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Executives

Sarah Elton-Farr -

Angus C. Russell - Chief Executive Officer and Executive Director

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

Michael Cola - President of Specialty Pharmaceuticals, Member of Senior Staff Committee and Member of Management Committee

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

Analysts

Peter Verdult - Morgan Stanley, Research Division

Ken Cacciatore - Cowen and Company, LLC, Research Division

Jo Walton - Crédit Suisse AG, Research Division

David M. Steinberg - Deutsche Bank AG, Research Division

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

William Tanner - Lazard Capital Markets LLC, Research Division

Brian Bourdot - Barclays Capital, Research Division

James Dawson

Keyur Parekh - Goldman Sachs Group Inc., Research Division

Shire plc (SHPGY) 2011 Earnings Call February 9, 2012 9:00 AM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to Shire's 2011 Full Year Results Conference Call hosted by Sarah Elton-Farr. My name is Bupendra, I'm your event manager this afternoon. [Operator Instructions] And now I would like to hand the conference over to Sarah. Please go ahead.

Sarah Elton-Farr

Thank you, Bupendra. Good morning, and good afternoon, everyone. Thank you for joining us for today's -- Shire's full year 2001 -- sorry, 2011 financial results. By now you should have received our press release and should be viewing our presentation via our website on www.shire.com. If, for some reason, you have not received the press release or are unable to access our website, please contact Souheil Salah in our U.K. Investor Relations department on +44 1256 894 160, and he will be happy to assist you.

Our speakers today are Angus Russell and Graham Hetherington. Mike Cola and Sylvie Grégoire will be available for Q&A as well. Before we begin, I would refer you to Slide 2 of our presentation and remind you that any statements made during this call which are not historical statements will be forward-looking statements, and as such, will be subject to risks and uncertainties which, if they materialize, could materially affect our results.

Today's agenda is as follows: we begin with opening remarks of Shire's performance and highlights from Angus, and then Graham will continue with the financial review. Angus will then make closing remarks and will open up for your questions. [Operator Instructions] I will be more than happy to follow up off line for any subsequent questions or clarifications.

And now I'll hand over the call to our CEO, Angus Russell.

Angus C. Russell

Thanks, Sarah, and hello, everyone. So let's turn to Slide 5 in the deck. And as you can see from the title here, looking at our revenues, we've delivered a very strong revenue performance from a balanced portfolio, which really continues to deliver this very strong growth outcome. It's nice and consistent. If you look at the numbers at the bottom of this page, you see 23% growth in revenues in quarter 4 and the same for the full year. And within that full year result, product sales were actually up 26%.

Turning to the next slide, we see the same consistency in our non-GAAP earnings, up again 26% for the full year, $1.51 in the fourth quarter. And that brings us to $5.34 for the full year.

Turning to the next slide, let me just summarize some of the key business highlights from the past year, starting with the HGT portfolio. FIRAZYR, one of our most recent product launches, is doing extremely well in the U.S. We've seen a very strong product demand from patients and physicians, and we've gained rapid market access with payers. The emergence of new treatment guidelines is actually also reinforcing FIRAZYR's value to patients.

In regard to REPLAGAL, as you know, we completed our BLA submission in the U.S., and we now have a confirmed PDUFA date of May 17 this year. In regard to VPRIV, I'm pleased to say that most recently, the FDA completed their inspection of the plant, and we remain very confident of gaining an approval in the first quarter of this year. That approval will, in itself, increase our cell culture capacity 8x from about 1,000 liters to 8,000 liters.

And finally, just looking at the pipeline, we've got very exciting development programs with intrathecal delivery of proteins for more chronic diseases and also in Hunters, in the CNS form of Hunters. You can see them listed here. The lead program is Hunters CNS. Behind that, we have Sanfilippo A. And then sometime this year, we hope to be advancing metachromatic leukodystrophy out of preclinical and into human studies. We're also initiating a natural history study in the other form of Sanfilippo, in Sanfilippo B.

Turning over and reviewing some of the specialty pharma highlights of the year, starting with VYVANSE. As you know, we recently announced at the end of last year that we filed a very large clinical package with the European authorities. I'm pleased to say they later confirmed acceptance of that filing for review. We also recently gained approval from the FDA for a maintenance indication of efficacy in adults with ADHD, and that's the first time a product in this class has ever gained that claim on its label.

We also have seen now our first steps into other international markets outside of Europe. I'm pleased to say that we've signed a development commercialization agreement with Shionogi for the development of both VYVANSE and INTUNIV in Japan. And finally, in regards to the new uses of VYVANSE, we recently highlighted we were beginning a Phase III program. And I'm pleased to say we're now enrolling patients in that first Phase III study for major depressive disorder.

