Shire plc Shire Plc : 3rd Quarter Results -8-
TIDMSHP
Shire reports strong earnings growth in Q3 2017; reiterates full year
guidance
Product sales increased 7%, mainly driven by rapid growth in Immunology
franchise
Generated $1.1 billion operating cash flow; remain on-track to achieve
our year-end debt target
On track to file a NDA for SHP555 in chronic constipation in Q4 2017 and
a BLA for SHP643 in hereditary angioedema by late 2017 or early 2018
Completed manufacturing review and identified more than $100 million in
projected additional annual savings beginning in 2019 and expected to
increase to $300 million annually by 2023
October 27, 2017 - Shire plc (Shire) (LSE: SHP, NASDAQ: SHPG) announces
unaudited results for the three months ended September 30, 2017.
Flemming Ornskov, M.D., M.P.H., Shire Chief Executive Officer,
commented:
"We delivered strong growth this quarter with product sales up 7% to
$3.5 billion despite a CINRYZE supply shortage and a LIALDA generic
entry. The Immunology franchise grew by 32%, and we saw significant
contributions across our broad and diverse portfolio, evidencing our
continued focus on commercial execution. We delivered strong Non GAAP
EPS growth of 20%, and operating cash flow more than doubled to $1.1
billion, which enabled us to further reduce our debt.
"We experienced a product shortage of CINRYZE during the quarter due to
a manufacturing interruption at a third-party manufacturer. The issue
has been addressed and production of CINRYZE has resumed. Product was
shipped to customers in early October. To enhance reliability of supply,
we plan to start in-house production of CINRYZE by Q1 2018, subject to
FDA approval, as sustainable and unconstrained CINRYZE supply is a top
priority.
"We are reiterating our 2017 full year guidance, and I look forward to
updating you on the Neuroscience strategic review by year end. I
continue to be highly confident in the strength and durability of our
business."
Financial Highlights
Q3 2017(1) Growth(1) Non GAAP CER(1)(2)
Product sales $3,534 million +7% +6%
Total revenues $3,698 million +7% +6%
Operating income from
continuing operations $709 million N/M
Non GAAP operating income(2) $1,498 million +19% +18%
Net income margin(3)(4) 15% 26ppc
Non GAAP EBITDA margin(2)(4) 44% 5ppc
Net income $551 million N/M
Non GAAP net income(2) $1,158 million +20%
Diluted earnings per ADS(5) $1.81 N/M
Non GAAP diluted earnings per
ADS(2)(5) $3.81 +20% +19%
Net cash provided by operating
activities $1,055 million +101%
Non GAAP free cash flow(2) $901 million +128%
(1) Results include Baxalta Inc. (Baxalta) (acquired on June 3, 2016),
unless otherwise noted. Percentages compare to equivalent 2016 period.
(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 US GAAP on
pages 21 - 23. (3) US GAAP net income as a percentage of total revenues.
(4) Percentage point change (ppc). (5) Diluted weighted average number
of ordinary shares of 912 million.
Product sales growth
-- Delivered product sales growth of 7%, including robust demand for
our Immunology franchise, up 32%.
-- Successful early trajectory of MYDAYIS since U.S. launch on
August 28, 2017, with over 3,000 physicians prescribing to over 11,000
patients as of October 17, 2017.
-- Genetic Diseases was impacted by lower product sales for
CINRYZE due to a product shortage resulting from a manufacturing
interruption. The manufacturing issue has been addressed and production
of CINRYZE resumed. Approximately $100 million of product was shipped to
customers in early October.
-- Increasing demand for XIIDRA; 9% script growth since Q2 2017.
Earnings growth
-- Generated Non GAAP earnings per ADS of $3.81, underscoring continued
focus on commercial excellence and operating efficiency.
-- Reported Non GAAP EBITDA margin of 44% for the quarter; on-track to
achieve at least $700 million in synergies by Year 3 as we continued to
progress the Baxalta integration.
-- Completed manufacturing network review; identified more than $100 million
in projected additional annual savings beginning in 2019. Expected to
increase to $300 million annually by 2023.
Strong cash flow
-- Strong operating cash flow enabled $920 million reduction in Non GAAP net
debt since June 30, 2017; remain on-track to achieve our year-end debt
target.
Product and Pipeline Highlights
Regulatory updates
-- Submitted an application to the U.S. Food and Drug
Administration (FDA) to enable a second source of CINRYZE production at
an in-house manufacturing facility to enhance reliability of supply.
-- Submitted lifitegrast Marketing Authorization Application for
treatment of dry eye disease in Europe; Canadian approval anticipated by
Q1 2018.
-- Received FDA Fast Track Designation for SHP607 for the
prevention of chronic lung disease in extremely premature infants.
-- Positive opinion from Committee for Medicinal Products for
Human Use (CHMP) of the European Medicines Agency (EMA) recommending the
marketing authorization for lyophilized ONCASPAR (pegaspargase), as a
component of antineoplastic combination therapy in acute lymphoblastic
leukemia (ALL) in all ages.
-- Received FDA Orphan Drug Designation and Investigational New
Drug (IND) status for SHP654 for the treatment of hemophilia A.
-- Granted a label extension for FIRAZYR in Europe by the European
Commission (EC), broadening its use to the treatment of acute attacks of
HAE in adolescents and children aged 2 years and older.
-- On track to file a Biologics License Application (BLA) for
SHP643 in late 2017 or early 2018.
-- On track to file a New Drug Application (NDA) for SHP555 in late
Q4 2017.
Clinical and business development updates
-- Strategic review of Neuroscience franchise on track; update
planned for year end.
-- Reported positive topline Phase 3 results for subcutaneous
SHP616 Liquid in patients 12 years of age or older with symptomatic
Hereditary Angioedema (HAE).
-- Reported positive topline results for INTUNIV in Japan,
evaluated in Phase 3 clinical trial in adults with ADHD.
