TIDMSHP
Shire Delivers Product Sales Growth of 6% and Continues to Execute
Against Key Priorities in Q3 2018
Delivered product sales of $3.8 billion; growth driven by Immunology,
recently-launched products, and international expansion
Received U.S. Food and Drug Administration and Health Canada approval
for TAKHZYRO (lanadelumab-flyo) and launched in the U.S.
Accelerated debt pay-down through proceeds from the $2.4 billion sale of
the Oncology franchise and strong net operating cash flow
November 1, 2018 -- Shire plc (Shire) (LSE: SHP, NASDAQ: SHPG), the
leading global biotech company focused on rare diseases, announces
unaudited results for the three months ended September 30, 2018.
Flemming Ornskov, M.D., M.P.H., Shire Chief Executive Officer,
commented:
"We continue to deliver solid growth and pay down our debt while
advancing our late-stage pipeline. Our focus on commercial execution led
to 6% growth in product sales to $3.8 billion in the third quarter
overcoming foreign exchange headwinds. Our growth was once again driven
by our Immunology franchise, recently-launched products, and expansion
in international markets. Proceeds from the sale of our Oncology
franchise coupled with strong free cash flow allowed us to reduce net
debt by $3.9 billion year to date.
"We recently launched TAKHZYRO, the first monoclonal antibody to prevent
hereditary angioedema (HAE) attacks, in the U.S. We also gained approval
for this innovative treatment in Canada and received a positive opinion
from the Committee for Medicinal Products for Human Use (CHMP)
recommending marketing authorization in Europe.
"Takeda's proposed acquisition of Shire remains on track to close in H1
2019, subject to shareholder approval of both companies and additional
regulatory approvals. While integration planning is ongoing, our solid
performance through the third quarter of 2018 demonstrates our continued
focus on delivering for patients and executing against our key
priorities."
Financial Highlights
Reported Non GAAP
Q3 2018(1) Growth(1) CER(1)(2)
Product sales $3,753 million +6% +7%
Total revenues $3,872 million +5% +6%
Operating income from continuing
operations $956 million +35%
Non GAAP operating income(2) $1,475 million -2% -1%
Net income margin(3)(4) 14% -1ppc
Non GAAP EBITDA margin(2)(3)(4) 42% -2ppc
Net income $537 million -2%
Non GAAP net income(2) $1,119 million -3%
Diluted earnings per ADS(5) $ 1.75 -3%
Non GAAP diluted earnings
per ADS(2)(5) $ 3.64 -4% -4%
Net cash provided by operating
activities $858 million -19%
Non GAAP free cash flow(2) $971 million +8%
--------------------------------- --- ------------
(1) Results include the Oncology franchise until the date of its sale on
August 31, 2018.
(2) The Non GAAP financial measures included within this release are
explained on pages 27 -- 28, and are reconciled to the most directly
comparable financial measures prepared in accordance with U.S. GAAP on
pages 19 -- 22.
(3) Percentage point change (ppc).
(4) Calculated as a percentage of total revenues.
(5) Diluted weighted average number of ordinary shares of 921.1 million.
Product sales growth
-- All franchises demonstrated product sales growth on a Non GAAP constant
exchange rate basis, excluding Oncology which was sold during the
quarter.
-- Encouraging early trajectory of TAKHZYRO since U.S. launch on August 23,
2018 with $51 million in initial launch stocking.
-- Growth of recently-launched products of 45%, primarily due to TAKHZYRO,
ADYNOVATE, CUVITRU, and XIIDRA.
Operating performance
-- Generated Non GAAP diluted earnings per ADS of $3.64, a decrease of 4%,
as product sales growth and operating expense discipline were offset by
unfavorable foreign exchange, lower gross margins, and unrealized losses
on equity investments.
-- Reported Non GAAP EBITDA margin of 42%, a slight decline from Q3 2017,
primarily due to lower gross margins, as Q3 2017 reflected favorability
from the timing of changes in the costs to manufacture certain products,
partially offset by ongoing cost discipline and operating expense
synergies.
Cash flow
-- Proceeds from the sale of our Oncology franchise and strong free cash
flow during the year enabled a $3,915 million reduction in Non GAAP net
debt since December 31, 2017.
FINANCIAL SUMMARY - THIRD QUARTER 2018 COMPARED TO THIRD QUARTER 2017
Revenues
-- Delivered total revenues of $3,872 million representing growth of 5%.
-- Product sales increased 6% to $3,753 million (Q3 2017: $3,534 million),
driven by Immunology, up 12%, Neuroscience, up 6%, Genetic Diseases, up
6%, Internal Medicine, up 10%, and Ophthalmics, up 21%.
-- Royalties and other revenues decreased 27% to $119 million (Q3 2017: $164
million), primarily due to certain royalty expirations, the
reclassification of ADDERALL XR from royalty revenue to product sales,
and other changes as required under the new revenue accounting standard.
Operating results
-- Operating income increased 35% to $956 million (Q3 2017: $709 million),
due to the gain on the sale of Shire's Oncology franchise and lower
integration and acquisition costs, partially offset by increased
reorganization costs.
-- Non GAAP operating income decreased 2% to $1,475 million (Q3 2017: $1,498
million), primarily due to lower gross margins as Q3 2017 reflected
favorability from the timing of changes in the costs to manufacture
certain products.
-- Non GAAP EBITDA margin was slightly down to 42% (Q3 2017: 44%), primarily
due to lower gross margins partially offset by ongoing cost discipline
and operating expense synergies.
Earnings per share (EPS)
-- Diluted earnings per American Depository Share (ADS) decreased 3% to
$1.75 (Q3 2017: $1.81), primarily due to increased reorganization costs
and income taxes, offset by the gain on the sale of Shire's Oncology
franchise.
-- Non GAAP diluted earnings per ADS decreased 4% to $3.64 (Q3 2017: $3.81)
as product sales growth and operating expense discipline were offset by
unfavorable foreign exchange, lower gross margins, and unrealized losses
on equity investments.
Cash flows
-- Net cash provided by operating activities decreased 19% to $858 million
(Q3 2017: $1,055 million), driven by a $251 million contingent
consideration payment to former shareholders of Dyax Corp. due to the
approval of TAKHZYRO.
-- Non GAAP free cash flow increased 8% to $971 million (Q3 2017: $901
million). Non GAAP free cash flow includes capital expenditures of $203
million (Q3 2017: $174 million) and excludes payments relating to
milestone and license arrangements of $316 million (Q3 2017: $20
million).
Debt
-- Non GAAP net debt as of September 30, 2018 decreased $3,915 million since
December 31, 2017, to $15,154 million (December 31, 2017: $19,069
million). A combination of proceeds from the sale of Shire's Oncology
franchise, Non GAAP free cash flow, and existing cash balances were
utilized to repay debt during the year. Non GAAP net debt represents
aggregate long and short term borrowings of $14,980 million, and capital
leases of $367 million, partially offset by cash and cash equivalents of
$193 million.