Moving on to INTUNIV, we've seen a very favorable increase in market share over the last year, driven by, we believe, our new consumer marketing campaigns and also the indication or the approval we got early last year for the use of INTUNIV as an adjunctive therapy with stimulants. We're also moving into Europe with INTUNIV, and we've begun enrollment in what will be a pivotal Phase III program, which we hope to file following completion of those Phase III studies.

Moving on to LIALDA in the ulcerative colitis space, we increased our U.S. market share by 21.5% -- no, to 21.5% rather, during the year. And this year, we're looking forward to reviewing the results of what's been a very long and large study into diverticular disease, and we should have that result available for analysis around the middle of this year. And we'd hope to share some of the headline results of that probably in the second half of this year.

And finally, RESOLOR, where, obviously, we've been rolling the product out across Europe for the last couple of years, most recently, we gained approval in Spain and Italy. But in addition, we also announced recently we've now acquired the U.S. rights from Janssen Pharmaceutica.

Finally, turning to the third business within Shire, Regenerative Medicine. As you know, relatively new business for us but one that's already performing extremely well. You can see that since our acquisition of Advanced BioHealing in June of last year, we've actually booked sales of $105 million on DERMAGRAFT. That now means we have a 6.3% market share of the addressable patient population. So relatively small with still, we believe, substantial upside growth potential.

And recently, we submitted for approval outside of the U.S. market in Canada. You can see there, mention of statistics that I've highlighted before, the incidence of diabetes in an aging population and a projection, as I said, that's only forecast to grow over the next 10 years.

So turning over to Slide 10, the next page. We believe that during the current year, what you see on this chart is really this very strong, broad portfolio of products performing very, very well. And Graham's going to review that in more detail, but I'm very heartened to see growth across this entire portfolio on a global basis.

What this chart shows you is the blue products that have been in the market for a few years now, but in addition to that, new orange circles appeared here: FIRAZYR with the U.S. launch; DERMAGRAFT with the acquisition of ABH; VYVANSE in terms of Brazil, obviously, and Canada; and then, as we said, we're seeking now an approval in the U.S. for REPLAGAL and having filed the BLA. And behind that, you see a very good, emerging late stage pipeline: the new uses of VYVANSE, the lead program, as I said, being major depressive disorder; INTUNIV being filed -- sorry, being studied now in Europe in a Phase III program; LIALDA for diverticulitis is going to be the program we probably review first this year. And behind that, a lot of other platforms and technologies and programs that we're working on back in Phase I or early Phase II. All of that put together, we believe, gives us a great emerging pipeline that's going to drive the growth in this company well beyond 2015, up through 2020.

So with those opening remarks, let me just hand over to Graham now to take you through the financial results in more detail.

Graham Hetherington

Thank you, Angus. Good morning, good afternoon, everyone. You've seen that we finished 2011 strongly and delivered another strong set of results. I'm going to focus today on: first, an overview of our performance for the full year and some of the dynamics that have shaped the fourth quarter; second, I'll take a quick look at this quarter's royalty numbers and talk about our expectations going forward; third, I'll talk about the strong growth we've achieved across our broad-based portfolio and how that's enabled us to continue to deliver operating leverage while still investing for future growth; and finally, I'll be providing direction on our expectations for 2012.

On Slide 12, we take a closer look at the strong revenue and earnings growth we've achieved this year. Product sales were up a very strong 26%. Significantly, over 20% of the sales growth was driven by prescription demand. We also saw a small contribution from a combination of pricing and foreign exchange benefits. As we expected, growth in total revenues has been held back by declining 3TC and Zeffix royalties.

Our non-GAAP earnings per ADS of $5.34 are 26% up compared to the $4.23 we achieved in 2010, which was itself 21% up on 2009. Our business model continues to be very cash-generative and contributed $1.4 billion of cash in the year, with almost $450 million of this coming in the last quarter.

Turning now to Slide 13 and our strong performance in the fourth quarter, with revenues growing at over 20%. Specifically, product sales were up 23%, and royalty and other revenues exceeded our expectations in the quarter by growing 17%. I'll talk about these in more detail in a moment. EBITDA was up 54%, aided by the comparison of this year's R&D and SG&A to the particularly high levels incurred in the fourth quarter last year. These dynamics combined to increase underlying operating margins by 8 percentage points, and our non-GAAP earnings grew by 47% to $1.51 per ADS.

Turning to Slide 14. I'd like to highlight some specifics in relation to our royalties. This quarter, we saw higher royalty income than we anticipated. This was primarily due to the stronger royalties from sales of impacted ADDERALL XR authorized generic, over which we've got no control, and also FOSRENOL. This strong quarterly performance limited the full year decline in total royalties and other revenues to 9%, better than our previous guidance of a reduction of 17%.

