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SHPG > SEC Filings for SHPG > Form 10-Q on 6-Aug-2012All Recent SEC Filings

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Form 10-Q for SHIRE PLC


6-Aug-2012

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Shire's unaudited consolidated financial statements and related notes appearing elsewhere in this report.

Significant events in the three months to June 30, 2012 and recent developments

Products

ADDERALL XR - for the treatment of Attention Deficit Hyperactivity Disorder
("ADHD")

On June 22, 2012, the US Food and Drug Administration ("FDA") responded to Shire's ADDERALL XR citizen petition. The FDA's response requires that all abbreviated new drug applications ("ANDAs") must establish bioequivalence using partial area under the curve measurements at five hours and beyond five hours, for both d- and l- amphetamine.

The FDA also approved the ANDA for generic ADDERALL XR filed by Actavis Elizabeth LLC ("Actavis"). Shire is not aware of the FDA having approved any other ADDERALL XR ANDAs.

The approval of Actavis' ANDA has resulted in a significant reduction to the royalty rate payable on sales of authorized generic ADDERALL XR by Impax Laboratories Inc. ("Impax"). This reduction will be partially offset by a small royalty payable by Actavis, and Shire now expects lower ADDERALL XR royalty income in future periods. There are other variables which could also affect the future revenue stream from ADDERALL XR, including, but not limited to, the amount of finished product each party can manufacture (as determined by the US Drug Enforcement Agency), any increase or decrease in market share and / or product discounts on branded and non-branded versions of ADDERALL XR. Whilst there is one generic entrant Shire believes that it will remain competitive in the ADDERALL XR marketplace through the distribution of branded ADDERALL XR and through its two authorized generic partners, Teva Pharmaceuticals Industries Ltd and Impax.

VPRIV - for the treatment of Type 1 Gaucher disease

Shire has received a complete response letter from the FDA regarding production of VPRIV drug substance at Lexington. Shire continues to work closely with the FDA to address their questions and resolve any outstanding issues to their satisfaction.

Notwithstanding the ongoing discussions with the FDA, Shire continues to supply VPRIV to US patients through its existing approved US manufacturing facilities and has the capacity to meet the anticipated demand for VPRIV from existing and new patients both in the US and globally.

Pipeline

Lisdexamfetamine dimesylate ("LDX") for the treatment of ADHD (currently marketed as VYVANSE in the US for the treatment of ADHD)

On May 23, 2012 Shire announced results of a Phase 3 study which demonstrated the long-term maintenance of efficacy of LDX in children and adolescents aged 6 to 17 years with ADHD. Results showed maintenance of efficacy in children and adolescents who continued to receive LDX, as demonstrated by a significantly lower proportion of ADHD treatment failures (15.8%) in this group, compared with placebo (67.5%). The majority of placebo-treated subjects who met protocol-defined ADHD symptom relapse criteria did so within two weeks following randomisation. Long-term maintenance therapy plays an important role in the treatment of ADHD. There are however, few long-term controlled studies in children and adolescents assessing the maintenance of efficacy and long-term safety of stimulant medication versus placebo. The study is a central element to the EU submission package for LDX. A European Marketing Authorisation Application ("MAA") for LDX was accepted for review in January 2012.

OTHER DEVELOPMENTS

Regenerative Medicine campus

On June 11, 2012 Shire announced that its Regenerative Medicine business had entered into a lease agreement with BioMed Realty Trust, Inc. for a new campus site in Sorrento Mesa, CA, which will provide increased capacity for DERMAGRAFT and additional space and infrastructure to manufacture new regenerative medicine products. Shire expects to begin construction of the new campus in 2013, with initial occupancy targeted for 2014. Shire plans to maintain its current DERMAGRAFT manufacturing facility in La Jolla, CA.


LEGAL PROCEEDINGS

On June 29, 2012 Shire and GSK settled the litigation relating to Shire's termination of the co-promotion agreement for VYVANSE. The terms of the settlement are confidential.

DIVIDEND

In respect of the six months ended June 30, 2012, the Board resolved to pay an interim dividend of 2.73 US cents per Ordinary Share (2011: 2.48 US cents per Ordinary share).

Dividend payments will be made in Pounds Sterling to ordinary shareholders and in US Dollars to holders of ADSs. A dividend of 1.74 pence per ordinary share (an increase of 14% compared to 2011: 1.52 pence) and 8.19 US cents per ADSs (an increase of 10% compared to 2011: 7.44 US cents) will be paid on October 4, 2012 to shareholders on the register as at the close of business on September 7, 2012.

