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Executives

Sarah Elton-Farr

Angus C. Russell - Chief Executive Officer, Interim President of Specialty Pharma and Executive Director

Sylvie L. Gregoire - President of Human Genetic Therapies Business and Member of Management Committee

Graham Hetherington - Chief Financial Officer, Principal Accounting Officer and Director

Flemming Ornskov - Director

Jeff Jonas - President of Regenerative Medicine (RM) Business

Analysts

Kerry Holford - Crédit Suisse AG, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

David M. Steinberg - Deutsche Bank AG, Research Division

David G. Buck - The Buckingham Research Group Incorporated

Brian Bourdot - Barclays Capital, Research Division

David Amsellem - Piper Jaffray Companies, Research Division

Ken Cacciatore - Cowen and Company, LLC, Research Division

Peter Welford - Jefferies & Company, Inc., Research Division

James D. Gordon - JP Morgan Chase & Co, Research Division

Shire (SHPG) Q4 2012 Earnings Call February 14, 2013 9:00 AM ET

Operator

Hello, and welcome to Shire's 2012 Full Year Webcast. [Operator Instructions] The call is being recorded. I will now hand over to your IR Director, Sarah Elton-Farr to begin. Over to you.

Sarah Elton-Farr

Thank you, George. Good morning, and good afternoon, everyone. Thank you for joining us today for Shire's Full Year 2012 Financial Results. You should have all received our press release and should be viewing our presentation via our website on shire.com. If you are unable to access the press release on our website, please contact Souheil Salah on our Investor Relations team at +44-1256-894-160 and he will be happy to assist you.

Our speakers today are Angus Russell, Sylvie Gregoire, Graham Hetherington and Flemming Ornskov. Jeff Jonas will be available for Q&A as well.

Before we begin, I would refer you to Slide 2 of our presentation and remind you that any statements made during this call, which are not historical statements, will be forward-looking statements and as such will be subject to risks and uncertainties which, if they materialize, could materially affect our results.

Today's agenda is on Slide 3. Angus will walk through Shire's financial highlights, future growth drivers and Specialty Pharma and Regenerative Medicine updates. Sylvie will give an update on the HGT business. Graham will continue with the financial review and Shire's 2013 outlook and Flemming will give his initial impressions of Shire. And lastly, Angus will make some concluding remarks and open up the call for your questions.

[Operator Instructions] Eric Rojas and I will happily follow up with you after the call.

I will now hand over the call to you, Angus.

Angus C. Russell

Thanks, Sarah, and hello, everyone. Thanks for attending our call today. So let's turn to Slide 5, and here you see the headline which really, I think, summarizes very well how we feel both about the results in 2012, which are characterized as being very strong again, and that's allowed us to exit at a strong rate and allows us to know reiterate our confidence in meeting expectations for 2013.

Looking at the bullet points beneath that heading. 2012, 12% growth in product sales, 14% growth in non-GAAP earnings per share. And I think once again, that's a great track record of growth, which adds to all the prior years of mid-teens double-digit growth.

Those results are fed into a very strong cash generation position in 2012. You can see here that we generated $1.6 billion worth of cash in the past year. That was up 18% from prior year.

And as I've said a moment ago, all of these strong results in 2012 enable us now to say to you that we believe we will meet the current market expectations, the consensus expectations for 2013.

These results also have allowed us to invest in our emerging growth drivers. And one of the most pleasing aspects and I'll touch on this in the presentation has been the evolution of what I would say was a very early stage pipeline at the beginning of 2012 to something that's now more mid and later stage. And so we'll cover some of those items for you in the presentation.

So let's turn over to Page 6 and just run through a quick summary of each of the business highlights for the past year. Starting with the Specialty Pharma business. The headline, here again, trying to sum up really how we feel about the past year. Really, we've seen great growth again in the ADHD market and we think the ADHD market opportunity, on a global basis, will offer a lot of growth for years to come. And as I said a moment ago, in this business like all our business, we're seeing an evolution of a later stage pipeline.

So in the detailed bullet points, you'll see that the ADHD market in the U.S. grew in 9% in script terms in 2012. VYVANSE and INTUNIV, the -- our 2 products, actually represent now 45% of the entire market growth.

ELVANSE, as the product is called in Europe, has now moved on beyond the regulatory centralized approval that it gained right at the end of 2012. And I'm pleased to be able to tell you today that we've now gained national licenses in both the U.K. and Ireland and therefore, we're fully approved for launch. And it is our intent now to move forward with these 2 countries, hopefully during the second quarter in launching the product.

Approval to get to a launch situation in the other 6 countries is ongoing and we continue to make progress there too. And that follows on the back of successful launches previously in other International markets, in Canada for several years now and also Brazil, where we're making off a small base, very, very good progress in growing the business in Latin America.

Pleased to talk about the further uses of LDX, the active ingredients in VYVANSE. And as you know, we have 3 programs that we previously showed you, Phase II data on. We completed all our regulatory discussions in the back end of last year and that enabled us to advance all 3 of those programs into Phase III and see the first patients enrolled in those Phase III studies before the end of 2012.

Another asset I'd highlight to you is SPD 602. That's -- came in through the FerroKin Biosciences acquisition early in 2012. It's a Phase II iron overload product. And later this year, we'd hope to be able to share with you the results of a Phase 2b program, which will very much, I think, set the scene for that product's prospects commercially in the future.

So now turning to Slide 7. And again, summarizing the performance of our HGT rare genetic disease business, where we continue to broaden the drivers of future growth. So again, in 2012, like Specialty, very strong results across the entire product portfolio in HGT and we see that growth continuing for several years to come, the nature, as you know, of rare genetic diseases that they grow for many years. Sylvie will take you through a few more highlights of those performances.

I'd like to just pull out and highlight the most recent of our launches, FIRAZYR in the U.S., which had its first full year in the market last year. I think that's been an outstanding product launch, and now we have global sales in 2012 of $116 million and growing with that product.

And again, rather like Specialty, we continue to build out a deep pipeline in rare diseases. We struck a number of collaborations in the year. So again, Sylvie will know that, highlight some of these. And that's enabling us to actually broaden both technology platforms as well as bring in new assets to the pipeline.

And finally, turning over the page -- to Slide 8. And this quarter, I know you've seen another weak quarter in DERMAGRAFT. We did flag this, that we would need 6 months of restructuring the commercial model to ensure that we bring it up to normal Shire standards and standards that meet pharmaceutical product requirements and not the device world that DERMAGRAFT has competed in, in the past.

So this again highlights some of the major achievements of a lot of hard work by our team. As you know, we've enhanced our leadership. Jeff Jonas is with us today on the call to answer your questions, but Jeff is now the President of our Regen Medicine business and has moved in the last several months to actually finish off putting in place a very strong management team alongside Jeff with outstanding capabilities. I believe it's a nice blend of good internal sharp people with relevant experience and also good external hires, which now gives us a very strong leadership team to take this business forward.

As I've said a moment ago, and we've told you this before, we have -- are implementing new commercial model. I would characterize that now, at the end of January or certainly, beginning of February, we're almost complete with that now. We probably have about 20 positions left to fill in, the sales force having seen a number of reps depart during the back end of last year. We are now pretty much up to full confidence, the commercial model has certainly been out there for several weeks. And already, although they're early signs, we do see some positive signs now of gaining new positions with this new model.

