Shire Plc. Q4 2008 Earnings Call Transcript

| About: Shire PLC (SHPG)

Shire Plc. (SHPGY) Q4 2008 Earnings Call February 19, 2009 9:00 AM ET


Angus Charles Russell - Chief Executive Officer, Executive Vice President, Global Finance & Director

Graham Hetherington - Chief Financial Officer & Executive Director

Sylvie L. Gregoire, Ph.D. – President, Shire Human Genetic Therapies

Michael F. Cola – President, Specialty Pharmaceuticals


Peter Verdult – Citigroup Smith Barney

Graham Parry – Merrill Lynch International

Martin Wales – UBS Warburg

Corey Davis - Natexis Bleichroeder, Inc.

David Buck - Buckingham Research Group Inc.

[Andy Cosen - Redburn Partners, LLP]

Dani Saurymper - Goldman Sachs Equity Securities

Sally Taylor - Cazenove & Company

David Amsellem - Piper Jaffray & Co.

Ken Cacciatore - Cowen and Company, LLC


Thank you for joining us today for Shire's fourth quarter and full year 2008 financial results. By now you should all have received our press release and should be viewing our presentation via our website on If for some reason you have not received the press release or unable to access our website please contact [Macale] in our UK offices at 44-1256-894-160 and he will be happy to assist you.

Our speakers today are Angus Russell, Chief Executive Officer; Graham Hetherington, Chief Financial Officer; Sylvie Gregoire, President of HGT; and Mike Cola, President of Specialty Pharms.

Before we begin I refer you to Slide Two 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 as follows, we begin with opening remarks of Shire’s performance and highlights during 2008 from Angus Russell then Graham Hetherington will continue with a financial review and 2009 guidance. Sylvie Gregoire and Mike Cola will follow with an update on our businesses and Angus will end with a summary of the key points for this presentation.

We will then open it up for your questions. Once again could I please ask again in the interest of time and so that everyone gets a chance to ask questions that you limit yourself to two questions. As always Clea Rosenfeld and I will be more than happy to follow up offline for any subsequent questions. Thank you very much for your understanding.

Now I’ll hand it over to Angus.

Angus Charles Russell

Let me start the presentation by setting [inaudible] results on this slide and I believe this is an absolutely excellent performance from the company and it is widespread across all areas of our business. Congratulations to all the employees of Shire who worked very hard to deliver these tremendous results.

Gross sales were up 27% to $2.75 billion [inaudible] even higher growth of 35% up from [inaudible] new products sales and as you know we define [inaudible] products just launched within the last three years. [Inaudible] coming from products that launched in this past year with tremendous results [inaudible] released in the last 12 months. They now represent more than a third of the [inaudible] product portfolio [inaudible] or product sales in 2008 and that’s up from [inaudible] in 2007.

[Inaudible] again, a record number for Shire, [inaudible] of revenues. [Inaudible] ahead of consensus which [inaudible]. [Inaudible] and that’s actually a $1 increase or 15% over the last year [inaudible] increase in the dividend in [inaudible] terms.

Turning to our strategy we believe that there’s clear evidence now in these results of us executing very well in our strategy and let me remind you what that strategy is. It is as you know a focus on specialists, prescriber and prescribing for specialists symptomatic diseases with high unmet needs in very niche markets.

Some of those niche markets obviously being the rare disease portfolio which in itself is supported by orphan drugs. We’re focusing on best opportunities and everything underperforming with low priority assets and businesses and you saw us take hard decisions this year with regard to [inaudible] and the dismantling of our [inaudible] franchise.

We saw it last year despite a bunch of old products in Europe to [inaudible]. We will continue to do that going forward. I feel very strongly about this next phase of [inaudible] not only bringing new access but also keep refreshing the portfolio and exiting businesses that do not reach our objectives.

We’ll also therefore to be building on our existing business platforms by the addition of new opportunities. We define those in two ways. We talk about our bolt on products. These are products that would build to the existing franchises or technology platforms that we have in Shire.

But in addition to that we’re looking at corner lots and by that we mean self sustaining businesses in new franchises that we could move into. Myself and the management team in the past 12 months have actually been reviewing everything that’s out there in the world of pharmaceuticals and looking at just how those assets match up against the criteria that was set out in the first couple of bullet points here.

We determined that there are probably five therapeutic areas which offer good opportunities which would fit our business model going forward. We’re not going talk about those because that would telegraph to everybody what those assets are. Suffice to say we’re looking at a lot of these assets in a lot of detail right now and I think in the current climate we actually have very good opportunities for acquiring assets going forward.

In addition to that kind of growth we also are continuing to expand our portfolio internationally. We’re now in 23 countries as opposed to just seven countries three years ago. That’s being spearheaded very much by the rare disease business which is a rapid roll out model but in addition products like Fosrenol Addlers, it’s made in the US and in time buy bands will continue to drive our specialty pharma business internationally at well.

Let me just give you a heads up and I’m not going to do this in any details, my colleagues will take you through some of these items in somewhat more detail in their presentations. Just to show again we have a lot of news flow coming through in 2009. In the first half we have obviously initiation of Phase 2/3 program in NLD, 550 data.

That’s the siliac disease product in the GI space Phase 2 data and then the idursulfase products IT and I’ll let Sylvie talk more about that later. The second half of the year we hope we’ll see the launch of INTUNIV DAYTRANA filing for adolescents and FIRAZYR we have some more information for that you Sylvie will take you through in regards to the US filing or re-filing of that drug for approval.

Then we have the chaperone products that we have a collaboration with Amicus Therapeutics and again Sylvie can give you some more data but there’s some key programs moving through development and it’s a big year overall for us in [Gashay] in 2009. With those introductory remarks let me hand over to Graham who’s going to give you a lot more detail on the financial results.

Graham Hetherington

I’m delighted to have the opportunity to take you through what I think are an outstanding set of results. There a set of results which I believe underline the success that Shire has achieved in moving forward in the last few years to build a platform to support our future growth aspirations. The figures up here really highlight how Shire I believe is positively differentiated particularly in the current environment.

I’m simply going to address and reinforce three key points. Our new product portfolio has driven total revenues up by nearly 25% in the year and we’re now benefiting from operational leverage with EBITDA up by over 40%. EPS has increased by 36% and our robust balance sheet has been further supported by near doubling of Shire’s operational cash flow during the year.

I know it’s tempting to look at these results and think the growth is simply a result of the price increases that we’ve achieved from ADDERALL XR. Let me try and put that into context. If we only increased XR prices at the same level as VYVANSE during the year our revenue growth would have been 21% compared to the 24% that we reported here.

I think these results also reflect what the future growth drivers for Shire are and I’ll expand on these in a moment. But first let’s turn to the top line drivers of these outstanding results for the full year. Sales from our established products were broadly flat year-on-year. ADDERALL XR grew only as a result of the price increases we’ve implemented and royalties delivered a robust performance given the competitive threats against these products.

But the real story is about our new product portfolio. We’ve achieved a strong performance across all of our new products and the details of these are in the appendix but I’d like to highlight three key products. The first is VYVANSE, net sales up 300% in the year to $319 million. VYVANSE entered 2009 with an annual sales rate of around $400 million.

Based on last week’s recent share gains we now have net sales at an annual run rate of $425 million. The second product is ELAPRASE up two thirds to over $300 million and LIALDA up 180% to $140 million. These results are a great signpost I believe to the future. [Break in audio] of our sales and new products [break in audio] sales is broadly neutral.

