Shire reports 8% pro forma product sales and strong earnings growth resulting in record operating cash flow for full year 2017
Strong growth driven by Immunology, recently launched products, and global expansion
Improved operating margin and operating cash flow of $4.3 billion enabled achievement of debt target
Significantly advanced innovative pipeline with 15 programs in late-stage development
February 14, 2018 - Shire plc (Shire) (LSE: SHP, NASDAQ: SHPG) announces unaudited results for the twelve months ended December 31, 2017.
Flemming Ornskov, M.D., M.P.H., Shire Chief Executive Officer, commented:
"Shire delivered 8% pro forma product sales growth to $14.4 billion in 2017, an increase of over $1 billion. Of particular note are the strong performance of our Immunology franchise and the significant contribution from recently launched products, as well as growth in international markets. We increased Non GAAP diluted earnings per ADS by 16%, realizing cost synergies ahead of plan.
"2018 is a year of continued focus on commercial execution and targeted investment in our manufacturing infrastructure, new product launches, and pipeline to drive future growth. We expect to deliver mid-single digit product sales growth in 2018 after absorbing the anticipated impact of generics.
"The mid-term outlook for growth is positive driven by our Immunology franchise, multiple near-term launches, and international markets. We are committed to achieving our projected revenue target of $17 - $18 billion in 2020.
"Based on current assumptions, we expect Non GAAP diluted earnings per ADS growth to be lower than top line growth in 2018, mainly due to costs incurred from the start-up of our new U.S. plasma manufacturing site, intensifying genericization, and lower royalties. 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."
Product and Pipeline Highlights
Regulatory updates
Clinical and business development updates
Financial Highlights
Full Year 2017(1) | Growth(1) | Non GAAP CER(1)(2) | |
Product sales(3) | $14,449 million | +33% | +33% |
Product sales excluding legacy Baxalta | $7,461 million | +7% | +6% |
Total revenues | $15,161 million | +33% | |
Non GAAP total revenues(4) | $15,086 million | +32% | +32% |
Operating income from continuing operations | $2,455 million | +155% | |
Non GAAP operating income(2) | $5,997 million | +36% | +36% |
Net income margin(5)(6) | 28% | 25ppc | |
Non GAAP EBITDA margin(2)(6) | 43% | 2ppc | |
Net income | $4,272 million | +1,205% | |
Non GAAP net income(2) | $4,604 million | +36% | |
Diluted earnings per ADS(7) | $14.05 | +1,006% | |
Non GAAP diluted earnings per ADS(2)(7) | $15.15 | +16% | +16% |
Net cash provided by operating activities | $4,257 million | +60% | |
Non GAAP free cash flow(2) | $3,431 million | +63% |
(1) Results include Baxalta Inc. (Baxalta) (acquired on June 3, 2016) and Dyax Corp. (Dyax) (acquired on January 22, 2016), unless otherwise noted. Percentages compare to equivalent 2016 period.
(2) The Non GAAP financial measures included within this release are explained on pages 29 - 30, and are reconciled to the most directly comparable financial measures prepared in accordance with U.S. GAAP on pages 22 - 25.
(3) For 2017 reporting (including comparative information), HAE sales have been reclassified to the Immunology franchise from Genetic Diseases.
(4) Non GAAP total revenues excludes the receipt of an upfront license fee.
(5) U.S. GAAP net income as a percentage of total revenues.
(6) Percentage point change (ppc).
(7) Diluted weighted average number of ordinary shares of 912 million.
Product sales growth
Earnings growth
Strong cash flow
FINANCIAL SUMMARY - FULL YEAR 2017 COMPARED TO FULL YEAR 2016
Revenues
Operating results
Earnings per share (EPS)
Cash flows
Debt
OUTLOOK
2018 is a year of continued focus on commercial execution and targeted investment in our manufacturing infrastructure, new product launches, and pipeline to drive future growth. We expect to deliver mid-single digit product sales growth in 2018 after absorbing the anticipated impact of generics.
The mid-term outlook for growth is positive driven by our Immunology franchise, multiple near-term launches, and international markets. We are committed to achieving our projected revenue target of $17 - $18 billion in 2020.
Based on current assumptions, we expect Non GAAP diluted earnings per ADS growth to be lower than top line growth in 2018, mainly due to costs incurred from the start-up of our new US plasma manufacturing site, intensifying genericization, and lower royalties. 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.
Following the update to the strategic review on January 8, 2018, Shire is well underway in creating two divisions, one focused on rare diseases, the other on neuroscience. Alongside this, we are already active in optimizing our portfolio within each division, and we anticipate that this may lead to some opportunities for disposals.