FINANCIAL SUMMARY - THIRD QUARTER 2017 COMPARED TO THIRD QUARTER 2016
Revenues
-- Product sales increased 7% to $3,534 million (Q3 2016: $3,315 million),
primarily due to strong growth from our Immunology franchise, up 32%,
Neuroscience franchise, up 12% and our Hematology franchise, up 4%.
Product sales also benefited from a full quarter of Ophthalmics product
sales. Growth was held back by the launch of generic competition for
LIALDA and a supply constraint related to CINRYZE, which negatively
impacted our Internal Medicine and Genetic Diseases franchises, down 24%
and 7%, respectively.
-- Royalties and other revenues increased 20% to $164 million, primarily due
to an increase in royalty streams acquired with Dyax and SENSIPAR
royalties.
Operating results
-- Operating income was $709 million (Q3 2016: operating loss of $406
million). The increase was primarily due to lower expense relating to the
unwind of inventory fair value adjustments and costs related to licensing
arrangements, combined with higher revenues, partially offset by higher
amortization of acquired intangible assets.
-- Non GAAP operating income increased 19% to $1,498 million (Q3 2016:
$1,254 million), primarily due to higher revenues and lower expenses as a
percentage of total revenues driven by operating efficiencies which were
impacted by the realization of Baxalta operating expense synergies.
-- Non GAAP EBITDA margin as a percentage of total revenues increased to 44%
(Q3 2016: 39%), primarily due to higher revenues and lower expenses as a
percentage of total revenues, driven by operating efficiencies which were
impacted by the realization of Baxalta operating expense synergies.
Earnings per share (EPS)
-- Diluted earnings per American Depositary Shares (ADS) were $1.81 (Q3
2016: diluted losses per ADS of $1.29). The increase is primarily due to
higher operating income from lower expenses relating to the unwind of
inventory fair value adjustments and costs related to licensing
arrangements, combined with higher revenues.
-- Non GAAP diluted earnings per ADS increased 20% to $3.81 (Q3 2016: $3.17),
due to higher Non GAAP operating income primarily related to higher
revenues and higher gross margin.
Cash flows
-- Net cash provided by operating activities increased 101% to $1,055
million (Q3 2016: $526 million), primarily due to strong cash receipts
from higher sales and operating profitability, and lower Baxalta
acquisition and integration payments. Also, Q3 2016 net cash provided by
operating activities was negatively impacted by a payment associated with
the termination of a biosimilar collaboration acquired with Baxalta.
-- Non GAAP free cash flow increased 128% to $901 million (Q3 2016: $395
million), driven by the growth in net cash provided by operating
activities noted above, combined with a decrease in capital expenditures
of $46 million.
Debt
-- Non GAAP net debt at September 30, 2017 decreased $2,063 million since
December 31, 2016, to $20,376 million (December 31, 2016: $22,439
million). The decrease was primarily due to a $2,403 million net cash
repayment of debt, partially offset by a lower cash balance. Non GAAP net
debt represents aggregate long and short term borrowings of $20,236
million, and capital leases of $349 million, partially offset by cash and
cash equivalents of $209 million.
OUTLOOK
We are reiterating our guidance from Q2 2017.
The guidance incorporates accelerated synergy capture as well as the
impact of LIALDA generic competition. Our depreciation estimate for the
year is $450 - $500 million, and we anticipate capital expenditures of
$800 - $900 million.
The diluted earnings per ADS forecast assumes a weighted average number
of 914 million fully diluted ordinary shares outstanding for 2017.
Full Year 2017 US GAAP Outlook Non GAAP Outlook(1)
Total product sales $14.3 - $14.6 billion $14.3 - $14.6 billion
Royalties & other revenues $600 - $700 million $600 - $700 million
Gross margin as a percentage of
total revenue(2) 67.5% - 69.5% 74.5% - 76.5%
Combined R&D and SG&A $5.3 - $5.5 billion $4.9 - $5.1 billion
Net interest/other $500 - $600 million $500 - $600 million
Effective tax rate 7% 16% - 17%
Diluted earnings per ADS(3) $5.65 - $6.05 $14.80 - $15.20
(1) For a list of items excluded from Non GAAP Outlook, refer to pages
27 - 28 of this release.
(2) Gross margin as a percentage of total revenues excludes amortization
of acquired intangible assets.
(3) See page 23 for a reconciliation between US GAAP diluted earnings
per ADS and Non GAAP diluted earnings per ADS.
RECENT DEVELOPMENTS
Products
FIRAZYR for the treatment of HAE in Europe
-- On October 26, 2017, Shire announced that the EC has approved
a label extension for FIRAZYR, broadening its use to the treatment of
acute attacks of HAE in adolescents and children aged 2 years and older.
INTUNIV for the treatment of attention deficit hyperactivity disorder
(ADHD) in Japan
-- On September 20, 2017, Shire and its partner in Japan, Shionogi & Co.,
Ltd, announced positive topline results for a Phase 3 study evaluating
INTUNIV in adult patients with ADHD in Japan.
MYDAYIS for the treatment of ADHD
-- On August 28, 2017, Shire announced that MYDAYIS was available by
prescription in the United States. The FDA approved MYDAYIS on June 20,
2017 for patients 13 years and older with ADHD.
Lifitegrast for the treatment of dry eye disease (DED) in Europe
-- On August 15, 2017, Shire announced that the Marketing Authorization
Application for lifitegrast, submitted on August 7, 2017, was validated
by the UK as the Reference Member State involved in the Decentralized
Procedure.
Pipeline
SHP654 for the treatment of hemophilia A
-- On October 25, 2017, Shire announced that the FDA awarded Orphan Drug
Designation to SHP654 (also designated as BAX 888), an investigational
factor VIII (FVIII) gene therapy for the treatment of hemophilia A. The
FDA also granted Shire IND status for SHP654.
SHP674 (ONCASPAR) for the treatment of acute lymphoblastic leukemia
-- On October 12, 2017, Shire received a positive opinion from the CHMP
recommending marketing authorization for Lyophilized ONCASPAR for use as
a component of antineoplastic combination therapy in acute lymphoblastic
leukemia (ALL) in all ages.
