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Shire (NASDAQ:SHPG)

2013 Earnings Call

February 13, 2014 9:00 am ET

Executives

Sarah Elton-Farr

Flemming Ornskov - Chief Executive Officer and Director

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

Analysts

Ken Cacciatore - Cowen and Company, LLC, Research Division

Dani Saurymper - Barclays Capital, Research Division

John T. Boris - SunTrust Robinson Humphrey, Inc., Research Division

Mark Clark - Deutsche Bank AG, Research Division

Peter Verdult - Citigroup Inc, Research Division

David Amsellem - Piper Jaffray Companies, Research Division

Amy L. Walker - Morgan Stanley, Research Division

Kerry Holford - Crédit Suisse AG, Research Division

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

Operator

Ladies and gentlemen, welcome to Shire's 2013 Full Year Results. [Operator Instructions]

I'm now pleased to present Sarah Elton-Farr. Please begin your meeting.

Sarah Elton-Farr

Thank you. Good morning, and good afternoon, everyone. Thank you for joining us today for Shire's Full Year 2013 Financial Results. You should have all received our press release and should be viewing our presentation via our website on shire.com. If you are unable to access the press release or our website, please contact Souheil Salah on our Investor Relations team at +44-1256-894-160, and he will be happy to assist you. Our speakers today are Flemming Ornskov and Graham Hetherington.

Before we begin, I would refer you to Slide 2 of our presentation and remind you that any statements made during this call, which are not historical statements, will be forward-looking statements and, as such, will be subject to risks and uncertainties, which, if they materialize, could materially affect our results. Flemming and Graham will talk about Shire's performance, strategy progression, financial review and 2014 outlook, then we will open up the call for your questions. [Operator Instructions] Eric Rojas and I will be happy to follow-up with you after the call, if you have any further questions.

I'll now hand the call over to Flemming.

Flemming Ornskov

Thank you, Sarah. Good morning, and good afternoon. It's a great pleasure to be talking to you today about Shire's strong 2013 results and improved and exciting outlook. You can see on Slide #3, there were 2 main areas that we focused on during 2013: number one, a shift in our strategy; and number two, improving Shire's operational discipline. It's been a busy, but truly rewarding year, a year in which we operated our guidance twice as we became more confident in our progress. These 2 initiatives are behind our success as highlighted on this slide. Our double-digit product sales growth has driven non-GAAP earnings per share growth of 23%. We've delivered a step change in operating leverage this year. We are confident in building on our 2013 success and, therefore, are guiding you to expect 2014 non-GAAP earnings per share growth at a similar level to 2013. All in all, we've repositioned the company for further future growth, while delivering these very strong near-term results.

Moving to Slide 4. This slide shows some of the detailed achievements behind each of these 2 initiatives. First, our strategy shift. In May, we announced our sharpened strategy and told you that we would be exclusively focused on commercializing and developing innovative products in the specialty market space, which we know very well, with a particular focus on bringing new Rare Disease treatments to patients. We are committed to driving differentiation and value through innovation in all of our product offerings. During the year, we brought in some very exciting new assets that meet this focus strategy through our business development activities. With Lotus Tissue Repair, we have a potential new product to serve the needs of patients with a truly devastating Rare Disease, Dystrophic Epidermolysis Bullosa, or abbreviated DEB. SARcode Biosciences brought us a possible new standard of care for Dry Eye disease. And as you know, we're now preparing for the next step in discussing the path forward for this treatment with the FDA. Premacure has brought us an opportunity to develop a first-in-class treatment for retinopathy of prematurity. And of course, ViroPharma brings us a new growth-driving product, CINRYZE, and enables us to build a $2 billion Rare Diseases business. We are now well underway with our integration of this business. I'll talk in more detail about this in a little while.

Another important strategic focus during the year was in our pipeline. We introduced new rigor in the evaluation of our programs and, in doing so, prioritized investments to the products that best fit our strategy and have the greatest scientific and commercial potential. Of course, during the year, we closely monitored DERMAGRAFT. Despite our teams' best efforts, we were unable to deliver the performance that we needed from this business. We have been considering our options. And towards the end of the year, the decision made by the U.S. government on the price modeling for this product meant we had to act quick. We're pleased with the sale of DERMAGRAFT to Organogenesis. It also means the patients' needs can continue to be served by this product, and it means that we can now focus our investment on products that can bring us the returns that we need in market areas that are in line with our strategy and in line with our strength.

Moving to operational discipline. This was a significant area of attention during the year. We kicked off a corporate reset. And with our One Shire reorganization program, we simplified our structure, improved the speed of decision-making and reduced costs. This enabled us to increase our operating leverage across the business meaningfully and consequently. Our EBITDA margin increased to 38%, up from 32%. We also delivered top line growth as a result of improved commercial execution, driven by our In-Line team. 6 marketed products delivered double-digit sales growth in 2013, contributing to our continued strong cash generation, which approached $1.8 billion in 2013. Our excellent sales results were driven by the hard work and much sharper focus of our In-Line team on delivering to customers’ needs.