We did see a $30 million negative impact on our euro based sales in the fourth quarter. What we’ve also seen which perhaps we didn’t fully expect is that we’ve seen the stocks of ADDERALL reducing in tracking falling prescriptions in the same way that inventories have increased as VYVANSE has grown its prescription share.

On the chart here on the right I’ve highlighted the double digit like for like revenue growth on the right hand side of the chart that takes into account the impacts of currency movements and the products we disposed of. Importantly product sales ex ADDERALL on a like for like basis grew by 18% in the quarter.

EBITDA growth reflects large single digit increase in costs and offsetting foreign exchange benefits on our cost base. The EPS result in the quarter was influenced by two factors. Firstly the particularly low tax rate we experienced in the fourth quarter of 2007 and secondly foreign exchange benefits which benefitted our other income line in the fourth quarter of 2008.

You can also see the very strong cash delivery in the quarter with a strong conversion of EBITDA to cash. These results underline how well Shire is positioned and how we’re in a very, very different place to where in just 2006. In 2006 as you know Shire was primarily the ADDERALL XR company with no other products generating more than $140 million.

We now have a really balanced portfolio with strong intellectual property and regulatory protection. In addition to ADDERALL XR we now have six products generating more than $140 million significantly two of those are each generating over $300 million. I think this chart says it all in particular the dramatic increase in contribution from our new product portfolio.

I’ve already highlighted the operating leverage that we’ve achieved in 2008 compared to 2007. Let’s just pause here and look at the dynamics since 2006. We’ve grown our EBITDA margin as a percentage of product sales from 13% in 2006 to 21% in 2007 and 28% in the year we just reported. The high margins of our new product portfolio have maintained our overall gross margins despite the reduction in ADDERALL XR’s relative contribution.

We’ve continued to invest in the future and while R&D has fallen by two percentage points as a ratio it has increased in absolute dollar terms by 70% since 2006. We’ve also started to benefit from the investments that we’ve made in the infrastructure as our SG&A percentage ratio drops from 54% in 2006 to 41% in 2008.

We’ll continue to see threes trends supporting our margins through the transition year of 2009 and will support further improvements to margins in the mid term. The third platform for growth of the business is our strong cash generation which will support our investments in new therapy areas both internally and through acquisitions.

In 2008 the particularly strong cash generation this year has enabled us to fund the acquisitions of METAZYM and Jerini. We’ve also been investing significant capital expenditure behind the business particularly manufacturing capacity at our HGT business. Capital expenditure will be at the same level in 2009 and then trend over the next couple of years to a more normal level of around $150 million.

We’ve also funded the final settlement of the TKT shareholder claims. As a result we’ve incurred cash outlays of nearly $600 million which flow the final net cash out flow of $550 million. We still ended the year with our only debt being the $1.1 billion convertible. We have a $525,000,000 worth of cash plus an undrawn facility of $1.2 billion which stretches out to 2012.

Combine this with the operating cash generation of over $1 billion we have a robust balance sheet and strategic flexibility to support the future growth of the business. Let’s look at the unchanged constant currency guidance for 2009. While I know this is a busy chart but I’ve included it to maintain continuity with what we presented on our third quarter call.

The sales of ADDERALL XR will inevitably fall significantly in 2009 and this is reflected in our assumptions and the guidance range that we’ve provided. However in an environment of this significant decline in XR revenues there are still a number of unknowns that could lead to a revenue range of around $150 million.

Combined with flexible management of our cost base we gave EBITDA guidance in the range of $75 million which equates to the range of $0.40 that you can see on this chart. Based on these assumptions and the exchange rates we’d experienced in the first three quarters of 2008 our provided EPS guidance in the range of $3 to $3.40.

At that time we were also seeing the currency pendulum swinging significantly and I outlined sensitivity that Shire had both to the euro and to the pound as a dollar reporting company. This is repeated at the bottom of the chart. The most significant variable by a long way is the euro dollar rate and the $0.10 movement in the euro dollar rate converts to a $0.10 movement on Shire’s EPS.

Unusually for a UK quoted company the dollar sterling rate is only a small impact on Shire’s earnings. At the time of this guidance we gave you a flexed example based on the exchange rates that we had seen during October of last year which resulted in the flexed range of $2.80 to $3.20.

Since then the euro has weakened so if we were to see the same average rates for the full year of 2009 that we saw for the on average during January of this year you can see in yellow the marginal impact this would have on our flexed EPS range. The euro has depreciated further in the last few weeks and we’ll be tracking the exchange rate movements through the year and we’ll update you on its impact each quarter.

Before I hand you to Mike I’ll reiterate the key points I personally take away from these results. First they demonstrate how positively different Shire is particularly in the current environment. Secondly they highlight the strong financial platform for future growth that we have in place.

With our new product portfolio and infrastructure that reflects our significant investments over the last few years and our robust balance sheet and cash flows which give us strategic flexibility in the current environment. With all this in place I’m happy to reiterate our constant currency guidance for 2009 and our ambitions for longer term growth.

Michael F. Cola

As Graham and Angus have reiterated we had a very strong 2008. We thought now going into 2009 would be a great opportunity for Sylvie and I to review our business models because they are a bit different and the sequential supporting growth strategies for each one of the businesses. As Angus mentioned we are very much focused on symptomatic diseases treated by specialist physicians.

These specialist physicians are generally a concentrated group of people that we can cover with a relatively small sales force giving us operating leverage. Because we organize around these specialist markets we are able to have vertically integrated business units that incorporate medical affairs, R&D, marketing and sales building a concentrated knowledge in each one of our therapy areas and we think a differentiating point for Shire.

We also hope to get operating leverage going forward from global dossiers and global marketing platforms. Specialty is not quite where HGT is today in that we have come from more of a regionally based background but if you look forward at our new product set we think they fit a global launch and global commercialization platform for us again giving us operating leverage.

The existing portfolio as Graham and Angus have mentioned we think is extremely strong and drives our growth in the near to mid term. I will talk through our four core marketed products but I think extraordinarily we have eight potential new launches over the next seven years. For a company of our size that is extraordinary.

Looking out further in the distance we plan to remain number one or two in our markets as we are today in all our core products. We will continue to grow through acquisition and product licensees. As Angus mentioned we think now is one of the best opportunities that we had over the last five years to acquire companies with all the difficulties in the capital markets.

We’ve looked to expand our footprint. Again specialty has been mostly a regionally based organization between North American and Europe. The footprint in Europe is rather light. We think with the ADHD franchise moving to Europe over the next few years we can beef up our European presence and really expand into the rest of the world where we have generally had distributorship relationships.

Again a closer look at those near time drivers we’ve talked an awful lot about VYVANSE over the last year and a half. We feel it’s off to a very strong start and will continue to grow post April. Our latest market share numbers are 11.3. We look for that continued growth this year on a similar pace from the last year.

If you think about the adult market which we just launched in last July we’re relatively early in that launch. That gives us great prospects over the next few years in the adult market, very poorly penetrated. Only 25% of the patients are diagnosed and treated. LIALDA for ulcerative colitis again continues to grow very strongly 15.4 new RX share.