SHP607 for the treatment of complications of prematurity
-- On September 12, 2017, Shire announced that the FDA has granted Fast
Track designation for SHP607 for the prevention of chronic lung disease
in extremely premature infants. SHP607 is currently in Phase 2 clinical
development.
SHP616 for the treatment of HAE
-- On September 11, 2017, Shire announced positive topline Phase 3 results
for the SAHARA study that evaluated the efficacy and safety of
subcutaneously administered C1 esterase inhibitor [human] Liquid for
Injection in patients 12 years of age or older with symptomatic HAE.
Board Changes
On August 21, 2017, Shire announced that Jeff Poulton, Chief Financial
Officer, will be leaving Shire. The Board has commenced a formal search
for a successor and Jeff will continue to serve in his current role as
this search progresses. During this transition period, Jeff will remain
on the Executive Committee and on the Board of Directors of Shire plc
until the end of the year.
In addition, and following the announcement that Dominic Blakemore will
be appointed Group Chief Executive of Compass Group PLC on April 1,
2018, the Board has approved the appointment of Sara Mathew as Chair of
the Audit Compliance & Risk Committee to take place with immediate
effect. Dominic Blakemore will remain a member of the Audit Compliance &
Risk Committee.
ADDITIONAL INFORMATION
The following additional information is included in this press release:
Page
Overview of Third Quarter 2017 Financial Results 8
Financial Information 13
Non GAAP Reconciliations 21
Notes to Editors 24
Forward-Looking Statements 25
Non GAAP Measures 27
Trademarks 28
For further information please contact:
Investor Relations
Ian Karp ikarp@shire.com +1 781 482 9018
Robert Coates rcoates@shire.com +44 203 549 0874
Media
Lisa Adler lisa.adler@shire.com +1 617 588 8607
Katie Joyce kjoyce@shire.com +1 781 482 2779
Dial in details for the live conference call for investors at 14:00 BST
/ 9:00 EDT on October 27, 2017:
UK dial in: 0808 237 0030 or 020 3139 4830
US dial in: 1 866 928 7517 or 1 718 873 9077
International Click here:
Access http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access
Numbers: _List.pdf
Password/Conf 31097524#
ID:
Live Webcast: Click here
http://investors.shire.com/presentations-and-reports/quarterly-resul
ts-and-presentations%20
The quarterly earnings presentation will be available today at 13:00 BST
/ 8:00 EDT on:
- Shire.com Investors section
http://investors.shire.com/presentations-and-reports/quarterly-results-and-presentations%20
- Shire's IR Briefcase in the iTunes Store
https://itunes.apple.com/us/app/shire-ir-briefcase/id529486874?mt=8
OVERVIEW OF THIRD QUARTER 2017 FINANCIAL RESULTS COMPARED TO THIRD
QUARTER 2016
1. Product sales
Product sales increased 7% to $3,534 million (Q3 2016: $3,315 million).
Total Sales
(in millions) Year on year growth
Product sales by U.S. International Total
franchise Sales Sales Sales Reported Non GAAP CER
HEMOPHILIA $ 357.5 $ 367.8 $ 725.3 +3% +3%
INHIBITOR
THERAPIES 70.6 120.1 190.7 +5% +4%
Hematology 428.1 487.9 916.0 +4% +3%
IMMUNOGLOBULIN
THERAPIES 486.6 118.5 605.1 +28% +28%
BIO THERAPEUTICS 86.3 110.3 196.6 +47% +45%
Immunology 572.9 228.8 801.7 +32% +32%
VYVANSE 476.8 61.6 538.4 +5% +5%
ADDERALL XR 99.4 6.6 106.0 +32% +32%
MYDAYIS 10.2 - 10.2 N/A N/A
Other Neuroscience 6.7 29.8 36.5 +56% +53%
Neuroscience 593.1 98.0 691.1 +12% +12%
FIRAZYR 173.6 21.9 195.5 +34% +33%
ELAPRASE 41.4 111.5 152.9 +4% +1%
REPLAGAL - 117.2 117.2 -1% -4%
VPRIV 37.5 52.1 89.6 +2% +1%
CINRYZE 46.2 10.7 56.9 -66% -66%
KALBITOR 16.0 - 16.0 +44% +44%
Genetic Diseases 314.7 313.4 628.1 -7% -8%
LIALDA/MEZAVANT 61.4 25.3 86.7 -58% -59%
GATTEX/REVESTIVE 72.6 12.3 84.9 +46% +45%
PENTASA 72.1 - 72.1 -16% -16%
NATPARA 39.1 - 39.1 +68% +68%
Other Internal
Medicine 12.0 56.2 68.2 -22% -24%
Internal Medicine 257.2 93.8 351.0 -24% -25%
Ophthalmics 77.4 - 77.4 N/M N/M
Oncology 47.2 21.3 68.5 +24% +22%
Total product
sales $2,290.6 $ 1,243.2 $3,533.8 +7% +6%
Hematology
Hematology product sales increased 4%, with growth in both our
hemophilia and inhibitor therapies products.
Growth across the portfolio was driven by underlying demand in our
international markets, which also benefited from the timing of large
orders. U.S. sales were flat year over year, as increased demand,
primarily related to our FVIII products, was offset by the impact of
destocking in Q3 2017 compared to stocking in Q3 2016.
Immunology
Immunology product sales increased 32% with strong growth from both our
immunoglobulin therapies and bio therapeutics products.
The U.S. benefited from growth in demand and stocking for GAMMAGARD
liquid, and increasing demand for our subcutaneous portfolio.
International growth was primarily due to the timing of large orders and
strong underlying performance in all regions.
Neuroscience
Neuroscience product sales increased 12%, primarily driven by VYVANSE
and ADDERALL XR.
VYVANSE sales increased 5%, primarily due to the benefit of a price
increase taken since Q3 2016, increased demand resulting from U.S. ADHD
market growth and solid performance in our international markets.
ADDERALL XR sales increased 32%, primarily due to stocking in Q3 2017
compared to destocking in the prior year.