Most excitingly, I think, is also the evolution of the pipeline. We brought in VASCUGEL during the year, but here you see a -- and that's in Phase II, but now you see also another potential new use for DERMAGRAFT that we talked about as little bit before Epidermolysis Bullosa are rare. Again, genetic disease that is chronic for the patients and in some cases, ultimately fatal for the patients. Being genetic, of course, affects children from birth. And I'm pleased to report that we actually enrolled the first patient into a Phase III study, again, by the end of 2012.

So if we turn to Slide 9 and summarize really what that means for our pipeline, I said right in my introductory remarks, that what was, I would say, an early to mid-stage pipeline at the beginning of the year has both grown in depth and breadth, but actually has evolved into now a good mid stage and now late stage Phase III set of projects, and I hope that many of these, actually, in years to come get to the market and will sustain Shire's track record of growth in the past.

So with that, let me pass over to Sylvie who, as I said, is going to take you through some of the more interesting highlights within the business, particularly looking at some of the issues in the pipeline. Sylvie?

Sylvie L. Gregoire

Thank you, Angus. Good morning, everyone, or good afternoon. Yes, it's been a -- for the commercial products in the HGT pipeline, it's been a very great good year. The rare disease therapies have reached more patients in all markets around the world, and again, as Angus mentioned, we expect that to continue for the few years to come certainly and be the basis of our foundation to continue to invest in the pipeline. And so that's what I'll do at this moment, just give you the highlights of what happened in 2012 and how that positions us really for 2013.

So turning to Page 11, the first product I'm going to talk about is FIRAZYR. You'll recall that at the last earnings call, I indicated that an investigator had done a study of FIRAZYR in the use, or in the treatment, of ACE inhibitor-induced angioedema and then the results were positive in that trial. So we used this data and filed for an expansion of the label in the EU, as we had indicated, and we're in discussion with the U.S. agency, or the FDA, regarding what kind of data would be necessary to do such a label expansion in that country. But from the EU, certainly, we expect to hear something throughout 2013, and we'll let you know of the evolution with -- of our conversation with the FDA as well throughout the year.

Turning to VPRIV. You will recall that last May, we published some information regarding the long-term use of VPRIV in Gaucher patients on markers of bone data, and that data showed that the effect of VPRIV in the long-term really has some impact on bone mineral density.

So here again, we used this information and filed for this information to be included in the label in the EU and we'll shortly do the same in the U.S. This really is contributing to an emerging differentiated profile for VPRIV that seems to be appreciated by prescribers and patients alike.

Let me -- the most important thing we've done in 2012 is to really position the pipeline, or the early pipeline, in rare diseases for Shire by doing 15-type transactions, or business development type transactions, really allowing us to have access to a wide range of technologies, each of them be able to be used, or the research being applied to various new rare diseases that are not being treated. So I think we end the year, really, with the richest pipeline in the industry relative to potential products for the development of rare diseases, which should continue to spur the long-term growth of our business.

Now let me turn to what -- our clinical pipeline. We have 3 products that are in clinical development. They all -- we call them our IT programs or intrathecal programs, and you'll recall that we used an intrathecal device that is implanted in patients to administer enzyme replacement therapy in the cerebral spinal fluid of these patients.

All the trials are done first time in patients, if you will, and these are the I/II trials that we call. And today I'll report to you the results of these Phase I/II trials for Hunter CNS and Sanfilippo A. The full results of these trials will be presented at a scientific meeting at the ACMG meeting in March, but I'll give you some of the highlights of these programs.

So turning to Page 12, we'll first talk about the Hunter CNS program or HGT2310. This program -- this drug, or this enzyme replacement therapy, administered intrathecally, you'll recall is administered in a patient population who's already treated with ELAPRASE systemically, so they already are patients that have been receiving their -- treating their Hunter syndrome with ELAPRASE. So in these patients, the trials are all sort of performed in the same way. We do multiple doses for a 6-month period of observation and there are 4 patients per group, so these are, remember, very quite small trials, but the goal of the trial is to demonstrate safety and tolerability of the product at various doses.

We can also measure CSF or cerebrospinal fluid GAGs, glycoaminoacidglycans (sic) [glycosaminoglycans], in this case for Hunter it's I2S that accumulates, it's a substrate that accumulates in this disease in that space, and see whether or not the drug has an impact on those biomarkers. So you can see from the data here that the multiple doses of the drug or the enzyme replacement therapy causes a pronounced, long lasting, dose dependent decline in the CSF GAGs. And so that's an important indication of the biological activity of the drug.

And also, the primary endpoint of safety and efficacy has been reached in terms of tolerability. Patients in this trial were offered to continue in an extension and all but one are continuing in this study, which means that some patients have received therapy for almost up to 2 years.

Also in this trial, we had some exploratory endpoints of measurements of cognition and clinical effect that were performed and there's a small number of patients, those for whom the disease was not too advanced in which we were able to see some sign of potential impact on cognition or progression of cognition, or improvement or stabilization of the disease. So this data together, that will be presented actually by the investigator, Dr. Munzerin [ph], if some of you know him, in March allowed us to conclude that it's -- we can go onto the next phase of the development of the program, the pivotal trial of Phase II/III trial, and we're in conversations, of course, with the agencies as to which endpoints and what duration and what dose should be used in that trial. So that's very encouraging for Hunter patients that have this disease. About half of patients with Hunter have the CNS manifestation of this -- of the disease.

Moving on to Sanfilippo on Page 13, similar design trial. And here again, Sanfilippo is a disease for which there's absolutely no treatment, a very rapidly progressive, really very dire neurological disease of childhood. And in this trial, we have shown again, safety and tolerability of multiple doses that were administered with pronounced and long lasting, dose dependent decline in the GAGs, Heparan Sulfate here is the substrate that accumulates, really more pronounced at 45 milligram and 90 milligram doses as you see.

In parallel with this trial, you'll see that in the first trial in Hunter, there was a control group, patients that weren't being followed and not treated. All these patients were offered therapy. In this trial, what we've done and what we did in parallel really is a natural history study. So without therapy, patients were being followed for a period of time. And the results of that natural history study, that tells us the evolution of the disease combined with the patients that were in this trial, allow us to better define which population we should use, that we should aim, for this next study, which will be Phase 2b study.

The heterogeneity of the patient population in this treated study was such that we could not determine whether the drug had an impact on the clinical outcome.

So that will be the goal of this next study, the Phase 2b study and we'll aim at younger children that more around are diagnosed this time so that we can clearly see if the product has an impact on the progression of the disease.

So we're excited with the progress of both of these programs. And we'll remind you, of course, that the MLD program, metachromatic leukodystrophy intrathecal program, is ongoing and it's in Phase I/II at the moment. Thank you. Angus?

Angus C. Russell

Thanks, Sylvie, and just before I hand over to Graham and ask him to take us through some more of the detail behind the financial results, I just think it's appropriate to spend a moment to recognize Sylvie's many achievements here at Shire. Many of you will know that Sylvie joined the business just over 5 years ago with a company that soon after we'd acquired, what was then TKT and our newly renamed Human Genetic Therapies business.

Just to remind you all again, you probably remember, in those days, we had 1 commercialized product, REPLAGAL, selling less than $100 million. In the back, 450 or 500 people. I think it says a lot about Sylvie in terms of what that business looks like today. This year, our business looks close on $1.5 billion in sales, full commercialized drugs as Sylvie just pointed out. An evolving pipeline and probably one of the strongest pipeline in rare genetic diseases now. And has truly set the stage for us as a leader in rare genetic diseases. And more than that, Sylvie has recruited a very strong management team over that 5-year period. And so, we wish you well, Sylvie. It's been, as I said, a tremendous set of achievements that's really contributed significant value to Shire's growth overall and has really set the stage for a business that we believe has its use at many, many years of future strong growth and a leadership position in rare diseases.

