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)