MYDAYIS, which was made available to patients on August 28, 2017,
contributed $10 million of product sales.
Genetic Diseases
Genetic Diseases product sales decreased 7%, primarily due to the impact
of a CINRYZE supply constraint, which was partially offset by FIRAZYR
growth.
CINRYZE sales decreased 66% due to supply constraints caused by a
manufacturing interruption that was experienced during the quarter. The
issue has been addressed, and production has resumed. Approximately $100
million of product was shipped to customers in early October. We
continue to work to stabilize CINRYZE manufacturing, however supply
constraints may continue until we secure a second source of production.
Subject to FDA approval, we expect to add CINRYZE in-house production
capabilities in early Q1 2018.
FIRAZYR sales increased 34%, due to increased patient demand and
stocking, in part due to the CINRYZE supply constraints.
Internal Medicine
Internal Medicine product sales decreased 24%, as the impact of LIALDA
generic competition was partially offset by growth from GATTEX/REVESTIVE
and NATPARA.
LIALDA/MEZAVANT sales decreased 58%, due to the impact of generic
competition in Q3 2017. An authorized generic was launched in the second
half of Q3 2017.
GATTEX/REVESTIVE and NATPARA continued to perform well with sales
increasing 46% and 68%, respectively, primarily due to an increase in
the numbers of patients on therapy.
Ophthalmics
Ophthalmics product sales relate to XIIDRA, which was made available to
patients starting on August 29, 2016. XIIDRA contributed $77 million of
product sales with 9% prescription growth since Q2 2017.
Oncology
Oncology product sales increased 24%. Growth was driven by sales of
ONCASPAR and ONIVYDE, the latter of which was approved in the EU on
October 18, 2016.
1. Royalties and other revenues
(in millions) Year on year growth
Revenue Reported Non GAAP CER
SENSIPAR royalties $ 42.8 +11% +11%
3TC and ZEFFIX royalties 16.1 -1% -1%
FOSRENOL royalties 14.3 +4% +12%
ADDERALL XR royalties 7.7 +64% +64%
Other royalties and revenues 82.9 +31% +28%
Total royalties and other
revenues $ 163.8 +20% +19%
Royalties and other Revenues increased 20%, primarily due to an increase
in royalty streams acquired with Dyax and SENSIPAR royalties.
1. Financial details
Cost of sales
% of total % of total
(in millions) Q3 2017 revenues Q3 2016 revenues
Cost of sales (US GAAP) $1,001.4 27% $1,736.2 50%
Expense related to the unwind of inventory fair value
adjustments (63.3) (803.8)
Inventory write-down relating to the closure of a
facility - (11.6)
Depreciation (70.1) (54.5)
Non GAAP cost of sales $ 868.0 23% $ 866.3 25%
Cost of sales as a percentage of total revenues decreased to 27%,
primarily due to lower expense related to the unwind of inventory fair
value adjustments.
Non GAAP cost of sales as a percentage of total revenues decreased to
23%, primarily driven by operating efficiencies and the realization of
synergies from the acquisition of Baxalta.
R&D
% of total % of total
(in millions) Q3 2017 revenues Q3 2016 revenues
R&D (US GAAP) $402.8 11% $511.1 15%
Costs relating
to license
arrangements - (110.0)
Depreciation (10.8) (9.0)
Non GAAP R&D $392.0 11% $392.1 11%
R&D expenditure decreased by $108 million, or 21%, primarily due to
lower costs relating to license arrangements.
Non GAAP R&D expenditure, and expense as a percentage of total revenues,
remained consistent with Q3 2016, as an increase in costs relating to
our late stage pipeline was offset by savings on discontinued programs.
SG&A
% of total % of total
(in millions) Q3 2017 revenues Q3 2016 revenues
SG&A (US GAAP) $859.7 23% $875.6 25%
Legal and
litigation
costs (1.0) 0.5
Depreciation (39.0) (29.6)
Non GAAP SG&A $819.7 22% $846.5 25%
SG&A expenditure decreased by $16 million, or 2%, primarily due to the
realization of synergies from the acquisition of Baxalta and lower
XIIDRA marketing spend, which was partially offset by MYDAYIS launch
costs and increased depreciation expense.
Non GAAP SG&A expenditure decreased by $27 million, or 3%, primarily due
to the realization of synergies from the acquisition of Baxalta and
lower XIIDRA marketing spend, which was partially offset by MYDAYIS
launch costs. Non GAAP SG&A as a percentage of total revenues decreased
3 percentage points.
Amortization of acquired intangible assets
Shire recorded amortization of acquired intangible assets of $482
million (Q3 2016: $355 million), primarily related to intangible assets
acquired with Baxalta and the acceleration of CINRYZE amortization
following positive SHP643 Phase 3 results.
Integration and acquisition costs
In Q3 2017, Shire recorded integration and acquisition costs of $237
million, primarily relating 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.
In Q3 2016, Shire recorded integration and acquisition costs of $285
million, primarily relating to the Baxalta and Dyax transactions. Costs
included employee severance, the acceleration of stock compensation,
third-party professional fees, contract terminations and other
transaction-related fees.
Reorganization costs
In Q3 2017, Shire recorded reorganization costs of $5 million. In Q3
2016, Shire recorded reorganization costs of $101 million, primarily
related to the closure of a facility at the Los Angeles manufacturing
site.
Other expense, net
(in millions) Q3 2017 Q3 2016
Other expense, net (US GAAP) $(140.5) $(191.3)
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 1.9 47.4
Loss on sale of long term investments 4.3 -
Non GAAP Other expense, net $(134.3) $(143.9)
Other expense, net decreased by $51 million, primarily due to lower
amortization of one-time upfront borrowing costs for Baxalta and Dyax.
Non GAAP Other expense, net decreased by $10 million.
