.02 (0.38)
Earnings/(loss)
per Ordinary
Share - basic $ 0.27 $ (0.24) $ 0.68 $ 0.40
Earnings/(loss)
per ADS -
basic $ 0.80 $ (0.71) $ 2.04 $ 1.21
Earnings/(loss)
per Ordinary
Share - diluted
Earnings from
continuing
operations $ 0.26 $ 0.12 $ 0.65 $ 0.77
(Loss)/earnings
from
discontinued
operations - (0.36) 0.02 (0.37)
Earnings/(loss)
per Ordinary
Share -
diluted $ 0.26 $ (0.24) $ 0.67 $ 0.40
Earnings/(loss)
per ADS -
diluted $ 0.79 $ (0.71) $ 2.02 $ 1.20
Weighted average
number of
shares:
Basic 906.4 682.8 905.3 637.3
Diluted 912.7 682.8 912.3 640.1
Unaudited US GAAP Consolidated Statements of Cash Flows
(in millions)
3 months ended June 30, 6 months ended June 30,
2017 2016 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 240.3 $ (162.1) $ 615.3 $ 256.9
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation and amortization 554.8 260.9 1,041.7 429.8
Share based compensation 53.7 176.5 106.4 194.8
Amortization of deferred financing fees 3.6 30.1 6.8 50.1
Expense related to the unwind of inventory fair value
adjustments 145.0 280.7 625.4 293.5
Change in deferred taxes (157.8) (319.1) (293.3) (329.2)
Change in fair value of contingent consideration 151.2 (56.4) 147.7 (45.0)
Impairment of PP&E and intangible assets 53.6 8.9 53.6 8.9
Other, net (12.0) (3.1) 14.8 (17.6)
Changes in operating assets and liabilities:
Increase in accounts receivable (146.2) (80.1) (181.5) (181.0)
Increase/(decrease) in sales deduction accrual 39.6 (7.2) 57.1 66.4
Increase in inventory (19.8) (84.2) (171.6) (116.4)
Decrease in prepayments and other assets 90.4 48.7 104.6 26.5
Increase/(decrease) in accounts payable and other
liabilities 226.4 497.3 (445.1) 342.7
Net cash provided by operating activities 1,222.8 590.9 1,681.9 980.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of PP&E and long term investments (178.6) (127.5) (391.1) (179.1)
Purchases of businesses, net of cash acquired - (11,783.4) - (17,476.2)
Proceeds from sale of investments 40.6 - 40.6 -
Movements in restricted cash (0.1) 2.4 (8.6) 67.2
Other, net 2.0 (2.2) 3.2 3.3
Net cash used in investing activities (136.1) (11,910.7) (355.9) (17,584.8)
Unaudited US GAAP Consolidated Statements of Cash Flows (continued)
(in millions)
3 months ended June 30, 6 months ended June 30,
2017 2016 2017 2016
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, long term
and short term borrowings 710.0 12,590.0 2,111.9 18,895.0
Repayment of revolving line of credit, long term and
short term borrowings (1,702.2) (505.2) (3,527.9) (1,500.3)
Payment of dividend (234.7) (130.2) (234.7) (130.2)
Debt issuance costs - (18.5) - (112.3)
Proceeds from exercise of options 37.4 - 79.5 0.1
Other, net (3.9) 11.0 (24.0) 11.9
Net cash (used in)/provided by financing activities (1,193.4) 11,947.1 (1,595.2) 17,164.2
Effect of foreign exchange rate changes on cash and
cash equivalents 1.4 (2.9) 4.1 (1.9)
Net (decrease)/increase in cash and cash equivalents (105.3) 624.4 (265.1) 557.9
Cash and cash equivalents at beginning of period 369.0 69.0 528.8 135.5
Cash and cash equivalents at end of period $ 263.7 $ 693.4 $ 263.7 $ 693.4
Selected Notes to the Unaudited US GAAP Financial Statements
1. Earnings Per Share (EPS)
(in millions)
3 months ended June 30, 6 months ended June 30,
2017 2016 2017 2016
Income from
continuing
operations $ 241.5 $ 86.6 $ 596.3 $ 496.1
(Loss)/gain
from
discontinued
operations (1.2) (248.7) 19.0 (239.2)
