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SHPG > SEC Filings for SHPG > Form 10-Q on 2-Nov-2012All Recent SEC Filings

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Form 10-Q for SHIRE PLC


2-Nov-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 September 30, 2012 and recent developments

Products

VPRIV - for the treatment of Type 1 Gaucher disease

In October 2012 Shire submitted its response to the matters raised by the FDA in respect of production of VPRIV drug substance at Lexington, and continues to work closely with the FDA towards a satisfactory resolution.

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 current and new patients both in the US and globally.

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

On September 5, 2012 Shire announced that DERMAGRAFT had received regulatory approval from Health Canada as a class IV medical device for the treatment of DFU. Shire intends to make DERMAGRAFT available in Canada in the first quarter of 2013. This approval is an important first step for Shire Regenerative Medicine as it continues to develop its international expansion strategy.

VYVANSE for the treatment of ADHD

On September 12, 2012 Shire announced that the FDA has accepted the filing for review of a supplemental New Drug Application for VYVANSE. Shire is seeking approval of VYVANSE as a maintenance treatment in children and adolescents aged 6 to 17 years with ADHD. There are currently no stimulants approved for maintenance treatment in children and adolescents aged 6 to 17 years with ADHD. The FDA has issued a Prescription Drug User Fee Act action date of April 29, 2013.

Pipeline

LDX - for the treatment of Major Depressive Disorder ("MDD")

The Phase 3 program is ongoing with headline data expected in the second half of 2013.

SPD 602 - for the treatment of chronic iron overload requiring chelation therapy

A Phase 2 trial has been initiated to evaluate the safety and efficacy of SPD 602 in adult patients with tranfusional iron overload and whose primary diagnosis is hereditary or congenital anemia.

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

In the third quarter of 2012, Shire initiated a Phase 1/2 clinical trial for the treatment of MLD with HGT-1110, an enzyme replacement therapy which is delivered intrathecally. This product has been granted orphan designation in the US and the EU. There is no currently available therapy for MLD.

FIRAZYR - for the treatment of ACE inhibitor-induced angioedema

An investigator sponsored trial into the use of FIRAZYR for the treatment of ACE inhibitor-induced angioedema was recently completed in the EU. The results of the investigator sponsored trial were positive and the investigator is preparing an article for publication. ACE inhibitor-induced angioedema is a rare and potentially life-threatening side effect of ACE inhibitor therapy, with approximately 130,000 cases per year in the US and the 160,000 in the EU and no currently approved therapy. The Company is reviewing the necessary steps likely to be required to extend FIRAZYR's label to include this indication in each of the US and EU.


DERMAGRAFT - for the treatment of Epidermolysis Bullosa ("EB")

Shire expects Phase 3 clinical trials to commence towards the end of 2012. EB is a rare genetic disorder for which there is no approved therapy.

Other Developments

Telethon Institute of Genetics and Medicine ("TIGEM") collaboration

On October 24, 2012 Shire announced that it had entered into a long-term, broad based, multi-indication research collaboration in rare diseases with Fondazione Telethon, a major Italian biomedical charitable foundation, for several research projects carried out at TIGEM that collectively research 13 undisclosed rare disease indications that have the potential to add multiple novel therapeutic candidates to the early stage pipeline.

License agreement with IGAN Biosciences, Inc. ("IGAN")

On October 24, 2012, Shire acquired a worldwide exclusive license from IGAN to develop and commercialize protease-based therapeutics for the treatment of IgA nephropathy, a rare kidney disease. This pre-clinical opportunity is an appealing strategic fit for Shire's rare disease portfolio.

Legal Proceedings

INTUNIV patent litigation

On September 6, 2012 Shire announced that it had settled all pending litigation with Anchen Pharmaceuticals, Inc. ("Anchen") and TWi in connection with TWi's ANDA for a generic version of INTUNIV. As part of the settlement, Anchen was given a license to make and sell its generic version of INTUNIV from July 1, 2016, or earlier in certain circumstances. Also, Shire may authorize Anchen to sell authorized generic versions of INTUNIV supplied by Shire. This settlement had no effect on the ongoing lawsuit against Actavis and Teva, in connection with their attempts to market generic versions of Shire's INTUNIV. A bench trial against Actavis and Teva was held in the US District Court for the District of Delaware from September 17 to September 20, 2012 and post trial briefing is scheduled to conclude on November 8, 2012. No decision has yet been given.

Board and Committee Changes

On October 25, 2012 the Board of Directors announced the retirement in 2013 of Chief Executive Angus Russell after 13 years with the Company and 32 years in the pharmaceutical industry. Flemming Ornskov MD, MBA, MPH has been appointed to succeed Angus and will join the Shire Board as Chief Executive Designate on January 2, 2013, from Bayer. A handover period of several months after Flemming joins the Board will see Angus and Flemming working together to ensure a smooth transition before Flemming becomes CEO on April 30, 2013, the date of the Shire Annual General Meeting.