While recognizing our commitment to continue delevering as previously announced, any surplus capital released from such disposals would be evaluated by the Board for return to shareholders. Assessing Shire's overall capital structure and appropriate mid / long term debt level will be a key initial assignment for the new CFO, who is expected to join on March 19, 2018.
In addition to the detailed guidance in the table below, we are providing depreciation and capital expenditures guidance. We expect depreciation to be between $575 - $625 million and capital expenditure to be between $800 - $900 million, as we continue to invest in a larger footprint to support our growth aspirations.
The Non GAAP diluted earnings per ADS forecast assumes a weighted average number of 915 million fully diluted ordinary shares outstanding in 2018.
Our US GAAP diluted earnings per ADS outlook reflects anticipated amortization and integration costs.
Full Year 2018 | U.S. GAAP Outlook | Non GAAP Outlook(1) |
Total product sales | $14.9 - $15.3 billion | $14.9 - $15.3 billion |
Royalties & other revenues | $500 - $600 million | $500 - $600 million |
Gross margin as a percentage of total revenue(2) | 71.0% - 73.0% | 73.5% - 75.5% |
Combined R&D and SG&A | $5.2 - $5.4 billion | $4.9 - $5.1 billion |
Net interest/other | $450 - $550 million | $450 - $550 million |
Effective tax rate | 15% - 17% | 16% - 18% |
Diluted earnings per ADS(3) | $7.30 - $7.90 | $14.90 - $15.50 |
(1) For a list of items excluded from Non GAAP Outlook, refer to pages 29 - 30 of this release.
(2) Gross margin as a percentage of total revenues excludes amortization of acquired intangible assets.
(3) See page 25 for a reconciliation between U.S. GAAP diluted earnings per ADS and Non GAAP diluted earnings per ADS.
FINANCIAL SUMMARY - FOURTH QUARTER 2017 COMPARED TO FOURTH QUARTER 2016
Financial Highlights | Q4 2017 | Growth | Non GAAP CER |
Product sales(1) | $3,911 million | +8% | +7% |
Total revenues | $4,145 million | +9% | |
Non GAAP total revenues | $4,070 million | +7% | +6% |
Operating income from continuing operations | $850 million | +17% | |
Non GAAP operating income | $1,553 million | +11% | +10% |
Net income margin | 75% | 63ppc | |
Non GAAP EBITDA margin | 41% | 1ppc | |
Net income | $3,105 million | +579% | |
Non GAAP net income | $1,209 million | +18% | |
Diluted earnings per ADS | $10.22 | +577% | |
Non GAAP diluted earnings per ADS | $3.98 | +18% | +17% |
Net cash provided by operating activities | $1,520 million | +32% | |
Non GAAP free cash flow | $1,219 million | +35% |
(1) For 2017 reporting (including comparative information), HAE sales have been reclassified to the Immunology franchise from Genetic Diseases.
Revenues
Operating results
Earnings per share (EPS)
Cash flows
RECENT DEVELOPMENTS
Corporate Strategy
Shire expects to report the operational performance metrics of each division separately beginning with the first quarter of 2018. The second stage of the review will continue to evaluate all strategic alternatives, including the merits of an independent listing for each of the two divisions.
Business Development
License agreement with AB Biosciences
Collaboration with Rani Therapeutics
Products
ADYNOVI for the treatment of hemophilia A
XIIDRA for the treatment of dry eye disease (DED)
myPKFiT software for ADVATE
ONCASPAR for the treatment of acute lymphoblastic leukemia (ALL)
Pipeline
SHP620 for the treatment of cytomegalovirus (CMV) infection in transplant patients
SHP609 for the treatment of Hunter syndrome
SHP647 for the treatment of ulcerative colitis (UC)
Facilities
Board and Senior Management Changes
On November 20, 2017, Shire announced that Thomas Dittrich will join Shire as Chief Financial Officer, and will become a member of the Executive Committee and an Executive member of the Board of Directors. Mr. Dittrich is expected to assume his roles at Shire on March 19, 2018.
Effective December 31, 2017, Jeff Poulton stepped down from the Board of Directors and resigned as Shire's Chief Financial Officer.
On January 1, 2018, John Miller, Shire's Senior Vice President of Finance, was appointed Interim Chief Financial Officer. Mr. Miller will hold this position until Mr. Dittrich commences his employment with Shire.
On January 1, 2018, Andreas Busch, PhD, joined Shire as Head of Research and Development and Chief Scientific Officer, and became a member of Shire's Executive Committee.