Numerator for
EPS $ 240.3 $(162.1) $ 615.3 $ 256.9
Weighted
average
number of
shares:
Basic 906.4 682.8 905.3 637.3
Effect of
dilutive
shares:
Share based
awards to
employees 6.3 - 7.0 2.8
Diluted 912.7 682.8 912.3 640.1
The share equivalents not included in the calculation of the diluted
weighted average number of shares are shown below:
Share based awards to employees 13.2 8.3 10.3 4.4
Selected Notes to the Unaudited US GAAP Financial Statements
(2) Analysis of revenues
(in millions)
3 months ended 6 months ended June
June 30, 30,
2017 2016 2017 2016
Product sales by
franchise
HEMOPHILIA $ 743.9 $ 275.6 $1,394.3 $ 275.6
INHIBITOR
THERAPIES 220.7 74.0 441.2 74.0
Hematology 964.6 349.6 1,835.5 349.6
CINRYZE 175.9 173.0 401.8 337.2
ELAPRASE 161.0 154.0 301.6 277.6
FIRAZYR 137.4 136.7 265.9 265.0
REPLAGAL 122.1 118.4 231.8 221.6
VPRIV 87.9 88.0 167.7 171.6
KALBITOR 20.6 17.7 32.3 28.1
Genetic Diseases 704.9 687.8 1,401.1 1,301.1
IMMUNOGLOBULIN
THERAPIES 510.5 138.2 1,008.8 138.2
BIO THERAPEUTICS 172.2 51.3 350.1 51.3
Immunology 682.7 189.5 1,358.9 189.5
VYVANSE 518.2 517.7 1,081.9 1,026.9
ADDERALL XR 71.4 101.8 136.3 200.6
MYDAYIS 15.7 - 15.7 -
Other
Neuroscience 30.1 35.7 54.8 57.8
Neuroscience 635.4 655.2 1,288.7 1,285.3
LIALDA/MEZAVANT 207.8 193.7 382.9 361.7
PENTASA 83.3 72.9 152.4 136.9
GATTEX/REVESTIVE 75.3 44.5 144.3 96.2
NATPARA 34.5 19.9 64.2 35.5
Other Internal
Medicine 83.4 88.7 159.3 173.3
Internal Medicine 484.3 419.7 903.1 803.6
Oncology 62.5 20.3 120.8 20.3
Ophthalmology 57.4 - 96.0 -
Total product
sales 3,591.8 2,322.1 7,004.1 3,949.4
Royalties and
other revenues
SENSIPAR
royalties 46.4 35.6 85.3 73.5
ADDERALL XR
royalties 13.4 5.2 25.9 11.0
FOSRENOL
royalties 12.1 11.4 20.7 20.6
3TC and ZEFFIX
royalties 8.2 12.1 22.7 27.1
Other Royalties
and revenues 73.9 42.7 159.4 56.8
Total royalties
and other
revenues 154.0 107.0 314.0 189.0
Total revenues $3,745.8 $2,429.1 $7,318.1 $4,138.4
Non GAAP reconciliations
(in millions)
Reconciliation of US GAAP net income to Non GAAP EBITDA and Non GAAP
operating income:
3 months ended June 30, 6 months ended June 30,
2017 2016 2017 2016
US GAAP net income/(loss) $ 240.3 $(162.1) $ 615.3 $ 256.9
Add back/(deduct):
Loss/(gain) from discontinued operations, net of tax 1.2 248.7 (19.0) 239.2
Equity in (earnings)/losses of equity method investees,
net of taxes (4.3) 0.9 (3.5) 1.0
Income taxes 24.3 (70.9) 31.1 11.2
Other expense, net 137.7 79.6 272.4 131.8
US GAAP operating income from continuing operations 399.2 96.2 896.3 640.1
Add back/(deduct) Non GAAP adjustments:
Expense related to the unwind of inventory fair value
adjustments 145.0 280.7 625.4 293.5
Impairment of acquired intangible assets 20.0 8.9 20.0 8.9
Costs relating to license arrangements 123.7 - 123.7 -
Legal and litigation costs 7.6 1.6 7.6 16.6
Amortization of acquired intangible assets 434.1 213.0 798.1 347.6
Integration and acquisition costs 343.7 363.0 459.7 454.1
Reorganization costs 13.6 11.0 19.1 14.3
Loss/(gain) on sale of product rights 4.8 (2.3) (0.7) (6.5)
Depreciation 120.7 47.9 243.6 82.2
Other Non GAAP adjustments - - (4.0) -
Non GAAP EBITDA 1,612.4 1,020.0 3,188.8 1,850.8
Depreciation (120.7) (47.9) (243.6) (82.2)
Non GAAP operating income $1,491.7 $ 972.1 $2,945.2 $1,768.6
Net income margin(1) 6% (7)% 8% 6%
Non GAAP EBITDA margin(2) 43% 42% 44% 45%
(1) Net income as a percentage of total revenues.