OUTLOOK
Our 2018 guidance, presented in the table below, has been updated to
adjust for the sale of our Oncology franchise, which closed on August
31, 2018. Similarly, our projected 2020 revenue target has been updated
to $16.5 - $17.5 billion, reflecting the removal of $0.5 billion of
Oncology sales in our original projection. We continue to expect to
achieve mid-forties Non GAAP EBITDA margin by 2020, which remains
unchanged after considering the impact of the sale of our Oncology
franchise.
Our Non GAAP diluted earnings per ADS outlook assumes a weighted average
number of 917 million fully diluted ordinary shares outstanding for
2018.
Our U.S. GAAP diluted earnings per ADS outlook reflects anticipated
amortization, integration, acquisition, and reorganization costs, as
well as the gain on sale of our Oncology franchise and the impact from
debt repurchase.
Risks associated with this outlook include the potential uncertainty
resulting from the announcement by Takeda Pharmaceutical Company Limited
(Takeda) on May 8, 2018 of a recommended offer for Shire under the U.K.
Takeover Code.
Full Year 2018 U.S. GAAP Outlook Non GAAP Outlook(1)
--------------------------- ----------------- ---------------------
Total revenue(2) $15.3 - $15.8 $15.3 - $15.8 billion
billion
--------------------------- ----------------- ---------------------
Diluted earnings per ADS(3) $7.17 - $7.77 $14.77 - $15.37
--------------------------- ----------------- ---------------------
(1) For a list of items excluded from Non GAAP Outlook, refer to pages
27 - 28 of this release.
(2) Management is providing guidance for total revenue. Total revenue is
comprised of total product sales and royalties & other revenues.
Pursuant to a change in U.S. GAAP related to accounting for revenue,
certain revenue formerly classified as royalties are now recorded as
product sales.
(3) See page 22 for a reconciliation between U.S. GAAP diluted earnings
per ADS and Non GAAP diluted earnings per ADS.
RECENT DEVELOPMENTS
Corporate
-- The acquisition of Shire by Takeda is expected to close in H1 2019,
subject to receipt of additional regulatory clearances and approval by
the shareholders of both companies. Takeda has already received
clearances from regulatory agencies in the U.S., Japan, China, and other
countries and is in discussions with the European Commission as part of
its Phase 1 review of the proposed acquisition.
Business Development
Sale of Oncology franchise
-- On August 31, 2018, Shire announced it had completed the sale of its
Oncology franchise to Servier S.A.S. (Servier) for $2.4 billion. The
franchise included the global rights to ONCASPAR and ex-U.S. and
ex-Taiwan rights to ONIVYDE, as well as Oncology pipeline assets.
Acquisition of sanaplasma AG
-- On September 6, 2018, Shire announced the acquisition of sanaplasma AG, a
source plasma collection company headquartered in Switzerland. Sanaplasma
AG adds 14 new centers in the Czech Republic and Hungary to Shire's
European-based plasma collection network.
Financing
-- On September 11, 2018, Shire completed a $2.3 billion cash tender offer
to repurchase certain of its outstanding senior notes. The tender offer
was funded from the proceeds of the sale of its Oncology franchise.
Products
TAKHZYRO, a first-of-its-kind monoclonal antibody (mAb) preventive
treatment for HAE
-- On August 23, 2018, Shire announced that the U.S. Food and
Drug Administration (FDA) had approved TAKHZYRO injection, for
prophylaxis to prevent attacks of HAE in patients 12 years of age and
older.
-- On September 20, 2018, Shire announced that Health Canada had
authorized TAKHZYRO for routine prevention of attacks of HAE in patients
12 years of age and older.
-- On October 19, 2018, Shire announced that the CHMP of the
European Medicines Agency (EMA) had issued a positive opinion
recommending the granting of marketing authorization in the European
Union (EU) for lanadelumab for the prevention of HAE attacks.
FIRAZYR for the treatment of HAE attacks in Japan
-- On September 21, 2018, Shire announced that the Ministry of
Health, Labour and Welfare in Japan had granted manufacturing and
marketing authorization for FIRAZYR, for the acute treatment of HAE
attacks in adult patients with HAE.
VEYVONDI, for adults with von Willebrand disease (VWD)
-- On September 12, 2018, Shire announced that the European
Commission had granted Marketing Authorization for VEYVONDI, for the
treatment of bleeding events and treatment/prevention of surgical
bleeding in adults (age 18 and older) with VWD when desmopressin
treatment alone is ineffective or not indicated.
INTUNIV, for the treatment of attention deficit hyperactivity disorder
(ADHD) in adults
-- On August 13, 2018, Shire announced that its partner in Japan,
Shionogi & Co., Ltd had submitted a New Drug Application (NDA) for the
manufacture and marketing in Japan of INTUNIV.
Pipeline
Prucalopride (SHP555) for the treatment of chronic idiopathic
constipation (CIC)
-- On October 18, 2018, Shire announced that the FDA Gastrointestinal Drugs
Advisory Committee voted unanimously that the risk-benefit profile of
prucalopride supports the approval of this NDA, which has a Prescription
Drug User Fee Act (PDUFA) date of December 21, 2018.
Facilities
-- On October 25, 2018, Shire announced it had filed a second submission to
the FDA for approval to manufacture albumin therapy at its new plasma
manufacturing facility near Covington, Georgia.
ADDITIONAL INFORMATION
The following additional information is included in this press release:
Page
Overview of Third Quarter 2018 Financial
Results 7
Financial Information 11
Non GAAP Reconciliations 19
Notes to Editors 23
Forward-Looking Statements 24
Non GAAP Measures 27
Trademarks 28
For further information please contact:
Investor Relations
+41 41 288 41
Christoph Brackmann christoph.brackmann@shire.com 29
Sun Kim sun.kim@shire.com +1 617 588 8175
+41 41 288 41
Scott Burrows scott.burrows@shire.com 95
Media
Katie Joyce kjoyce@shire.com +1 781 482 2779
Dial in details for the live conference call for investors at 14:00 GMT
/ 10:00 EDT on November 1, 2018:
U.K. dial in: 0800 358 9473 or +44 333 300 0804
U.S. dial in: 1 855 857 0686 or 1 631 913 1422
International Access Click here:
Numbers: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Ac
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The quarterly earnings presentation will be available today at 13:00 GMT
/ 9:00 EDT on:
- Shire.com Investors section
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- Shire's IR Briefcase in the iTunes Store
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OVERVIEW OF THIRD QUARTER 2018 FINANCIAL RESULTS COMPARED TO THIRD
QUARTER 2017
1. Product sales
Product sales increased 6% to $3,753 million (Q3 2017: $3,534 million),
driven by Immunology, up 12%, Neuroscience, up 6%, Genetic Diseases, up
6%, Internal Medicine, up 10%, and Ophthalmics, up 21%. Product sales
include TAKHZYRO, which was launched on August 23, 2018, and results for
Oncology through August 31, 2018, the date the sale of the franchise was
completed.