We’ve been able to maintain the PENTASA franchise over that period to give us the 31% share in the total oral mesalamine market which I think is remarkable. It was a concern that everyone had. That franchise continues to grow and we look to bolt additional assets onto our GI franchise. LIALDA/MEZAVANT is now available in six countries. Again we need to continue to expand our footprint in GI.

It not only gives us operating leverage but it allows us to attract new assets, new products to the portfolio as people see us as a leader in the specialty GI market. As Angus mentioned we dismantled the renal business unit last year. FOSRENOL is for the treatment of hyperphosphatemia and ESRD.

Although we focus the US organization on optimizing our EBITDA not so much on growth we’ve had tremendous growth throughout Europe and the rest of world last year. If you look at our total growth for FOSRENOL last year it was somewhere North of 50% which I think is exceptional. Again we look for continued growth both in Europe and rest of world for FOSRENOL going forward.

Finally INTUNIV again we haven’t talked so much about INTUNIV of late. As you know it has an approvable letter. We have been working on additional data which we just submitted to the Agency, the FDA at the end of January. That data supports what we think will be a very strong label for the product although we have not begun those negotiations with the Agency. We still look for the second half of 2009 for the launch of INTUNIV.

We think this non-stimulant that has stimulant like effect in the most difficult patient population ODD is a tremendous complement to our existing portfolio. It really fills out our offering to physicians treating ADHD. We’re very excited about that. If you look at how we’re going to optimize these products going forward again a little further out. We do have our EU submission under way for VYVANSE in Europe.

The clinical trials were initiated in Q4. As we’ve talked about in the past we look at that at the end of 2010, beginning of 2011 launch. We’re also planning submissions in Brazil and Mexico. We believe those are growing markets for ADHD. Again it’s our attempt to get to the rest of the world and utilize some of the infrastructure that’s already been built in HGT. Look for the second half of the year to hear more about non-ADHD indications for VYVANSE.

We have a number under consideration. As we start to get results in the second half of the year we will talk about them. DAYTRANA as we mentioned in the past is our entry strategy a methylphenidate patch for ADHD. Again we wanted to get to Europe two years in front of VYVANSE, get our sales force set up, learn the market, really understand the KOL and physician environment.

We have a dossier under consideration right now at the MEB, the Dutch authorities. We’re in discussions with them. We should know something more definitively in the next few months as to when that submission will be decided upon. We also have an ongoing effort in adolescence as part of our post-approval commitments for DAYTRANA. Those will be finishing up the second half of 2009.

LIALDA as you know we signed an agreement with Mochida for the development and commercialization in Japan. We look forward to that relationship being productive moving forward this year and we have our Phase III clinical trials ongoing for diverticulitis. Again we think diverticulitis is a bigger market than ulcerative colitis. We look at those trials finishing up in 2011 with a potential early 2012 launch.

FOSRENOL we continue to discuss CKD with the FDA along with FRESENIUS and Genzyme. There are meetings planned this spring. We hope to find a path forward for CKD. Bayer our partner in Japan will be launching the product in 2009. Finally longer term yet you should be able to see again an aggressive approach to acquisitions this year as we think there’s a lot of opportunities out there and more products particularly products based on carrier wave moving in demand this year and showing results in that.

Second half of this year I hope to be ready to talk to you about a new set of products based on the technology that we acquired from New River Pharmaceuticals which brought us VYVANSE. We’ve made great progress there. As Graham said I think we have great growth prospects medium to near term but long term we are a platform for growth.

Sylvie Gregoire

Like Mike I’m going to give you an overview of the HGT business model, our revenues for 2008 and what kind of year we had and the prospects for 2009 and forward. Our business model is different from the specialty business model and that allows I think some diversification of risk and opportunities for Shire and our business focuses really on the treatment of rare diseases and orphan diseases.

For us this means populations that are about between 1,000 and 30,000 in our current portfolio. How do we make a business out of that? These diseases are very dire and introducing treatments for these diseases that have a high impact on the life of the patient or the quality of life for the patient is key to bringing high value for the patient.

Bringing the product however because of the diseases being so rare is done in a center of excellence fashion so each country really has only a few centers that treats these diseases so the commercial infrastructure required to bring these products is minimal leading therefore to high margins, high products for which we can use the profitability of these margins to reinvest into a pipeline that is growing and strong.

Any business model in our industry is only as good as the pipeline that we have and our portfolio strength is very high at HGT. I think we have probably one of the best rare disease pipelines in the industry. We have three marketed products now. We had added FIRAZYR which came from the acquisition of Jerini for the treatment of HAE this year.

We added two other products to the pipeline. One from our own internal research efforts that’s an enzyme replacement therapy for the treatment of Krabbe Disease and one from the outside. We had a program on metachromatic leukodystrophy and the acquisition of METAZYM allowed us to propel that program forward. That leads us to having now eight potential launches in our pipeline between now and 2015 so indeed a very full pipeline.

It is important also in this model especially for rare diseases that we be number one and number two of course in the market. You’ll see if you look through our pipeline for many of these products especially those that are issued from our own research program we are the only ones at the moment developing therapies for these products.

Growth can continue to come beyond what you see today in the pipeline through our own research organization. We constantly work from five or six products and we expect them to bring into the development pipeline one product per year but also through as you’ve seen this year business development activities and as Mike mentioned there’s a lot of opportunities today.

We generally represent a very good partner for these small companies that develop treatments for rare diseases. We have a proven track record that we can develop these programs globally and bring them commercially successfully globally. Our footprint now we have presence in 23 countries which is something that is an attraction for those small companies that are looking for a partner that has also some financial means to put to the development of their products.

The highlights though for 2008 for HGT, ELAPRASE our enzyme replacement therapy for Hunter’s Syndrome grew 68% this year driven mainly by the new countries where the product was introduced, Latin America and Japan and there’s still growth that can be seen for the years to come in this product including next year. It’s now approved in 43 countries and the success of that product led us to add some manufacturing capacity.

You’ll recall last year we indicated to you that we were constructing some new manufacturing roller bottle facility for the manufacturing of ELAPRASE. That construction is completed and so is the validation. We’ll start making the batches that will be submitted for regulatory authorities in the fourth quarter of this year. That should ensure a supply of ELAPRASE going forward for many years to come.

REPLAGAL an enzyme replacement therapy for Fabry Disease which was launched in 2001 continues to grow even though it was launched a while ago. We had nice 22% revenue growth last year. It’s now approved in 44 countries and the reason for growth and the reason to anticipate further growth is that the Fabry market as a whole is growing.

Early on when it was launched this disease was thought to be disease of men and mainly a renal disease and over time it became apparent as is often the case when a rare disease gets a treatment, there’s more knowledge that gets to be acquired about the disease. It’s also now a disease considered to be present in women and has cardiovascular manifestations. So we continue to anticipate some growth in the Fabry disease market.

FIRAZYR is a product that Jerini launched. We now own 98% of Jerini and the product is a pre-filled syringe for the treatment of acute attacks of angioedema. It launched in Germany, Austria and the UK in the fourth quarter of last year and we anticipate of course the other launches in Europe to come throughout 2009 and we look forward to updating you on those launches as they move forward.

You’ll recall that in the spring Jerini had received a non-approvable letter in the US for FIRAZYR in the US and we’ve had discussions with the FDA and agreed that an additional Phase III trial will be conducted in the US starting in the middle of this year in order to satisfy the complete response that needs to be filed in response to this letter from the FDA.