Taxation
(in millions)
Effective Effective
Q3 2017 tax rate Q3 2016 tax rate
Income tax
expense (US
GAAP) $ (13.5) 2% $ 229.6 (38%)
Non GAAP tax
adjustments (189.0) (377.3)
Non GAAP Income
tax expense $(202.5) 15% $(147.7) 13%
The effective tax rate on US GAAP income in Q3 2017 was 2% (Q3 2016:
-38%) and on a Non GAAP basis was 15% (Q3 2016: 13%).
The effective rate in Q3 2017 on US GAAP income from continuing
operations is low, primarily due to the combined impact of the relative
quantum of profit before tax for the period by jurisdiction as well as
significant acquisition and integration costs. Additionally, certain
discrete events occurred during Q3 2017 which contributed to the low
effective tax rate, including a tax benefit associated with filing of
the US tax returns and the reversal of prior period income tax reserves.
Discontinued operations
The loss from discontinued operations in Q3 2017 was less than $1
million, net of taxes. The loss in Q3 2016 was $18 million, net of taxes,
primarily due to the establishment of legal contingencies related to the
divested DERMAGRAFT business.
FINANCIAL INFORMATION
TABLE OF CONTENTS
Page
Unaudited US GAAP Consolidated Balance Sheets 14
Unaudited US GAAP Consolidated Statements of Operations 15
Unaudited US GAAP Consolidated Statements of Cash
Flows 17
Selected Notes to the Unaudited US GAAP Financial
Statements
(1) Earnings per share 19
(2) Analysis of revenues 20
Non GAAP reconciliations 21
Unaudited US GAAP Consolidated Balance Sheets
(in millions, except par value of shares)
September December 31,
30, 2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 209.3 $ 528.8
Restricted cash 34.3 25.6
Accounts receivable, net 2,840.7 2,616.5
Inventories 3,427.3 3,562.3
Prepaid expenses and other current assets 779.9 806.3
Total current assets 7,291.5 7,539.5
Non-current assets:
Investments 199.7 191.6
Property, plant and equipment (PP&E), net 6,579.5 6,469.6
Goodwill 19,718.4 17,888.2
Intangible assets, net 33,350.3 34,697.5
Deferred tax asset 94.6 96.7
Other non-current assets 242.5 152.3
Total assets $67,476.5 $67,035.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,870.5 $ 4,312.4
Short term borrowings and capital leases 2,629.2 3,068.0
Other current liabilities 961.4 362.9
Total current liabilities 7,461.1 7,743.3
Non-current liabilities:
Long term borrowings and capital leases 17,956.0 19,899.8
Deferred tax liability 7,681.7 8,322.7
Other non-current liabilities 1,723.1 2,121.6
Total liabilities 34,821.9 38,087.4
Equity:
Common stock of 5p par value; 1,500 shares authorized;
and 915.9 shares issued and outstanding (2016: 1,500
shares authorized; and 912.2 shares issued and outstanding) 81.5 81.3
Additional paid-in capital 25,020.9 24,740.9
Treasury stock: 8.4 shares (2016: 9.1 shares) (283.0) (301.9)
Accumulated other comprehensive income/(loss) 969.1 (1,497.6)
Retained earnings 6,866.1 5,925.3
Total equity 32,654.6 28,948.0
Total liabilities and equity $67,476.5 $67,035.4
Unaudited US GAAP Consolidated Statements of Operations
(in millions)
3 months ended 9 months ended September
September 30, 30,
2017 2016 2017 2016
Revenues:
Product sales $3,533.8 $3,315.4 $10,537.9 $7,264.8
Royalties & other revenues 163.8 136.7 477.8 325.7
Total revenues 3,697.6 3,452.1 11,015.7 7,590.5
Costs and expenses:
Cost of sales 1,001.4 1,736.2 3,437.3 2,762.9
Research and development 402.8 511.1 1,324.5 1,023.0
Selling, general and administrative 859.7 875.6 2,647.7 2,025.8
Amortization of acquired intangible assets 482.4 354.9 1,280.5 702.5
Integration and acquisition costs 237.0 284.5 696.7 738.6
Reorganization costs 5.4 101.4 24.5 115.7
Loss/(gain) on sale of product rights 0.3 (5.7) (0.4) (12.2)
Total operating expenses 2,989.0 3,858.0 9,410.8 7,356.3
Operating income/(loss) from continuing operations 708.6 (405.9) 1,604.9 234.2
Interest income 1.5 9.3 5.7 11.9
Interest expense (141.8) (186.9) (425.4) (318.8)
Other (expense)/income, net (0.2) (13.7) 6.8 (16.2)
Total other expense, net (140.5) (191.3) (412.9) (323.1)
Income/(loss) from continuing operations before income
taxes and equity in (losses)/earnings of equity method
investees 568.1 (597.2) 1,192.0 (88.9)
Income taxes (13.5) 229.6 (44.6) 218.4
Equity in (losses)/earnings of equity method investees,
net of taxes (3.4) (0.9) 0.1 (1.9)
Income/(loss) from continuing operations, net of taxes 551.2 (368.5) 1,147.5 127.6
(Loss)/gain from discontinued operations, net of taxes (0.4) (18.3) 18.6 (257.5)
Net income/(loss) $ 550.8 $ (386.8) $ 1,166.1 $ (129.9)
Unaudited US GAAP Consolidated Statements of Operations (continued)
(in millions, except per share amounts)
3 months ended September 9 months ended
30, September 30,
2017 2016 2017 2016
Earnings/(loss)
per Ordinary
Share - basic
Earnings/(loss)
from continuing
operations $ 0.61 $ (0.41) $ 1.27 $ 0.18
(Loss)/gain from
discontinued
operations (0.00) (0.02) 0.02 (0.36)
Earnings/(loss)
per Ordinary
Share - basic $ 0.61 $ (0.43) $ 1.29 $ (0.18)
Earnings/(loss)
per ADS -
basic $ 1.82 $ (1.29) $ 3.86 $ (0.54)
Earnings/(loss)
per Ordinary
Share - diluted
Earnings/(loss)
from continuing
operations $ 0.60 $ (0.41) $ 1.26 $ 0.18
(Loss)/earnings
from
discontinued
operations (0.00) (0.02) 0.02 (0.36)
Earnings/(loss)
per Ordinary
Share -
diluted $ 0.60 $ (0.43) $ 1.28 $ (0.18)
Earnings/(loss)
per ADS -
diluted $ 1.81 $ (1.29) $ 3.84 $ (0.54)