Moving to Slide 5. I'd like to provide a bit more commentary on some of the year's business highlights. We delivered strong product growth, while also progressing our innovative and increasingly valuable pipeline. The SARcode acquisition brought us Lifitegrast. The OPUS-2 data showed a positive impact on the symptoms of Dry Eye, the first product ever to do so in a Phase III trial. We are preparing for a meeting with FDA in the first half of this year to discuss the path forward. In November, we reported the top line data from our study of LDX, the ingredients in VYVANSE, in Binge Eating Disorder. And given the very encouraging results, we hope to file an sNDA for this indication later this year. And one of the most significant highlights for us in 2013 was the announcement of the ViroPharma acquisition, a strategic move for us to strengthen our Rare Diseases business and augment our growth prospects. We're delighted that our greater operational discipline has driven strong results from our diverse and global in-line portfolio of marketed products. VYVANSE delivered good growth of 19%, responding well to our renewed investment in the sales force and our focused marketing efforts, especially during the important back-to-school season. The brand has entered 2014 with positive momentum. 32% sales growth from LIALDA was truly excellent and is attributed to a strong commercial strategy and expanded U.S. patient access, which enabled us to take advantage of a competitor's withdrawal of a product from the market. We expect market share growth to continue albeit at a moderate rate, more moderate than we saw in 2013. In Rare Diseases, we continued to see solid performance across the portfolio, but we're particularly pleased with the strong performance of FIRAZYR in the U.S. Over 1,600 patients have been treated with FIRAZYR in this market, but there is plenty more growth to be had since fewer than half of patients with HAE currently receive treatment. And of course, we're excited that we can build on our expertise in the HAE market with the closure of our acquisition of ViroPharma and CINRYZE now joining our portfolio. More on that a bit later.

I'd now like to hand over to Graham. Graham will walk you through the details of this year's financials. I'll be back afterwards to talk about our priorities for 2014. Graham?

Graham C. Hetherington

Thank you, Flemming, and good morning, good afternoon, everyone. Today, we've announced the delivery of another excellent set of full year results, and these clearly demonstrate the continued positive momentum of the business and positions Shire for another strong year in 2014. In this part of the presentation, I'm going to focus on 3 key areas: first, the strong growth which enabled us to deliver results ahead of expectations in 2013; second, the underlying performance of the business; and third, our increased guidance of non-GAAP EPS growth for 2014. On Slide 7, you can see the growth from both our total and continuing business. In both cases, we've delivered a strong performance on both the top and bottom lines with double-digit growth in product sales and EPS growth in excess of 20%. Our total results on the left include DERMAGRAFT and are presented on the same basis as we gave guidance throughout 2013. On the right, you can see our continuing results, which exclude DERMAGRAFT for both 2013 and 2012. We'll present our results and provide guidance on this continuing basis going forward. The key message, though, is that on both basis' we've delivered double-digit product sales growth and EPS growth in excess of 20% in 2013.

Turning now to Slide 8, where you can see the details behind our strong full year performance. Starting on the left, we show our total results. And then as you move across the chart, we exclude $90 million of DERMAGRAFT product sales and EBITDA losses of almost $100 million. With that, in the shaded column on the right of the chart, you can see that on a continuing basis, excluding DERMAGRAFT, we've delivered product sales growth of 12%, EBITDA of almost $2 billion, with our EBITDA margin up from 32% to 38% and earnings per ADS up 23% to $7.66. For the remainder of the presentation, I'll be only talking about our income statement results on a continuing basis. And before we move on, turning to the bottom of the slide, we've delivered full year cash generation approaching $1.8 billion with cash generation growing year-on-year, although it is at a slightly lower rate than earnings due to some specific items in the year, and I'll provide more detail on these in a little while.

Turning now to Slide 9 and our product performance. The performance of our portfolios accelerated during the year, delivering ultimately full year double-digit growth. VYVANSE sales were up 19% to over $1.2 billion in the year. In the final fourth quarter, net sales of VYVANSE grew by 29%, and it's worth highlighting that about 1/2 of this quarter's growth is due to stocking in 2013 of about $10 million net compared to de-stocking in the fourth quarter last year of about $20 million, a $30 million year-on-year movement. ELAPRASE sales for the full year were up 10%, driven by an increase in the number of patients on therapy. And as Flemming outlined earlier, LIALDA sales were up 32%. We exited the year with a marketed share -- market share of almost 29%, up a full 6 percentage points from the same time last year. As Flemming said earlier, we expect to see more modest growth from LIALDA in 2014. REPLAGAL sales were ultimately down 6% as a result of 3 factors; slightly lower total volumes with the return of competition to the Fabry market, particularly in Europe; the impact of foreign exchange; and some pricing pressure in some markets. Specifically, in the fourth quarter, REPLAGAL was up 11% as the year-on-year impacts of competition moderated. We also benefited from the recognition of a one-time benefit of $6 million as we were able to reverse a provision we recorded in the second quarter of 2013. ADDERALL XR sales were down 12%, held back by higher sales reductions in the year and the full year of competition from the additional generic competitor, which launched in June 2012. VPRIV sales were up 12%, reflecting continued growth in the total number of patients on therapy. And INTUNIV continues to perform well, up 16%. Growth was slightly lower in the fourth quarter due to some de-stocking, equivalent to sales of about $10 million. And finally, FIRAZYR, which as Flemming has outlined, has generated an impressive 102% of growth to $235 million in the year.

Turning now to Slide 10 and our operating ratios. In 2013, we've delivered an EBITDA margin of 38%, an increase of 6 percentage points from 32%. This represents a real step change in the operating leverage we're delivering. We've simplified our business without taking out capability, and this resulted in combined R&D and SG&A being 2% lower than 2012. For the full year, R&D increased by 6%. And as we've passed -- gone through the year, we've seen the rates of growth in R&D slow throughout the year as some of our Phase III trials were concluded, and we reprioritized our portfolio. SG&A was 6% lower than last year as we've started to eliminate duplication and create leaner support functions to deliver more efficient growth. At the same time, we've continued to invest in our commercial capabilities, and this investment accounted for the higher absolute level of SG&A in the fourth quarter compared to the third quarter. All of these benefits will be sustained, and we expect to deliver further operating margin improvement in 2014.