There are a lot of pipeline highlights in the HGT business and things to look forward to as well in terms of milestones for 2009. Velaglucerase alfa our enzyme replacement therapy for Gaucher Disease is fully enrolled and the trials will be completed mid year allowing us to file in the US and in Europe in the back of this year so they look to be our next commercial product that we anticipate in 2010.

HGT 1111 or what was called METAZYM at Zymanex for MLD. This was a program that Zymanex had put in Phase IB development. This trial is completed and the expansion is ongoing in these patients and we will initiate a Phase II/III trial in the first half of this year so we look forward that moving forward in our pipeline.

You’ll also remember that at the end of 2007 we did a licensing deal with Amicus for the ex US rights, the rest of world rights, for chaperone therapies. These are all small molecule therapies in areas that we know well for Fabry, Guacher Disease and now allows us an entry into Pompe Disease and all of these products will have some interesting findings and outcomes this year.

AMIGAL for Fabry Disease has finished Phase II and awaiting final feedback from the FDA and the EMEA in order to allow us to start a Phase III program with this drug. PLICERA for Guacher Disease will get Phase II data mid year and the HGT 3510 for Pompe Disease is undergoing Phase II trials with Amicus and we should get data the end of this year.

So again very exciting new technologies different from the TKT or HGT original technology and we’re looking forward to these results. Another highlight or specialty if you will of the HGT business and the rare disease world is that we’re looking to apply a technology of application of [intraceco] administration of enzyme replacement therapy for those diseases that are rare but have an important central nervous system aspect to the disease.

The first product to go into testing is idursulfase-IT which will go into man in the first quarter of this year where we’ll take patients that have a CNS component of Hunter and test the drug via that route of administration. Results from that will also educate us how should we approach Sanfillipo-A another product in our pipeline for which this technology is being developed.

All in all this looks like the pipeline and what it looks like over the mid and long term and as you can see this is a very rich pipeline with again potentially eight new products being on the market between now and 2015 with a mix of technology chaperone therapy and [intraceco] administration, a mix also of products coming in from business development, acquisition activities as well as our own pipeline of [elutional] research productivity.

In 2015 all these products could come to $1.5 billion in revenue for HGT so again a very strong growth for this part of the business. Now I’ll hand it over to Angus who’ll give you some concluding remarks.

Angus Charles Russell

Just summarizing what you’ve heard today we’re focused very much on the new product portfolio which I said I think is an exceptional performance to go from literally standing start three years ago to producing now a combined $1 billion of sales just three later, is a tremendous result, one we’re very pleased about.

That now represents more than a third of our entire product sales and Graham showed you how that’s radically changed the look of Shire’s portfolio in just that three year period from a business that I’d read lots of reports still recently that think that we’re still a business focused entirely on ADHD.

One that now shows as Graham said six major drugs delivering all of them in excess of $140 million and two of those products are actually generating over $300 million of sales a year, very nice balance to match the portfolio. It’s not stopping there though, we believe it will continue to drive the business forward again in the current year and continue to show great momentum across all areas of the business again.

That will also be cross existing products which still have lots of years of product life ahead of them given particularly that many of these products only just got launched in the last one or two years. In addition to that you’re going to see effectively two new launches this year, FIRAZYR only was launched in three markets by the end of last year and now we have the upper share as Sylvie highlighted to roll that across many more markets in RoW.

In addition Mike highlighted our confidence in getting approval for INTUNIV Shire’s first non-stimulant treatment in ADHD. In addition to that we believe we’ll see a number of significant clinical events in the year in the pipeline and see our pipeline move forward in a very positive manner and we’ll be looking for assets.

Again Graham stressed the strength of Shire’s financial position which in this climate will I’m sure allow us to bring in many more assets to the portfolio that fit our business model. So what does that all amount to? At the end of the day we believe in Shire so that gives us a tremendous solid platform for growth that offers very good opportunities to deliver sustainable growth into the future.

With that in mind we continue to set ourselves an aspirational goal and I highlighted it’s aspirational it’s not a firm forecast but it is something that myself and my management colleagues are entirely focused on delivering over the period from 2009 through 2015. We feel very good about that and we hope that that is a very clear differentiating factor from what we’re seeing amongst many of the players in the industry.

All of our portfolio as you know is very strongly protected now with intellectual property and with great prospects. With that summary I’d like to hand over to all of you to ask your questions.

Question-and-Answer Session

Peter Verdult – Citigroup Smith Barney

Just a few questions, first and quickly could you give us the key full stocking number for VYVANSE and any sort of expectations for '09? Secondly on ADDERALL pricing, it’s a theoretical question, but if you were to put the prices of ADDERALL up one more time before April would that have any implications for the guidance that you’ve laid out to the market?

Thirdly I realize in this current environment giving revenue forecasts is difficult, but I was wondering if you could give us a bit more detail about how you expect expenses to trend, specifically R&D and SG&A in '09? Lastly in terms of your new therapeutic targets and potentially winning us the new deals, I realize you’re not going to tell us those targets, but could you give us some sense as to what level of debt to capsule or net debt to EBITDA you’re comfortable with taking into the balance sheet.

Angus Charles Russell

Let me try and direct many of those questions to my colleagues who I think are best placed. The VYVANSE stocking question.

Graham Hetherington

Why don’t I start with that, Mike can give any specifics. Without going into a precise monetary numbers VYVANSE stocks have increased out in the wholesales simply because our prescription trends have increased and the wholesalers are contracted to follow those through with inventories and that’s how many days, Mike?

Michael F. Cola

It’s a range that we stay within and I believe it’s 21 to 28 days and it’s them looking at forecasts, deciding how many they want to have on hand, a little more if you’re going to see growth in a product.

Angus Charles Russell

Mike, let’s stay with you, ADDERALL XR price increases. I’m not sure what you’re prepared to say on that.

Michael F. Cola

Obviously they affect us. You asked about April though and we don’t really guide forward in April. You know what we’ve taken in the past. You’ll have to wait and see. Obviously it has impact if we take another one before April but at this point we’ve never given that kind of guidance.

Graham Hetherington

In terms of the more detailed guidance questions you’re asking, Peter, I can’t give a precise answer and the reason for that is very simple. We’ve gone to great lengths to try and give market certainties to the range of earnings outcomes for 2009 in an uncertain world and as Mike said earlier, just from the uncertainties that we’re managing with ADDERALL XR we could be looking at an outcome of revenues of $150 million.

To manage the earnings performance we are ensuring that we are being very, very careful about how we manage our cost space and ensuring that we’re maintaining a real level of flexibility through 2009. Anything I say precisely now will be precisely wrong at the end of 2009. The furthest I can go is to say that I believe that our SG&A expenses will be flattish year-on-year and that gives us some tolerance within which to operate.

R&D I’d expect to be increasing slightly year-on-year. That’s the broad dynamic within which we’re working.

Angus Charles Russell

The therapeutic targets and the debt and EBITDA. Let me answer that because you’re right, we’re not going to [inaudible] as I said because there’s so few asset in the spaces we operate in so once you spread those over five therapeutic areas it’s telegraphing very clearly what we’re studying at any point in time do I’m not doing that.