(2) Non GAAP EBITDA as a percentage of total revenues.
Reconciliation of revenues to Non GAAP gross margin:
3 months ended June 30, 6 months ended June 30,
2017 2016 2017 2016
Revenues $3,745.8 $2,429.1 $7,318.1 $4,138.4
Cost of sales (US GAAP) (1,108.9) (778.1) (2,435.9) (1,026.7)
US GAAP gross margin 2,636.9 1,651.0 4,882.2 3,111.7
Add back Non GAAP adjustments:
Expense related to the unwind of inventory fair value
adjustments 145.0 280.7 625.4 293.5
Depreciation 67.0 22.4 139.1 30.7
Non GAAP gross margin $2,848.9 $1,954.1 $5,646.7 $3,435.9
Non GAAP gross margin % (1) 76.1% 80.4% 77.2% 83.0%
(1) Non GAAP gross margin as a percentage of total
revenues.
Non GAAP reconciliations
(in millions, except per ADS amounts)
Reconciliation of US GAAP net income to Non GAAP net income:
3 months ended June 6 months ended June
30, 30,
2017 2016 2017 2016
US GAAP net income/(loss) $ 240.3 $(162.1) $ 615.3 $ 256.9
Expense related to the unwind of inventory fair value
adjustments 145.0 280.7 625.4 293.5
Impairment of acquired intangible assets 20.0 8.9 20.0 8.9
Costs relating to license arrangements 123.7 - 123.7 -
Legal and litigation costs 7.6 1.6 7.6 16.6
Amortization of acquired intangible assets 434.1 213.0 798.1 347.6
Integration and acquisition costs 343.7 363.0 459.7 454.1
Reorganization costs 13.6 11.0 19.1 14.3
Loss/(gain) on sale of product rights 4.8 (2.3) (0.7) (6.5)
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 1.7 25.9 3.5 44.1
(Gain)/loss on sale of long term investments (13.2) - (13.2) 6.0
Loss/(gain) from discontinued operations 1.9 349.6 (29.9) 334.6
Other Non GAAP adjustments - - (4.0) -
Tax effect of adjustments (188.3) (316.7) (387.6) (365.7)
Non GAAP net income $1,134.9 $ 772.6 $2,237.0 $1,404.4
Reconciliation of US GAAP diluted earnings per ADS to Non GAAP diluted
earnings per ADS:
3 months ended 6 months ended
June 30, June 30,
2017 2016 2017 2016
US GAAP diluted earnings/(losses) per ADS $0.79 $(0.71) $2.02 $1.20
Expense related to the unwind of inventory fair value
adjustments 0.48 1.23 2.06 1.38
Impairment of acquired intangible assets 0.07 0.04 0.07 0.04
Costs relating to license arrangements 0.41 - 0.41 -
Legal and litigation costs 0.02 0.01 0.02 0.08
Amortization of acquired intangible assets 1.42 0.94 2.62 1.63
Integration and acquisition costs 1.12 1.59 1.51 2.13
Reorganization costs 0.04 0.05 0.06 0.07
Loss/(gain) on sale of product rights 0.02 (0.01) - (0.03)
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 0.01 0.11 0.01 0.21
(Gain)/loss on sale of long term investments (0.04) - (0.04) 0.03
Loss/(gain) from discontinued operations 0.01 1.53 (0.10) 1.56
Other Non GAAP adjustments - - (0.01) -
Tax effect of adjustments (0.62) (1.40) (1.27) (1.72)
Non GAAP diluted earnings per ADS $3.73 $ 3.38 $7.36 $6.58
Non GAAP reconciliations
(in millions, except per ADS amounts)
Reconciliation of US GAAP net cash provided by operating activities to
Non GAAP free cash flow:
3 months ended June
30, 6 months ended June 30,
2017 2016 2017 2016
Net cash
provided by
operating
activities $ 1,222.8 $ 590.9 $ 1,681.9 $ 980.4
Capital
expenditure (178.6) (127.5) (391.1) (179.1)
Up-front
payments
for
in-licensed
products 20.0 - 20.0 -
Non GAAP
free cash
flow $ 1,064.2 $ 463.4 $ 1,310.8 $ 801.3
Non GAAP net debt comprises:
June 30, 2017 December 31, 2016
Cash and cash equivalents $ 263.7 $ 528.8
Long term borrowings (excluding
capital leases) (18,011.3) (19,552.6)
Short term borrowings (excluding
capital leases) (3,198.1) (3,061.6)
Capital leases (350.6) (353.6)
Non GAAP net debt $ (21,296.3) $ (22,439.0)
Reconciliation of full year 2017 US GAAP diluted earnings per ADS
Outlook to Non GAAP diluted earnings per ADS Outlook:
Full Year 2017 Outlook
Min Max
US GAAP diluted earnings per ADS $ 5.65 $ 6.05
Expense related to the unwind of inventory fair value
adjustments 2.42
Impairment of acquired intangible assets 0.07
Costs relating to licensing arrangements 0.46
Legal and litigation costs 0.04
Amortization of acquired intangible assets 5.64
Integration and acquisition costs 2.98
Reorganization costs 0.10
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 0.02
Loss from discontinued operations (0.10)
Gain on sale of long term investments (0.01)
Other Non-GAAP adjustments (0.04)
Tax effect of adjustments (2.43)
Non GAAP diluted earnings per ADS $14.80 $15.20
NOTES TO EDITORS
Stephen Williams, Deputy Company Secretary, is responsible for arranging
the release of this announcement.