Before I hand back to Flemming, let's now look at our cash flow on Slide 11. Our cash generation approached $1.8 billion, and we've delivered free cash flow of $1.3 billion. As I mentioned earlier, cash flow was held back in 2013 by absorbing almost $100 million of DERMAGRAFT's operating losses and just over $65 million of reorganization costs. We generated a net cash inflow of $757 million, and we ended the year with a net cash position of $2.2 billion. Net debt after allowing for the settlement of the ViroPharma acquisition is now about $1.5 billion. Shire is a highly cash-generative business and, with a strong and flexible funding position, continues to provide significant capacity to invest behind further potential growth opportunities.

And I'll now hand you back to Flemming and our 2014 priorities.

Flemming Ornskov

Thank you, Graham. Let's move to Slide 13, and let's talk about the 2014 priorities. We see another great year ahead for Shire in 2014 as we continue to position the company for future growth. On this slide, you can see the areas that we'll be focusing on. Again, it will be delivering our strategy and improving our operational discipline. With our strategy, we'll further refine our therapeutic area of focus for future growth on Rare Diseases, and we'll continue to strengthen our portfolio and pipeline organically and through M&A. Operationally, we'll continue driving commercial results. We'll make sure we see further leverage through our One Shire reorganization. We'll advance our pipeline, and we'll integrate ViroPharma.

Moving to Slide 14. We are very excited about our newly-expanded Rare Diseases business since closing the ViroPharma acquisition on January 24 of this year. CINRYZE has joined the Shire portfolio, contributing, on a pro forma basis, 21% of our Rare Disease product sales in 2013. And we now have a $2 billion portfolio of Rare Disease products, with all considerable growth ahead of them. You can see on the chart here the strong growth of CINRYZE since its launch. We expect this growth to continue.

Moving to Slide 15. I'll tell you about our ongoing integration. We've identified 5 key success factors for this integration: one, drive revenue for marketed products; two, ensure uninterrupted supply; three, realize cost and revenue synergies; four, leverage talent; and five, extract value on ViroPharma's pipeline programs. Our team is intently focused on delivering on all of these goals. You can see some of the detailed actions that we're undertaking on this slide. We're maintaining and building commercial efforts behind CINRYZE. ViroPharma sales force has proven its effectiveness, and we aim to build on this. We are retaining the strength of both the CINRYZE and FIRAZYR sales forces, and we'll be leveraging the Shire international infrastructure to ensure we continue to deliver to our HAE customers. Naturally, we were aware during due diligence of the manufacturing challenges that ViroPharma faces following receipt in 2013 of the warning letter by Sanquin, the contract manufacturer of CINRYZE. Our own manufacturing team is now working collaboratively with Sanquin to ensure that the issues are addressed, and that we can provide uninterrupted supply of product to meet the significant growth targets. We were clear when we announced this acquisition that we saw opportunities for cost synergies. We are applying a One Shire philosophy to this integration as we integrate all business activities and determine the ideal site footprint. We are rapidly transitioning the G&A functions, but taking some more time to ensure we preserve and build value from the commercial and the research and development resources. We see challenge and passion within ViroPharma, and we are ensuring that we build on this strength in the new combined organization. This is particularly evident in their commercial team and through their work with patients' advocacy. Finally, at our Pipeline committee meeting last week, we evaluated the ViroPharma pipeline programs. We assessed the scientific and commercial potential in all the programs to ensure we prioritize those that fit our investment criteria and strategic patient focus. I'll walk you through our decisions in a few minutes.

Moving to Slide 16. We see valuable revenue opportunities in the U.S. acute and prophylactic HAE markets. Now we can offer patients a choice of 2 complementary therapies, CINRYZE and FIRAZYR. We have 2 dedicated sales forces to offer broader and deeper reach to expand physician awareness and education of HAE and strong patient support services. As you can see from this chart, patient numbers have grown over the past 5 years, and we expect this trend to continue. There are an estimated 7,000 to 8,000 HAE sufferers in the U.S. with only about 3,000 to 4,000 currently on treatment. So as you can see, a great opportunity for us to deliver to patients' unmet need and to grow our business at the same time.

Now let's move to Slide 17 and look at our pipeline. This is a pipeline that's innovative and contains product that could potentially deliver considerable future value to patients and to our company. As part of our strategy shift and refocusing of Shire, during 2013, we took a hard long look at our pipeline and identified the programs that meet our strategic focus and those that we believe have the greatest potential for scientific and commercial success. We exited those that did not, enabling us to ensure that our development investment is in line with our growth strategy. We also reviewed our R&D structure and created one R&D team under the leadership of Dr. Phil Vickers, and we made it clear that our early stage research efforts will be focused primarily on the development of Rare Disease treatments, an area that we know well, in which we have unique capabilities and where there is considerable unmet patient need. During the year, we've been pleased with the progress of our pipeline, and we've announced data from many of our development programs. We were especially pleased with the results of the investigation of LDX, the active ingredient in VYVANSE, for the treatment of Binge Eating Disorder. This is a condition with few patient treatment options available, and the data showed a very positive response in the 2 Phase III trials. The data from the Major Depressive Disorder trial was less pleasing. However, it has enabled us to make a quick and clear decision not to pursue this indication. With the ViroPharma acquisition, we also acquired a range of assets to evaluate. We completed this review process last week, and I'm announcing today, our plans. We have decided that we will move forward with the CINRYZE programs. These programs include investigating CINRYZE for a potential subcutaneous treatment, a low-volume intravenous variation, a recombinant version and a range of other potential new uses and, finally, a filing in Japan. With the 2 often designated products, we will complete the Phase II studies of Maribavir and then assess the data for this potential treatment for CMV section in transplant patients. And we will complete the Phase IIa study for VP20629, a potential treatment for Friedreich's Ataxia, before deciding how to move forward. The Pipeline committee gave deep consideration to all these ViroPharma programs, and I think we demonstrated today how we will look critically and assess the strategic fit and commercial potential, and we'll make decisions and act quickly to ensure that we're investing in the assets that have the ability to deliver to our growth plans.