Research and development

Products in registration as at June 30, 2012

LDX for the treatment of ADHD in the EU

In December 2011 Shire submitted a MAA seeking approval for LDX (marketed as VYVANSE in the US) for the treatment of ADHD in the EU in children aged 6 to 17. In January 2012 the European Medicines Agency ("EMA") accepted this MAA for review.

INTUNIV for ADHD in Canada
In October 2011 Shire submitted a New Drug Submission ("NDS") seeking the approval in Canada for INTUNIV for the treatment of ADHD in children and adolescents aged 6 to 17. In December 2011, Health Canada accepted the NDS for screening.

DERMAGRAFT for the treatment of Diabetic Foot Ulcers ("DFU")

On March 21, 2011, prior to acquisition by the Company, ABH filed a Class IV Medical Device Application to Health Canada to seek approval for DERMAGRAFT for the treatment of DFU.

Products in clinical development as at June 30, 2012

Phase 3

LDX (currently marketed as VYVANSE in the US for the treatment of ADHD) for the treatment of inadequate response in major depressive disorder ("MDD")

A Phase 3 clinical program to assess the efficacy and safety of LDX as adjunctive therapy in patients with MDD was initiated in the fourth quarter of 2011 and is ongoing.

INTUNIV for the treatment of ADHD in the EU

INTUNIV for the treatment of ADHD in children aged 6 to 17 in the EU is in Phase 3 development.

RESOLOR for the treatment of chronic constipation in males

A Phase 3 European clinical trial to further assess the efficacy of RESOLOR for the treatment of chronic constipation in males was initiated in 2010 and is ongoing.

SPD - 555 (Prucalopride) for the treatment of chronic constipation in the US

On January 10, 2012 Shire announced that it had acquired the rights to develop and market prucalopride (marketed in certain countries in Europe as RESOLOR) in the US in an agreement with Janssen Pharmaceutica N.V. This product is Phase 3-ready and definitive plans will be implemented following discussions with regulatory authorities.


DERMAGRAFT for the treatment of Venous Leg Ulcers ("VLU")

On August 24, 2011 Shire announced its preliminary analysis of the top-line results from ABH's Phase 3 pivotal trial of DERMAGRAFT in subjects with VLU. The international pivotal trial was designed as a prospective, multicenter, randomized, controlled clinical study to assess the product's safety and efficacy in the promotion of healing VLU. The preliminary analysis of the data was that the trial did not meet the primary endpoint mutually agreed with the FDA and EMA and a subsequent detailed analysis of the data set is ongoing.

XAGRID for the treatment of essential thrombocythaemia ("ET") in Japan

A Phase 3 clinical program has been initiated to assess the safety and efficacy of XAGRID in adult essential thrombocythaemia patients treated with cytoreductive therapy who have become intolerant to their current therapy or whose platelet counts have not been reduced to an acceptable level.

Phase 2

LDX (currently marketed as VYVANSE in the US for the treatment of ADHD) for the treatment of Binge Eating Disorder ("BED")

Based on discussions with regulatory agencies regarding potential development pathways for LDX as a possible BED treatment option, Phase 3 studies could begin in 2012.

LDX (currently marketed as VYVANSE in the US for the treatment of ADHD) for the treatment of Negative Symptoms of Schizophrenia ("NSS") Based on discussions with regulatory agencies regarding potential development pathways for LDX as a possible NSS treatment option, the next clinical study could begin in the first half of 2013.

LDX (currently marketed as VYVANSE in the US for the treatment of ADHD) for the treatment of Excessive Daytime Sleepiness ("EDS")

This program has been de-prioritized as part of ongoing portfolio prioritization assessments and will not progress at this time.

SPD - 557 for the treatment of refractory gastroesophageal reflux disease
("rGERD")

SPD - 557 (M0003) is a selective 5-HT4 receptor agonist. An additional Phase 2b clinical trial has been initiated to assess the efficacy of SPD - 557 as an adjunctive therapy for treatment of rGERD in patients with persistent symptoms of regurgitation with or without heartburn while on proton-pump inhibitor therapy.

SPD - 602 iron chelating agent for the treatment of iron overload secondary to chronic transfusion

SPD - 602 was acquired as part of the acquisition of Ferrokin. A Phase 2 trial in adults and children with transfusional iron overload is ongoing. This product has received Orphan Drug designation by the EMA and the FDA for the treatment of chronic iron overload requiring chelation therapy.