I used to get asked these questions obviously with my former life and debt and EBITDA ratios to me I think much more about risk, Peter. I would come back to we have a very, very robust cash position. We’re generating as you saw over $1.2 billion. Looking forward we have continued with over $1 billion of cash flow every year. We have a very strong position and no refinancing issues out until 2012 and we have an undrawn facility at $1.2 billion.

For me it’s not about debt, it’s the fact that we have a lot of cash actually here to potentially use. Having said that what I was driving at is for me it’s always about risk. If you have a propensity for taking on more funding and more debt is a factor of how good a deal you’re doing in sense of what are the risks underlying that.

Scientifically is it a drug that’s about to be commercialized, what do we know about that product? To me it’s something you want to stay flexibility on, you shouldn’t be boxed in. I always think it’s rather bizarre when people go out and throw out and say my debt’s going to be 25% of my balance sheet or whatever.

I don’t know how they do that frankly because for me it’s an issue of my tolerance there is on how confident I feel about the underlying risks that we’re managing and I know Graham will look at the structure of our balance sheet and we’ll fund acquisitions in the way that we think suits the underlying risks of those acquisitions going forward.

Graham Parry – Merrill Lynch International

First question is just on guidance and acquisitions, it sounds to me as if you’re planning a series of acquisitions there’s certainly products over the course of the year. I’m just wondering how that plays into your guidance. Are you already assuming in your guidance that there are potentially dilutive acquisitions in it or if you saw the right deal come up if it was larger and more dilutive would you be looking to update guidance during the year?

Secondly, I was just wondering if you could give us any thoughts on the timelines and the age RT study of cardiac safety and stimulant ADHD drugs? I think that’s due to report out this year and I was just wondering what your thoughts are on potential outcomes, how that might impact on your business?

Thirdly if you could give us an update on any marketing deals for VYVANSE in the adult indication, it was something you talked about around the middle of last year, it seems to have gotten a little bit quiet so just where we are and that would be great.

Angus Charles Russell

Let me answer the first one and then I’ll pass over to Mike so he can start thinking his answers on the cardiac studies with a FDA mandated and then VYVANSE came up and the kind of deals we’re looking at. Acquisitions in guidance, we never build assumptions on acquisitions in guidance. The guidance never in Shire does it include any assumptions, I mean that would be would be very hard to do so far ahead to know what you’re planning.

Going back to the types of acquisitions you guys always talked like this is an event and for some companies it is an event because they generated a lot of projects internally. For us this is part of our business model. We do have the capability obviously with the single gene human cell platform and so the [inaudible] is to generate and we just put Krabbe on the board if you like in terms of something that’s in pre-clinical stage. Mike talked about carrier wave, that’s another capability and another platform we have which Mike said we’d probably be prepared to talk about later this year.

It’s a price fit for us, we never stop looking at opportunities. All I would say is in the current climate clearly some of those opportunities are more available than they’ve ever been for obvious reasons. However having said that I stress this in particular when I speak to the media, I stress we’re going to see so many more deals in Shire.

My only point is just because something is cheaper doesn’t make it a better asset. It is what it is and we won’t be changing our diligence and our scrutiny of those assets, they still have to be high quality scientifically good assets. At the end of the day I come back to we did five deals in the last two years. We brought in eight new assets.

That’s evidence itself of our continued desire to keep adding to the portfolio and I just think we stand in my experience as a long time in Shire now at a great opportunity with all the assets that are out there. Mike, do you want to talk about the other two issues?

Michael F. Cola

Let’s talk a little bit about the cardiac discussion for the category, for ADHD. That’s been ongoing for a while and it’s a meta analysis drawn from a whole number of databases. We could probably get you the names of those databases. Our feeling at Shire is that there’s not going to be a lot that is discovered. If you remember back to 2005 with our Health Canada issue I feel Shire we are the experts on the meta analysis of all those databases.

I don’t think you’re going to see anything that comes out of that that’s shocking. That’s supposed to either finish the end of this year or possibly the first quarter of 2010. We’ll see. Obviously we monitor that very closely. I think one thing you need to realize is that part of our obligation to agencies around the world is that we’re doing that kind of meta analysis on an ongoing basis.

It’s not a one shot deal for us so I think we’re as close to it as anybody in the world. We feel that these drugs are safe and obviously we were vindicated in the Health Canada issue. On the VYVANSE co-promote, as we’ve said in the past we’ll do the right deal at the right time if it looks like a good long term strategic partnership and we can find a win/win.

If you think of some of the forces that have rocked the market, particularly where you have psychiatric capacity and maybe some primary care capacity out there, there’s been a lot of disturbances to the people that we’ve been talking to over the last six months and I can’t name them obviously.

I think we’re through that turbulence and I’m still confident that we’re going to get something done. Will it happen near term? I don’t know but I think now that things have settled down for some of our potential partners we can get back in discussions about how to use their capacity wisely.

Again I don’t feel dependent upon that as we talked about when we last expanded the ADHD sales force. We took it up by 135. We sized that for both the adult launch and INTUNIV. This co-promote would be focused on the adult launch so we can focus more on INTUNIV. If it doesn’t happen we do think we may have a small expansion but nothing major for the support of the INTUNIV launch.

Angus Charles Russell

I think the bottom line is Graham is we’re still in active discussions and actually as Mike said the unfortunate thing is some of these people are involved in all sorts of strategic reviews internally given the state of their businesses and things that are happening to them. We remain optimistic and still in active discussion.

We’ll take one more from here maybe, we’ll take Martin and then we’ll take one from the phone after that.

Martin Wales – UBS Warburg

In terms of FIRAZYR US Phase III could you give us a little bit more color about how it’s going to differ from the previous study that you already carried out that didn’t meet its primary endpoint? [Inaudible] better way in terms of VYVANSE any studies required by the European authorities?

Angus Charles Russell

Sylvie, do you want to tell him color the study is, whether it’s orange or green?

Sylvie Gregoire

It’s orange because FIRAZYR’s color is orange. The FDA reviewed the fast one and two trials that were part of the original submission and agreed that the principal layout of these trials and endpoints that were in these trials with maybe some variations were generally acceptable and that the whole of the package will serve as the body of evidence in terms of the complete response that was filed with the addition of this trial.

Martin Wales – UBS Warburg

Are they looking for anything more on things like [loringyl] benefits?

Sylvie Gregoire

On which?

Martin Wales – UBS Warburg

[Loringyl] benefits.

Sylvie Gregoire

No, the [loringyl] benefits were actually demonstrated well in the other two trials and so there were no specific questions around that aspect of the disease.

Martin Wales – UBS Warburg

So why do they want another trial then beyond the fact it meets its primary endpoint?

Sylvie Gregoire

You’ll recall that one trial had positive and primary endpoint and the other one did not.

Martin Wales – UBS Warburg

So you’re simply replicating the US study again because obviously you can’t replicate the European study because as I recall the comparative was a drug is not approved in the US.

Sylvie Gregorie

[Inaudible] stomach acid is not approved yet in the US. So it’ll be a controlled trial performed in the US and will be similar to the past one and two trials that been performed, similar format.

Martin Wales – UBS Warburg

VYVANSE in Europe?

Michael F. Cola

It’s the opposite story. The VYVANSE dossier that was submitted by New River to the FDA was a traditional US based dossier. Remember it was peds first and then adult. There was no comparator arm, there was no reference arm in that. Essentially we’re doing a full program for both children and adults for Europe.