Now to the remainder of our pipeline. Since we last talked to you in Q3 of 2013, we filed our XAGRID and VPRIV Gauchers in Japan. We've begun a Phase II/III trial for SHP609, the investigational treatment for CNS manifestations of Hunters syndrome, and we've started a Phase III trial in the U.S. for FIRAZYR in ACE inhibitor-induced angioedema. We've also withdrawn our EU submission for the same indication pending completion of an ongoing Phase III trial. We're truly pleased with our innovative pipeline. But of course, we are always working harder to strengthen it even further.

Now moving to Slide 18. We have some exciting pipeline news ahead of us. You can see on this slide, we will present our INTUNIV data at a meeting in March, and we're preparing our European submission. We have SHP602, the [indiscernible] agent, reporting headline Phase II data later this year and, we will have the head-to-head VYVANSE versus CONCERTA Phase IV data later this year. And in the first half of 2015, we'll have Phase II headline data for Maribavir and Phase II headline data for SHP607, which is our product for retinopathy of prematurity. SHP613, which you may also know as VASCUGEL, is a promising compound in Phase II, will bring us data later in 2015. This is a little later than originally anticipated due to a somewhat slower enrollment. So it will be a very busy year. As well as the richness of what you can see here, we are also fully focused on continued business development. So you can expect more in-licensing and more M&A as we seek to even further strengthen our pipeline.

I'd now like to hand back to Graham to take you through our outlook for 2014. Then I will be back to sum up. Graham?

Graham C. Hetherington

Thank you, Flemming. Now let's go straight to Slide 20 and our outlook for 2014. I thought it would be helpful to show how our guidance has progressed and increased since I've last updated you earlier in the year. We've now included ViroPharma for 11 months. We expect that this will now be 7% accretive to earnings compared to the 5% I've suggested when we first announced the proposed transaction last year. And we've also included the impacts of not incurring the losses we anticipated in 2014 from DERMAGRAFT, a further 3% accretion. With this, we're increasing our expectations of 2014 EPS growth to be at a similar level to the 23% growth delivered in 2013.

If we then turn to Slide 21, I'm providing greater detail behind this increased guidance. We expect mid- to high-teens growth in product sales in 2014. This reflects the inclusion of 11 months of ViroPharma's growing product sales and the slightly lower rates of growth from underlying product sales. Product sales growth last year significantly benefited from the very strong performances of both LIALDA and FIRAZYR, and it's inevitable that the growth from these 2 products will moderate in 2014. We'll also see the impact of a generic INTUNIV towards the end of the year. The royalties and revenues are expected to be 10% to 15% lower, and we expect our gross margin on product sales to be approximately 1% lower than 2013 as we experienced a slight dilution from the ViroPharma portfolio. We're going to continue to see the benefits from the resets of our cost base and our increasingly focused R&D portfolio. With this, we expect our underlying operating expenses in 2014 to be slightly lower than 2013.

Taking our cost guidance from Q3, less of then expected DERMAGRAFT costs, plus 11 months of ViroPharma costs, including some early integration benefits, we now anticipate total combined R&D and SG&A will be between 6% and 8% higher than last year. Net interest expense is expected to be at a similar level for the year overall to 2013. The 2 drivers of this position are, first, our $1.1 billion convertible bond converted at the end of last year, so we won't incur the associated interest expense at just below 3% in 2014. Second, the all-in interest costs on the $1.9 billion we've drawn down to part-fund the acquisition of ViroPharma is at a slightly lower rate, currently just under 2%. Our core effective tax rate is forecast to remain in the range of 18% to 20% for the year. We continue to expect our diluted number of shares to be approximately 595 million. So taken altogether, these dynamics really reinforce a business in robust financial health and result in our increased guidance of non-GAAP EPS growth in 2014 at a similar level to the 23% growth we delivered in 2013. Flemming?

Flemming Ornskov

Thank you, Graham. Before I sum up, I'd like to say a few words about our other announcement today. On behalf of the Shire Board of Directors, I'd like to express our thanks and appreciation for Graham's contributions to the company during a period of significant growth over the past 6 years. As you will have read, Graham will step down after a very successful and very busy 35-year career in corporate life on March 1 of this year. James Bowling, who has been with Shire for 9 years as a Senior Leader of the Finance team, will become our interim Chief Financial Officer. James is also here in the room today and will be available during our Q&A session in a little while.