Weighted average
number of
shares:
Basic 907.2 900.2 905.9 725.5
Diluted 911.6 900.2 912.1 725.5
Unaudited US GAAP Consolidated Statements of Cash Flows
(in millions)
3 months ended
September 30, 9 months ended September 30,
2017 2016 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 550.8 $(386.8) $1,166.1 $ (129.9)
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation and amortization 602.3 448.0 1,644.0 877.8
Share based compensation 53.3 74.8 159.7 269.6
Amortization of deferred financing fees 4.1 71.6 10.9 121.7
Expense related to the unwind of inventory fair value
adjustments 63.3 803.8 688.7 1,097.3
Change in deferred taxes (99.1) (217.7) (392.4) (546.9)
Change in fair value of contingent consideration (3.4) 10.2 144.3 (34.8)
Impairment of PP&E and intangible assets 114.0 89.2 167.6 98.1
Other, net 73.5 52.9 88.3 35.3
Changes in operating assets and liabilities:
Increase in accounts receivable (120.0) (230.2) (301.5) (411.2)
Increase in sales deduction accrual 36.9 41.8 94.0 108.2
Increase in inventory (73.6) (111.6) (245.2) (228.0)
(Increase)/decrease in prepayments and other assets (34.2) (92.9) 70.4 (66.4)
(Decrease)/increase in accounts payable and other
liabilities (112.7) (27.5) (557.8) 315.2
Net cash provided by operating activities 1,055.2 525.6 2,737.1 1,506.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of PP&E and long term investments (174.4) (223.4) (565.5) (402.5)
Purchases of businesses, net of cash acquired - - - (17,476.2)
Proceeds from sale of investments 7.5 0.6 48.1 0.6
Movements in restricted cash - 1.1 (8.6) 68.3
Other, net 31.6 (4.8) 34.8 (1.5)
Net cash used in investing activities (135.3) (226.5) (491.2) (17,811.3)
Unaudited US GAAP Consolidated Statements of Cash Flows (continued)
(in millions)
3 months ended September 9 months ended September
30, 30,
2017 2016 2017 2016
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, long term
and short term borrowings 1,149.7 12,847.3 3,261.6 31,742.3
Repayment of revolving line of credit, long term and
short term borrowings (2,136.6) (13,132.6) (5,664.5) (14,632.9)
Payment of dividend - - (234.7) (130.2)
Debt issuance costs - (58.7) - (171.0)
Proceeds from exercise of options 12.7 137.1 92.2 137.2
Other, net (2.2) (56.7) (26.2) (44.8)
Net cash (used in)/provided by financing activities (976.4) (263.6) (2,571.6) 16,900.6
Effect of foreign exchange rate changes on cash and
cash equivalents 2.1 (0.3) 6.2 (2.2)
Net (decrease)/increase in cash and cash equivalents (54.4) 35.2 (319.5) 593.1
Cash and cash equivalents at beginning of period 263.7 693.4 528.8 135.5
Cash and cash equivalents at end of period $ 209.3 $ 728.6 $ 209.3 $ 728.6
Selected Notes to the Unaudited US GAAP Financial Statements
1. Earnings Per Share (EPS)
(in millions)
3 months ended 9 months ended September
September 30, 30,
2017 2016 2017 2016
Income/(loss)
from
continuing
operations $551.2 $(368.5) $ 1,147.5 $ 127.6
(Loss)/gain
from
discontinued
operations (0.4) (18.3) 18.6 (257.5)
Numerator for
EPS $550.8 $(386.8) $ 1,166.1 $ (129.9)
Weighted
average number
of shares:
Basic 907.2 900.2 905.9 725.5
Effect of
dilutive
shares:
Share based
awards to
employees 4.4 - 6.2 -
Diluted 911.6 900.2 912.1 725.5
The share equivalents not included in the calculation of the diluted
weighted average number of shares are shown below:
Share based awards to employees 16.2 14.6 14.8 9.7
Selected Notes to the Unaudited US GAAP Financial Statements
(2) Analysis of revenues
(in millions)
3 months ended 9 months ended
September 30, September 30,
2017 2016 2017 2016
Product sales by
franchise
HEMOPHILIA $ 725.3 $ 702.4 $ 2,119.6 $ 978.0
INHIBITOR
THERAPIES 190.7 181.7 631.9 255.7
Hematology 916.0 884.1 2,751.5 1,233.7
IMMUNOGLOBULIN
THERAPIES 605.1 472.5 1,613.9 610.7
BIO THERAPEUTICS 196.6 134.0 546.7 185.3
Immunology 801.7 606.5 2,160.6 796.0
VYVANSE 538.4 512.6 1,620.3 1,539.5
ADDERALL XR 106.0 80.5 242.3 281.1
MYDAYIS 10.2 - 25.9 -
Other
Neuroscience 36.5 23.4 91.3 81.2
Neuroscience 691.1 616.5 1,979.8 1,901.8
FIRAZYR 195.5 146.3 461.4 411.3
ELAPRASE 152.9 146.7 454.5 424.3
REPLAGAL 117.2 118.9 349.0 340.5
VPRIV 89.6 87.7 257.3 259.3
CINRYZE 56.9 165.4 458.7 502.6
KALBITOR 16.0 11.1 48.3 39.2
Genetic Diseases 628.1 676.1 2,029.2 1,977.2
LIALDA/MEZAVANT 86.7 208.6 469.6 570.3
GATTEX/REVESTIVE 84.9 58.1 229.2 154.3
PENTASA 72.1 85.4 224.5 222.3
NATPARA 39.1 23.3 103.3 58.8
Other Internal
Medicine 68.2 87.3 227.5 260.6
Internal Medicine 351.0 462.7 1,254.1 1,266.3
Ophthalmics 77.4 14.1 173.4 14.1
Oncology 68.5 55.4 189.3 75.7
Total product
sales 3,533.8 3,315.4 10,537.9 7,264.8
Royalties and
other revenues
SENSIPAR
royalties 42.8 38.7 128.1 112.2
3TC and ZEFFIX
royalties 16.1 16.2 38.8 43.3
FOSRENOL
royalties 14.3 13.7 35.0 34.3
ADDERALL XR
royalties 7.7 4.7 33.6 15.7
Other Royalties
and revenues 82.9 63.4 242.3 120.2
Total royalties
and other
revenues 163.8 136.7 477.8 325.7
Total revenues $3,697.6 $3,452.1 $11,015.7 $7,590.5
Non GAAP reconciliations
(in millions)
Reconciliation of US GAAP net income to Non GAAP EBITDA and Non GAAP
operating income:
3 months ended September 9 months ended September
30, 30,
2017 2016 2017 2016
US GAAP net income/(loss) $ 550.8 $ (386.8) $1,166.1 $ (129.9)
Add back/(deduct):
Loss/(gain) from discontinued operations, net of tax 0.4 18.3 (18.6) 257.5