Inside Information
This announcement contains inside information.
About Shire
Shire is the leading global biotechnology company focused on serving
people with rare diseases. We strive to develop best-in-class products,
many of which are available in more than 100 countries, across core
therapeutic areas including Hematology, Immunology, Neuroscience,
Ophthalmics, Lysosomal Storage Disorders, Gastrointestinal / Internal
Medicine / Endocrine and Hereditary Angioedema; and a growing franchise
in Oncology.
Our employees come to work every day with a shared mission: to develop
and deliver breakthrough therapies for the hundreds of millions of
people in the world affected by rare diseases and other high-need
conditions, and who lack effective therapies to live their lives to the
fullest.
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 future strategy, plans,
objectives, expectations and intentions, the anticipated timing of
clinical trials and approvals for, and the commercial potential of,
inline or pipeline products, 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,
the following:
-- Shire's products may not be a commercial success;
-- increased pricing pressures and limits on patient access as a result of
governmental regulations and market developments may affect Shire's
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, among other things, significant
delays, an increase in operating costs, lost product sales, an
interruption of research activities or the delay of new product launches;
-- certain of Shire's therapies involve lengthy and complex processes, which
may prevent Shire from timely responding to market forces and effectively
managing its production capacity;
-- 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 conditions or results of operations;
-- Shire's products and product candidates face substantial competition in
the product markets in which it operates, including competition from
generics;
-- adverse outcomes in legal matters, tax audits 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 the Company's revenues, financial condition or
results of operations;
-- inability to successfully compete for highly qualified personnel from
other companies and organizations;
-- failure to achieve the strategic objectives, including expected operating
efficiencies, cost savings, revenue enhancements, synergies or other
benefits at the time anticipated or at all with respect to Shire's
acquisitions, including NPS Pharmaceuticals Inc., Dyax Corp. or Baxalta
Incorporated may adversely affect Shire's financial condition and results
of operations;
-- Shire's growth strategy depends in part upon its ability to expand its
product portfolio through external collaborations, which, if unsuccessful,
may adversely affect the development and sale of its products;
-- a slowdown of global economic growth, or economic instability of
countries in which Shire does business, as well as changes in foreign
currency exchange rates and interest rates, that adversely impact the
availability and cost of credit and customer purchasing and payment
patterns, including the collectability of customer accounts receivable;
-- failure of a marketed product to work effectively or if such a product is
the cause of adverse side effects could result in damage to Shire's
reputation, the withdrawal of the product and legal action against Shire;
-- 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;
-- Shire is dependent on information technology and its systems and
infrastructure face certain risks, including from service disruptions,
the loss of sensitive or confidential information, cyber-attacks and
other security breaches or data leakages that could have a material
adverse effect on Shire's revenues, financial condition or results of
operations;
-- Shire incurred substantial additional indebtedness to finance the Baxalta
acquisition, which has increased its borrowing costs and may decrease its
business flexibility; and
a further list and description of risks, uncertainties and other matters
can be found in Shire's most recent Annual Report on Form 10-K and in
Shire's subsequent Quarterly Reports on Form 10-Q, in each case
including those risks outlined in "ITEM 1A: Risk Factors", and in
subsequent reports on Form 8-K and other Securities and Exchange
Commission filings, all of which are available on Shire's website.