HGT - 4510 for Duchenne Muscular Dystrophy ("DMD")

HGT- 4510 (also referred to as ACE-031) was added to the Shire HGT portfolio in 2010 through an exclusive license in markets outside of North America for the ActRIIB class of molecules being developed by Acceleron. The lead ActRIIB drug candidate, HGT- 4510 is in development for the treatment of patients with DMD. The Phase 2a trial is on hold. Additional preclinical toxicology work will be conducted in 2012. This product has been granted orphan designation in the US and the EU.

SRM - 003 (previously referred to as VASCUGEL) for improving hemodialysis access for patients with end-stage renal disease

SRM - 003, an endothelial cell-based technology, is currently in Phase 2 development for acute vascular repair, focused on improving hemodialysis access for patients with end-stage renal disease. Since the acquisition of this asset as part of acquisition of certain assets and liabilities from Pervasis, planning has been underway to initiate a Phase 2 development program. It is anticipated the first patient will be treated in this Phase 2 program in the first half of 2013.


Phase 1

SPD - 554 (selective ?2A agonist) for the treatment of various CNS disorders

A lead candidate has been selected for development and a Phase 1 program has been initiated to determine safety and tolerability of this compound. The ongoing Phase 1 program will be supportive of potentially three different CNS-related indications: ADHD, hyperactivity in Autism Spectrum Disorder and Pediatric Anxiety.

SPD - 535 for the treatment of improvement in potency of arteriovenous access in hemodialysis patients

SPD - 535 is in development as a novel molecule with platelet lowering ability and without phosphodiesterase type III inhibition apparent at clinically relevant doses. Data from Phase 1 clinical trials demonstrated positive proof-of-principle. This program is Phase 2 ready; additional Phase 1 work is being completed prior to the initiation of a Phase 2 proof-of-concept program that will target prevention of thrombotic complications associated with arteriovenous access in hemodialysis patients.

HGT - 2310 for the treatment of Hunter syndrome with CNS symptoms, idursulfase-IT (intrathecal delivery)

HGT- 2310 is in development as an ERT delivered intrathecally for Hunter syndrome patients with CNS symptoms. The Company initiated a Phase 1/2 clinical trial in the first quarter of 2010. This trial is ongoing. This product has been granted orphan designation in the US.

HGT- 1410 for Sanfilippo A syndrome (Mucopolysaccharidosis IIIA)

HGT-1410 is in development as an ERT delivered intrathecally for the treatment of Sanfilippo A syndrome (Mucopolysaccharidosis IIIA), a lysosomal storage disorder. The product has been granted orphan drug designation in the US and in the EU. The Company initiated a Phase 1/2 clinical trial in August 2010. This trial is ongoing.

Products in pre-clinical development as at June 30, 2012

HGT- 1110 for the treatment of Metachromatic Leukodystrophy ("MLD")

HGT-1110 is in pre-clinical development as an ERT delivered intrathecally for the treatment of Metachromatic Leukodystrophy. This product has been granted orphan drug designation in the US and the EU.

HGT- 3010 for Sanfilippo B syndrome (Mucopolysaccharidosis IIIB)

HGT- 3010 is in pre-clinical development as an ERT delivered intrathecally for the treatment of Sanfilippo B syndrome (Mucopolysaccharidosis IIIB).

Other pre-clinical development projects

A number of additional projects are underway in various stages of pre-clinical development for the SP and HGT areas.

Development projects discontinued in the six months to June 30, 2012

The Company has discontinued the following SP development projects during the six months to June 30, 2012:

LIALDA/MEZAVANT for the treatment of diverticulitis


Results of operations for the three months to June 30, 2012 and 2011

Financial highlights for the three months to June 30, 2012 are as follows:

Product sales were up 16% to $1,148 million (2011: $993 million). The growth in product sales was driven by VYVANSE (up 43% to $266 million), VPRIV (up 31% to $83 million), INTUNIV (up 16% to $69 million) and FIRAZYR (up to $32 million, from $6 million in the second quarter of 2011). On a Non GAAP CER1 basis, product sales were up 18%.

The second quarter of 2012 also included $52 million of DERMAGRAFT sales (2011:
$2 million). Excluding sales of DERMAGRAFT, which was acquired with ABH late in the second quarter of 2011, product sales were up 11%.

Total revenues were up 14%, to $1,208 million (2011: $1,063 million), as the growth in product sales was partially offset by lower royalties and other revenues.

Operating income was up 7% to $302 million (2011: $283 million). Growth in operating income was lower than the growth in total revenues due to the increased investment in R&D, impairment charges for certain IPR&D assets and costs related to the settlement of litigation in the second quarter of 2012.

