Shire Profit Pressured by Baxalta Takeover Costs -- Update

By Denise Roland Features Dow Jones Newswires

Shire PLC said net profit fell in the first quarter of the year despite more than doubling its revenue, largely due to expenses relating to its $32 billion acquisition of Baxalta.

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The Dublin-based company said net profit fell 11% in the three months to March 31 to $375 million, while revenue jumped to $3.57 billion from $1.71 billion a year earlier.

The profit decline was owed largely to a sharp increase in the cost of sales, which ballooned to $1.33 billion in the first quarter from $248.6 million a year earlier. Shire said most of that was due to one-off deal-related expenses, though it also reflected a reduction in the company's gross margin since acquiring Baxalta.

Shire's revenue has roughly doubled since it closed its acquisition of Baxalta in June. The hard-won deal, initially rebutted by Baxalta management, has added new drugs for hemophilia, cancer and immunodeficiency conditions to Shire's portfolio.

But the higher costs related to manufacturing such drugs--some of them are derived from blood plasma so involve the collection of donated blood--have also dented Shire's gross margin. Chief Financial Officer Jeff Poulton said Shire expected its gross margin to be 75.5% in 2017, compared with the mid-80s before the deal.

Still, stripping out the impact of one-time gains and losses, Shire delivered better-than-expected profit for the quarter following its speedy integration of the Baxalta business. Non GAAP diluted earnings per American depositary receipt increased 14% to $3.63, beating analysts' expectations of $3.28. Shire said the integration was running ahead of schedule and that the company remained on-track to make $700 million in cost savings by 2019.

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Revenue growth came from a broad sweep of Shire's portfolio. Sales of drugs acquired through the Baxalta deal increased 8% to $1.61 billion. Shire's "legacy" drugs, which include treatments for attention deficit hyperactivity disorder and rare diseases like hereditary angioedema, generated sales of $1.81 billion, up 11% from a year earlier.

The company maintained earlier guidance to say it expected to post full-year sales of $14.5 billion to $14.8 billion and non-GAAP diluted earnings per ADS of $14.60 to $15.20.

Write to Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

May 02, 2017 09:18 ET (13:18 GMT)