Dr. Steven Gillis, Ph.D. has joined the Board of Directors on October 1, 2012. Dr. Gillis has also been appointed as a member of the Science & Technology Committee and Remuneration Committee with effect from October 1, 2012.

Research and development

Products in registration as at September 30, 2012

LDX1 for the treatment of ADHD in the EU

In December 2011 Shire submitted a Marketing Authorization Application ("MAA") seeking approval for LDX (marketed as VYVANSE in the US for the treatment of ADHD) 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.

(1) LDX, currently marketed as VYVANSE in the US for the treatment of Attention Deficit Hyperactivity Disorder ("ADHD").

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.


Products in clinical development as at September 30, 2012

Phase 3

LDX for the treatment of inadequate response in 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 with headline data expected in the second half of 2013.

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 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 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 either in the fourth quarter of 2012 or in the first half of 2013 following completion of final discussions with regulatory authorities.

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 pediatric patients with transfusional iron overload is ongoing and a second study in adults has been initiated. 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 Pharma Inc. 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 is being 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 the 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.

DERMAGRAFT for the treatment of EB

Shire expects Phase 3 clinical trials to commence towards the end of 2012. EB is a rare genetic disorder for which there is no approved therapy.

Phase 1

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

The completed Phase 1 program will be supportive of potentially three different CNS-related indications: ADHD, hyperactivity (and potentially other domains where the mechanism may show benefit) in Autism Spectrum Disorder and Pediatric Anxiety.

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 product has been granted orphan designation in the US. This trial is ongoing.

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.

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

HGT-1110 is in development as an ERT delivered intrathecally for the treatment of MLD. This product has been granted orphan drug designation in the US and the EU. The Company initiated a Phase 1/2 clinical trial in August 2012. This trial is ongoing.

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

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 or de-prioritized in the nine months to September 30, 2012

The Company has discontinued or de-prioritized the following development projects during the nine months to September 30, 2012:

LIALDA/MEZAVANT for the treatment of diverticulitis.

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

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


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

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

Product sales were up 4% to $1,055 million (2011: $1,018 million). On a CER1 basis product sales were up 6%. This quarter, sales were affected by $28 million of unfavorable foreign exchange, primarily in our HGT business (up 9% on a reported basis, up 16% on a CER basis) particularly due to weaker European currencies.

Product sales excluding ADDERALL XR were up 10% (13% on a CER basis), as we saw strong growth from VYVANSE (up 24% to $247 million), VPRIV (up 16% to $75 million), INTUNIV (up 23% to $69 million) and FIRAZYR (up to $30 million from $7 million in the third quarter of 2011). Product sales growth was held back by DERMAGRAFT (down 33% to $34 million), due to the ongoing restructuring of the Regenerative Medicine sales and marketing organization.

ADDERALL XR product sales were down 32% to $102 million due to lower prescription volumes and significantly higher sales deductions (the third quarter of 2011 benefited from significantly lower sales deductions following a lowering of the estimate of inventory in the US retail pipeline). A generic version of ADDERALL XR was approved late in the second quarter of 2012.

Total revenues were up 1% (up 4% on a CER basis) as the growth in product sales was offset, as expected, by lower royalties, particularly ADDERALL XR royalties received from Impax following the launch of Actavis' generic product.

Operating income was up 7% to $273 million (2011: $255 million), due to higher revenues and slightly lower total operating expenses, even after the Company's increased investment in R&D which was up 12% in the third quarter of 2012. SG&A was down 3%, reflecting our continuing focus on effective cost management and some favorable foreign exchange impact. Additionally, the third quarter of 2011 included IPR&D impairment charges and higher costs related to acquisition and integration activities.

Diluted earnings per ordinary share increased by 17% to $0.40 (2011: $0.34) due to higher operating income and a lower effective tax rate of 15% (2011:
27%).

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 nine months to September 30, 2012 were $1.58:1.00 and $1.25:1.00 (2011: $1.61:1.00 and $1.41:1.00) and $1.58:1.00 and $1.29:1.00 (2011: $1.61:1.00 and $1.41:1.00).