Now let's move on to our final Slide 23. Our focus on delivering our strategy and improving operational discipline has successfully repositioned Shire for continued growth. We are very pleased with the results we announced today, but we are not complacent. We are very ambitious for this company, and we know that we can deliver more strong growth in the future through continuing our actions. At the beginning of this presentation, I walked you through the actions that delivered our success in 2013. You can see these on the left-hand side of this slide. In 2014, as you can see on the right-hand side of the slide, we will work further on strategy and on operational discipline. We will further refine our therapeutic area strategy, while strengthening our pipeline both organically and through M&A. We'll continue driving growth of our In-Line products. We'll maintain our discipline to drive further operational leverage. We'll advance our pipeline. And last, but certainly not least, we'll ensure successful integration of the ViroPharma business. Finally, I've thoroughly enjoyed my first year at Shire. I'm very grateful for the efforts and dedication that the 5,000-plus Shire employees around the world have demonstrated during the past 12 months. As you have seen, Shire is in great shape, and it has a really excellent future ahead of it.

Now Graham and I, supported by James, will be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from the line of Ken Cacciatore at Cowen.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Just a couple of quick questions. First, Flemming, just wondering if there's any general commentary of additional learning you could provide for us as you've analyzed the Lifitegrast data. I don't know if you had any comments as you've gotten a little bit deeper ahead of your FDA meeting. And then also, in terms of the potential M&A strategy, it seems historically, there's been some pushback in terms of valuation of orphan assets, so do you find the valuation as more compelling? And can you talk a little bit about looking for a pipeline versus unmarketed orphan assets?

Flemming Ornskov

Thanks very much, Ken. Great questions. I noted 3, one on Lifitegrast, one on M&A and one in general on pipeline supplements. So on Lifitegrast, we continued to study the data. We have had experts' inputs. We are preparing the package. Having worked in this field for quite some time, I am still, every time I look at the data, truly impressed and so are everybody else that are looking at the data of the statistical significance that we saw both on primary and secondary endpoints for the symptoms of Dry Eye disease. That's a first in Phase III trial history for Dry Eye. I'm also struck by the consistency of the science data in Phase II and Phase III. That was Opus-1 in the Phase II. So I think we will have to look at the totality of the data and discuss the totality of the data, but I remain positive, and we are aiming at presenting the OPUS-2 data in a meeting later in the year. The details of patients and symptoms and subpopulations will be in that presentation. As to M&A, I think that we've shown with ViroPharma that we can acquire an attractive asset at an attractive price and continue to deliver also on the relevant synergies and the growth prospect. And yes, there are many expensive assets out there, but there are also other assets that we still find could be of interest at the right price. Pipeline, I have no preference for whether it's acquisition of the product or an acquisition of the product, per se. I'm only interested in the degree of innovation and the strategic fit.

Operator

The next question is from the line of Dani Saurymper at Barclays.

Dani Saurymper - Barclays Capital, Research Division

A couple of quick questions, if I may. Firstly, on VYVANSE and the TRx growth of what looks to be about 6%, plus you have some stocking benefit and price increases. Given the BED indication, it will not be to come about until 2015, can you just give us your thoughts on the growth outlook for VYVANSE in the adult and pediatric markets for 2014 going forward, and what kind of price the market might still be able to stomach after, I think, you took a 16% gross price increases in 2013? And then secondly, perhaps you could just give us a bit of a flavor for your expectations for CINRYZE. I know you don't give a specific product sales guidance, but perhaps in this instance you might. And then also you have no mention around BUCCOLAM and PLENADREN. I'm just wondering what your thoughts are there in terms of the long-term prospects. ViroPharma previously used to think of those as at least maybe $200 million, $300 million opportunities in the longer-term.

Graham C. Hetherington

So Dani, why don't I start with VYVANSE? I think that -- let me just correct you on one thing. In the full year, we've actually seen de-stocking of VYVANSE. So I think as we look forward into 2014, while the market growth has slowed, I think we can still see some market growth. We still absolutely are targeting and anticipate growing our market share. We will benefit in the first half from the price increases that we posted both at the middle of 2013 and at the end of 2013, and we will benefit in the second half from the price increase that we posted at the end of last year. I think all of those things add up to us being a bit comfortable with market consensus for VYVANSE, which is a good mid-teen growth.

Flemming Ornskov

And then if we go to CINRYZE, I think that was your second question. I think what we said here is that it has shown very impressive double-digit growth, and that we expect to continue that growth trajectory. I think we will give further guidance as we go through the year. I think, at this stage, we have a goal of keeping the 2 sales forces separate to keep them with full momentum to meet the cost of those needs and to continue the impressive growth trajectory. And as to BUCCOLAM, BUCCOLAM is a very good second detail of our international Neuroscience sales force, so we're in the process of making that a second detail. PLENADREN, we're assessing PLENADREN. There is also an assessment about whether there is a U.S. market opportunity in light of further trial requirements. But here, it's too early days. So overall, to summarize on your 3 questions, we remain confident that we'll continue good growth despite market dynamics in the ADHD market through share and volume growth. On CINRYZE, we want to continue the strong growth trajectory. BUCCOLAM is quickly integrated into our Neuroscience franchise, and PLENADREN is in our Internal Medicine unit, and we will make further assessments about also the U.S. market opportunity.

Graham C. Hetherington

Could I just take this opportunity just to share with the market 1 data point? You can more or less deduce it from Chart 14. But the unaudited pro forma net revenues for CINRYZE globally in 2013 was $412 million, so I think that's just a useful data point for analysts to bridge from. Bear in mind, as you grow that into 2014, we will only be benefiting from 11 months, not 12 months of gross revenues.