Total Sales
Year on year
(in millions) growth
Product sales by U.S. International Total Non GAAP
franchise Sales Sales Sales Reported CER
------------------ ----------
IMMUNOGLOBULIN
THERAPIES $ 530.7 $ 125.2 $ 655.9 +8% +10%
HEREDITARY
ANGIOEDEMA 291.3 37.7 329.0 +23% +23%
BIO THERAPEUTICS 91.9 120.4 212.3 +8% +9%
Immunology 913.9 283.3 1,197.2 +12% +13%
-------- --------------- --------
HEMOPHILIA 386.6 349.3 735.9 +1% +3%
INHIBITOR THERAPIES 44.7 124.4 169.1 -11% -8%
Hematology 431.3 473.7 905.0 -1% +1%
VYVANSE 528.5 66.5 595.0 +11% +11%
ADDERALL XR 71.5 4.8 76.3 -28% -28%
MYDAYIS 19.3 -- 19.3 +89% +89%
Other
Neuroscience(1) 0.9 40.2 41.1 +13% +15%
Neuroscience 620.2 111.5 731.7 +6% +7%
-------- --------------- --------
ELAPRASE 41.7 128.9 170.6 +12% +15%
REPLAGAL -- 123.0 123.0 +5% +8%
VPRIV 39.0 48.8 87.8 -2% -2%
Genetic Diseases 80.7 300.7 381.4 +6% +9%
LIALDA/MEZAVANT 88.9 30.2 119.1 +37% +38%
PENTASA 65.7 -- 65.7 -9% -9%
Other Established
Brands(2) 10.7 21.0 31.7 +0% +1%
Established Brands 165.3 51.2 216.5 +14% +14%
GATTEX/REVESTIVE 82.2 14.9 97.1 +14% +15%
NATPARA/NATPAR 47.8 3.2 51.0 +30% +30%
Other Internal
Medicine(3) 0.1 28.9 29.0 -21% -19%
Internal Medicine 130.1 47.0 177.1 +10% +11%
Ophthalmics 92.1 1.3 93.4 +21% +21%
Oncology(4) 33.4 17.1 50.5 N/M N/M
Total product sales $2,467.0 $ 1,285.8 $3,752.8 +6% +7%
======= === ========== =======
(1) Other Neuroscience includes INTUNIV, EQUASYM, and BUCCOLAM.
(2) Other Established Brands includes FOSRENOL and CARBATROL.
(3) Other Internal Medicine includes AGRYLIN, PLENADREN, and RESOLOR.
(4) Results include the Oncology franchise until the date of its sale on
August 31, 2018.
Immunology
Immunology product sales were $1,197 million in Q3 2018. Immunoglobulin
therapies and bio therapeutics were each up 8% mainly due to increased
demand. HAE product sales were up 23%, which included $51 million of
TAKHZYRO product sales for initial launch stocking. HAE product sales
also reflected higher CINRYZE product sales as Q3 2017 included the
impact of supply constraints, offset by destocking of FIRAZYR.
Hematology
Hematology product sales were $905 million in Q3 2018. Sales of
inhibitor therapies declined 11% due to new competition, while sales of
hemophilia therapies increased by 1% with continued growth of our
extended half-life product, ADYNOVATE.
Neuroscience
Neuroscience product sales were $732 million in Q3 2018. VYVANSE product
sales increased 11% due to a U.S. price increase and continued growth in
our international markets.
Genetic Diseases
Genetic Diseases product sales increased 6% to $381 million, driven by
increased sales for ELAPRASE and REPLAGAL primarily in our international
markets.
Established Brands
Established Brands products sales increased 14% to $217 million, with
the impact of generic competition offset by favorable sales deductions
and some stocking for LIALDA in Q3 2018 compared to Q3 2017.
Internal Medicine
Internal Medicine product sales increased 10% to $177 million, driven by
demand growth for GATTEX/REVESTIVE and NATPARA/NATPAR.
Ophthalmics
Ophthalmics product sales increased 21% to $93 million due to XIIDRA
demand growth.
Oncology
As a result of the sale of Shire's Oncology franchise, completed on
August 31, 2018, Oncology product sales decreased to $51 million from
$69 million in Q3 2017.
1. Royalties and other revenues
(in millions)
Year on
year reported
Revenue growth
----------------------------- ---------
Royalties $ 45.1 -60%
Other revenues 73.8 +41%
Royalties and other revenues $ 118.9 -27%
-----
Royalties and other revenues decreased 27%, primarily due to certain
royalty expirations, the reclassification of ADDERALL XR from royalty
revenue to product sales, and other changes as required under the new
revenue accounting standard.
1. Financial details
Cost of sales
(in millions) Q3 2018 Q3 2017
------------ ------------
Cost of sales (U.S. GAAP) $1,157.6 $1,001.4
Expense related to the unwind of inventory
fair value adjustments (1.6) (63.3)
Depreciation (89.4) (70.1)
Non GAAP cost of sales $1,066.6 $ 868.0
------- -------
U.S. GAAP cost of sales as a percentage
of total revenues 30% 27%
Non GAAP cost of sales as a percentage
of total revenues 28% 23%
Cost of sales as a percentage of total revenues increased by 3
percentage points to 30%, primarily due to lower gross margins as Q3
2017 reflected favorability from the timing of changes in the costs to
manufacture certain products.
Non GAAP cost of sales as a percentage of total revenues increased by 5
percentage points to 28%, as noted above.
R&D
(in millions) Q3 2018 Q3 2017
---------- ----------
R&D (U.S. GAAP) $407.2 $402.8
Program wind-down costs (3.3) --
Depreciation (10.9) (10.8)
Non GAAP R&D $393.0 $392.0
----- -----
U.S. GAAP R&D as a percentage of total
revenues 11% 11%
Non GAAP R&D as a percentage of total
revenues 10% 11%
R&D increased $4 million, or 1%, primarily due to continued investment
in late stage and launch programs offset by savings on discontinued
programs. R&D as a percentage of total revenues remained consistent with
Q3 2017.
Non GAAP R&D was flat. Non GAAP R&D as a percentage of total revenues
decreased 1 percentage point.