Obviously it’s important for us to have outcomes in heat con data in there so we’re building that into the program as well. But we were unable to get it through before programs started with RJ and really affect the development of VYVANSE while it was still controlled by New River and so it set us back a bit. Although I feel we have a very good program for the European regulators now.

Angus Charles Russell

Maybe take a question from the phone lines please.


We will now take a question from Corey Davis - Natexis Bleichroeder, Inc.

Corey Davis - Natexis Bleichroeder, Inc.

Two questions, first if [inaudible] doesn’t get approval of their own generic XR is there any meaningful positive financial impact for you and a corollary to that is how’s the DEA quarter work if you supply them product? Do they still have to get their own from the DEA or do they borrow yours? Does that allocation occur quarterly, monthly, weekly, whatever it is?

Michael F. Cola

I couldn’t hear the first part of that question.

Angus Charles Russell

Can I just repeat the first because I think we all had trouble just hearing, but did you say what’s your financial impact of Barr having their own product as opposed to being an authorized generic? Is that the question?

Corey Davis - Natexis Bleichroeder, Inc.

Yes, if any.

Angus Charles Russell

So Mike I think the question is if the CP is in place then they come as authorized generic and what’s the difference in economics between that and if the CP is not in place they come with their own potentially approved drug, what’s the difference in economics? The simple answer is very little.

Michael F. Cola

I would say almost zero.

Angus Charles Russell

May I just remind you why that is, is that the only difference is that if they’re an authorized generic using our products with the CP in place they pay us a very small single digit royalty on profits and that to Mike’s point is a pretty immaterial number in the rand, in the mix. So that’s it. Mike, you got the second one which is how does Barr manage the quota situation coming in to the generic. Again if they’ve got their own drug I presume.

Michael F. Cola

Even as an authorized generic because it has a separate NDC code they must petition the DEA and they have to get their own quota in order to be a seller of it. So they apply separately as does anyone else in this situation whether it’s an AG or a generic.

Corey Davis - Natexis Bleichroeder, Inc.

Destocking on ADDERALL XR?

Graham Hetherington

What’s destocking? You’re trying to get the number again, Carey, no doubt. Let’s try and simplify this. The level of reduction in wholesale inventory on ADDERALL is very similar to the level of stock that went in behind VYVANSE in the fourth quarter and if that relationship changes then we’ll talk about it, but broadly they’re very similar.

Angus Charles Russell


Graham Hetherington


Angus Charles Russell

And the reason for that is obvious. What you’re doing is you’re seeing a decline gradually as the erosion volume wise on ADDERALL XR continues that will accelerate once there’s a generic. VYVANSE demand continues to build but the reason it’s immaterial remember we have contracts for all our products with the distributors, and with the distributors that only allows a flex of three to four weeks actual demand, historic demand on any one of our products.

The difference between bottom of inventory level and top is small but you do get this seesawing effect when you’ve got a change or conversion going on like this between two products in the ADHD space.

Corey Davis - Natexis Bleichroeder, Inc.

I’ll take your word for it but it just doesn’t seem like it does match and that it’s not material, but I’ll leave it at that.


We have now a question from David Buck - Buckingham Research Group Inc.

David Buck - Buckingham Research Group Inc.

Couple of quick questions, first for Sylvie can you talk a little bit about velaglucerase and how we should be thinking of this in terms of differentiation from the current product whether you think you’ll have any data that will actually allow you to make some differentiation claims when you market it?

Second, for Angus or Graham on ADDERALL XR and VYVANSE, can you give us a sense of how close we are now on gross margin of VYVANSE to ADDERALL XR and what is the level of spending flexibility as a reminder that you had for 2009 and then into 2010 when you have the full year of generic ADDERALL XR? What type of SG&A flexing ability is there in the P&L?

Angus Charles Russell

Sylvie, differentiating features? Do you want to say anything on that?

Sylvie Gregoire

David, I think you’ve heard me answer that question before but I’ll reiterate. We’ll have the results of the three Phase III trials velaglucerase has a full development program that is supporting the filing in the middle of the year this year and in those Phase III trials we’ll have some data from switch from SerraZyme to velaglucerase and it’s from head to head comparisons between the two products.

At that time we’ll have a good idea of the profile for velaglucerase and that will of course determine the strategy that we will take for bringing the product into the market but before then it would be premature to anticipate any particular results from those head to head comparisons.

Angus Charles Russell

ADDERALL XR and VYVANCE, it’s a small difference these days and we’ve given out this guidance before. We’re talking probably, Graham?

Graham Hetherington

Low single digits.

Angus Charles Russell

2% or 3%, it’s something like 2% or 3% difference in the margin frankly and the point I’ve made several times before and you’ve got to think of that chart. Here’s the fixation of ADHD again. Look at the chart that says new products and the fact that there’s 36% of product sales. All those products have gross margins in or around 90%, the vast majority.

The only one probably exception is DAYTRANA, it’s a tiny product in the mix. The main drivers in there, the big products that are driving that growth in the $1 billion worth of sales are around 90%. So think about it, our gross margin in this company historically has been about 87%. Graham made that point over three years it stayed pretty steady.

We’ve got good growth still I’ve made the point. The launch of those products is continuing, there are only some of them in there one or two years into the launch. Let’s not get this fixation of ADHD. These stories got printed at the beginning of last year and they’re misleading in regard to implying some massive collapsing gross margin in the business going forward.

We have a very good new fast growing portfolio products that are very high gross margins, better than the mix of products we used to have in Shire many years ago and that’s enriching our gross margin at the same time as we are seeing this small single digit decline in the transition from XR to VYVANSE. That’s the kind of dynamic you need to be thinking about underlying it.

SG&A Graham I don’t know if you’re prepared to, you said obviously about a flattish [inaudible].

Graham Hetherington

I talked about a flattish picture which is giving a range and at the end of the day we are a business which has increased its investment behind SG&A by over $250 million in the last two years. We have real opportunity and we’ve exercised it to go and work with the resources that we’ve put into place during the last two years to get value from that without spending further money.

That’s both includes commercial activities, sales forces around the world but also particularly and the development of this business a lot of investments being taken place in administration and in IT systems and we’ve chosen to slow in fact put a pretty rigorous pause on the startup of any new programs and we’re focusing on people’s energy on actually extracting the maximum value out of what we’ve already invested.

So it’s that kind of activity which is giving us the flexibility to manage our SG&A profile over the next 12 to 15 months.

Angus Charles Russell

Back to the room a minute, there’s some hands up in here.

Andy Cosen - Redburn Partners, LLP

Just a quick to continue on the theme of long term costs, a few years ago you used to talk about R&D potentially reverting to lower levels assuming no more end licensing activity and I think probably things have moved on since then with increased cost of post-marketing trials and I think you’re burgeoning pipeline.

It would be interesting to hear your thoughts on what happens to R&D further out. You’re starting a lot of things in the second half of 2009. Do you ever see a scenario of R&D charge actually going down on a four or five year view?

Angus Charles Russell

Let me start the question since I would hate for Graham to answer to my past demeanor or things that I said in the past, so let me deal with the history and pass over to Graham for what he’d like to say on any forward-looking basis. You’re right historically I used to make the point that as we were developing a pipeline and those products were maturing through that pipeline one could see over time the potential diminishing and thus we brought in as you said.