Equity in losses/(earnings) of equity method investees,
net of taxes 3.4 0.9 (0.1) 1.9
Income taxes 13.5 (229.6) 44.6 (218.4)
Other expense, net 140.5 191.3 412.9 323.1
US GAAP operating income from continuing operations 708.6 (405.9) 1,604.9 234.2
Add back/(deduct) Non GAAP adjustments:
Expense related to the unwind of inventory fair value
adjustments 63.3 803.8 688.7 1,097.3
Impairment of acquired intangible assets - - 20.0 8.9
Costs relating to license arrangements - 110.0 123.7 110.0
Legal and litigation costs 1.0 (0.5) 8.6 16.1
Amortization of acquired intangible assets 482.4 354.9 1,280.5 702.5
Integration and acquisition costs 237.0 284.5 696.7 738.6
Reorganization costs 5.4 101.4 24.5 115.7
Loss/(gain) on sale of product rights 0.3 (5.7) (0.4) (12.2)
Depreciation 119.9 93.1 363.5 175.3
Other Non GAAP adjustments - 11.6 (4.0) 11.6
Non GAAP EBITDA 1,617.9 1,347.2 4,806.7 3,198.0
Depreciation (119.9) (93.1) (363.5) (175.3)
Non GAAP operating income $1,498.0 $1,254.1 $4,443.2 $3,022.7
Net income margin(1) 15% (11)% 11% (2)%
Non GAAP EBITDA margin(2) 44% 39% 44% 42%
(1) Net income as a percentage of total revenues.
(2) Non GAAP EBITDA as a percentage of total revenues.
Reconciliation of revenues to Non GAAP gross margin:
3 months ended September 9 months ended September
30, 30,
2017 2016 2017 2016
Revenues $3,697.6 $3,452.1 $11,015.7 $7,590.5
Cost of sales (US GAAP) (1,001.4) (1,736.2) (3,437.3) (2,762.9)
US GAAP gross margin 2,696.2 1,715.9 7,578.4 4,827.6
Add back Non GAAP adjustments:
Expense related to the unwind of inventory fair value
adjustments 63.3 803.8 688.7 1,097.3
Inventory write-down relating to the closure of a
facility - 11.6 - 11.6
Depreciation 70.1 54.5 209.2 85.2
Non GAAP gross margin $2,829.6 $2,585.8 $ 8,476.3 $6,021.7
Non GAAP gross margin % (1) 76.5% 74.9% 76.9% 79.3%
(1) Non GAAP gross margin as a percentage of total
revenues.
Non GAAP reconciliations
(in millions, except per ADS amounts)
Reconciliation of US GAAP net income to Non GAAP net income:
3 months ended 9 months ended
September 30, September 30,
2017 2016 2017 2016
US GAAP net income/(loss) $ 550.8 $(386.8) $1,166.1 $ (129.9)
Expense related to the unwind of inventory fair value
adjustments 63.3 803.8 688.7 1,097.3
Impairment of acquired intangible assets - - 20.0 8.9
Costs relating to license arrangements - 110.0 123.7 110.0
Legal and litigation costs 1.0 (0.5) 8.6 16.1
Amortization of acquired intangible assets 482.4 354.9 1,280.5 702.5
Integration and acquisition costs 237.0 284.5 696.7 738.6
Reorganization costs 5.4 101.4 24.5 115.7
Loss/(gain) on sale of product rights 0.3 (5.7) (0.4) (12.2)
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 1.9 47.4 5.4 91.5
Loss/(gain) on sale of long term investments 4.3 - (8.9) 6.0
Loss/(gain) from discontinued operations 0.4 24.0 (29.6) 358.6
Other Non GAAP adjustments - 11.6 (4.0) 11.6
Non GAAP tax adjustments (189.0) (383.0) (576.5) (748.7)
Non GAAP net income $1,157.8 $ 961.6 $3,394.8 $2,366.0
Reconciliation of US GAAP diluted earnings per ADS to Non GAAP diluted
earnings per ADS:
3 months ended 9 months ended
September 30, September 30,
2017 2016 2017 2016
US GAAP diluted earnings/(losses) per ADS $1.81 $(1.29) $ 3.84 $(0.54)
Expense related to the unwind of inventory fair value
adjustments 0.21 2.66 2.26 4.51
Impairment of acquired intangible assets - - 0.07 0.04
Costs relating to license arrangements - 0.36 0.41 0.45
Legal and litigation costs 0.00 0.00 0.03 0.07
Amortization of acquired intangible assets 1.59 1.17 4.21 2.88
Integration and acquisition costs 0.78 0.94 2.29 3.03
Reorganization costs 0.02 0.33 0.08 0.47
Loss/(gain) on sale of product rights 0.00 (0.02) (0.00) (0.05)
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 0.01 0.16 0.02 0.38
Loss/(gain) on sale of long term investments 0.01 - (0.03) 0.02
Loss/(gain) from discontinued operations 0.00 0.08 (0.10) 1.47
Other Non GAAP adjustments - 0.04 (0.01) 0.05
Non GAAP tax adjustments (0.62) (1.26) (1.90) (3.07)
Non GAAP diluted earnings per ADS $3.81 $ 3.17 $11.17 $ 9.71
Non GAAP reconciliations
(in millions, except per ADS amounts)
Reconciliation of US GAAP net cash provided by operating activities to
Non GAAP free cash flow:
3 months ended 9 months ended September
September 30, 30,
2017 2016 2017 2016
Net cash
provided by
operating
activities $1,055.2 $525.6 $2,737.1 $1,506.0
Capital
expenditure (174.4) (220.8) (565.5) (399.6)
Payments
relating to
license
arrangements 20.0 90.0 40.0 90.0
Non GAAP free
cash flow $ 900.8 $394.8 $2,211.6 $1,196.4
Non GAAP net debt comprises:
September 30, 2017 December 31, 2016
Cash and cash equivalents $ 209.3 $ 528.8
Long term borrowings
(excluding capital leases) (17,613.9) (19,552.6)
Short term borrowings
(excluding capital leases) (2,622.2) (3,061.6)
Capital leases (349.1) (353.6)
Non GAAP net debt $ (20,375.9) $ (22,439.0)
Reconciliation of full year 2017 US GAAP diluted earnings per ADS
Outlook to Non GAAP diluted earnings per ADS Outlook:
Full Year 2017 Outlook
Min Max
US GAAP diluted earnings per ADS $ 5.65 $ 6.05
Expense related to the unwind of inventory fair value
adjustments 2.42
Impairment of acquired intangible assets 0.07
Costs relating to licensing arrangements 0.46
Legal and litigation costs 0.04
Amortization of acquired intangible assets 5.64
Integration and acquisition costs 2.98
Reorganization costs 0.10