This is not -- a situation, obviously, where this offers Flemming, as CEO, definite great opportunity to spend time with that very good management team that Sylvie has built in HGT. Flemming and I have been together, as you know, for about 6 weeks now since the beginning of the year, and we spend a lot of time together talking about the business.

We've had a special emphasis in this first 6 weeks on the Specialty Pharma business and Flemming has had an opportunity to meet the management team there and really get to know that business firsthand. And now this transition period allows, with Sylvie stepping down at the end of March, for Flemming to take over in the remaining months -- weeks rather -- till the end of April to allow him to actually -- again drilling in some depth to the HGT business and get a real understanding of that business, too.

Again, as part of this transitional period, we've decided to appoint Mike Yasick to the role of Interim Head of Specialty Pharma business. Mike has been with the company about 8 years now, has been running, what we now call as you know, Behavioral Health, given the broader base on which we're operating in that business commercially today but was formerly the ADHD business. And Mike has been running that for just over 5 years and has really been a tremendous agent, again, for evolution and change to keep that business really at the leading edge of ADHD treatment and patient therapy.

Prior to that, in his other 3 years, Mike was actually leading our GI business. So Mike almost more than any person in Shire has great knowledge of the 2 biggest business units within Specialty Pharma. And that's why now, we are pleased to actually offer him this interim position. And this will allow Flemming, as I said, time to continue to evaluate his understanding of the business and the people during this period and decide how he would like to take forward the senior leadership in Shire when he takes up his role on the 1st of May.

So having said that, let me perhaps just pass back to Sylvie briefly because I'm sure Sylvie, in your own words, you might like to just tell people why you reached the decision to step down at the end of March?

Sylvie L. Gregoire

Yes. Thank you, Angus. Yes, it's -- let me say first that it was a real pleasure to be a part of the Shire team and to grow this business as well as being the leader, privilege of being the leader of growing rare disease business. But it's because of this steady support really from you and my colleagues and the leadership team that I was able to do that and I have every confidence that the team that I -- HGT management team will continue to build and grow the vision that we have for the rare disease business and the patients that have this -- the source [ph] around the world.

What I enjoy most, of course, and I think I've seen you've done that -- seen that in my career evolution is to really build and grow organizations to a sustainable level, so I'm glad to have been able to do this and given the opportunity to do this here and build a strong team that I'm passing over to you, Flemming. And again, I would be taking a little bit of time off, thinking about what I want to do and look at all the various opportunities that might come and in which way I can bring value to patients again, and because that's just really what has been my passion since I've entered the industry. Thank you.

Angus C. Russell

Okay. Thank you, Sylvie. And again, thank you for everything you did here for Shire and you're a great support to me personally.

And with that, let me pass over to Graham and get back to the exciting area of detailed financial results.

Graham Hetherington

Okay, Angus, I will try and make it exciting. Good morning, good afternoon, everyone.

While I will be talking about a number of detailed items today, there really are 2 key dynamics I want to focus on today: first, the momentum of the business, and Angus has alluded to that, we've delivered another year of good double-digit earnings growth in 2012. This underpins the prospects of delivering double-digit earnings growth in 2013 while we've still continued to invest in the future growth of the business; second, the operating leverage and strong cash flow we're generating, which reinforces our strategic flexibility going forward.

So on Slide 15, you can see the strong revenue and earnings growth we've delivered this year despite the introduction of a generic competitor to ADDERALL XR in the second half, and the foreign exchange headwinds we've experienced particularly in the middle part of the year.

As you can see, total product sales were up 12%. Excluding ADDERALL XR, product sales were up an impressive 16%, as our core portfolio continues to demonstrate sustainable growth. Now I'll talk through the dynamics shaping this growth in more detail shortly.

Total revenues of $4.7 billion were up 10% but slightly lower rates of growth in product sales, as expected, due to lower royalties and other revenues.

Non-GAAP earnings for ADS of $6.10 were up 14%, reflecting our increased operating income and also a lower core effective tax rate of 18% compared to 22% last year. Our business continues to deliver strong cash flows with cash generation increasing by 18% in 2012. For this occasion, we've included as a note at the base of the slide our U.S. GAAP operating income, which was down 14% this year.

And before I move on, I'd like to talk through a couple of items that have impacted our U.S. GAAP but not our non-GAAP results this year. First, RESOLOR. It would be fair to say that this acquisition has not yet met our expectations. In the fourth quarter, we concluded we needed to record a further impairment charge of $171 million given the challenging market and reimbursement environment for this product in Europe. Second, you will have seen the charge of $58 million made in the fourth quarter following our agreement in principle with the U.S. government to resolve the civil investigation in relation to our specialty business. I've included more detail on Slide 30 in the appendix.

Turning now to Slide 16 and our performance in the fourth quarter. Total product sales were up 5% and product sales excluding ADDERALL XR were up 10%. This is a lower rate than we've seen for the full year as growth was held back by lowered DERMAGRAFT sales, which I'll talk about more in a minute. Royalty and other revenues were up 11% in the quarter, primarily due to onetime royalty income of $38 million, following the resolution of the long-running disagreement with GSK relating to 3TC and Zeffix. EBITDA in the quarter was 2% down as higher R&D investment, primarily from Phase III trials for the new uses of VYVANSE, meant that operating expenses grew to a slightly higher rate than revenues. Non-GAAP earnings for ADS were up 4% to $1.58, benefiting from a lower tax rate compared to the same quarter last year.

So let's turn now to Slide 17 and focus on the shape of our full year revenues. Looking at the bottom of the chart, you can see the strong underlying growth generated from our core portfolio was up 18% on a constant currency basis. This is an excellent result and our highly differentiated portfolio is well positioned for future growth.

VYVANSE had another strong year with global sales up 28% supported by, in the U.S., prescriptions, up 17%. And we exited 2012 with a market share of around 17%. Sales of VYVANSE in 2012 were impacted by reductions in inventory levels amongst some of the larger retail pharmacies and by the timing of some shipments in the fourth quarter. These shipment delays represented about half of the $30 million of feedstock [ph] we saw in the last quarter.

INTUNIV product sales increased by 29% and our GI franchise led by LIALDA continues to generate growth.

Our HGT business saw strong product sales growth up 20% on a constant currency basis. It's worth remembering that about 70% of HGT's product sales are around outside of the U.S. and these sales were impacted by a stronger U.S. dollar during 2012.

REPLAGAL is up 10% despite increased competition in the Fabry market. The timing of shipments to Latin America also impacted growth in the fourth quarter.

Sales of VPRIV were up 23% driven by continued growth in the number of patients on therapy. ELAPRASE sales increased by 11% due to continued growth of patient numbers through the year. And as I flagged last quarter, the fourth quarter also benefited from the timing of some shipments. And finally, FIRAZYR continues to grow strongly with product sales up $83 million in the first full year, following its successful launch in 2011.

DERMAGRAFT sales in 2012 were affected by the ongoing restructuring of our commercial team and this disruption continued into the fourth quarter. The sales of DERMAGRAFT were also reduced by about $7 million of nonrecurring items in that last quarter, the fourth quarter.

We've recently started to see early signs of recovery of sales and this remains the #1 priority of our new team on Regenerative Medicine business.