On August 3, 2017, Shire announced that David Ginsburg, Chairman of the Science & Technology Committee, would retire following the 2018 Annual General Meeting (AGM). Subsequently, the Board resolved that David would continue for the near term as a Non-Executive Director and Chairman of the Science and Technology Committee. Today, the Board announces that Dominic Blakemore, having been appointed Group Chief Executive Officer of Compass Group PLC on January 1, 2018, decided to step down as a Non-Executive Director of Shire immediately following the 2018 AGM. The Board has begun a search for two new non-executive director appointees who can provide the knowledge, insight, and experience that both David and Dominic currently bring to Shire. The Board also announces today that, following the departure of William Burns from the Board of Directors after the 2018 AGM, Olivier Bohuon will be appointed Senior Independent Director of the Board.
Dividend
For the six months ended December 31, 2017, the Board resolved to pay an interim dividend of 29.79 U.S. cents per Ordinary Share (2016: 25.70 U.S. cents per Ordinary Share).
Dividend payments will be made in Pounds Sterling to holders of Ordinary Shares and in U.S. Dollars to holders of ADSs. A dividend of 21.46(1) pence per Ordinary Share (2016: 20.64 pence) and 89.37 U.S. cents per ADS (2016: 77.10 U.S. cents) will be paid on April 24, 2018 to shareholders on the register as at the close of business on March 9, 2018.
Together with the first interim payment of 5.09 U.S. cents per Ordinary Share (2016: 4.63 U.S. cents per Ordinary Share), this represents total dividends for 2017 of 34.88 U.S. cents per Ordinary Share (2016: 30.33 U.S. cents per Ordinary Share), an increase of 15% in U.S. Dollar terms.
Holders of Ordinary Shares are notified that, in order to receive UK sourced dividends via Shire's Income Access Share arrangements (IAS Arrangements), they need to submit a valid IAS Arrangements election form to Shire's Registrar, Equiniti, no later than 5pm (GMT) on March 23, 2018. Holders of Ordinary Shares are advised that:
Internet links to the newly formatted IAS Arrangements election forms can be found at:
http://investors.shire.com/shareholder-resources/shareholder-forms.aspx
(1) Translated using a GBP:USD exchange rate of 1.3881.
ADDITIONAL INFORMATION
The following additional information is included in this press release:
Page | |
Overview of Full Year 2017 Financial Results | 9 |
Financial Information | 14 |
Non GAAP Reconciliations | 22 |
Notes to Editors | 26 |
Forward-Looking Statements | 27 |
Non GAAP Measures | 29 |
Trademarks | 30 |
For further information please contact:
Investor Relations | |||
Christoph Brackmann | christoph.brackmann@shire.com | +41 795 432 359 | |
Sun Kim | sun.kim@shire.com | +1 617 588 8175 | |
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 GMT / 9:00 EST on February 14, 2018:
UK dial in: | 0800 358 9473 or +44 333 300 0804 |
US dial in: | 1 855 857 0686 or 1 631 913 1422 |
International Access Numbers: | Click here |
Password/Conf ID: | 76960651# |
Live Webcast: | Click here |
The quarterly earnings presentation will be available today at 13:00 GMT / 8:00 EST on:
- Shire's IR Briefcase in the iTunes Store
OVERVIEW OF FULL YEAR 2017 FINANCIAL RESULTS COMPARED TO FULL YEAR 2016
Product sales increased 33% to $14,449 million (2016: $10,886 million), primarily due to the inclusion of a full year of legacy Baxalta sales in 2017. Excluding legacy Baxalta, product sales increased 7%. For 2017 reporting (including comparative information), HAE sales have been reclassified to the Immunology franchise from Genetic Diseases.