All forward-looking statements attributable to us or any person acting
on our behalf are expressly qualified in their entirety by this
cautionary statement. Readers are cautioned not to place undue reliance
on these forward-looking statements that speak only as of the date
hereof. Except to the extent otherwise required by applicable law, we do
not undertake any obligation to update or revise forward-looking
statements, whether as a result of new information, future events or
otherwise.
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 (losses/earnings) of equity method investees
(effective tax rate on Non GAAP income); Non GAAP CER; Non GAAP cost of
sales; Non GAAP gross margin; Non GAAP R&D; Non GAAP SG&A; Non GAAP
other expense; Non GAAP free cash flow, Non GAAP net debt, Non GAAP
EBITDA and Non GAAP EBITDA margin.
The Non GAAP measures exclude the impact of certain specified items that
are highly variable, difficult to predict, and of a size that may
substantially impact Shire's operations. Upfront and milestone payments
related to in-licensing and acquired products that have been expensed as
R&D are also excluded as specified items as they are generally uncertain
and often result in a different payment and expense recognition pattern
than ongoing internal R&D activities. Intangible asset amortization has
been excluded from certain measures to facilitate an evaluation of
current and past operating performance, particularly in terms of cash
returns, and is similar to how management internally assesses
performance. The Non GAAP financial measures are presented in this press
release as Shire's management believes that they will provide investors
with an additional analysis of Shire's results of operations,
particularly in evaluating performance from one period to another.
Shire's management uses Non GAAP financial measures to make operating
decisions as they facilitate additional internal comparisons of Shire's
performance to historical results and to competitor's results, and
provides them to investors as a supplement to Shire's reported results
to provide additional insight into Shire's operating performance.
Shire's Remuneration Committee uses certain key Non GAAP measures when
assessing the performance and compensation of employees, including
Shire's executive directors.
The Non GAAP financial measures used by Shire may be calculated
different from, and therefore may not be comparable to, similarly titled
measures used by other companies - refer to the section "Non GAAP
Financial Measure Descriptions" below for additional information. In
addition, these Non GAAP financial measures should not be considered in
isolation as a substitute for, or as superior to, financial measures
calculated in accordance with US GAAP, and Shire's financial results
calculated in accordance with US GAAP and reconciliations to those
financial statements should be carefully evaluated.
Non GAAP Financial Measure Descriptions
Where applicable the following items, including their tax effect, have
been excluded when calculating Non GAAP earnings and from our Non GAAP
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).
Additionally, in any given period Shire may have significant, unusual or
non-recurring gains or losses which it may exclude from its Non GAAP
earnings for that period. When applicable, these items would be fully
disclosed and incorporated into the required reconciliations from US
GAAP to Non GAAP measures.
Depreciation, which is included in Cost of sales, R&D and SG&A costs in
our US GAAP results, has been separately disclosed for presentational
purposes.
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.
Non GAAP net debt represents cash and cash equivalents less short and
long term borrowings, capital leases and other debt.
A reconciliation of Non GAAP financial measures to the most directly
comparable measure under US GAAP is presented on pages 22 to 24.
Non GAAP CER growth is computed by restating 2017 results using average
2016 foreign exchange rates for the relevant period.
Average exchange rates used by Shire for the three months ended June 30,
2017 were $1.28:GBP1.00 and $1.09:EUR1.00 (2016: $1.45:GBP1.00 and
$1.13:EUR1.00). Average exchange rates used by Shire for the six months
ended June 30, 2017 were $1.26:GBP1.00 and $1.08:EUR1.00 (2016:
$1.44:GBP1.00 and $1.11:EUR1.00).
TRADEMARKS
We own or have rights to trademarks, service marks or trade names that
we use in connection with the operation of our business. In addition,
our names, logos and website names and addresses are owned by us or
licensed by us. We also own or have the rights to copyrights that
protect the content of our solutions. Solely for convenience, the
trademarks, service marks, trade names and copyrights referred to in
this press release are listed without the (c), (R) and (TM) symbols, but
we will assert, to the fullest extent under applicable law, our rights
or the rights of the applicable licensors to these trademarks, service
marks, trade names and copyrights. In addition, this press release may
include trademarks, service marks or trade names of other companies. Our
use or display of other parties' trademarks, service marks, trade names
or products is not intended to, and does not imply a relationship with,
or endorsement or sponsorship of us by, the trademark, service mark or
trade name.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Shire plc via Globenewswire
(END) Dow Jones Newswires
August 03, 2017 07:15 ET (11:15 GMT)