SG&A
(in millions) Q3 2018 Q3 2017
---------- ----------
SG&A (U.S. GAAP) $836.8 $859.7
Legal and litigation costs -- (1.0)
Depreciation (57.3) (39.0)
Non GAAP SG&A $779.5 $819.7
----- -----
U.S. GAAP SG&A as a percentage of total
revenues 22% 23%
Non GAAP SG&A as a percentage of total
revenues 20% 22%
SG&A decreased $23 million, or 3%, primarily due to the benefits of
on-going cost discipline and operating synergies partially offset by
increased depreciation.
Non GAAP SG&A decreased by $40 million, or 5%, due to the benefits of
on-going cost discipline and operating synergies.
Amortization of acquired intangible assets
In Q3 2018, Shire recorded amortization of acquired intangible assets of
$434 million (Q3 2017: $482 million). The decrease was primarily related
to amortization for CINRYZE and the sale of Oncology assets, including
ONCASPAR and ONIVYDE, partially offset by amortization for TAKHZYRO,
which was approved in Q3 2018.
Integration and acquisition costs
In Q3 2018, Shire recorded integration and acquisition costs of $93
million, primarily related to changes in fair value of contingent
consideration and costs related to the proposed Takeda transaction.
In Q3 2017, Shire recorded integration and acquisition costs of $237
million, primarily related to the Baxalta transaction. Costs included
asset impairment charges, employee severance, the acceleration of stock
compensation, third-party professional fees, and expenses associated
with facility consolidations.
Reorganization costs
In Q3 2018, Shire recorded reorganization costs of $255 million,
primarily related to expenses associated with office facility closures.
In Q3 2017, Shire recorded reorganization costs of $5 million.
Gain/loss on sale of Oncology and product rights
In Q3 2018, Shire recorded a gain from the sale of its Oncology
franchise of $267 million. In Q3 2017, Shire recorded a loss on sale of
product rights of less than $1 million.
Other expense, net
(in millions) Q3 2018 Q3 2017
-------- ----------
Other expense, net (U.S. GAAP) $(220.0) $(140.5)
Amortization of one-time upfront borrowing
costs for Baxalta and Dyax -- 1.9
Gain on sale of non-core investments -- 4.3
Costs related to bond tender offer 40.6 --
Fair value adjustment for joint venture
net written option 11.0 --
Non GAAP other expense, net $(168.4) $(134.3)
====== ======
Other expense, net increased by $80 million, primarily due to costs
related to the cash tender offer for the repurchase of $2.3 billion of
Shire's outstanding senior notes.
Non GAAP other expense, net increased by $34 million, primarily due to
unrealized losses in equity investments and net losses on foreign
exchange revaluations.
Taxation
(in millions) Q3 2018 Q3 2017
----------- -----------
Income tax expense (U.S. GAAP) $(203.3) $ (13.5)
Other Non GAAP tax adjustments 10.7 (189.0)
Non GAAP income tax expense $(192.6) $(202.5)
U.S. GAAP effective tax rate 28% 2%
Non GAAP effective tax rate 15% 15%
The effective tax rate on U.S. GAAP income in Q3 2018 was 28% (Q3 2017:
2%) and on a Non GAAP basis was 15% (Q3 2017: 15%).
The effective rate in Q3 2018 on U.S. GAAP income from continuing
operations has been affected by certain provisions of the U.S. Tax Cuts
and Jobs Act (Tax Act) passed in December 2017.
Income tax expense was increased by $60 million during the three months
ended September 30, 2018 due to continued refinement of Shire's
provisional computations under the Tax Act. The increase in the tax
expense recorded during the three months ended September 30, 2018 was
due to 1) an adjustment to U.S. deferred tax balances recorded as of
December 31, 2017 related to the corporate income tax rate reduction of
$15 million; and 2) an increase of $45 million related to the
repatriation toll charge. The change in the toll charge was partially
driven by an adjustment of $31 million related to the tax rates applied
to certain drivers of the provisional repatriation toll charge in 2017,
as well as the finalization of inputs to the calculation of the
repatriation toll charge and the refinement of Shire's computation for
the various guidance and regulations issued during 2018.
Shire will continue to assess the financial statement impact of the
applicable provisions of the Tax Act upon enactment. It is expected that
additional interpretive guidance will be issued during the measurement
period that may change how Shire has computed the provisional amounts
for the year ended December 31, 2017. Consequently, Shire continues to
assert that all amounts recorded and disclosed to date remain
provisional.
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Unaudited U.S. GAAP Consolidated Balance
Sheets 12
Unaudited U.S. GAAP Consolidated Statements
of Operations 13
Unaudited U.S. GAAP Consolidated Statements
of Cash Flows 15
Selected Notes to the Unaudited U.S. GAAP
Financial Statements
(1) Earnings per share 17
(2) Analysis of revenues 18
Non GAAP reconciliations 19
Unaudited U.S. GAAP Consolidated Balance Sheets
(in millions, except par value of shares)
September 30,
2018 December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 193.2 $ 472.4
Restricted cash 39.9 39.4
Accounts receivable, net 3,207.4 3,009.8
Inventories 3,458.7 3,291.5
Other current assets 900.1 795.3
Total current assets 7,799.3 7,608.4
Non-current assets:
Investments 470.7 241.1
Property, plant and equipment
(PP&E), net 6,453.0 6,635.4
Goodwill 19,095.0 19,831.7
Intangible assets, net 29,625.4 33,046.1
Deferred tax asset 151.2 188.8
Other non-current assets 171.3 205.4