And finally, ADDERALL XR's total revenues were down $141 million. Product sales decreased by $140 million -- $104 million and reported revenues from ADDERALL XR were also impacted by the settlement recently of our litigation, long-running again litigation, with Impax. The accounting for this settlement reduced product sales by $42 million in the year, of which $8 million related to the fourth quarter and reduced royalties by $8 million. Finally, ADDERALL XR royalties were down $36 million -- $37 million primarily due to the lower royalty rate received from Impax in the second half of the year.

Turning to Slide 18. Our EBITDA margin increased to 30% in the year even with our investment behind our promising pipeline and late stage clinical trials.

As you can see, our combined R&D and SG&A expenses grew as forecast by 10% in the year. This growth was largely driven by R&D, which were increased by 16% in the year.

Let's look at our cash flow on Slide 19. Our business continues to be extremely cash generative, producing $1.6 billion in 2013 -- in 2012, up 18% on the previous year.

Our free cash flow was up 43% to just under $1.3 billion. And we ended the year with gross cash of $1.5 billion and a net cash position of just under $0.5 billion.

We started the $500 million share buyback program in the fourth quarter and we have now bought back $143 million of shares. We continue to have a strong and flexible funding position, supported by access to our $1.2 billion bank facility, which is currently undrawn and has 3 years remaining.

Let's review finally our full year outlook for 2013 on Slide 20. And taking everything together, you have seen that we are pointing towards double-digit earnings growth in 2013. Let's look at that in detail.

We entered the year in great shape following our strong performance last year and we expect to deliver another year of good product sales growth in the low double-digit percentage growth range.

You'll have seen the news of the approval of Bayer Teva's ADDERALL XR [indiscernible]. As most of you are aware, we drill out negligible income from our supply contract from Teva. And since this approval does not change the number of players in the market, we believe that the ADDERALL XR brand can continue to compete in the generic markets as it has done for the last 4 years.

We expect the decline of our royalties and our other income to continue into 2013, particularly with the erosion of 3TC, Zeffix and REMINYL, and as we absorb a full year's impact of the lower ADDERALL XR royalty rate from Impax. We are also comparing to 2012, where we benefited from onetime royalty income, on the resolution of our dispute with GSK. As a result, we anticipate royalties and other revenues, in total, will be between 30% and 40% lower in 2013.

We expect high single-digit growth in combined R&D and SG&A in 2013. Growth will be significantly weighted towards R&D as we continue to invest in our ongoing late stage trials for the new uses of VYVANSE and behind our other promising pipeline candidates. We expect more modest growth in SG&A. Our core effective tax rate is anticipated to remain in the range of 18% to 20% in 2013. And finally, taking all of these together, these dynamics mean that we expect our non-GAAP earnings to show double-digit growth in line with current consensus earnings expectations for 2013.

And with that, I'll hand you over to Flemming. Flemming?

Flemming Ornskov

Thanks very much, Graham. Good morning, good afternoon. Let me first say how pleased I am to be on this call today, and I'd give you a few initial impressions and they will be initial. But maybe upfront, I should say that before I joined Shire, I did some diligence and now had 6 weeks of additional opportunities to do diligence, and I can only say I've been reconfirmed in my decision to join Shire. It's a great company.

As you know, I've been given the rare opportunity to have 4 months to get to know the culture, the people, the processes and the business model for Shire. I'm working very closely with Angus and the collaboration is outstanding.

What I'm focusing on is to get to know all of the sites, the people, each of the businesses, but also to understand how decisions are being made and how we have had such imminent success and such a record of fantastic growth over many years.

Some of you will say today, "Well, what will change? What would be different? Flemming, what's your plan?" Because many times when you see new leaders come in, the business is in trouble, change is expected, it will often happen very suddenly. I'm not in that situation. I am focused on getting to know the business and making sure, when I take over the 1st of May, that this is an orderly and smooth transition. This could only happen because Angus, Graham, the leadership team and the rest of the organization has been incredibly helpful to me. I have had open access, I could ask all the questions I wanted and have been given all the information freely that I asked for.

I've met some of you and I've met a few of our key investors and I'll meet more of you in the coming weeks. And I also want to thank you for having shared your perspective about Shire and about what you think could be done to make this great company even greater.

You'll see in my little slide that I've focused my comments on 4 things, which is the business model, the people, products and portfolio and value for shareholders.

So if we start with the model. It's become obvious to me that the specialized model that Shire has fine-tuned and developed so well over many years, 25 years, is outstanding. And it gives us sufficient room for growth in the coming year, either through internal opportunities or through external opportunities, which also has been one of the many strengths of Shire.

But you also know that no business model will be great if we don't have the right people. I have had an opportunity to meet senior management, but addition to that, I've had an opportunity to visit most of the sites, to have roundtables and to have in-depth discussions with many, many of my colleagues. And it's just confirmed what I already had heard from the outside that this company has both a depth and a breadth of great talent and also a very diverse and broad culture.

The other thing that has been characteristic, when I look at the company, has been its ability to consistently be creative and innovative either through internal or through external opportunity and that's something I want to build on. And what I've seen through the many opportunities I've already had an opportunity to review, either they have been internal, external, I'm absolutely sure that nothing will prevent us, the new leadership team and myself, to continue that track record.

It's also really remarkable in a business that many times gets too absorbed with processes, costs and other issues that this is a company that is really focused on the patients that we serve and that we create value for. This is basically the guiding principle for the company. It's a brave culture but it's also a culture that really focuses on delivering value, of course, for shareholders but delivering net value also through having a focus on patients. And that's also something I really want to continue and I assure we can build on.

We've also entered some new areas recently. We've done very well in rare diseases. We've entered into regenerative medicine. We've also had some expansion into hematology. And also geographically, we are doing well in Latin America and we're entering into Asia. I'm really proud of what I've seen the team do there. It will take us some time in some areas to maybe come fully up to speed because all new beginnings are difficult, but we have the right spirit and I'm sure we'll deliver success in all the ventures that we've entered into.

One thing that people also said to me, "Well, Flemming, what about the challenging environment? You have payers, reimbursements, challenges, all around, how do you see the company positioned to manage that?" One single word, very well. We are very well positioned to manage these challenges. And I also have had people said to me, "But what about the compliance and good practices culture within the company?" That's something that is the focus of all the companies. And what I've seen so far is really good and what I've seen is a company that is focusing on doing the right thing the right way.

But I must admit that what have impressed me the most is probably the culture and the energy that I see in the organization. And no one has told me -- and I'm sure they're honest -- had said that they don't expect some change because this company in its history of 25 years have lived through, have benefited from and have absorbed a lot of change. I'm sure we will continue that path as well.

So what's my conclusion? My 6 weeks of diligence reconfirms my strong desire to be a part of this team, and it is indeed a team. I'm very pleased to become the captain of this team. I see great opportunities for Shire and I have even seen more since I came. I think we have a great track record and I'm sure the team and I will continue that track record.

I also know that we will enter into a new era. Any new leader will bring a new era but I can assure you the team and myself, we are prepared. And I'm also sure that we will neither lose the perspective of the patients we serve but also not lose the perspective of our shareholders that are so important to us. So I cannot wait until May 1 but I will use everyday until then to be even in a better shape to take over.

And with that, I'll pass it over to Angus.