So you’ve made the point yourself Andy and your question is that’s what I said earlier, five transactions, eight new assets coming in in just the last two years. Obviously we’ve refilled the pipe with a lot of good products that are advancing through development but I think what you didn’t say in your question if I might just point that out that’s different from when I made those statements was the acquisition of HGT and we’ve made the point before and we’ve shown you those long range projections.

So remember the dynamic is that today with a small sales line with only two but now a third marketed drug that will is only just being launched Sylvie’s business has had a lot of developments, Andy, bringing a pipeline of products through and we’ve added to that with five new assets that acts as those eight we brought in in total in the company.

Basically we’re kind of close to 40% level, 35% 40% right now but Graham can talk about the trends because we’ve highlighted that before. What I would like to just say is regards what I said previously it didn’t really factor in the HGT the acquisition and what we’ve done to add to that platform which is more of the biotech business or in the biotech business and therefore spends at a higher level than the traditional.

I think the trends for Mike’s business would support the fact that R&D has trended down from the 18% we used to spend to Mike what is it, 14% or something like that? So we have seen the trend, that was the one I used to talk about. But Graham maybe talk about that, remind people of the trends going forward.

Graham Hetherington

Andy, as you know halfway through the year our first half call we shared some top margin targets out there and that target was based on a timeframe of about 2012, something like that. If you go back through that you can see that we were targeting our EBITDA margin on our product sales to grow from the 21% that we saw in 2007 through to 34%, a very, very significant increase.

Where we saw that coming from and where we’ve actually seen some evidence of that coming through in the 2008 numbers is from getting leverage out of the growth of the business on the back of particularly the SG&A profile of the business. The SG&A is essentially just sales dropping to 26%, something like that.

Yes, R&D maintaining up at around the 17%, 18% mark. Thank you Angus for accounting for your past demeanors. The reality was the target that we put together at the time of [inaudible] was also assuming that we would be continuing to invest in the medium to long term for both businesses. In that target you were seeing R&D in Mike’s business continuing at 14% if we were talking about driving the business off a cliff we would fail to drop that but that 14% assumes continued investment in the medium long term of that business.

Sylvie’s business investing at about the 25% level and all that factored together gave us the significant increase in EBITDA margin that we were looking at. It is interesting if you then go and attach our aspirational targets which as Angus said go out to about 2015 we probably expect some of that leverage to increase going through that full time scale.

I think some people aren’t quite seeing that.

Dani Saurymper - Goldman Sachs Equity Securities

I was just curious given the macro backdrop some of the price increases you’re putting through, are you seeing any push back or backlash associated with those price increases?

Secondarily related to the price increases, given the price differential between XR and VYVANSE now which the [daycon] I think is running at maybe like a 70% differential, maybe not quite that high, but are you surprised by the lack of market share gains that you’re making at the moment or is that anticipated and associated with your spending patterns in terms of marketing that product?

The last question was to Graham in terms of longer range some tax outlook? I just wondered in terms of [inaudible] domicile but also I was under the impression that often drugs get special taxing cessations of some description in the US?

Angus Charles Russell

Mike why don’t you take the first two, the price any push back on the prices I think stress the aging, nature of some of those products and they’re not the big growth drivers of the future. What do you want to say on that?

Michael F. Cola

Maybe just to give you some context to Angus’ point for our non-core but marketed products. We have been more aggressive on price. I can just tell you Shire historically has not been that aggressive on price. You can look at our last XR price increase as out of character to what we’ve done in the past and I think on that one we did get some push back. Managed care was not happy about that but again put that in context of what other people have done at the end of the life of a product and it’s actually very mild.

I think considering the situation people understand why we took that price increase. Overall I think we have great relationships with third party payers, managed care seems to like us and I think we get beyond that question when we sit down to negotiate with them. As far as the price differential between XR and VYVANSE and I know I’ve said this a number of times so I’m hopefully not repeating myself too much here.

It really hasn’t been what’s driven adoption in this category, it’s a relatively price insensitive market, people reach into their pockets for what they think is best and it really hasn’t decided a lot of the market share gains if you look at it on a plan by plan basis in the US. We just haven’t seen that drive people in one direction or another.

It really hasn’t been our strategy, I’m seeing other people use that as a stated strategy to raise the price and drive people towards the new product, that is not the way we want to handle our physicians, that’s not the way we want to handle our third party payers.

Angus Charles Russell

I think that’s a very bad aspect actually of the industry frankly and I go back to the price increases that we’ve taken that you would characterize more aggressive to Mike’s point that you have to look back over several years for the fact that we’ve had some of those two and three years of flat pricing with no increases, things like FOSRENOL, CARBATROL.

We had periods of two to three years where we took no price increase whatsoever so don’t be deluded by what we’re seeing now. The other fact is something like ADDERALL XR, I would argue that the other way and say we’ve been proactive in reaching a settlement that allows a generic into the market eight years before the expiry of our exclusivity on that drug.

Making an extra bit of margin six months versus allowing the entry of a cheap generic seven or eight years before the end of your exclusivity is quite different from what you see in the scenario in other parts of the industry.

For us don’t confuse, I think Mike’s point to the end would be to don’t confuse the two issues with a platform of price differential which interests managed care in regards to the entry of a generic with the underlying fundamentals of the market which we’ve seen for a decade be very insensitive to price which is what we’ve tried to tell the market several times as Mike said which is why he feels very in danger of boring people but this doesn’t drive conversion or whatever the parents want fundamentally the best drug for their children, the one that works the best, they’re not interested in price.

Michael F. Cola

This is one category maybe a little different than others where managed care does seem to really want to partner with us as the only company that’s investing in the ADHD market in a meaningful way right now. We try to be the preferred provider for all ADHD products for managed care plans.

Graham Hetherington

In terms of the long term the [arish] domicile is achieving no loss on what Angus and the board set out to do which is incredibly smart for a business which only generates 6% of its revenues and probably less of its profit out of the UK. It’s protecting the rest of the around the world profit from higher taxation and that is first and will be in the long term.

In the shorter term, Angus last year talked about the fact that our tax rate in the low 20s and it ended up 23% in 2008 was probably under some pressure to increase margin year-on-year and I suspect that in 2009 we will see that 1% increase to something like 24%. How that evolves in the future it’s a very dynamic world and I wouldn’t like to forecast any further than that.

Sally Taylor - Cazenove & Company

I just wanted to get a little more detail on your clinical program for VYVANSE in Europe, it looks like at least one of the charts you’re doing an active comparison on the [inaudible]. Can you talk about the prime endpoints there and say when we’ll receive data on those three trials that you’ve announced? With respect expected filing and launch timetable in Europe I think you mentioned [inaudible] is behind DAYTRANA [inaudible] HGT 2011 for that?

Michael F. Cola

I think we will stay with our first half of 2011. The trials are enrolling. Think of the endpoints and the design of the trials and I won’t walk you through the details as being very similar to the US trials that we did for peds and for adult except they have an active comparator.

At this point and I don’t think we’ve talked about this, at this point I’d prefer not to talk about that, the comparator but think of it as the standard of therapy which is methylphenidate in Europe. But I think we’re on target. It took us a while to get that thing off the ground for a variety of reasons.

We wanted to make sure that we ended up with a program that would meet the needs of the regulators and support our price in some fairly difficult markets. That’s really the thinking behind what we’ve done. We also are parallel tracking adult and peds which again is different than the US so if you look at our spend over the next two years it’s compressed as opposed to the US program, you had the adult almost a full year behind the peds.

