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Shire PLC (NASDAQ:SHPG)

Barclays Global Healthcare Conference

March 12, 2013 8:00 am ET

Executives

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

Analysts

Brian Bourdot - Barclays Capital, Research Division

Brian Bourdot - Barclays Capital, Research Division

Well, good morning, everybody, and welcome to the Barclay's Global Healthcare Conference for 2013. My name is Brian Bourdot. I'm one of the analysts on the European pharmaceuticals team. I'm very pleased to introduce the first presentation this morning. And just to make you aware, we'll have a standard presentation first, maybe some time for Q&A if we have a bit of time at the end, and then, we'll have some audience voting on some questions last.

So it gives me great pleasure to introduce Shire, which is, as you probably are aware, a Specialty Pharmaceuticals company with leading franchises in behavioral medicine and Human Genetic Therapies. Presenting this morning is Chief Executive Officer, Mr. Angus Russell, and with him is Eric Rojas of Investor Relations.

You may know that Angus is stepping down as CEO soon, but during his time, he's delivered an annual average 16% total shareholder return in U.S. dollars and 23% in British pounds because the British pound doesn't really buy anything anymore. And so that's pretty good.

So Angus, welcome back to the conference for the last time.

Angus C. Russell

Thanks, Brian. Good morning, everyone.

So just the usual Safe Harbor statement here about any forward-looking statements. So place your own reliance on those at your own risk.

Well, Brian, it's very good you actually stole my first slide there. Just to recap. I think many of you know that we are a Specialty Pharma company these days focused on these broad therapeutic areas or markets: Behavioral Health, GI, rare diseases and Regenerative Medicine. Continue to prosecute an M&A model with search and development, as it's been known over the years in this industry. And we do have, these days, focused in-house research capability, particularly in the HGT business, the genetic therapy business, the rare diseases. And we have a number of collaborations and partnerships around early stage research.

And as Brian said, on the right, that model's been very successful for us over for the past 9 years, and you can see the compound average growth rate top and bottom line has been around the mid-teens, and that's been our goal that we've aspirationally had for, really, the past decade.

2012 was a very good year and I think, again, proved that, that strategy continues to deliver. We again produced very good double-digit earnings growth in 2012 from a very broadly based portfolio of products with a lot of sustainable growth into the future. We're also now conscious, though, that those products, like any pharma company, won't continue forever and we're busily working on building a good late-stage pipeline.

In fact, I'll give you some breaking news. It's not in this presentation, but there's a press release just gone out, I think, as I stood up to do this presentation, announcing that we've just acquired a company called Premacure AB in Uppsala, Sweden. They have a Phase II asset for treatment of another rare -- a rare disease and it's to do with neonates and it's retinopathy of prematurity, a condition that affects around 1,100 to 1,500 neonates and causes blindness. This company's had some good success already with protein therapy, which stands at Phase II at the moment, and so we've acquired the company, which is with an undisclosed upfront payment. You can infer from that, it's not a huge sum of money and then, a bunch of stage payments related to various milestones and completes in the clinical program and launch in sales targets.

So another nice project to bring in and strengthen our Phase II, which is with our Phase III assets, which I'll show you later, is beginning, as I said, to build a very nice late-stage pipeline really aimed at that '15 to '20 period when we will obviously need new growth opportunities. As regards to the current year, Graham Hetherington, our CFO, and myself stated in our last earnings call that we're increasingly confident of meeting the current consensus of earnings, which would be approaching, again, double-digit growth in the current year 2013.

Just looking now at the various business segments that we report under starting with U.S. ADHD or the Specialty Pharma business. U.S. ADHD grew to 9% in 2012, still showing very strong growth, and the most significant driver of that continues to be the adult market, which actually is showing double-digit growth. So really market these days split between ped and adolescent, which is showing kind of lower but still good high single-digit growth and then, the adult market, which is still significantly underpenetrated, showing this double-digit growth. And you combine that in a market, which now is about 50-50 between adult and pediatric and adolescent. And so we expect that in the current year, the adult, given the faster growth rate, will become the bigger piece of the market and continue to be the bigger piece of the market in the years to come and continue to drive this very good growth rate in volume terms.

Two lead products, historically now, VYVANSE and INTUNIV, and they actually represent 45% of the entire market today. So we are the only branded company left in the market despite the entrance of generic competitors against some of our products like ADDERALL XR and other entries of generics, the markets there continue to do well, and we continue to gain market share.

Most significant milestone for me, just in the last few months, has been the approval of what we call now Elvanse, which is VYVANSE under a different brand name in Europe. And that is the first time that Shire has entered Europe with an amphetamine-based products and really begins what we believe will be the gradual internationalization and globalization of our products to treat ADHD. The product's approved in the U.K. and Ireland, in fact, I can tell you, just in the last week or so, we actually launched the product in the U.K. So that's up and running, and we wish all the U.K. team well with that.