Amortization of one-time upfront borrowing costs for
Baxalta and Dyax 0.02
Loss from discontinued operations (0.10)
Gain on sale of long term investments (0.01)
Other Non-GAAP adjustments (0.04)
Non GAAP tax adjustments (2.43)
Non GAAP diluted earnings per ADS $14.80 $15.20
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 leader in serving patients with rare diseases. We
strive to develop best-in-class therapies across a core of rare disease
areas including hematology, immunology, genetic diseases, neuroscience,
and internal medicine with growing therapeutic areas in ophthalmics and
oncology. Our diversified capabilities enable us to reach patients in
more than 100 countries who are struggling to live their lives to the
fullest.
We feel a strong sense of urgency to address unmet medical needs and
work tirelessly to improve people's lives with medicines that have a
meaningful impact on patients and all who support them on their journey.
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, 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 conducts its own manufacturing operations for certain of its
products and is reliant on third party contract manufacturers to
manufacture other products and to provide goods and services. Some of
Shire's products or ingredients are only available from a single approved
source for manufacture. 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;
-- certain of Shire's therapies involve lengthy and complex processes, which
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;
-- Shire's products and product candidates face substantial competition in
the product markets in which it operates, including 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 the Company's revenues, financial condition or
results of operations;
-- inability to successfully compete for highly qualified personnel from
other companies and organizations;
-- failure to achieve the strategic objectives, including expected operating
efficiencies, cost savings, revenue enhancements, synergies or other
benefits at the time anticipated or at all with respect to Shire's
acquisitions, including NPS Pharmaceuticals Inc., Dyax Corp. or Baxalta
Incorporated 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, as well as changes in foreign
currency exchange rates and interest rates, that adversely impact the
availability and cost of credit and customer purchasing and payment
patterns, including the collectability of customer accounts receivable;
-- failure of a marketed product to work effectively or if such a product is
the cause of adverse side effects could result in damage to Shire's
reputation, the withdrawal of the product and legal action against Shire;
-- investigations or enforcement action by regulatory authorities or law
enforcement agencies relating to Shire's activities in the highly
regulated markets in which it operates may result in significant legal
costs and the payment of substantial compensation or fines;
-- 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 incurred substantial additional indebtedness to finance the Baxalta
acquisition, which has increased its borrowing costs and may decrease its
business flexibility; 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.
NON GAAP MEASURES
This press release contains financial measures not prepared in
accordance with US GAAP. These measures are referred to as "Non GAAP"
measures and include: Non GAAP operating income; Non GAAP net income;
Non GAAP diluted earnings per ADS; effective tax rate on Non GAAP income
before income taxes and (losses/earnings) of equity method investees
(effective tax rate on Non GAAP income); Non GAAP CER; Non GAAP cost of
sales; Non GAAP gross margin; Non GAAP R&D; Non GAAP SG&A; Non GAAP
other expense; 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 competitor's 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
different 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 US GAAP, and Shire's financial results
calculated in accordance with US 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
-- Noncontrolling interests in consolidated variable interest entities.
Divestments, reorganizations and discontinued operations:
-- Gains and losses on the sale of non-core assets;
-- Costs associated with restructuring and reorganization activities;
-- Termination costs; and
-- Income/(losses) from 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 US
GAAP to Non GAAP measures.
Depreciation, which is included in Cost of sales, R&D and SG&A costs in
our US 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 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 US GAAP is presented on pages 21 to 23.
Non GAAP CER growth is computed by restating 2017 results using average
2016 foreign exchange rates for the relevant period.
Average exchange rates used by Shire for the three months ended
September 30, 2017 were $1.31:GBP1.00 and $1.17:EUR1.00 (2016:
$1.32:GBP1.00 and $1.11:EUR1.00). Average exchange rates used by Shire
for the nine months ended September 30, 2017 were $1.28:GBP1.00 and
$1.11:EUR1.00 (2016: $1.40:GBP1.00 and $1.11:EUR1.00).
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
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Source: Shire plc via Globenewswire
(END) Dow Jones Newswires
October 27, 2017 07:15 ET (11:15 GMT)