Angus C. Russell

Thanks, Flemming. So let's turn to just the wrap-up slide in the formal presentation on Slide 24. I hope -- you've heard from a lot of the team players today here at Shire and we all believe that Shire is truly in great shape. We delivered another strong set of results in 2012, again, up in the -- well into the double-digit numbers.

So that's really as a result of what Flemming highlighted in his few words there is our core of highly differentiated products, which continue to drive growth, not only now but -- as we've come to throughout the presentation, we believe we'll continue to do so for several years into the future.

And behind that, we're really preparing for the next wave of growth beyond that. And the evolution I've highlighted in this presentation of our pipeline from this early mid-stage to a mid-stage later range of opportunities will be something that will start to cause news flow later this year and into next year.

And all of that gives us the confidence, as Graham said earlier, to reiterate, that we believe we will meet current market expectations for earnings in 2013.

So all in all, Shire couldn't be better positioned for continued, sustained future growth. With that, let me hand back to the operator and invite, as always, you to ask your questions. Thank you, operator.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from the line of Kerry Holford at Credit Suisse.

Kerry Holford - Crédit Suisse AG, Research Division

A couple of questions, please. Firstly, on operating costs, we're looking at the guidance for 2013 now guiding to high single-digit growth in combined cost of R&D and SG&A, that is some kind of quite similar to the magnitude we saw in 2012. When we look forward into '14 and beyond, can we expect some grave -- sorry, some cost moderation in that, in those lines? How quickly can you turn off the R&D spend as it were relating to the VYVANSE additional indication? And it's evidential to pull out any further cost within SG&A, I know you've cut your sales rep size there relatively recently. Secondly, when we look at DERMAGRAFT, obviously times have been tough in Q4. How quickly can we expect the recovery to commence? Can we expect to see Q1 show a good uptick in DERMAGRAFT? And then very briefly just other revenues was particularly high in Q4, was that a one-off? And what's a good run rate going forward into 2013?

Angus C. Russell

Sound like a number of questions for you there, Graham.

Graham Hetherington

Well, the first one, in terms of operating cost moving into 2014, I think on the SG&A side, we can continue to see operating leverage as we'll see in 2013. And the make up, directionally, the 2013 growth is teen growth in R&D and single-digit growth in SG&A. So I think the dictating factors as we move into 2014 will be the number of quality programs that we've got to invest behind and that will determine the track in '14. But in magnitude, SG&A's a bigger number and I remain confident we'll be able to generate operating leverage of that and so, it really will depend on our investment in '14 and beyond. In terms of other income, other income did carry a boost in 2012 in the fourth quarter from royalties. We -- oh sorry, I -- you're just talking of other revenues, sorry. Other revenues on top of royalties, we've benefited from a milestone payment in relation to FOSRENOL. And on a full year basis, a run rate nearer sort of 30% mark, something like that, is probably about the right kind of number.

Angus C. Russell

Okay. Maybe -- he said he'd stay with us on the call, so Jeff, do you want to just give a bit of color on the hard work you and the team are putting in on DERMAGRAFT in the Regenerative Medicine area?

Jeff Jonas

Happy to, Angus. I think -- as you heard earlier, we had anticipated a slowdown in sales over the short term because of the restructuring of the sales force and the revamping of the marketing organization. Which we're really doing this to help us set up for expected future growth in the business. Again, you've heard Angus and Graham say, and just to reiterate, there are some early signs that we interpret as positive. We anticipate that we'll have, in the second half of the year as we've said earlier, a more factual update on our progress in this area.

Operator

The next question is from the line of Graham Parry at Bank of America Merrill Lynch.

Graham Parry - BofA Merrill Lynch, Research Division

Firstly, a broad question on product sales guidance, you're guiding a little bit above consensus. I was just wondering as you go through the consensus numbers, if you're having quite a lot of granularity, that way you see that we're potentially being a little bit too cautious. Secondly, on Sanfilippo, I'm wondering which population do you think you're going to be targeting and what proportion of the total patient call that represents? And then a broader question on the Phase I/II intrathecal data. Just if you could discuss the level of device failures or revisions in the trials and how much of a problem that could be commercially going forward. And whether you feel you need any change in the device?

Angus C. Russell

So Graham, product sales?

Graham Hetherington

I think in terms of product sales, they probably are from 1,000 feet, probably 2 levels. I think the market is underestimating the potential for the HGT business to continue to grow in some areas. And I think the other area is ADDERALL XR where we've seen consistent under forecasting of the XR sales potential, and we still see that even today for 2013.

Angus C. Russell

It might be a good juncture for me to just add on the ADDERALL XR point because we included in our press release, and I think Teva just put out their release saying about the -- their approval. Graham put in his comments and I'll just reaffirm that Teva -- many of you know, I've met with you one-on-one and described that if Teva were to gain approval, which was clearly a scenario, I was a bit agnostic to that in the sense only of saying they're an existing player in the market. As Graham said, we have negligible income from our supply agreement with them today and quite clearly, we have no impact or control over them in the marketplace, so they can do whatever they want to in terms of contracting, pricing, et cetera. So in that sense, there's no news, really, in terms of anything new here. What I would share with you is just to say it's kind of instinct since Actavis came in, which obviously did have an impact in the back end of last year. I can give you kind of an update because many of our managed care contracts are now annualized and rolled each year. And early evidence in the beginning of this year is that we lost a couple of contracts because of the Actavis entry, really managed care having to take an AB-rated generic like that. But the good news is we won 7 new contracts in the new year. So loss of 2, gain of 7, so net 5 new managed care contracts. And I think, to Graham's point, that underpins understanding and belief that we can remain competitive in these markets despite the number of current generic players and the fact that say, Teva -- the news overnight doesn't change anything. They are already a freely trading generic in the marketplace. So with that, let me just hand to Sylvie. And Sylvie, you want to say a little bit more in response to those questions around the IT program that Graham had?

Sylvie L. Gregoire

Sure. Good question. For Sanfilippo, your question was relative to the patient population that was enrolled in the current trial and how we -- how does that guide us towards the next population and how will that affect the market size. So let me just like remind you of the design of these first Phase I/II trials is to really measure safety and tolerability and try to determine which dose would be carried on into additional trial. So heterogeneity is the population that is enrolled, and what I mean by that is that there's some patients with less severe disease and some patients with more severe disease that are enrolled. There's only 12 of those patients. So there's really a limited number of patients at the same phase of their disease that allow us to really measure the impact, but that's not the goal. The goal is really in the first time to see if we can safely administer the enzyme and figure out which dose we can use on the second set. So the natural history study and combined with the data in the 12 patients that were treated allow us to determine that there's really a time frame in the evolution of the disease, where in order to really measure the impact of the drug, we have to narrow the population to a similar group of patients. And they have to have not be too far along in their disease in order to be able to hope to see some impact. And so that means that the next population in treatment in the Phase 2b will be those patients that are not too severely affected and therefore are early in age, probably around no more than the age of 4, 5 years old. And the exact population is what we're discussing with the agency. And again, we narrow it so that we can actually measure the impact of the drug in that population. Population of Sanfilippo patients is about 1,800 or so and maybe not all will be able to access treatment or have impact to treatment, but maybe we will also find more patients with, again, a disease, for which there's no treatment. And like for many other diseases, often we tend to find more patients when the treatments are available. So I think that helps you hopefully in understanding how big of a potential this product is and again, all patients are continuing. You've also asked about the device and I should have mentioned actually that we are introducing a new device, so all these new trials will be performed with a new device that we've designed specifically based on new information that we've gathered from the deficiencies that we identified in the device that we were utilizing in the Phase I/II trial. We were utilizing a device, that is actually commercially available and tended to break -- really not intended for patient population of active patients who run around. And so we've made some changes with the company that makes the device to reinforce really the device where it tended to be too weak for an active population. So this device should be available shortly over the next few months and will be used in the next phase trials. And then also in all patients in which the devise may fail in the MLD trial, they will be replaced with a new -- it's a device that will probably be the device for commercialization at this point.