And there are approval processes ongoing in 6 other countries we targeted in what we call the first wave of approvals, the 8 countries where ADHD is recognized, diagnosed and treated today. And that really is Northern Hemisphere countries, one Southern Hemisphere country, Spain. Most of the others, actually, in the Southern Hemisphere, still have poor recognition of ADHD; and then, Scandinavia is another big block for us.

This follows successful launches internationally in the past in Canada, which is a well-established market. Canada is our biggest subsidiary outside of the U.S. and has $100 million of sales, and that's principally in ADHD products. And so that has become a more meaningful market.

And then Brazil. Brazil is growing very rapidly albeit off a small base. We only launched about 18 months ago, but there is significant usage now of ADHD products in Brazil, and certainly, VYVANSE is there and well represented.

We've talked -- and there's not a lot of detail in this, so I'd be happy to answer more questions afterwards, but LDX is the active ingredient in VYVANSE and as you know, we've looked at that in a whole range of new opportunities in psychiatric conditions. Major depressive disorder is our lead program and behind that, by the end of last year, we had started enrollment in 2 other Phase III studies in binge eating disorder and also, negative symptoms of schizophrenia. So we have 3 Phase III programs up and running, all based on interesting Phase II results. I would say, the most interesting for me was binge eating disorder, simply because perhaps, that's not so well known. There are no treatments for binge eating disorder, and yet it's estimated that, that does affect around 2% of any given population in the world and is a significant growing psychiatric condition.

And we had very interesting and strong positive results in Phase II that showed a clear dose response and eliminated all binges in over 50% of patients in the most -- in the highest strength dose. 70 milligrams is, today, our highest strength. So that was very interesting and significant data. I'll say, armed with all of that and having had successful discussions with FDA, we've now moved all those 3 programs into Phase III.

Something to look forward to later this year is headline data in regard to SPD 602. It's a Phase II product for iron overload. An interesting product we brought in from a small company called FerroKin Biosciences where we effectively acquired the whole company, which was just a single asset. But this is a chelating agent and would actually compete with Exjade from Novartis. And what we're looking for here is a product with a better safety profile than Exjade and one that actually, hopefully, also has significantly better efficacy.

So, as I said, some pipeline data there to look forward to in the second half of the year, and I hope that product will show -- continue to show the good results showed in early Phase II and advance into Phase III at the turn of the year or early next year.

HGT also had a very strong year in 2012. We saw good growth across the entire portfolio. One thing I have pulled out here is the continued outstanding launch in the U.S. of FIRAZYR, that's the most recent of the products launched to treat hereditary angioedema, and it continues to grow very nicely in the U.S. certainly, outperforming our own expectations, and I believe also significantly outperforming what the market thought, historically, this product would do.

So that continues to produce very nice new growth drive. And then, as for the company, overall, and as I just mentioned this morning, the Premacure acquisition has been effectively done by our HGT business, given that retinopathy of prematurity is a rare disease. And so their building now a very nice new pipeline of projects behind.

Recently, we discussed also the intrathecal administration of proteins and said that we would be making further clinical progress with those projects during the current year. And so I guess, again, as we move through this year, we'll be updating you as to what the next steps are with the 2 lead programs in Hunter Syndrome and also in Sanfilippo A.

And finally, Regenerative Medicine, which has had a difficult year simply in that we always knew that, that business ran itself at lower standards in regards to sales and marketing compliance issues. And we decided, during the year, to actually significantly restructure the sales force, put in a new sales model. That all got rolled out towards the end of the year, but has affected the growth, both in the third and fourth quarters of last year. We're seeing some signs now of turnaround and starting to gradually come back during the first quarter of this year, and I hope by we come to report Q1 results at the end of April, we can talk about having reached the bottom of that cycle and now starting to come back. We hope we'll be back on the kind of trend line of growth towards the end of this year.

Significant piece of pipeline used there that we announced also with our recent results was actually enrolling the first patient in a Phase III study in another rare disease, Epidermolysis Bullosa. This also had a carryover and linked to HGT, where we actually also announced, recently, the acquisition of a company that was looking at a protein therapy approach to this rare genetic disease, for which again, there is no treatment and many children, who originally get this or are born with this defect, actually, sadly die, that it can be ultimately a fatal disease.

So we're very encouraged with the fact that this would be a first approach to use DERMAGRAFT as obviously, an external means of treating this rare skin disease. And ultimately, one would hope in years to come, we may have a protein therapy that could actually address the condition fundamentally, systemically. So a very nice, a bit of synergy between 2 businesses within the Shire portfolio and an exciting, again, new opportunity in Phase III for a new rare disease treatment.