Total assets $ 63,765.9 $ 67,756.9
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 4,025.1 $ 4,184.5
Short term borrowings and capital
leases 4,248.7 2,788.7
Other current liabilities 237.8 908.8
Total current liabilities 8,511.6 7,882.0
Non-current liabilities:
Long term borrowings and capital
leases 11,098.0 16,752.4
Deferred tax liability 4,571.2 4,748.2
Other non-current liabilities 2,294.9 2,197.9
Total liabilities 26,475.7 31,580.5
Equity:
Common stock of 5p par value;
1,500 shares authorized; and
922.1 shares issued and outstanding
(2017: 1,500 shares authorized;
and 917.1 shares issued and
outstanding) 81.9 81.6
Additional paid-in capital 25,390.2 25,082.2
Treasury stock: 7.5 shares (2017:
8.4 shares) (260.7) (283.0)
Accumulated other comprehensive
income 626.4 1,375.0
Retained earnings 11,452.4 9,920.6
Total equity 37,290.2 36,176.4
Total liabilities and equity $ 63,765.9 $ 67,756.9
Unaudited U.S. GAAP Consolidated Statements of Operations
(in millions)
3 months ended 9 months ended September
September 30, 30,
2018 2017 2018 2017
------------ --------- ---------- ------------
Revenues:
Product sales $3,752.8 $3,533.8 $11,198.5 $10,537.9
Royalties and other revenues 118.9 163.8 358.4 477.8
Total revenues 3,871.7 3,697.6 11,556.9 11,015.7
Costs and expenses:
Cost of sales 1,157.6 1,001.4 3,398.3 3,437.3
Research and development 407.2 402.8 1,240.0 1,324.5
Selling, general and administrative 836.8 859.7 2,549.3 2,647.7
Amortization of acquired
intangible assets 433.7 482.4 1,375.3 1,280.5
Integration and acquisition
costs 93.0 237.0 512.0 696.7
Reorganization costs 254.8 5.4 268.9 24.5
(Gain)/loss on sale of Oncology
and product rights (267.2) 0.3 (267.2) (0.4)
Total operating expenses 2,915.9 2,989.0 9,076.6 9,410.8
Operating income from continuing
operations 955.8 708.6 2,480.3 1,604.9
Interest income 1.3 1.5 4.8 5.7
Interest expense (125.2) (141.8) (378.1) (425.4)
Other (expense)/income, net (96.1) (0.2) (43.9) 6.8
Total other expense, net (220.0) (140.5) (417.2) (412.9)
Income from continuing operations
before income taxes and equity
in earnings of equity method
investees 735.8 568.1 2,063.1 1,192.0
Income taxes (203.3) (13.5) (371.0) (44.6)
Equity in earnings/(losses)
of equity method investees,
net of taxes 4.7 (3.4) 11.2 0.1
Income from continuing operations,
net of taxes 537.2 551.2 1,703.3 1,147.5
(Loss)/gain from discontinued
operations, net of taxes -- (0.4) -- 18.6
Net income $ 537.2 $ 550.8 $ 1,703.3 $ 1,166.1
Unaudited U.S. GAAP Consolidated Statements of Operations (continued)
(in millions, except per share amounts)
3 months
ended
September 9 months ended
30, September 30,
2018 2017 2018 2017
----- ----- ----- -------
Earnings per Ordinary Share
-- basic
Earnings from continuing
operations $0.59 $0.61 $1.87 $1.27
Earnings from discontinued
operations -- -- -- 0.02
Earnings per Ordinary Share
-- basic $0.59 $0.61 $1.87 $1.29
Earnings per ADS -- basic $1.76 $1.82 $5.60 $3.86
Earnings per Ordinary Share
-- diluted
Earnings from continuing
operations $0.58 $0.60 $1.86 $1.26
Earnings from discontinued
operations -- -- -- 0.02
Earnings per Ordinary Share
-- diluted $0.58 $0.60 $1.86 $1.28
Earnings per ADS -- diluted $1.75 $1.81 $5.57 $3.84
Weighted average number of
shares:
Basic 914.0 907.2 912.0 905.9
Diluted 921.1 911.6 916.9 912.1
Unaudited U.S. GAAP Consolidated Statements of Cash Flows
(in millions)
3 months ended September 9 months ended September
30, 30,
2018 2017 2018 2017
------------- ---------- ------------ -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 537.2 $ 550.8 $1,703.3 $1,166.1
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation and amortization 591.3 602.3 1,808.1 1,644.0
Share based compensation 48.8 53.3 135.7 159.7
Expense related to the unwind
of inventory fair value adjustments 1.6 63.3 40.9 688.7
Change in deferred taxes 219.1 (99.1) 14.2 (392.4)
Change in fair value of contingent
consideration 54.5 (3.4) 100.4 144.3
Impairment of PP&E and intangible
assets 16.2 114.0 169.5 167.6
Gain on sale of Oncology
franchise (267.2) -- (267.2) --
Other, net 39.9 77.6 (7.2) 99.2
Changes in operating assets
and liabilities:
Increase in accounts receivable (235.7) (120.0) (362.0) (301.5)
(Decrease)/increase in sales
deduction accrual (60.1) 36.9 (22.6) 94.0
Increase in inventory (135.6) (73.6) (305.4) (245.2)
Decrease/(increase) in prepayments
and other assets 106.1 (34.2) 44.6 70.4
Decrease in accounts payable
and other liabilities (58.5) (112.7) (244.8) (557.8)
Net cash provided by operating
activities 857.6 1,055.2 2,807.5 2,737.1
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of Oncology
franchise 2,412.2 -- 2,412.2 --
Purchases of PP&E (203.3) (174.4) (564.6) (565.5)
Acquisition of business,
net of cash acquired (104.7) -- (104.7) --
Proceeds from sale of investments 31.8 7.5 31.8 48.1
Other, net (62.3) 31.6 (97.9) 34.8
Net cash provided by/(used
in) investing activities 2,073.7 (135.3) 1,676.8 (482.6)
Unaudited U.S. GAAP Consolidated Statements of Cash Flows (continued)
(in millions)
3 months ended 9 months ended September
September 30, 30,
2018 2017 2018 2017
------------ --------- ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving line
of credit, long term and
short term borrowings 1,085.0 1,149.7 3,735.3 3,261.6
Repayment of revolving line
of credit, long term and
short term borrowings (3,706.7) (2,136.6) (7,969.0) (5,664.5)
Payment of contingent consideration (396.0) -- (396.0) --
Payment of dividend -- -- (276.6) (234.7)