Angus Charles Russell

Can we go back to the phones and see if we have any more questions on the phone line?


We will now take a question from David Amsellem - Piper Jaffray & Co.

David Amsellem - Piper Jaffray & Co.

I wanted to get back to the VYVANSE stocking and I think previously on prior calls you had said that there was six to eight weeks of inventory on hand. Now you’re saying it’s closer to three to four weeks so it sounds to me that wholesalers have had a net work down of inventory but you’re saying that actually that there continues to be an inventory build.

So I guess I’m just trying to understand the disconnect here and maybe you can provide more color on the inventory levels for VYVANSE?

Angus Charles Russell

I’ll hand over to Mike to add some more comments but I think there’s some confusion maybe between the initial shipments that we make for the product. When we ship things to the pipe with a new drug that’s when we talked about there being six to eight weeks effectively inventory against our early estimates of demand for the drugs.

We shipped in, help me Mike, 30 odd million or something originally on launch so that clearly worked through because that’s revenue recognition issues on the cancelling so we’re not allowed to book back shipments until we actually see the underlying demand in script.

So we talked a lot at the time about that so I think you’re getting confused with what was the initial shipments and what we thought represented and how long it would take to work that through in true demand versus the ongoing situation which is now in place which is when you have a marketed drug that’s now been in the market just over 18 months we’re on normal contract terms with the distributors which is what I said before is a movement of between bottom end is three weeks, top end is four weeks.

Michael F. Cola

Nothing much to add to that except these service level agreements were put in place in 2005, 2006 and they really spell out what type of inventories on hand and I think we’ve been consistent with those contracts, they’re fairly standard right now in the industry, it’s 21 and 28 days to hit the goalposts.

David Amsellem - Piper Jaffray & Co.

One additional question if I may on velaglucerase, can you talk about how you think about pricing and more specifically do you expect to compete with SerraZyme on price?

Sylvie Gregoire

I think I also touched on that, it’s difficult to talk about the marketing strategy for a product until really we understand fully the profile of the product and that is the pricing as well as the where it will sit and the therapeutic options for the patient. So we’ll discuss that when we have results from the these trials.

Angus Charles Russell

I think we’ll take one more question from the phone lines and then wrap it up there because we’ve been the call for about an hour and a half almost now. So if there’s one final question on the phone lines?


We will now take a question from Ken Cacciatore - Cowen and Company, LLC.

Ken Cacciatore - Cowen and Company, LLC

A couple questions, first on ELAPRASE Sylvie can you give us a sense we’ve now watched the last three quarters of flattening sales understanding that currency is probably impacting but your penetration rates are fairly high. So can you give us a sense of what’s going to be going on in 2009 and 2010?

Then Mike if you could talk about and you got a little bit there on the VYVANSE with managed care, you said that you’re seen as a partner to a certain extent so does this mean that you’re not expecting any real prior authorization or step editing, however you want to refer to it, when the generic launches and then also if you could take a moment to try to give us a sense of the size of INTUNIV over the next couple years?

Sylvie Gregoire

You’re quite right that the flattening of the results is completely driven by FX because there’s been of course volume growth for ELAPRASE throughout all the quarters of last year but we are impacted quite significantly by the exchange rate for that product as much of the revenues come in euros. We do forecast small growth for ELAPRASE next year in 2010 and beyond in 2010 with the deceleration of growth after 2010 to peak sales I think as we’ve announced the $500 million to $600 million for that product going forward.

It’s hard to talk about peak [inaudible] shown to peak but longer term sales. So yes next year there will be, we cannot anticipate growth and they come from again the newly launched countries, it’s approved in 43 countries but some of them just approved last year and so that generally the majority of the growth comes from those new countries.

Angus Charles Russell

I think the things to think about, Ken, and this is what Graham said in his formal remarks which is Shire is most if you like sensitive in our numbers to euro dollar not sterling dollars it’s euro dollar. Sylvie’s point is that if you look to Europe actually two of our fastest growing products are the HGT products REPLAGAL and ELAPRASE in Europe and then you’ve got probably FOSRENOL for Mike’s shop which is there as well.

Those are the three products to factor any currency events you will have to watch like we are what’s quite a volatile world both up and down in currency at the moment and then factor that into the sales lines on those three products, that’s one way of trying to think about this.

Graham Hetherington

Could I just add one thing because Angus is absolutely right from a profit point of view, our exposure is the euro and the reason for that is that 15 to 18% of our revenues are euro denominated, only half of our cost space is in euros. So we do have that exposure which now stands onto the bottom line.

We do have sales in sterling albeit it’s quite small but given the scale of the depreciation of sterling against the dollar in the fourth quarter a significant part of that $30 million is actually on sterling derived sales but what you’re not seeing is that knocking onto profit because we’ve got a significant corporate R&D and commercial cost space here in the UK which means that you’re getting an offset benefit.

I think it is important just to reinforce that we’re seeing two key elements which is that our revenues in quarter four were held back to the tune of $30 million as a result of both euro and sterling and then you had a positive offsetting cost positive coming through which meant that actually at the EBITDA level the foreign exchange impact was actually pretty negligible in the fourth quarter.

But that’s a big, big driver of why the fourth quarter numbers appear to be light but actually they mislead. The underlying performance of our brands is as solid as it has been through 2008.

Angus Charles Russell

You’re making the point Graham it’s mainly a sales impact so that’s why you have to look at the sales numbers but how you get to profit with these natural costs offsetting as Graham said the profit which is what you see reflected in the results of the growth in the profits is pretty good, whereas some of the sales numbers look a bit as he said down maybe because of those currency impacts.

Michael F. Cola

Real quickly, on the managed care front as you know we gave regular updates through the middle of last year on our progress against managed care both third party payers and Medicaid. I think we have a great situation with VYVANSE in that we’ve been able to replicate ADDERALL XR like coverage over the last year and we continue to make gains. I feel like today we have this wonderful platform and relationship around VYVANSE with managed care.

There are some places where I think you’ll see some step edits and prior outs but those are basically a couple of states where we haven’t made progress with VYVANSE. VYVANSE is on the state formulary almost everywhere in the United States, there are a few states. Outside of that small group I just don’t see it happening. People are happy with the product.

It’s a category where moms make choices on their insurance plan based on what’s available and we just haven’t seen that kind of control put in place in this category. On the INTUNIV I’d love to say we’re going to have a similar performance to Strattera over the first two years. If you think about Strattera in an 18 month period they got up to almost 19% market share very rapidly.

The product didn’t really deliver on its promise on the efficacy side but it really demonstrates I will say the unmet need in the marketplace for a non-stimulant that really works for children. We’re noodling on that ourselves, we think it’s a big opportunity. Again I’m hesitant as Sylvie said earlier to really make any types of claims based on the fact that we don’t have a label yet. Let’s see how these label discussions come out and then we’ll figure out how a big product it will be.

Angus Charles Russell

Thanks everyone, we appreciate your attendance or listening in today on our call. As I say in summary I think Shire is in great shape. We have a tremendous platform. We’re delighted at the performance with the new products which continue to sustain and will continue to sustain our growth going forward. We think we’re a highly differentiated business now in a world that’s struggling for growth.

Thanks again for your attendance and we look forward to speaking to you again soon.

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