So what does all that look like in terms of the portfolio? Well, you can see here what I talked about a moment ago that Phase III, Phase II is starting to feed a number of new projects. Behind that, Phase I also, a number of things particularly associated, again, with the HGT business's approaches to new rare diseases. But all in all, I think, a portfolio that's starting to advance quite nicely and build a range of opportunities that could drive our growth successfully in the years '15 to '20. And in addition to it is, of course, the project I mentioned this morning will slot into that Phase II column, the Premacure AB acquisition and the new product, which is an IGF-based therapy.

So summing up, I believe Shire continues to be very well positioned for future growth. We've obviously, as Brian pointed out, and I have in my opening slide, have had a decade of tremendous growth that's brought the company to certainly, a very decent-sized midcap heading towards larger cap company. But I believe that's only the start. I think, with the internationalization of the business, the globalization of many products that, historically, in our ADHD portfolio, particularly were confined mostly to the U.S. market I think we're only just beginning to see what can be a further expansion of the company.

And as Brian said, I'll be stepping down at the end of April from my role as CEO, and my successor is already on board. We spent the first 9 weeks of the year, Flemming Ornskov and I together. And I know Flemming is absolutely the right guy to lead that globalization. He has huge international experience, particularly in Latin America and Asian markets in building businesses, most recently for Bayer in China, and he has a huge network of contacts there and a significant knowledge of our industry. And I know he's very infused with the opportunity he's got to step right in and he's leading now many initiatives internally for the company.

So we'll stay true. Flemming has agreed that, even from the interview stage, that the more he's seen of it, the more he's convinced of the success of our strategy, and he wants to build on that successful track record. So we will stay with a specialist focus looking at these kind of diseases where there are significant unmet needs. Looking for a highly differentiated product portfolio that can deliver the kind of sustainable growth we've shown over this past decade, I said we're investing already in a bunch of new opportunities that really follow that same driver, and Flemming and the team are certainly already reviewing a number of other M&A and in-licensing as just part of our ongoing process of M&A. And that will continue to supplement our own in-house efforts.

All if that really focusing on what I think is an increasing requirement in this industry that, really, everybody's under that pressure these days, which you have to demonstrate you're delivering real tangible value, not only to patients now or physicians, but also to society in general, and particularly to governments and payors. We're very mindful of that and, again, in our vision of the future we're really looking for strong products that can actually deliver a tangible benefit to governments and to payors and where they'll be happy to continue to pay the kind of pricing that we've enjoyed in the past.

So with that, Brian, I think the clock says we have over 8 minutes left. So I'll hand back to you.

Question-and-Answer Session

Brian Bourdot - Barclays Capital, Research Division

Is it working?

Angus C. Russell

Yes. Sure. There's 2 microphones.

Brian Bourdot - Barclays Capital, Research Division

Great. So -- well, thanks very much, Angus. And just before we move into the next phase of the presentation, I'd just like to say Angus, thank you very much for your time as Chief Executive, you've delivered great returns to shareholders. So could I ask everybody to give a round of applause for Mr. Angus Russell. Okay, well, in the time we've got left, perhaps, we'll leave Q&A right for the end. So why don't we swing into the audience response system based on the presentation. So I think we've got some instructions for you, which will come up onto the screen with these handsets with flashing green lights on them. Can we have that, please? Right. So instructions. Press the number that corresponds to your selected answer. It's multichoice, so it's the round buttons at the top and hence, it will say sending or receiving when a choice has been selected. So grab your handsets, and get ready. So could we have the first question, please? Right. Now I have to confess I chose these questions. So Angus, any complaints to me. So number one, I'm worried about generic challenges to the Shire's intellectual property. One, no, my confidence in Shire is likely [ph] as high; two, no, any risks are reflected in valuation already; three, yes, but risks are manageable; and four, yes, risk keeps me on the sideline. So if you make up your minds, you'll have 6 seconds to vote. So everybody ready. Okay, go for it.

[Voting]

Brian Bourdot - Barclays Capital, Research Division

And get some nice music as well. Oh my goodness, so 50% of those of those who voted said yes, this is keeping among the slide [ph] .That's very interesting. Okay, maybe we can leave some comments for the end. Next question, please. Right. So question number two, the outcome of the INTUNIV U.S. patent litigation would change the way I see Shire. 3 choices: number one, no, not at all; two, yes, but not materially; three, yes, a lot. So everybody ready with their selections. Okay.

[Voting]

Brian Bourdot - Barclays Capital, Research Division

Okay. So a majority of people saying it wouldn't be material. And about 1 in 3 saying yes, that would change the way they see Shire a lot. So interesting again. Okay, can we have question number three, please? Shire should apply any increase in cash flow towards the following. So this is where we get to play CEO, Angus. So 5 choices there, you want to choose -- get ready to make your selections.