Proceeds from issuance of
stock for share-based compensation
arrangements 47.1 12.7 180.8 92.2
Other, net (18.7) (2.2) (25.6) (26.2)
Net cash used in financing
activities (2,989.3) (976.4) (4,751.1) (2,571.6)
Effect of foreign exchange
rate changes on cash and
cash equivalents (3.6) 2.1 (11.9) 6.2
Net decrease in cash, cash
equivalents, and restricted
cash (61.6) (54.4) (278.7) (310.9)
Cash, cash equivalents, and
restricted cash at beginning
of period 294.7 298.0 511.8 554.5
Cash, cash equivalents, and
restricted cash at end of
period $ 233.1 $ 243.6 $ 233.1 $ 243.6
======= ======= ======= =======
Selected Notes to the Unaudited U.S. GAAP Financial Statements
1. Earnings Per Share (EPS)
(in millions)
3 months ended 9 months ended
September 30, September 30,
2018 2017 2018 2017
------ ---------- -------- ----------
Income from continuing
operations $537.2 $551.2 $1,703.3 $1,147.5
(Loss)/gain from discontinued
operations -- (0.4) -- 18.6
Numerator for EPS $537.2 $550.8 $1,703.3 $1,166.1
Weighted average number of
shares:
Basic 914.0 907.2 912.0 905.9
Effect of dilutive shares:
Share based awards to
employees 7.1 4.4 4.9 6.2
Diluted 921.1 911.6 916.9 912.1
The share equivalents not included in the calculation of the diluted
weighted average number of shares are shown below:
Share based awards to employees 10.0 16.2 13.4 14.8
Selected Notes to the Unaudited U.S. GAAP Financial Statements
(2) Analysis of revenues
(in millions)
3 months ended 9 months ended
September 30, September 30,
2018 2017 2018 2017
-------- -------- --------- -----------
Product sales by franchise
IMMUNOGLOBULIN THERAPIES $ 655.9 $ 605.1 $ 1,825.9 $ 1,613.9
HEREDITARY ANGIOEDEMA 329.0 268.4 1,063.0 968.4
BIO THERAPEUTICS 212.3 196.6 583.7 546.7
Immunology 1,197.2 1,070.1 3,472.6 3,129.0
HEMOPHILIA 735.9 725.3 2,225.4 2,119.6
INHIBITOR THERAPIES 169.1 190.7 583.2 631.9
Hematology 905.0 916.0 2,808.6 2,751.5
VYVANSE 595.0 538.4 1,779.8 1,620.3
ADDERALL XR 76.3 106.0 232.1 242.3
MYDAYIS 19.3 10.2 40.4 25.9
Other Neuroscience 41.1 36.5 117.8 91.3
Neuroscience 731.7 691.1 2,170.1 1,979.8
ELAPRASE 170.6 152.9 465.5 454.5
REPLAGAL 123.0 117.2 372.8 349.0
VPRIV 87.8 89.6 267.3 257.3
Genetic Diseases 381.4 359.7 1,105.6 1,060.8
-------- -------- --------- ---------
LIALDA/MEZAVANT 119.1 86.7 287.0 469.6
PENTASA 65.7 72.1 215.6 224.5
Other Established Brands 31.7 31.7 105.9 122.3
Established Brands 216.5 190.5 608.5 816.4
-------- -------- --------- ---------
GATTEX/REVESTIVE 97.1 84.9 326.8 229.2
NATPARA/NATPAR 51.0 39.1 160.8 103.3
Other Internal Medicine 29.0 36.5 101.3 105.2
Internal Medicine 177.1 160.5 588.9 437.7
Ophthalmics 93.4 77.4 255.8 173.4
Oncology 50.5 68.5 188.4 189.3
Total product sales 3,752.8 3,533.8 11,198.5 10,537.9
-------- -------- --------- ---------
Royalties and other
revenues
Royalties 45.1 111.4 175.4 329.7
Other revenues 73.8 52.4 183.0 148.1
Total royalties and other
revenues 118.9 163.8 358.4 477.8
Total revenues $3,871.7 $3,697.6 $11,556.9 $11,015.7
Non GAAP reconciliations
(in millions)
Reconciliation of U.S. GAAP net income to Non GAAP EBITDA and Non GAAP
operating income:
3 months ended September 9 months ended September
30, 30,
2018 2017 2018 2017
-------- -------- -------- --------
U.S. GAAP net income $ 537.2 $ 550.8 $1,703.3 $1,166.1
Add back/(deduct):
Loss/(gain) from discontinued
operations, net of taxes -- 0.4 -- (18.6)
Equity in (earnings)/losses
of equity method investees,
net of taxes (4.7) 3.4 (11.2) (0.1)
Income taxes 203.3 13.5 371.0 44.6
Other expense, net 220.0 140.5 417.2 412.9
U.S. GAAP operating income
from continuing operations 955.8 708.6 2,480.3 1,604.9
Add back/(deduct) Non GAAP
adjustments:
Expense related to the unwind
of inventory fair value adjustments 1.6 63.3 40.9 688.7
Program wind-down and one-time
employee related costs 3.3 -- 3.3 (4.0)
Impairment of acquired intangible
assets -- -- 10.0 20.0
Costs relating to license
arrangements -- -- 10.0 123.7
Legal and litigation costs -- 1.0 -- 8.6
Amortization of acquired
intangible assets 433.7 482.4 1,375.3 1,280.5
Integration and acquisition
costs 93.0 237.0 512.0 696.7
Reorganization costs 254.8 5.4 268.9 24.5
(Gain)/loss on sale of Oncology
and product rights (267.2) 0.3 (267.2) (0.4)
Depreciation 157.6 119.9 432.8 363.5
Non GAAP EBITDA 1,632.6 1,617.9 4,866.3 4,806.7
Depreciation (157.6) (119.9) (432.8) (363.5)
Non GAAP operating income $1,475.0 $1,498.0 $4,433.5 $4,443.2
======= ======= ======= =======
Net income margin(1) 14% 15% 15% 11%
Non GAAP EBITDA margin(2) 42% 44% 42% 44%
(1) Net income as a percentage of total revenues.
(2) Non GAAP EBITDA as a percentage of total revenues.
Reconciliation of U.S. GAAP gross margin to Non GAAP gross margin:
3 months ended September
30, 9 months ended September 30,
2018 2017 2018 2017
U.S. GAAP total revenues $3,871.7 $3,697.6 $11,556.9 $11,015.7
Cost of sales (U.S. GAAP) (1,157.6) (1,001.4) (3,398.3) (3,437.3)
U.S. GAAP gross margin(1) 2,714.1 2,696.2 8,158.6 7,578.4
Add back Non GAAP adjustments:
Expense related to the unwind
of inventory fair value adjustments 1.6 63.3 40.9 688.7
Depreciation 89.4 70.1 228.2 209.2
Non GAAP gross margin $2,805.1 $2,829.6 $ 8,427.7 $ 8,476.3
======= ======= ======== ========
U.S. GAAP gross margin (1)(2) 70.1% 72.9% 70.6% 68.8%
Non GAAP gross margin (2) 72.5% 76.5% 72.9% 76.9%
(1) U.S. GAAP gross margin excludes amortization of
acquired intangible assets.
(2) U.S. GAAP gross margin as a percentage of total
revenues. Non GAAP gross margin as a percentage of
total revenues.