(in millions) | Total Sales Year on year growth | ||||||||||||||||
Product sales by franchise | U.S. Sales | International Sales | Total Sales | Reported | Non GAAP CER | ||||||||||||
IMMUNOGLOBULIN THERAPIES | $ | 1,788.9 | $ | 447.7 | $ | 2,236.6 | N/M | N/M | |||||||||
HEREDITARY ANGIOEDEMA | 1,305.2 | 124.4 | 1,429.6 | +9 | % | +9 | % | ||||||||||
BIO THERAPEUTICS | 315.9 | 388.2 | 704.1 | N/M | N/M | ||||||||||||
Immunology | 3,410.0 | 960.3 | 4,370.3 | N/M | N/M | ||||||||||||
HEMOPHILIA | 1,477.9 | 1,479.4 | 2,957.3 | N/M | N/M | ||||||||||||
INHIBITOR THERAPIES | 279.4 | 548.9 | 828.3 | N/M | N/M | ||||||||||||
Hematology | 1,757.3 | 2,028.3 | 3,785.6 | N/M | N/M | ||||||||||||
VYVANSE | 1,917.3 | 243.8 | 2,161.1 | +7 | % | +7 | % | ||||||||||
ADDERALL XR | 327.7 | 20.3 | 348.0 | -4 | % | -4 | % | ||||||||||
MYDAYIS | 21.6 | - | 21.6 | N/A | N/A | ||||||||||||
Other Neuroscience | 17.3 | 116.1 | 133.4 | +18 | % | +19 | % | ||||||||||
Neuroscience | 2,283.9 | 380.2 | 2,664.1 | +7 | % | +7 | % | ||||||||||
LIALDA/MEZAVANT | 473.1 | 96.3 | 569.4 | -28 | % | -28 | % | ||||||||||
GATTEX/REVESTIVE | 287.5 | 48.0 | 335.5 | +53 | % | +53 | % | ||||||||||
PENTASA | 313.2 | - | 313.2 | +1 | % | +1 | % | ||||||||||
NATPARA/NATPAR | 146.1 | 1.3 | 147.4 | +73 | % | +73 | % | ||||||||||
Other Internal Medicine | 82.4 | 222.4 | 304.8 | -13 | % | -13 | % | ||||||||||
Internal Medicine | 1,302.3 | 368.0 | 1,670.3 | -5 | % | -5 | % | ||||||||||
ELAPRASE | 162.5 | 453.2 | 615.7 | +5 | % | +3 | % | ||||||||||
REPLAGAL | - | 472.1 | 472.1 | +4 | % | +4 | % | ||||||||||
VPRIV | 150.3 | 199.6 | 349.9 | +1 | % | +1 | % | ||||||||||
Genetic Diseases | 312.8 | 1,124.9 | 1,437.7 | +4 | % | +3 | % | ||||||||||
Oncology | 185.2 | 76.5 | 261.7 | N/M | N/M | ||||||||||||
Ophthalmics | 259.2 | - | 259.2 | N/M | N/M | ||||||||||||
Total product sales | $ | 9,510.7 | $ | 4,938.2 | $ | 14,448.9 | +33 | % | +33 | % | |||||||
Immunology
Immunology product sales, which now include HAE product sales, were $4,370 million in 2017. HAE product sales reported growth was 9%. Our immunoglobulin therapies and bio therapeutics, acquired with Baxalta in June 2016, performed well, up 18% and 14%, respectively, on a pro forma basis.
HAE growth was primarily driven by FIRAZYR, up 15% to $663 million, and CINRYZE, up 3% to $699 million. CINRYZE growth was held back by supply constraints in 2017. CINRYZE supply stabilized during Q4 2017 and Shire will begin production of CINRYZE drug product in-house in Q1 2018.
Pro forma growth for legacy Baxalta products was driven by U.S. demand growth for GAMMAGARD liquid and increasing demand for our subcutaneous portfolio. Strong international performance was driven by growth across most regions.
Hematology
Hematology, acquired with Baxalta in June 2016, reported product sales of $3,786 million in 2017, with growth in both our hemophilia and inhibitor therapies products on a pro forma basis.
Pro forma growth across the portfolio was primarily driven by increased demand for our rFVIII products and the impact of stocking in the U.S., combined with international growth, particularly for our inhibitor therapies.
Neuroscience
Neuroscience product sales increased 7%, primarily driven by VYVANSE and the launch of MYDAYIS.
VYVANSE sales increased 7%, primarily due to the benefit of a price increase taken since 2016, increased demand resulting from growth in the U.S. ADHD market and strong performance in our international markets, partially offset by lower U.S. stocking.
MYDAYIS, which was made available to patients on August 28, 2017, contributed $22 million of product sales in 2017.
Internal Medicine
Internal Medicine product sales decreased 5%, driven by the impact of LIALDA generic competition, partially offset by growth from GATTEX/REVESTIVE and NATPARA. Excluding LIALDA, Internal Medicine product sales increased 14%.
LIALDA/MEZAVANT sales decreased 28%, due to the impact of generic competition in 2017.
GATTEX/REVESTIVE and NATPARA continued to perform well with sales increasing 53% and 73%, respectively, primarily due to an increase in the number of patients on therapy, and to a lesser extent, the benefit of price increases taken since 2016.