[Voting]

Brian Bourdot - Barclays Capital, Research Division

Okay. Well, it sounds like most people are agreeing with the strategy, Angus. 70% are saying bolt-on acquisitions and joint venture [ph] and platform technologies. So very interesting again and can we have -- I think we've got one more question. Can we have that, please? Oh no, 2 more. Okay. So VYVANSE will get an approval as treatment for major depressive disorder with the following probability: not sure -- I actually think it's 50%, you've got 2 choices there. But a range of probabilities. So make your minds up and get ready to vote. Okay.

[Voting]

Brian Bourdot - Barclays Capital, Research Division

Okay. So a range of views there, but most people, I think, are seeing it as somewhat likely. So that's very interesting too because I know that's a very important project for you. Now can we have the final question, please? Shire will be an independent company in 5 years' time. This is an interesting one. Only 2 choices yes or no. Everybody, make your minds up. Okay.

[Voting]

Angus C. Russell

It's a maybe then.

Brian Bourdot - Barclays Capital, Research Division

Yes, okay. Great. Well, we've got a few minutes left. So Angus, any thoughts on any of those?

Angus C. Russell

Yes, I'm obviously -- I mean, we get a lot of questions, we'll no doubt field a lot of questions in our meetings we'll be doing today one-on-one, but we do get a lot of questions about the impending challenges that, I think, rather than put them in a bucket -- I know you were just putting a simple question in that would clarify. The second one was specifically with INTUNIV. But obviously, there's a whole range of products. And I understand that things like INTUNIV, LIALDA, et cetera, these come out of the -- our original strategy, I would say, of more than a decade ago, which was reformulation of old drugs and therefore, we're mostly dependent on formulation patents. I understand people's concern about those kind of things. All I would say, is I have been on record, and I'm happy to repeat that again, but certainly, in regards to the INTUNIV case we, I think, have an interest in trying to reach an acceptable settlement. I'd characterize that discussions are ongoing and still ongoing. I've said before that I said that I was feeling good about those discussions that are being held in a positive light. I continue to reaffirm that. I think they continue to move forward very positively, and I think both ourselves and Watson activists are very interested in finding a solution to this. So I guess, the best news there is watch the space. People know I did say, before I officially stepped down the end of April, it was a personal goal of mine to try and get some resolution of that.

In regards to ADDERALL XR. Again, we've seen most of the filers, original filers we know about. They're all accounted for pretty much in one way and another now in terms of either having an approval and being in the market or else, basically, being an authorized generic and also being in the market. So the only one that's not is Sandoz, again and again, I've commented on that in the past and that's another thing that we're looking at and trying to get a resolution on. So again, it's a question of I think watch this space. We're working on these things as a matter of high priority, and we understand the importance of those to shareholders and how that can overshadow the story a bit in the short term. I think, then, you look at other products and I know people have seen the first filers, that's bound to be the case. 5 years is when they can start to -- just ahead of VYVANSE. VYVANSE, I mean, just to reaffirm, we know that there are a number of companies who've said back to us already that having now focused on that themselves and looked, and they find that a formidable IP. We have 17 listed Orange Book patents with VYVANSE. And the fundamental patent is not a formulation, its composition and that's the patent [ph], that is the new medical entity. It's very clearly that. And then, I look at things like the international growth and just to remind you, with Elvanse launching in Europe, we've got the same patents, so it's high composition of matter, but on top of that, we actually did get new medical entity status granted in Europe, but we've got 10 years data exclusivity as well, complete market exclusivity. So there, you've got a complete decade to build the market with clear market exclusivity. We're developing INTUNIV for Europe, and that actually is in Phase III. And it's on our slide of pipeline. But that one actually, again, the regulators have agreed that if we get the product approved after Phase III, they will be willing to give us 10 years data exclusivity. So I think, as I say, you've got to think rather than just sort of throw it all in the bucket and say, we've got IP issues. I mean, everybody in the industry today has IP issues, it's pretty much part of the business model to have generics challenge us. But I think if you look at the various things, I feel very confident about VYVANSE as a molecule. We wouldn't be investing in all the new uses if we didn't feel incredibly confident. That would be a crazy thing to do, if we felt our IP could come under pressure or could be challenged significantly, so we don't. We think VYVANSE is an extremely strong composition of matter, say at 23, 24 and then, you've got this data exclusivity in Europe. That's one I -- just to give a bit more detailed response on because of -- give a bit more clarity. So those shorter term issues, we understand that, that is a worry for people, and we would like to get that resolved and we're working on it at top priority right now.

Brian Bourdot - Barclays Capital, Research Division

Great. Well, thanks very much, Angus. I don't think we've got time for any further Q&A. What we'll do now is we'll go across the hallway to Americano Sands for breakouts. So thanks very much, see you there.

Angus C. Russell

Thanks, Brian.

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