Reconciliation of U.S. GAAP net income to Non GAAP net income:
3 months ended 9 months ended
September 30, September 30,
2018 2017 2018 2017
------------ --------- -------- --------
U.S. GAAP net income $ 537.2 $ 550.8 $1,703.3 $1,166.1
Expense related to the unwind
of inventory fair value adjustments 1.6 63.3 40.9 688.7
Program wind-down and one-time
employee related costs 3.3 -- 3.3 (4.0)
Impairment of acquired intangible
assets -- -- 10.0 20.0
Costs relating to license
arrangements -- -- 10.0 123.7
Legal and litigation costs -- 1.0 -- 8.6
Amortization of acquired
intangible assets 433.7 482.4 1,375.3 1,280.5
Integration and acquisition
costs 93.0 237.0 512.0 696.7
Reorganization costs 254.8 5.4 268.9 24.5
(Gain)/loss on sale of Oncology
and product rights (267.2) 0.3 (267.2) (0.4)
Amortization of one-time
upfront borrowing costs for
Baxalta and Dyax -- 1.9 2.3 5.4
Loss/(gain) on sale of non-core
investments -- 4.3 -- (8.9)
Loss/(gain) from discontinued
operations -- 0.4 -- (29.6)
Costs related to bond tender
offer 40.6 -- 40.6 --
Fair value adjustment for
joint venture net written
option 11.0 -- 8.0 --
Non GAAP tax adjustments 10.7 (189.0) (229.7) (576.5)
Non GAAP net income $1,118.7 $1,157.8 $3,477.7 $3,394.8
======= ======= ======= =======
Non GAAP reconciliations
(in millions, except per ADS amounts)
Reconciliation of U.S. GAAP diluted earnings per ADS to Non GAAP diluted
earnings per ADS:
3 months ended 9 months ended
September 30, September 30,
2018 2017 2018 2017
--------- --------- ------ ------
U.S. GAAP diluted earnings
per ADS $1.75 $1.81 $ 5.57 $ 3.84
Expense related to the unwind
of inventory fair value adjustments 0.01 0.21 0.13 2.26
Program wind-down and one-time
employee related costs 0.01 -- 0.01 (0.01)
Impairment of acquired intangible
assets -- -- 0.03 0.07
Costs relating to license
arrangements -- -- 0.03 0.41
Legal and litigation costs -- 0.00 -- 0.03
Amortization of acquired
intangible assets 1.41 1.59 4.50 4.21
Integration and acquisition
costs 0.30 0.78 1.68 2.29
Reorganization costs 0.83 0.02 0.88 0.08
(Gain)/loss on sale of Oncology
and product rights (0.87) 0.00 (0.87) 0.00
Amortization of one-time
upfront borrowing costs for
Baxalta and Dyax -- 0.01 0.01 0.02
Loss/(gain) on sale of non-core
investments -- 0.01 -- (0.03)
Loss/(gain) from discontinued
operations -- 0.00 -- (0.10)
Costs related to bond tender
offer 0.13 -- 0.13 --
Fair value adjustment for
joint venture net written
option 0.04 -- 0.03 --
Non GAAP tax adjustments 0.03 (0.62) (0.75) (1.90)
Non GAAP diluted earnings
per ADS $3.64 $3.81 $11.38 $11.17
==== ==== ===== =====
Reconciliation of U.S. GAAP net cash provided by operating activities to
Non GAAP free cash flow:
3 months ended 9 months ended September
September 30, 30,
2018 2017 2018 2017
---------- --------- ------------ -----------
Net cash provided by operating
activities $857.6 $1,055.2 $2,807.5 $2,737.1
Capital expenditures (203.3) (174.4) (564.6) (565.5)
Payments relating to milestone
and license arrangements 316.2 20.0 401.2 40.0
Non GAAP free cash flow $970.5 $ 900.8 $2,644.1 $2,211.6
Non GAAP net debt comprises:
September 30,
2018 December 31, 2017
Cash and cash equivalents $ 193.2 $ 472.4
Long term borrowings (excluding
capital leases) (10,740.7) (16,410.7)
Short term borrowings (excluding
capital leases) (4,239.2) (2,781.2)
Capital leases (366.8) (349.2)
Non GAAP net debt $ (15,153.5) $ (19,068.7)
Non GAAP reconciliations
(in millions, except per ADS amounts)
Reconciliation of full year 2018 U.S. GAAP diluted earnings per ADS
Outlook to Non GAAP diluted earnings per ADS Outlook:
Full Year 2018 Outlook
Min Max
------ --------
U.S. GAAP diluted earnings per ADS $ 7.17 $ 7.77
Expense related to the unwind of inventory
fair value adjustments 0.12
Legal and litigation costs 0.05
Amortization of acquired intangible
assets 6.60
Integration and acquisition costs 2.20
Reorganization costs 0.89
Costs relating to license arrangements 0.10
Costs related to bond tender offer 0.13
Gain from the sale of the Oncology
franchise (0.87)
Non GAAP tax adjustments (1.62)
Non GAAP diluted earnings per ADS $14.77 $15.37
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 global biotechnology leader serving patients with rare
diseases and specialized conditions. We seek to push boundaries through
discovering and delivering new possibilities for patient communities who
often have few or no other champions. Relentlessly on the edge of what's
next, we are serial innovators with a diverse pipeline offering fresh
thinking and new hope. Serving patients and partnering with healthcare
communities in over 100 countries, we strive to be part of the entire
patient journey to enable earlier diagnosis, raise standards of care,
accelerate access to treatment, and support patients. Our diverse
portfolio of therapeutic areas includes Immunology, Hematology, Genetic
Diseases, Neuroscience, Internal Medicine, and Ophthalmics.
Championing patients is our call to action - it brings the opportunity -
and responsibility - to change people's lives.
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, projected revenues, 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 depends on third parties to supply certain inputs and services
critical to its operations including certain inputs, services and
ingredients critical to its manufacturing processes. 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;
-- the nature of producing plasma-based therapies 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;
-- failure to comply with laws and regulations governing the sales and
marketing of its products could materially impact Shire's revenues and
profitability;
-- Shire's products and product candidates face substantial competition
in the product markets in which it operates, including competition from
generics;
-- Shire's patented products are subject to significant 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 Shire's revenues, financial condition or
results of operations;
-- Shire may fail to obtain, maintain, enforce or defend the
intellectual property rights required to conduct its business;
-- Shire faces intense competition for highly qualified personnel from
other companies and organizations;
-- failure to successfully execute or attain strategic objectives from
Shire's acquisitions and growth strategy 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, could have negative consequences
for Shire's business and increase the risk of non-payment by Shire's
customers;
-- changes in foreign currency exchange rates and interest rates could
have a material adverse effect on Shire's operating results and
liquidity;
-- Shire is subject to evolving and complex tax laws, which may result
in additional liabilities that may adversely affect Shire's financial
condition or results of operations;
-- if a marketed product fails to work effectively or causes adverse
side effects, this could result in damage to Shire's reputation, the
withdrawal of the product and legal action against Shire;
-- 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 faces risks relating to the expected exit of the United
Kingdom from the European Union;
-- Shire incurred substantial additional indebtedness to finance the
Baxalta acquisition, which has increased its borrowing costs and may
decrease its business flexibility;
-- the potential uncertainty among our employees, customers, suppliers,
and other business partners resulting from the announcement by Takeda
Pharmaceutical Company Limited on May 8, 2018 of a recommended offer for
Shire under the U.K. Takeover Code; 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.
PROFIT FORECASTS
On February 14, 2018, Shire published its full year 2018 outlook for
total revenue of $15.4 -- $15.9 billion, GAAP diluted EPS of $7.30 --
$7.90, and non-GAAP diluted EPS of $14.90 -- $15.50 (the "Full Year 2018
Outlook"). Shire also announced "We are committed to achieving our
projected revenue target of $17 -- $18 billion in 2020" and "With the
already disclosed manufacturing and SG&A cost reduction initiatives, we
are on track to achieve mid-forties Non-GAAP EBITDA margin by 2020" (the
"Mid-Term Outlook").