Diluted earnings per ordinary share were up 15% to $0.41 (2011: $0.36) due to higher operating income and a lower effective tax rate of 18% (2011: 25%).

1. The Company's management analyzes product sales and revenue growth for certain products sold in markets outside of the US on a constant exchange rate ("CER") basis, so that product sales and revenue growth can be considered excluding movements in foreign exchange rates. Product sales and revenue growth on a CER basis is a Non-GAAP financial measure ("Non-GAAP CER"), computed by comparing 2012 product sales and revenues restated using 2011 average foreign exchange rates to 2011 actual product sales and revenues. Average exchange rates for the three and six months to June 30, 2012 were $1.59:1.00 and $1.30:1.00 (2011: $1.63:1.00 and $1.44:1.00) and $1.58:1.00 and $1.31:1.00 (2011: $1.62:1.00 and $1.40:1.00).

Results of operations for the three months to June 30, 2012 and 2011

Total revenues

The following table provides an analysis of the Company's total revenues by source:

                   3 months to       3 months to
                      June 30,          June 30,
                          2012              2011       change
                           $'M               $'M            %
Product sales          1,147.7             993.3          +16
Royalties                 56.3              63.4          -11
Other revenues             3.8               6.2          -39
Total                  1,207.8           1,062.9          +14


Product sales

The following table provides an analysis of the Company's key product sales:

                                          3 months to       3 months to
                                             June 30,          June 30,       Product sales       Non-GAAP CER       US prescription        Exit market
                                                 2012              2011              growth             growth               growth1             share1
                                                  $'M               $'M                   %                  %                     %                  %
SP
Behavioral Health
VYVANSE                                         266.2             185.9                 +43                +43                   +19                 16
ADDERALL XR                                     133.9             146.9                  -9                 -9                   -13                  6
INTUNIV                                          69.1              59.6                 +16                +16                   +39                  5
EQUASYM                                           8.6               5.9                 +46                +55                   n/a                n/a 3

Gastrointestinal ("GI")
LIALDA / MEZAVANT                                94.1              99.2                  -5                 -4                    +6                 22
PENTASA                                          63.9              65.8                  -3                 -3                    -5                 14
RESOLOR                                           3.1               1.6                 +94               +114                   n/a 3              n/a 3


General Products
FOSRENOL                                         43.2              45.3                  -5                 -1                   -19                  5
XAGRID                                           25.5              23.2                 +10                +20                   n/a                n/a 2
Other product sales                              27.9              41.3                 -32                -31                   n/a                n/a
                                                735.5             674.7                  +9

HGT
REPLAGAL                                        123.2             119.9                  +3                +11                   n/a 3              n/a 3
ELAPRASE                                        122.2             127.8                  -4                 +2                   n/a 2              n/a 2
VPRIV                                            82.7              63.3                 +31                +35                   n/a 2              n/a 2
FIRAZYR                                          31.7               5.6                +466               +482                   n/a 2              n/a 2
                                                359.8             316.6                 +14
RM
DERMAGRAFT                                       52.4               2.0                 n/a                n/a                   n/a 2              n/a 2
                                                 52.4               2.0                 n/a
Total product sales                           1,147.7             993.3                 +16

(1) Data provided by IMS Health National Prescription Audit ("IMS NPA"). Exit market share represents the average monthly US market share in the month ended June 30, 2012.

(2) IMS NPA Data not available.

(3) Not sold in the US in the second quarter of 2012.

Specialty Pharmaceuticals

VYVANSE - ADHD

VYVANSE product sales grew strongly in the second quarter of 2012, up 43% compared to the second quarter of 2011, as a result of higher prescription demand (up 19% compared to the second quarter of 2011) due to an increase in


VYVANSE's market share and growth in the US ADHD market, the effect of a price increase taken since the second quarter of 2011 and lower sales deductions as a percentage of gross product sales in the second quarter of 2012.

Litigation proceedings regarding Shire's VYVANSE patents are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

ADDERALL XR - ADHD

ADDERALL XR product sales decreased by 9% due to the effect of lower prescription demand and destocking in the second quarter of 2012 compared to stocking in the second quarter of 2011. These negative factors were partially offset by lower sales deductions as a percentage of gross product sales in the second quarter of 2012 compared to the second quarter of 2011.