Results of operations for the three months to September 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
                  September 30,      September 30,
                           2012               2011       change
                            $'M                $'M            %
Product sales           1,054.5            1,018.4           +4
Royalties                  41.8               62.8          -33
Other revenues              4.1                4.9          -16
Total                   1,100.4            1,086.1           +1


Product sales

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

                                           3 months to        3 months to
                                         September 30,      September 30,       Product sales       Non-GAAP CER       US prescription        Exit market
                                                  2012               2011              growth             growth               growth1             share1
                                                   $'M                $'M                   %                  %                     %                  %
SP
Behavioral Health
VYVANSE                                          247.1              199.7                 +24                +24                   +16                 17
ADDERALL XR                                      102.2              149.9                 -32                -32                   -17                  5
INTUNIV                                           69.0               56.1                 +23                +23                   +27                  4
EQUASYM                                            5.5                5.1                  +8                +13                   n/a 3              n/a 3

Gastrointestinal ("GI")
LIALDA / MEZAVANT                                104.4               89.7                 +16                +17                    +6                 22
PENTASA                                           67.0               55.9                 +20                +20                    -4                 14
RESOLOR                                            2.8                1.5                 +87               +102                   n/a 3              n/a 3


General Products
FOSRENOL                                          38.1               40.5                  -6                 -1                   -19                  5
XAGRID                                            22.0               23.3                  -6                 +3                   n/a                n/a 2
Other product sales                               25.3               36.3                 -30                -28                   n/a                n/a
                                                 683.4              658.0                  +4

HGT
REPLAGAL                                         121.7              129.0                  -6                 +2                   n/a 3              n/a 3
ELAPRASE                                         110.5              109.6                  +1                 +8                   n/a 2              n/a 2
VPRIV                                             74.9               64.6                 +16                +21                   n/a 2              n/a 2
FIRAZYR                                           30.3                7.2                +321               +331                   n/a 2              n/a 2
                                                 337.4              310.4                  +9
RM
DERMAGRAFT                                        33.7               50.0                 -33                -33                   n/a 2              n/a 2
                                                  33.7               50.0                 -33
Total product sales                            1,054.5            1,018.4                  +4

(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 September 30, 2012.

(2) IMS NPA Data not available.

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

Specialty Pharmaceuticals

VYVANSE - ADHD

VYVANSE product sales showed strong growth in the third quarter of 2012, up 24% compared to the third quarter of 2011, as a result of higher prescription demand (up 16% compared to the third quarter of 2011) and the effect of a price increase taken since the third quarter of 2011. These positive factors were partially offset by destocking in the third 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 in the third quarter of 2012 as a result of lower US prescription demand following the introduction of a new generic competitor, higher sales deductions and the effect of higher destocking in the third quarter of 2012 compared to the third quarter of 2011. These negative factors were partially offset by the benefit of a price increase taken since the third quarter of 2011.

Sales deductions in the third quarter of 2012 (63% of gross product sales) were significantly higher than the third quarter of 2011 (47% of gross product sales) as the third quarter of 2011 benefited from a lowering of the estimate of inventory in the US retail pipeline and the related sales deduction reserve.

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 23% in the third quarter of 2012, primarily driven by strong growth in US prescription demand (up 27% compared to the third quarter of 2011), and the effect of price increases taken since the third quarter of 2011. These positive factors were partially offset by higher sales deductions in the third quarter of 2012 compared to the third 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 increased in the third quarter of 2012 as a result of higher US prescription demand and the effect of a price increase taken since the third quarter of 2011. These positive factors were partially offset by the effect of higher US sales deductions 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

PENTASA product sales benefited from price increases taken since the third quarter of 2011 and the effect of destocking in the third quarter of 2011 which was not repeated in the third quarter of 2012. These positive factors were partially offset by higher sales deductions in the third quarter of 2012 as compared to the third quarter of 2011.

FOSRENOL - Hyperphosphatemia

Product sales for FOSRENOL decreased by 6% as lower US prescription demand and higher sales deductions in the third quarter of 2012 offset the effect of a price increase taken since the third quarter of 2011. Product sales of FOSRENOL outside the US were lower than the third 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

Reported REPLAGAL sales were impacted by unfavorable foreign exchange (amounting to approximately $10 million), primarily due to weaker European currencies in the third quarter of 2012 compared to the third quarter of 2011 and the second quarter of 2012. On a CER basis, sales continued to grow through the treatment of both nave patients and those switching from FABRAZYME.


ELAPRASE - Hunter syndrome

Reported ELAPRASE sales in the third quarter of 2012 were affected by weaker European currencies (affecting reported product sales by approximately $8 million) and the timing of shipments to markets with large, infrequent orders. This includes Brazil where a large shipment was delayed in the third quarter of 2012 and will now occur in the fourth quarter of 2012. On a 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 (approximately $3 million).

FIRAZYR - Hereditary Angioedema ("HAE")

FIRAZYR sales continue to grow worldwide primarily driven by the strong launch in the US market. The Company continues to see new patients starting treatment and high levels of repeat usage by existing patients. The number of new patients and the irregular nature of HAE attacks affects the rate of reorder and explains the variability in results quarter over quarter as seen between the third and the second quarter of 2012.

Regenerative Medicine

DERMAGRAFT -DFU

DERMAGRAFT product sales were down 33% compared to the third quarter of 2011, reflecting the impact of an expected re-engineering of key areas of the . . .

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