Both the Full Year 2018 Outlook and the Mid-Term Outlook comprised all
Shire franchises, including Oncology. Earlier in the year, Shire
announced that it had entered into an agreement with Servier for the
sale of its Oncology franchise for $2.4 billion as part of its strategy
to unlock value and sharpen its focus on rare disease leadership. The
transaction closed on August 31, 2018. The U.S. GAAP Full Year 2018
Outlook has also been updated for the gain from the sale of the Oncology
franchise, bond retirement with the proceeds of the sale and resulting
interest reduction, and reorganization costs. Accordingly, the Full Year
2018 Outlook and the Mid-Term Outlook are no longer valid and Shire has
updated the Full Year 2018 Outlook and the Mid-Term Outlook to adjust
for the sale of the Oncology franchise as follows:
Full Year 2018 Outlook
Full year 2018 U.S. GAAP outlook for total revenue is expected to be
$15.3 -- $15.8 billion and diluted earnings per ADS is expected to be
$7.17 -- $7.77.
Full year 2018 Non GAAP outlook for total revenue is expected to be
$15.3 -- $15.8 billion and diluted earnings per ADS is expected to be
$14.77 -- $15.37.
Mid-Term Outlook
"Our projected 2020 revenue target has been updated to $16.5 -- $17.5
billion."
"We continue to expect to achieve mid-forties Non GAAP EBITDA margin by
2020."
Assumptions and basis of preparation
The Full Year 2018 Outlook and the Mid-Term Outlook (as updated) (the
"Profit Forecasts") include "profit forecasts" for the purposes of Rule
28 of the City Code on Takeovers and Mergers (the "Code").
In accordance with Rule 28.1(c) of the Code, the directors of Shire
confirm that: (i) the basis of accounting used to prepare the Profit
Forecasts is consistent with the accounting policies of Shire (or in the
case of the Non GAAP Profit Forecasts, or in the case of the Non GAAP
guidance, as adjusted in accordance with Shire's established Non GAAP
policy, which excludes the items set out on pages 27 -- 28 in the
section "Non GAAP measures", including their tax effect); and (ii) each
of the Profit Forecasts has been properly compiled on the basis of the
following assumptions:
Assumptions outside the Directors' control
-- the Profit Forecasts exclude any future effect resulting from the
announcement by Takeda on May 8, 2018 of a recommended offer for Shire
under the Code;
-- there will be no material change to existing global macroeconomic and
political conditions during the year ending December 31, 2018;
-- there will be no material changes in market conditions within the
pharmaceutical industry over the forecast period to December 31, 2018, in
relation to either customer demand or the competitive environment which
could impact Shire's products;
-- there will be no product shortages caused by unanticipated production
issues, such as contamination, which could result in prolonged supply
shortages;
-- there will be no material changes to Shire's obligations to customers or
governments, its ability to negotiate new business, resolve contract
disputes, or the retention of key management;
-- the Euro, British Pound, and Swiss Franc and other exchange rates against
the U.S. dollar, together with inflation, tax, and interest rates in
Shire's principal markets, will remain relatively unchanged from the
rates underpinning the Profit Forecasts;
-- there will be no material adverse events that will have a significant
impact on Shire's financial position or performance;
-- there will be no material change in legislation, regulatory requirements,
or the position of any regulatory bodies impacting Shire's operations or
its accounting and tax conclusions, policies, and procedures;
-- there will be no significant increases or decreases in the value of
publicly-held investments resulting in recognition of material gains or
losses; and
-- there will be no material change in tax law and practice, including
interpretive guidance issued by the IRS with respect to U.S. tax reform,
impacting Shire's operations and the jurisdictions in which it earns
significant amounts of income, whether earned from third parties or from
intercompany transactions.
Assumptions within the Directors' control
-- there will be no material change in the present management of Shire or
its existing operational strategy prior to the closing of the recommended
offer by Takeda announced on May 8, 2018;
-- there will be no material future acquisitions, disposals, or licensing
arrangements;
-- there will be no material change in the debt structure of the Shire Group,
other than planned repayments of existing borrowings;
-- there will be no material change to the number of diluted shares in
issue; and
-- Shire's accounting and tax policies, including those related to
determining Shire's effective tax rate, will be consistently applied in
the financial year to December 31, 2018.
NON GAAP MEASURES
This press release contains financial measures not prepared in
accordance with U.S. GAAP. These measures are referred to as "Non GAAP"
measures and include: Non GAAP total revenues; Non GAAP operating
income; Non GAAP income tax expense; Non GAAP net income; Non GAAP
diluted earnings per ADS; Non GAAP effective tax rate; Non GAAP CER; Non
GAAP cost of sales; Non GAAP gross margin; Non GAAP R&D; Non GAAP SG&A;
Non GAAP other expense, net; Non GAAP tax adjustments; 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 competitors' 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
differently 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 U.S. GAAP, and Shire's financial results
calculated in accordance with U.S. 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
-- Non-controlling interests in consolidated variable interest entities.
Out-license, divestments, reorganizations, and discontinued operations:
-- Revenue from up-front and milestone receipts from out-license
arrangements;
-- Gains and losses on the sale of non-core assets;
-- Costs associated with restructuring and reorganization activities;
-- Termination costs; and
-- Gains and losses from divestitures and 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 U.S.
GAAP to Non GAAP measures.
Depreciation, which is included in Cost of sales, R&D, and SG&A costs in
our U.S. 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, or receipts, 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 U.S. GAAP is presented on pages 19 to 22.
Non GAAP CER growth is computed by restating 2018 results using average
2017 foreign exchange rates for the relevant period.
Average exchange rates used by Shire for the three months ended
September 30, 2018 were $1.31:GBP1.00 and $1.17:EUR1.00 (2017:
$1.31:GBP1.00 and $1.17:EUR1.00).
A reconciliation of 2020 Non GAAP EBITDA margin to U.S. GAAP net income
margin cannot be provided because we are unable to forecast with
reasonable certainty many of the items necessary to calculate such
comparable GAAP measures, including asset impairments, acquisitions and
integration related expenses, divestments, reorganizations and
discontinued operations related expenses, legal settlement costs, as
well as other unusual or non-recurring gains or losses. These items are
uncertain, depend on various factors, and could be material to our
results computed in accordance with GAAP. We believe the inherent
uncertainties in reconciling Non GAAP measures for periods after 2018 to
the most comparable GAAP measures would make the forecasted comparable
GAAP measures nearly impossible to predict with reasonable certainty and
therefore inherently unreliable.
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.
(END) Dow Jones Newswires
November 01, 2018 08:00 ET (12:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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