Operator

[Operator Instructions] The next question is from the line of David Steinberg at Deutsche Bank.

David M. Steinberg - Deutsche Bank AG, Research Division

Two questions. The first is on REPLAGAL. You have 80%-plus market share in Europe. So could you comment on what you're seeing in terms of switchbacks and then obviously, the new patient ads, so when you put that into the mix along with market growth, should we expect net increases in patients taking REPLAGAL over the next year or 2? And then the second question is I know, Angus, you commented that with the Teva generic approval of ADDERALL XR, that is still a 3-player generic race. However, it seems to me that post-2014, when the contract expired with Teva, 1 player would have been taken out of the situation and hence, upside. So it looks like with the Teva approval, that upside would now be gone. And previously, you commented that after 2013 you expect to accelerate in EPS growth. So assuming a new entrant and hence, potentially a lower possible sales for AXR, do you still expect the same level of growth starting in 2014?

Angus C. Russell

Sylvie, do you want to talk about REPLAGAL?

Sylvie L. Gregoire

Sure. David, yes, REPLAGAL, so you saw that it grew at 10% constant exchange rate in 2012. And your question is based on the market dynamics, can we continue to expect a continued growth net increases, as you call it in your question. And the answer to that is simply yes, we do continue to see the vast majority of patients that are new, naive patients sort of commencing therapy with Fabry disease to start with REPLAGAL. And that far outweighs the switching or the minimal switching that we've seen to date. We've conducted some very recent market research in December that indicate to us that the physicians -- and it was in the 8 major countries -- have very little intention to switch like you said. The majority of the patients in the world now are taking REPLAGAL as a treatment, and the majority -- even more than 65% have actually been on REPLAGAL, never been on any other treatment. And so they have no also reason, I guess, to switch back, if you will, in the -- so we do expect to continue to see strong growth with REPLAGAL in 2013 and beyond, like you say, any switching and so net new increases. Patients seem to be very satisfied.

Angus C. Russell

Okay. Thanks, Sylvie. So David, just go back to that. Clearly, one of the scenarios that we've discussed with people was that had Teva not been approved and we've gotten to beyond April 2014 and their contract expired, even though there was every possibility of either not renewing their contract or if we renewed it, renewing it with some kind of royalty being paid to us given that they would continue with that business on an authorized generic basis. Clearly, those scenarios don't exist. Now the other scenario that was always a possibility was what we've seen. It's they get approved, and that means presumably now they won't need a contract beyond April 2014. They won't need our product. So in that sense, what you said would be true and that, that particular upside for -- beyond April 2014 is removed. I think what I would go back to is a couple of things we said earlier on the call. One was Graham's point about us remaining confident that ADDERALL XR will continue to be competitive, so I think there are other features here, as you know, that have to play out by 2014, impact similarly how the contract, which can expire and remove another player by the market after 2014. There's a scenario for that. And then the Sandoz, I don't want to say any more, say about Sandoz other than say we are very well aware of that, and I have made some comments about us being focused on that particular issue. Let me just leave it at that point. But basically, the other one I would highlight is -- the other 2 comments is Graham's point to Graham Parry's question, which is where is the Street underestimating, we think there's a potential for a bigger tail on XR certainly this year and should the dynamics play out the way that I'm trying to get those things resolved before I leave. As people know, I've given that kind of personal commitment to try and do this before I leave. If they were to work out favorably, then basically, I think that tail can continue for some time to come. And then I think the final point was the point I drew out about the number of contracts in -- where this year, in the first month of the year, 5 better contracts on XR than we were at this time last year. And I think that's indicative of where managed care sees this. Managed care, I think, would agree with us. They don't see a scenario of a huge rush of new players into this market, generic players, and they see a market in which the existing players have been in there for some time now. They know our relative positions and our relative ability to contract with them. And I think that's evidenced by -- or to say people I would characterize perhaps sitting on the sidelines at the end of last year waiting for some of these dynamics to play out and basically have contracted now in the new year on the evidence of what they know. And as I said, Teva was already in the mix, so that doesn't change anything. The overnight news, I'm really focused on a couple of the other issues, and I say diligently still continuing to work on those.

Operator

The next question is from the line of David Buck at Buckingham Research Group.

David G. Buck - The Buckingham Research Group Incorporated

I had to step off for a second, so I apologize if you covered some of this. But Flemming, in the impression that you talked about in the first 6 weeks, can you talk about whether you feel that Shire has been over underinvesting in SG&A and R&D? And the level of the expectation from Graham for 2013, is that you'll see operating leverage on expenses? And I guess, conceptually for Flemming, was that something that you feel is appropriate, investing into the future? And then one question just for Angus, I guess, in terms of your to-do list before leaving, I think one of the projects, obviously, is the resolution of INTUNIV. Can you talk about any efforts there?

Angus C. Russell

Flemming, you want to talk [ph] ?

Flemming Ornskov

Yes, maybe on the SG&A, I know that's always a topic, and I can assure that's something Graham and I will continue to watch and look at if there are any opportunities to reevaluate. I think the key thing for us right now is we have a number of growth opportunities, and we really need to focus on those growth opportunities. However, you've heard about Regenerative Medicine, I think that will still need some time to come out of the current situation. So I think I won't give you any specific guidance on that. I can assure you that, that's something I will review with Graham and the team, but there's also some growth opportunities that needs to be funded as we move further into 2013.

Graham Hetherington

I think I would still answer exactly the way that I was describing, way I would think 2014, which is continued opportunity for operating leverage at the SG&A level. But in terms of R&D, that will be about determining what the right investment level is for driving growth of the business.

Angus C. Russell

Thanks. And then David, so INTUNIV, I don't want to really say a lot. I mean, these are obviously confidential matters, but I know that Paul, on the other side, wants to know. Maybe Actavis now we should call them, has been saying a few things publicly, too. And I have said in one-on-one meetings and I'll reiterate that the basically I characterize that there have been discussions. There are still discussions that are ongoing. I would say they're being held in a constructive manner, and I'm diligently working on that, and we'll continue to do so to see if we can reach a meaningful outcome. But it requires between parties, obviously, to do that. But let's say, we've made, I think, some constructive progress in past weeks and discussions are ongoing. I think just leave it at that.

Operator

The next question is from the line of Brian Bourdot at Barclays.

Brian Bourdot - Barclays Capital, Research Division

Brian Bourdot from Barclays. Two things to ask you about, please. Firstly, the HGT pipeline and secondly, further on the litigation theme. Firstly, on the HGT pipeline, as you get increased visibility on the progress of next-generation enzyme replacement products, could you give us some rough idea of when you would hope to bring these to market based on reasonable timelines for later-stage development? And then secondly on the litigation, I guess, we're waiting to hear further developments regarding INTUNIV. Just wondering if there is any update on potential hearing dates for LIALDA and for VYVANSE. VYVANSE, it may be a little bit early, but LIALDA, I understand there was a court date scheduled tentatively. If you could update us on those things, please?

Angus C. Russell

Sylvie?