Operator

The next question is from the line of John Boris at SunTrust.

John T. Boris - SunTrust Robinson Humphrey, Inc., Research Division

Just 2 questions, ViroPharma-related, on CINRYZE. Can you discuss, Graham, since -- or Flemming, since you have had your team go in and visit the manufacturing facility in Sanquin, what additional steps, and how much time is needed to resolve some of the manufacturing issues? What are your current inventory levels on CINRYZE, and are there any back-orders on the asset? And then for Graham, on the 7% accretion on ViroPharma, can you maybe discuss some of the pushes and pulls there that could potentially drive that accretion level higher? It seems to be a bit conservative. And then Graham, more broadly, can you maybe just discuss the quarterly progression of earnings throughout the year?

Flemming Ornskov

So on the ViroPharma manufacturing situation through the contract manufacturer, Sanquin, we were aware of that through due diligence. We've put a team on this at Day 1. We have a very good collaboration established with Sanquin. They have a planned short shutdown for some other activities that they have to do. We have built stock and are building stock to cover that period. We're monitoring all through it through relooking at all the forecast, so I think that's under control. The FDA warning letter had a big number of things that have to be done. Our team is working collaboratively with the Sanquin team, and I'm confident we will resolve those issues. And of course, as you saw, 1 of the 5 success criteria is uninterrupted supply for all of their products, including CINRYZE. So it's a key factor for us. But I don't see that there's anything in particular that would make me worry at this stage. Graham?

Graham C. Hetherington

I think in terms of the 7% accretion, we had increased our guidance on accretion from 5% from the time that we announced the transaction, but the reasons for that are twofold. The first is when we announced the transaction, we were not clear how long it would take to get competition clearance and from that, when we'll be able to complete. So that accretion assumed that we owned ViroPharma for 9 months. We will have owned it for 11 months in the year, so that supports some of the increased accretion. And the second is because of the cash generation of that business, which has been stronger than we expected, we've actually had to draw down less debt, and with that, that further enhances our accretion. The key dynamics which underpin the delivery of that accretion are, first, the continued growth of CINRYZE, and I just reinforce the disposition that Flemming laid out, which is we are keeping the CINRYZE sales force whole absolutely for all of 2014 so that there is absolutely no distraction from the continued developments of CINRYZE brand. The second is the harnessing of synergies. It's still -- we're only weeks in. Our confidence remains that there is absolutely $150 million worth of synergies to be achieved. We believe that between 1/3 and 1/2 of that will be delivered in 2014, and that's what underpins the 7% accretion. I'll be delighted this time next year if Flemming and the team were able to announce that ViroPharma has been more accretive, but I think at this stage, 7% is very much a good number.

Operator

The next question is from the line of Mark Clark at Deutsche Bank.

Mark Clark - Deutsche Bank AG, Research Division

A couple of things. Firstly, I noticed in the statement that the Lexington facility seems to have the requisite nod. So can I just double check firstly that you are now unencumbered in your supply for VPRIV and that's an end to this slightly long-running saga? And secondly, a pipeline question on the Rare Disease area. You've mentioned starting the Phase II/III program on the Hunter CNS program. I'm aware that there's been some sort of roadblocks in the past on the intrathecal programs with the device, et cetera. Can you just assure us that everything is set fine there and what the timelines are for potential data readouts from the Hunter CNS program and also the Sanfilippo program?

Flemming Ornskov

So maybe I can take your first question. Well, when you have an abundance of good news, something that's even fantastic comes a little bit in the background. So it's absolutely true. You read the press release and the information correct. [indiscernible] has been approved, so we are unencumbered in our supply for VPRIV, so we're very pleased about that. Whether it's been long or short is kind of, at this stage, I think, less relevant. We're very pleased, and I'm very pleased with the effort that the team made here. So we are unencumbered. As to the SHP609, which is our Hunter CNS program, so it up and running with a new device in Europe. In the U.S., it can be administered without the device, and we're in the final stages of sorting out whether it can be potentially administered with a new device. And once we know that, we will be very clear about the prospects for when the trial will read out data, but we need to get the last thing cleared, and we are engaging with the FDA on providing the last proof about the new device.

Operator

The next question is from the line of Peter Verdult at Citi.

Peter Verdult - Citigroup Inc, Research Division

Two for Flemming. Regarding the ADHD franchise, Fleming, will the sales and marketing investment in 2014 be maintained, increased or decreased versus the 2013 number? And then on top of that, can you just give us a ballpark spend of the incremental cost and approval in the U.S., the binge eating would have with respect to the sales force for AMP? And then just secondly and strategically, if you are successful with your efforts of keeping the pipeline and enter new therapeutic areas, is there going to be a point in time where you'd be willing to divest either/or the ADHD and GI unit? Or should we just simply think of these divisions as cash generators to fund your pipeline expansion efforts?