Genetic Diseases
Genetic Diseases, which now excludes HAE product sales, increased 4%, primarily due to ELAPRASE and REPLAGAL. Both products benefited from an increase in the number of patients on therapy.
Oncology
Oncology, acquired with Baxalta in June 2016, contributed $262 million of product sales in 2017. Pro forma growth of 22% was driven by sales of ONCASPAR and ONIVYDE, the latter of which was approved in the EU on October 18, 2016.
Ophthalmics
Ophthalmics contributed product sales of $259 million in 2017. Sales relate to XIIDRA, which was made available to patients starting on August 29, 2016, with 12% prescription growth since Q3 2017.
Legacy Baxalta pro forma product sales growth
The table presents 2017 reported legacy Baxalta product sales compared with 2016 pro forma legacy Baxalta sales.
(in millions) | Pro forma Year on year growth | ||||||||||||||||
Product sales | U.S. Sales | International Sales | Total Sales | Reported | Non GAAP CER | ||||||||||||
HEMOPHILIA | $ | 1,477.9 | $ | 1,479.4 | $ | 2,957.3 | +3 | % | +3 | % | |||||||
IMMUNOGLOBULIN THERAPIES | 1,788.9 | 447.7 | 2,236.6 | +18 | % | +19 | % | ||||||||||
INHIBITOR THERAPIES | 279.4 | 548.9 | 828.3 | +2 | % | +2 | % | ||||||||||
BIO THERAPEUTICS | 315.9 | 388.2 | 704.1 | +14 | % | +14 | % | ||||||||||
ONCOLOGY | 185.2 | 76.5 | 261.7 | +22 | % | +21 | % | ||||||||||
Total | $ | 4,047.3 | $ | 2,940.7 | $ | 6,988.0 | +9 | % | +9 | % | |||||||
(in millions) | Year on year reported growth | ||||||
Revenue | |||||||
Royalties | $ | 448.4 | +17 | % | |||
Other revenues | 263.3 | +105 | % | ||||
Royalties and other revenues (U.S. GAAP) | 711.7 | +39 | % | ||||
Revenue from upfront license fee | (74.6 | ) | N/A | ||||
Non GAAP royalties and other revenues | $ | 637.1 | +25 | % | |||
Royalties and other revenues increased 39%, primarily due to an upfront license fee received and a full year of contract manufacturing revenue acquired with Baxalta.
Non GAAP royalties and other revenues increased 25%, primarily due to a full year of contract manufacturing revenue acquired with Baxalta, an increase in SENSIPAR royalties and an increase in royalty streams acquired with Dyax.
Cost of sales
(in millions) | 2017 | 2016 | |||||
Cost of sales (U.S. GAAP) | $ | 4,700.8 | $ | 3,816.5 | |||
Expense related to the unwind of inventory fair value adjustments | (747.8 | ) | (1,118.0 | ) | |||
Inventory write-down relating to the closure of a facility | - | (18.9 | ) | ||||
One-time employee related costs | - | (10.0 | ) | ||||
Depreciation | (276.1 | ) | (160.8 | ) | |||
Non GAAP cost of sales | $ | 3,676.9 | $ | 2,508.8 | |||
U.S. GAAP Cost of sales as a percentage of total revenues | 31 | % | 33 | % | |||
Non GAAP cost of sales as a percentage of Non GAAP total revenues | 24 | % | 22 | % | |||
Cost of sales as a percentage of total revenues decreased by 2% to 31% due to the impact of lower expense related to the unwind of inventory fair value adjustments, being partially offset by the inclusion of a full year of lower margin product franchises acquired with Baxalta.
Non GAAP cost of sales as a percentage of Non GAAP total revenues increased by 2% to 24%, primarily due to the impact of a full year of lower margin product franchises acquired with Baxalta.
R&D
(in millions) | 2017 | 2016 | |||||
R&D (U.S. GAAP) | $ | 1,763.3 | $ | 1,439.8 | |||
Impairment of IPR&D intangible assets | (20.0 | ) | (8.9 | ) | |||
Costs relating to license arrangements | (131.2 | ) | (110.0 | ) | |||
Depreciation | (47.2 | ) | (34.1 | ) | |||
Non GAAP R&D | $ | 1,564.9 | $ | 1,286.8 | |||
U.S. GAAP R&D as a percentage of total revenues | 12 | % | 13 | % | |||
Non GAAP R&D as a percentage of Non GAAP total revenues | 10 | % | 11 | % | |||
R&D expenditure increased by $324 million, or 22%, primarily due to the inclusion of a full year of legacy Baxalta costs.
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