Sylvie L. Gregoire

Yes, Brian, yes, on the HGT pipeline or in the intrathecal programs, if we expect to start trials this year, these will -- the length of the trials will be dependent on our negotiations with agencies and what time -- which endpoints, the visibility of these endpoints over time period. So I would say that it would take at least a year or 2 to 18 months to 2 years of trial duration in order to -- again, not knowing exactly what the duration of these trials would be in order to be able to see some results. And then if it's pivotal trial, that might lead to the filing, and if it's a Phase IIb trial, we'll have to see whether or not the next phase trial is required or whether or not these are sufficient also. So it's a bit difficult to plan while not knowing exactly what the endpoint and the duration of the trial. But as soon as those trials are determined, it would be posted on our -- on the usual websites, and we'll be able to talk to you about them and then better figure out a launch date for these particular products.

Angus C. Russell

Okay. And then, Brian, let me deal with the litigation on LIALDA. So let me just make a number of points: Number one, we don't expect a scenario to play out where there'll be any generic entry of LIALDA in 2013, most important probably statement. Number two, I think the recent guidelines that came our around multiple dissolution studies in varying pH environments from the FDA. We see that as having set a pretty high hurdle for 5 assay product approvals. We would very much remain of that opinion. In terms of the detail cases themselves, if you remember the first to file was a company called Zydus, and in that trial, there was originally a trial date. That actually got canceled, and at the moment, there are no Markman hearing dates or trial dates scheduled and no tentative approval has been granted of Zydus' product by the FDA. Actually, in that case, both parties recently responded to the judge in that particular case who actually requested proposals to administratively close the case with Zydus. And that would mean -- in other words, no further activity in that case. And so we have responded to the judge's request for that. In terms of another case that's running in regards to LIALDA, feel like they're becoming my best buddies is Watson or Actavis, and there has been a Markman ruling. There was a Markman hearing, and a ruling came out of that. We believe that was very much in our favor. The judge adopted almost all of Shire's claim constructions and almost none of -- for Watson/Actavis. So the trial date there is set for April 8, but one thing I would continue to stress is that depending on what happens with the judge in the Zydus case, effectively, we believe even if the case was dismissed that Zydus would be -- would retain their first-to-file status on the regulatory front with the FDA.

Operator

Your next question is from the line of David Amsellem at Piper Jaffray.

David Amsellem - Piper Jaffray Companies, Research Division

Question on FIRAZYR, can you just talk about your patient penetration in the U.S., give us some metrics there and how we should think about the growth going forward? And then also on the GI business longer term, maybe this is a question for Flemming. Is this a space that you want to be in? Are you looking at potentially growing that business? Or is that possibly one that could be on the chopping block down the road?

Sylvie L. Gregoire

David, yes, I'll talk about FIRAZYR first. As you know, FIRAZYR penetration is a very difficult term to use because it really -- what matters is the number of attacks treated, and so what I can tell you is that the fourth quarter was a very strong quarter again, and we see demand to continue to be very strong in January of this year. So -- and the type of demand that we see is what I would consider a sustainable sort of growing of the business demand. There's a lot of repeat orders, and there seems to be that the type of the population, certainly a large portion of the population that we have are high-frequency attack individuals. And so that's how best we can characterize the population. We have this data, of course, through our call center in the U.S. and patients volunteering, providing some of that type of information. So the high-utilization rate combined with a high-frequency type patient continues to grow and as is about the type of metrics I can give you other than you can see our sales reports and then can compare that to other treatments.

Flemming Ornskov

And to answer the question on the GI business, first I think the team that is working on that within Shire is doing a really good job, so I certainly don't want to discourage them by any remarks that were not reflected well. It's a very important business also as you can see from a profitability perspective for Shire. This is not specific to that business. We will always look at our businesses in a growth perspective. If we can get growth or it serves an important purpose for us in our overall portfolio, we will support and keep the business. And I think it will be way too early for me to have any strong opinion about it at this stage. Right now, as you will see also, the results they have are very good. And I think we will always be looking for opportunities to improve or change businesses, but right now, it's not a priority for us.

Operator

The next question is from line of Ken Cacciatore at Cowen and Company.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Sylvie, just wanted to follow up on some of the questions on the Sanfilippo program. Just wondering, I know you have to talk to the agency and you called it a clinical and not a pivotal, but do you assume or do you believe you're going to make the trial significantly robust that if you did see something, this could be a pivotal? And then maybe in terms of the data we're going to get at the conference, you've narrowed it down to potentially younger patients to be able to tease out some efficacy, but at the conference, are we going to see individual patient data and were there some patients at that age level that you could just give us some anecdotal feedback on what you were seeing there? And then maybe on SPD 602, what we should be anticipating in terms of expectations around this product and trial design going forward?

Angus C. Russell

Pushing, pushing, pushing, Ken. Sylvie.

Sylvie L. Gregoire

Ken, it's very difficult to answer all of your questions with precision obviously. The data that will be presented at the trial, the individual data will be on the poster or certainly, on the poster file, so you'll be able to see some of this information. But considering, like I said earlier that it's a study of 12 patients and some patients were rapidly progressing, some patients were -- 8 had milder attenuated disease, it is very difficult to draw any sort of clinical conclusion from these trials, which is why we need to do a Phase IIb and really sort of find an adapted population in which that is more similar in which we can actually see the effect. Whether this trial can be the pivotal trial or not, it's still too early to say. Let us have our continued discussions with the agencies on what those endpoints should be, how big a population we can recruit and in which time, in which countries and then maybe come back to you once we've really narrowed down these conversations with the agency.

Ken Cacciatore - Cowen and Company, LLC, Research Division

[indiscernible]

Angus C. Russell

Sorry Ken, can you repeat? I must have been asleep, sorry.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Yes, sure on 602, just maybe the profile of your product maybe vis-a-vis EXJADE and the opportunity here, maybe trial designs going forward?

Angus C. Russell

Yes, maybe I'll ask Jeff because we know he's transferred into regen medicine, but Jeff, obviously, was working heavily with the Specialty Pharma team heading up that R&D as many of you know. And we got Jeff on the call, so let me hand over to Jeff to give you a bit more background on that, so he can give you a very interesting molecule.

Jeff Jonas

So anyway, 602, I think we haven't, I think, articulated fully the design of the trial. We're looking at a number of options in terms of how we want to proceed. I think though in characterizing the product, we believe that our -- and what we hope to accomplish, I think we'll have adequate efficacy or efficacy like EXJADE or better, obviously, we hope. We don't know. And we think that there will be safety advantages with respect to potentially fewer black box warnings on the label, again, one of our targets for this. As you can imagine how we go about doing that and the nature of the trial design is something that we still have some discussion, but we're optimistic about the product in general. As you know the market's reasonably large, and you've seen some of the earlier data, so we're pretty confident that the trials will have a good probability of success.

Operator

The next question is from the line of Peter Welford at Jefferies.

Peter Welford - Jefferies & Company, Inc., Research Division

I've just got 2 quick ones, CONCERTA, I think, and ADDERALL XR, firstly, just with regards to the approval now by Teva, did -- do the authorized supply agreements still hold in place? And are there any changes to that agreement? Or did -- does Teva theoretically still get supplies from you if they wish. Can you just sort of walk us through the mechanics of that? And is there technically a royalty they still owe you because they've got the generic approved with the patent they licensed from you? Or does the royalty now go to 0? And then just on the renegotiated contracts you did with managed care, could you perhaps give us, as usual, your sort of estimate for what we should take as the rebate deductions or sort of rough guide, a rule of thumb for 2013? And I think you've been sort of guiding 60% or so for 2012 and where we should sort of think about that in the future?