Flemming Ornskov

So ADHD, we made some additional investment last year, mainly also by reshuffling from noncustomer-facing to customer facing and field force-related investment. The investment that will take place in addition to the field force, I don't want to expand the field force for ADHD in the U.S. There has been investments in building up the market in Europe, of course, and finally, we will have to do some market development activities in -- once we have filed the application for binge eating disorder for VYVANSE. We only plan to file that in the third quarter, so I think the investment will not dramatically change. Tendency will be a little bit up, but that will also be necessary because we continue to launch in new countries, and we still have efforts in Europe, and that still drives significant sales. And particularly, Canada is very successful in this launch. So there's a number of activities that still requires significant funding but are generating the sales and the profit that they should. Your other question was in order to basically build the pipeline, would we sacrifice key assets? Right now, we are incredibly cash-generative, and you've seen that we will very quickly pay off the ViroPharma acquisition. So I think the ability to fund future potential acquisitions, product or company acquisition is not encumbered. I think we look at our franchises in the light of do they fit the strategy firmly. They all fit the strategy, and we stick to those franchises. But we will look also at individual products in those franchises over time. So I think it's a dynamic situation, and it's focused about growth and strategy. And we take consistent look at our portfolio also because we keep adding, like with ViroPharma, new assets into it. We're all about growth, patient needs and specialty medicine.

Operator

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

David Amsellem - Piper Jaffray Companies, Research Division

I have a LIALDA question. What are your latest thoughts on the Actavis case? And then with Actavis eventually planning a Delzicol HD launch and another switch, do you potentially -- do you think you can potentially benefit down the road for more market dislocation resulting from that?

Flemming Ornskov

Well, we love market dislocations. We had a dramatic share increase for LIALDA this year. It's one of the best years ever, so we are very thankful for the switch of ASACOL, and we look forward to also further switches. I noticed that there's a high-dose ASACOL, so we're certainly very positive about these opportunities. And we've shown we are very quick to capture those opportunities. Yes, there are is several challenges to LIALDA, and there's an ongoing case with Watson. There was, as you know, a hearing in December, and there's probably decision to become in 3 to 6 months. We remain confident in our position, and we're not changing any plans for our strategy in that particular area also in terms of patent.

David Amsellem - Piper Jaffray Companies, Research Division

And then a pipeline question, if I may, on PREMIPLEX. Given the nature of the unmet need, what are your thoughts on possible using that Phase II as the basis for a regulatory submission?

Flemming Ornskov

I think as you get to know me, you'll see that I'm a pretty realistic person. I know there's a significant unmet need. I know that there is a significant amount of opportunity. This is one of the biggest trials. If it enrolls fully, we'd have 6,200 patients in it. So it would be a very big -- one of the biggest Phase II trials in this category. I think we should see the results, and then we should take a cold clinical look at the data in light of other opportunities. I don't want to speculate whether this is enough or not enough. What I know is I want to develop this product because there's a significant unmet need. The product's early data are outstanding. This could be a breakthrough in prenatal care not only for retinopathy but potentially down the line for other indications. So I'm optimistic, but we are in Phase II. I cannot say whether we are any longer than that.

Operator

The next question is from the line of Amy Walker at Morgan Stanley.

Amy L. Walker - Morgan Stanley, Research Division

I have 2 questions, please. The first is on ADDERALL XR. You mentioned in the release that the 12% decrease that we saw in 2013 was actually flattened by some stocking at the end of the year. Can you quantify how big that effect was, please? Consensus is looking for a 21% decline to 2014, which looks to me to be the consensus given that there was an annualization of some generic impacts in 2013. I just wondered whether you would agree with that statement. And the second question, you're guidance for OpEx for 2014 is helpful, but I wondered if you could give us a bit more of an indication on your expectations for R&D and SG&A evolution separately. Again, consensus is looking for 11% increase in SG&A, which seems a bit high. I don't know if you could have any insight into the degree to which consensus already factored in benefits from DERMAGRAFT removal, ViroPharma synergies, et cetera.

Flemming Ornskov

So I noted 2 very challenging questions. One on stocking on ADDERALL XR and the other, some more specifics on SG&A and R&D. And I'm very pleased to pass those questions on to Graham.

Graham C. Hetherington

Thank you very much. Let me start with ADDERALL XR. In the full year, ADDERALL XR sales were down 12%, and actually, the biggest driver of that was not actually stocking. It was gross to net. In 2012, the average discount, gross to net, was 61%. In 2013, it increased to 68% for the full year. And by the time we got to the second half, it was over 70%. So 72%, 73%, and I think that's the kind of number that you will see going forward into 2014. In terms of stocking, there was, in 2013, in total terms, about, at the net level, about $15 million worth of stocking in the full year. So hopefully, those are helpful reference points on ADDERALL XR. In terms of SG&A and R&D, we are managing our portfolio and our investments on a very active basis. And what -- if I was to give you any explicit guidance on SG&A and R&D, I can assure you, I would get it wrong for the team going forward because it will change. R&D in Shire is not driven by a percentage of sales. It is driven by the portfolio investment decisions, which the portfolio team make, and I think Fleming did a great job of characterizing that work in his piece. What I think I can say is directionally, from 2013 into 2014, we are seeing some increase in SG&A absolute, on a like-for-like basis, and we are seeing directionally R&D down year-on-year on a like-for-like basis. Now on top of that, you have to overlay the ViroPharma numbers. So we've tried to be as helpful and as explicit as we can by giving you combined R&D and SG&A up year-on-year, increasing by between 6% and 8%. And we're not going to give any more detailed guidance than that.

Operator

The next question is from the line of Kerry Holford at Crédit Suisse.