Litigation proceedings regarding Shire's ADDERALL XR patents are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

INTUNIV - ADHD

INTUNIV product sales were up 16% compared to the second quarter of 2011, primarily driven by significant growth in US prescription demand, due to an increase in INTUNIV's market share and growth in the US ADHD market, and the effect of a price increase taken since the second quarter of 2011. These positive factors were partially offset by higher sales deductions in the second quarter of 2012 and the effect of destocking in the second quarter of 2012 compared to stocking in the second quarter of 2011.

Litigation proceedings regarding Shire's INTUNIV patents are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

LIALDA/MEZAVANT - Ulcerative colitis

Product sales for LIALDA/MEZAVANT decreased in the second quarter of 2012 as the effects of higher US prescription demand and a price increase taken since the second quarter of 2011 were more than offset by destocking in the second quarter of 2012 compared to stocking in the US market in the second quarter of 2011, and the effect of lower priced imports into certain European markets.

Litigation proceedings regarding Shire's LIALDA patents are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

PENTASA - Ulcerative colitis

Product sales of PENTASA decreased as the benefit of price increases taken since the second quarter of 2011 was more than offset by lower US prescription demand in the second quarter of 2012 and the effect of destocking in the second quarter of 2012 compared to stocking in the second quarter of 2011.

FOSRENOL - Hyperphosphatemia

Product sales for FOSRENOL decreased by 5% as the benefits of a price increase taken since the second quarter of 2011 and lower sales deductions in the second quarter of 2012 were more than offset by lower US prescription demand. Product sales of FOSRENOL outside the US were lower than the second quarter of 2011 primarily due to the effect of unfavorable foreign exchange.

Litigation proceedings regarding Shire's FOSRENOL patents are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

Human Genetic Therapies

REPLAGAL - Fabry disease

REPLAGAL product sales growth was driven by the treatment of new patients, being both nave patients and switches from FABRAZYME. Reported REPLAGAL sales were impacted by unfavorable foreign exchange, due to the stronger US dollar in the second quarter of 2012 compared to the second quarter of 2011.

The reduction in REPLAGAL product sales between the first and second quarter of 2012 was driven by the timing of certain large orders from markets which order less frequently.


ELAPRASE - Hunter syndrome

Reported ELAPRASE sales in the second quarter of 2012 were impacted by unfavorable foreign exchange and also the timing of shipments, in the second quarter of 2011 and the first quarter of 2012, to markets which order less frequently. On a Non-GAAP CER basis ELAPRASE product sales increased and patients on therapy continue to grow across all regions in which ELAPRASE is sold.

VPRIV - Gaucher disease

VPRIV product sales growth was driven by the treatment of new patients, being both nave patients and switches from CEREZYME. Reported VPRIV sales were also impacted by unfavorable foreign exchange.

FIRAZYR - Hereditary Angioedema

FIRAZYR sales growth was driven by the US market, following the launch in the fourth quarter of 2011, where the Company continues to see both good growth in new patients starting treatment and promising levels of repeat usage by existing patients. The more established markets in Europe also continue to grow following the approval of self administration in the first quarter of 2011.

Regenerative Medicine

DERMAGRAFT -DFU

DERMAGRAFT product sales were up 14% compared to the second quarter of 2011(1) due to the effect of price increases taken since the second quarter of 2011 and growth in the number of patients treated. Product sales in the second quarter of 2012 were up 7% compared to the first quarter of 2012, a lower rate of growth than compared to the second quarter of 2011, due to the effect of an on-going restructuring of the sales and marketing organization. The restructuring is expected to position DERMAGRAFT for future sales growth.

(1) Shire acquired DERMAGRAFT through its acquisition of ABH on June 28, 2011 and reported revenues from DERMAGRAFT of $2 million relating to the post acquisition period in the second quarter of 2011.

Royalties

The following table provides an analysis of Shire's royalty income:

                   3 months to       3 months to
                      June 30,          June 30,
                          2012              2011       Change
                           $'M               $'M            %
ADDERALL XR               25.7              26.9           -5
FOSRENOL                  13.0              12.4           +5
3TC and ZEFFIX            10.6              11.3           -6
Others                     7.0              12.8          -45
Total                     56.3              63.4          -11


Cost of product sales

Cost of product sales increased to $152.5 million for the three months to June 30, 2012 (13% of product sales), up from $143.7 million in the corresponding period in 2011 (2011: 14% of product sales). Cost of product sales as a percentage of product sales were lower in the second quarter of 2012 than the same period in 2011 as the effect of slightly higher gross margins from our behavioral health products were marginally diluted by the inclusion of lower margin DERMAGRAFT following the acquisition of ABH in the second quarter of 2011. For the three months to June 30, 2012 cost of product sales included . . .

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