Angus C. Russell

Okay, Peter. I'll hand over to Graham to do the rebate piece. We're going to individual contracts, and obviously, there's a range of different outcomes for those contracts. And those are highly confidential and competitively sensitive, but certainly, Graham can talk about our guidance on rebate range for the year as an average on XR. In regards to Teva, yes, the supply can -- contract continues so free until April 2014. It's entirely up to them whether they choose to take supply or whether they now launch. We don't know what their situation is around quota. We clearly have our quota set up for 2013. How much Teva does now for part of its own production, I don't know. That's a question you'd -- I'd referred to -- refer you to them, obviously, to us. Just to clarify again, we didn't get any royalty income of such. What we do is under the supply manufacturing arrangement as an authorized generic, there was an insignificant sum of money attaching to that cost of us producing the material for them, but as Graham characterized earlier, that's an absolutely insignificant level of income, and there's no royalty attaching to Teva. There is a royalty with Impax but not with Teva. And that's why, again, I go back to why I'm kind of agnostic to their approval because we don't lose anything material here in income terms, and they're already a free player in the market so to speak. So the supply contract will run on, and it's up to them whether they chose to take material from us or supply their own. Graham, rebate?

Graham Hetherington

I'm sorry, Peter. In terms of gross to net, I mean, I think the full year for 2012 on ADDERALL XR was 61%. I think we're looking at '13, a reasonable range is in the 65%, probably as high as 70% but in that kind of range in 2013.

Angus C. Russell

Operator, in the interest of time, been on about 1 hour and 20 minutes, so I think we'll make this the final question. As ever, Sarah and Eric will be available and many of us, indeed, to follow up with you in detail.

Operator

The final question then is from the line of James Gordon at JPMorgan.

James D. Gordon - JP Morgan Chase & Co, Research Division

First question was -- on 2014 and the top line, you've been asked about EPS and obviously, there's quite a lot of moving parts there. But just at the top of the P&L, what sort of top line growth could we see in 2014 if we've now got 2 ADDERALL XR generics in the market for all of 2014? So could 2014 be the first year where it's a single-digit top line growth since 2009? And if it is single digit, would it be at least high single digit? The other question was on the ADHD market. So there's more generics in terms of ADDERALL XR and CONCERTA. What does that really mean for VYVANSE share gains and VYVANSE pricing? So I know at the end the year, we got the VYVANSE vesus CONCERTA study. Do you need to post a result there in order to gain any share for VYVANSE? Or does VYVANSE keep on gaining share anyway and this would allow that to accelerate? And just a final one just to squeeze on, in terms of ADDERALL XR, what sort of margins are sales for ADDERALL XR? Is it a super-high margin, a 95% margin product? And if so, is it going down? Are there any costs you can cut out to mitigate that?

Angus C. Russell

Okay.

Graham Hetherington

So I'll start on the last one.

Angus C. Russell

Yes, do the last one. [indiscernible] ...

Graham Hetherington

Might as well. I'll take the last one and the first one. It does have a very high level of gross margin and even with the increased rebate levels that I was just talking about. I mean, it's still a very, very profitable franchise. In terms of a top line growth into 2014, we've been very explicit with our product sales guidance, low double-digit growth. That gives us some kind of range in that -- as low double digit. We have talked very explicitly about royalties falling in the range of 30% to 40%, and the math gets you to -- total revenues could still grow in double-digit terms, but they could equally be very high single-digit growth on total revenues if you combine those 2 things. But with all of that, we are still looking at earnings guidance in line with the market's expectation, which shows double-digit earnings growth.

James D. Gordon - JP Morgan Chase & Co, Research Division

Apologies if my question wasn't clear. I would think that 2014, whether we could still...

Graham Hetherington

All right. I'm really sorry. We're not in a position and we're not going to start guiding for 2014.

Angus C. Russell

I think it's way too early. We're only at the beginning of '13, so it's not normal practice for us to guide to that. So VYVANSE, VYVANSE stands at its own right. I should say, if you look at XR as a molecule, many of you guys know this, but for those who don't, if you add generics and our ourselves together and look at the total franchise branded and generic, it's about a $2 billion product in the ADHD market. It's actually keeping up with the growth, which last year, I'll remind you, volume terms in U.S. was 9%. And so it is a good reminted franchise for everybody. But what that really speaks to is XR is good for a number of patients and continues to been an important product. By contrast, VYVANSE is growing its share over the same period. And I've seen January's monthly data, and again, I've seen the market grow very strongly in volume terms in the month in line with those similar kind of characteristics. And again, VYVANSE has marginally increased its share so -- and we know that's several months of that track record since Actavis came in. So what we know already, remember VYANSE is a new medical entity in its own right, and it's the only product with a label with greater than 14 hours duration, with a growing adult population and being the fastest-growing segment in the market. VYVANSE is particularly good for adults who are seeking a long-acting drug to get them through a longer working day, even maybe a child has at school. And so VYVANSE is capitalizing on the demographics of how that market is changing. Remind you again, this year was a bit of a landmark year in the fact that adult became as large a segment, 50% of the market now is in adult, 50% in ped and adolescent. And over future years, I'd expect with the vastly still undertreated population in adult, that will become the biggest segment. So things play well for VYVANSE. And I think with its unique characteristics and its unique duration of activity, it remains a product that is unaffected in the sense by the reducing prices all the generic players in XR. And that's certainly what we've seen play out over the last 4 years when you've seen VYVANSE. And I should have probably said that at the beginning, the big news that, clearly, it's in the press release, but let me say on the call, VYVANSE this year became a more than $1 billion product, and it's still accreting its market shares. I'd say that's what we've seen in January.

So with that, let me bring matters to a close, and for me, it is a close. So if you just indulge me for a minute and I find it somewhat ironic that we're doing this call on Valentine's Day because, as I look back over what's now in my 14th year with Shire, for me, it has been a bit of a love affair with this company. And it's been most fulfilling and rewarding period of my life and certainly, my business career. And I think I was counting up a couple of my colleagues here, asking me coming into this call today, how many quarters have you done. And I think this is my 53rd quarterly report for Shire. Probably as I think about and you heard him on the call today, David Steinberg can probably beat that, in that he's been covering Shire for longer than I've been at Shire. So David can probably notch a few more quarters on top of the 53, but maybe he and I are a couple of the only people with that kind of background.

But what I would say in that is -- and I said it to a number of you one on one is that was always important to me was to see this company still in tremendous strength and still leading -- being one of the leading companies in the industry in terms of its performance. I hope the numbers today and '12 demonstrate that position. Clearly, the evolution of the pipeline gives us a lot to think about in an exciting way for the future. We set the guidance again, which as Graham has said is already on double digit for 2013. And I feel good about that, that I can pass over to Flemming, and I thank him for his very kind comments on his 6 weeks, as he said we're working very well together, enjoying the collaboration, as he said, extremely well, and we'll continue to do so for another couple of months or so here before I finally cast off. But I'd just like to thank all of you for your great support over the years, your many questions that I've had to answer on those 53 calls, and it's always been rewarding I must say. And I wish you all a Happy Valentine's Day and again, many thanks, and good luck to all of you in the future, too. Thank you.

Operator

Ladies and gentlemen, this includes today's webcast. Thank you all for attending.

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