Kerry Holford - Crédit Suisse AG, Research Division

I have 2 questions, please. Starting on margins, looking at 2014, based on your guidance and the moving parts, I kind of get that you should be reaching non-GAAP operating margins of around 40% this year. I'm just interested in your thoughts on how that may have evolve further given that you're reaching a target now that's ahead of many of your peers. And prior to the acquisition of ViroPharma, you did talk about holding R&D and SG&A costs combined flat in 2015. I wondered, is that still achievable post ViroPharma, post continued patent expiry and with the VYVANSE binge eating launch in the mix as well? I'm still interested in your outlook for 2015, if you can make some comments there. And then going back to Lifitegrast, the comments you've made with regards to the discussions with FDA, I believe you're also waiting for the SONATA Phase III study data. I thought that was due the middle of this year, but I see it's not on your accompanying slide. So should we assume that it's unlikely, therefore, that you'll file this drug in the U.S. this year and that additional studies may be required before you do that?

Flemming Ornskov

So maybe I'll just start from the other end and address the Lifitegrast question. I must have misspoken or you may have misheard. I did not say we've had interactions with the FDA. I said we are preparing for interactions with the FDA, so I just want to clarify that. It is absolutely also true that any filing will be dependent on the SONATA data, which we still expect to come later this year. So a filing in 2014 is absolutely viable. But we want to have a discussion with the FDA before we see whether this is realistic or not. We are preparing for that. We're getting in and external advice, so that is all on track. So there's probably an oversight. We didn't put it up there because it's basically part of an ongoing program, but SONATA will also read out this year and will be part of the package that was required for a filing . As to your guidance questions, I'll ask Graham, if he has any comments.

Graham C. Hetherington

So in terms of margins, in 2014, Kerry, you were suggesting that you got to 40%. I'm not going to confirm a precise number, but certainly, our calculation is get to an EBITDA margin, definitely, with a 4 in front of it. Moving to 2015, I think we've already given some pretty comprehensive guidance on '14, and I'm -- we're not going to be giving detailed guidance 2 years out. But what I can confirm is that the work that we've done under One Shire and will be completing this year absolutely means, on a like-for-like basis, adjusted for DERMAGRAFT and adjusted for ViroPharma, the guidance we gave that our underlying cost base would be $300 million less than the then guidance. That is what we are on track on. The one big delta around that is in terms of investment. I was very intentionally calling out a couple of minutes ago that R&D -- sorry, Shire does not run its R&D budget as a percentage of sales. The budget is determined by the quality of the investments which we're able to secure and invest in, and that can move that R&D number and investments around. So Flemming, the team and Shire will continue to update you on progress on source of investments, and from that, you will be able to start to adjust R&D profiles on a go-forward basis.

Operator

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

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

I have one question about ViroPharma and about the new versions of CINRYZE. So when is the next data point on the subcu formulation? When could you actually be filing it, and where would that put you in terms of how far behind CSL? And then you mentioned some other versions. So the low-volume version of CINRYZE, how much of an advantage really is that? How much lower is the volume? And I couldn't see the recombinant version on the chart. Where actually are you in the recombinant version? When can that come along? Also, just, I think, a couple of questions on VPRIV. So VPRIV grew 12% this year, but what's the medium-term outlook for the product in light of oral products that are coming along? Do you really need an oral product to compete in Gaucher's disease? Because Sanofi are going to be launching their oral in H2 this year. And then Protalix said that they're going to start Phase III for their oral.

Flemming Ornskov

Thanks very much, James. This is Fleming. So on ViroPharma, I wish I had answers to all of your questions. This is still early days for us. It's absolutely true that we're not the only ones in development with the subcutaneous. I can only say I was present last week at an in-depth R&D meeting. I looked at all the data that they have for the subcutaneous formulation. I looked at their development pad. I think it looks good, promising. There's still a number of things that needs to be sorted out. So it's too early for me and my team to give you specific guidance, but give us a little bit more time, and we will come in that category. The IV low-volume formulation is interesting. Whether this is a significant opportunity in the ex-U.S. or U.S. market, again, here, we are evaluating that also against the timelines for our subcutaneous against [indiscernible] timelines. The recombinant is early, very early. So you're right. We just want it for completion to say that that's a future opportunity, and we think that could be a significant future opportunity. That's why we raised it but again here, it's very, very early, so nothing more to comment on that. Yes, I know, if you take a market where there are intravenous or other modalities available and then you say, we come with an oral that's going to wipe out the market, this is not going to happen. There's a lot of conservatism. There's a lot of question marks. I think we should see the data. We should see the actual opportunity, that there are other opportunities also, with Protalix out there. We're totally aware of that. We think we have an excellent product. We think the product will have a significant market opportunity. We're absolutely sure that if there's an oral product that could enter the market this year or next year, this will increase the offerings for the patient and the competition, but we are well prepared.

So with that, I would like to thank you very much for your interest, and thank you very much for your many excellent and challenging questions. In summary, I think that you can see we have had an excellent, some could say an outstanding year. We've delivered double-digit product sales growth, 12% up on an ongoing basis, 23% increase in non-GAAP earnings per share. And we've given outlook for similar non-GAAP earnings per share growth in 2014. 2013 has been a year with a lot of reset of Shire strategy and cost-wise, and I think you're seeing that that has delivered not only in '13 but also will deliver in '14. And in the midst of all of that, we also managed to do the company's biggest acquisition ever. So we're in good shape. I also want to take this opportunity one more time to take thank Graham for being a great partner for me during a year of lots of challenge, lots of fun and excellent results that couldn't have been achieved without him. I'm also very pleased that James will be my new partner in crime, and I'm sure we'll have a lot of fun this year as well. So thank you very much, and I look forward to interacting with all of you.

Operator

Ladies and gentlemen, this now concludes today's call. Thank you all for attending. Participants, you may disconnect your lines now.

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