For 2012, we continue to expect royalty and other income to decline as the vast majority of 3TC, Zeffix and REMINYL markets are quickly impacted by increased competition. You'll also remember that we've not been recognizing some revenue for 3TC and Zeffix due to a disagreement about how the relevant royalty rates should be applied. Dialogue is ongoing to resolve this issue. If we prevail in these discussions, we would be in a position to recognize some or all of these revenues at that time. The total amount not recognized in 2011 was approximately $70 million.

Turning now to Slide 15 and focusing on our full year revenue, which has grown by nearly $800 million and exceeds $4 billion for the first time. Our ADHD franchise continues to deliver strong growth, driven by our brands capturing increased share of the growing ADHD market in the U.S. And VYVANSE had a strong year, exiting with a U.S. market share of around 17% and U.S. prescriptions up 21%. Total sales, including those in Canada and Brazil, were up 27%.

INTUNIV also gained share, with U.S. prescriptions increasing by 78%. Product sales increased less than this underlying rate at 34%, primarily due to $30 million of launch stock revenue recorded in the first half of last year.

ADDERALL XR sales grew by 48%. While underlying prescription growth of 11% was broadly in line with market growth, nearly half of the net sales increase resulted from lower sales deductions, which were 57% for the full year of 2011 compared to 65% in 2010. We expect sales deductions for ADDERALL XR going forward to be in the range of 60% to 65%.

In our GI franchise, LIALDA/MEZAVANT continues to perform well, up 27% as we continue to achieve market share gains in the U.S.

In our HGT business, we also saw strong growth. REPLAGAL was up 35%, driven by strong demand from both new patients and patients switching from Fabrazyme. Some of you will have noted that the Q4 outcome was slightly lower than the outcome in Q3 due to the phasing of some shipment into the third quarter.

Sales of VPRIV increased by 79%, also driven by new patients and those switching from Cerezyme. And finally, ELAPRASE sales were up 15% due to increased patient numbers across all regions.

We've seen a great start from our newly acquired regenerative medicine product, DERMAGRAFT, which contributed over $100 million of sales and continues to grow strongly, up 33% for the full year, driven by a growing U.S. diabetic population and increasing adoption of the treatment, which bodes well for this successful acquisition of Advanced BioHealing.

Overall, total revenues are up 23% or $792 million, even after the negative impact of 3 particular items: the divestment of Daytrana, which contributed $49 million to revenue in 2010; CARBATROL, with sales down $30 million following the introduction of generic products during the year; and finally, the $30 million decline in royalties and other revenues. Significantly, as this chart shows, our strong performance has been generated across our broad-based portfolio, which is set to continue to deliver good growth. I'd point you to further detail behind both our full year and our fourth quarter revenues, which can be found on Slides 26 and 27 in the appendix to this presentation.

Turning to Slide 16. At the top, you can see how product sales growth of 26% was ahead of the growth in R&D and SG&A expenditure of 19% growth. We've absorbed a full year of Movetis and 6 months of ABH costs. And we've also funded the increased investment to advance our pipeline and continue the development of our international infrastructure, which supported a 25% growth in sales outside the U.S. in 2011, and provides a great platform for further growth in the future. With the resulting operating leverage, we increased margins as a percentage of product sales by 3 percentage points to 29% in the year.

Before I move on to the outlook for 2012, let's take a look at our cash flow on Slide 17. As I mentioned earlier, in 2011, we generated $1.4 billion of cash, up 3% on 2010. Growth in cash generation has been lower than the growth in EBITDA this year due to the timing of working capital payments, including some rebate payments which were delayed from 2010 and the phasing of trade creditor payments.

Free cash flow after taking account of tax, interest payments and CapEx was $879 million, up 11% on 2010. This strong cash flow has enabled us to continue to develop our business for the future, including funding our acquisition of Advanced BioHealing in the year. And with this, we finished the year with cash of $640 million and, as a result, net debt of $468 million.

We continue to have a strong and flexible funding position, supported by access to our $1.2 billion bank facility, which is currently undrawn and has 4 years remaining.

Finally, let's look at our full year outlook for 2012 on Slide 18. We entered 2012 with good momentum, following a strong performance in 2011. This supports our confidence to deliver good earnings growth in the year. Investment will continue to be a key feature in 2012, and we're investing to progress new uses for VYVANSE, LIALDA in diverticular disease, and our intrathecal programs at HGT, as well as the ongoing international development of our commercial activities. In addition, we'll be absorbing a full year of operating expenses from ABH. And with this, our current plans will result in combined R&D and SG&A growing by between 10% and 12%.

Our guidance for product sales in the year includes the impact of unfavorable foreign exchange rates at current levels and declining sales of CARBATROL and REMINYL. Overall, I just -- I believe our diverse product portfolio will continue to deliver low- to mid-teens sales growth in 2012.

As I mentioned earlier, we expect the decline in our overall royalty income to continue into 2012. We anticipate that combined income from royalties and other revenues will be 15% to 25% lower in the year. Taken together, I'm expecting low-double digit revenue growth in 2012.

Gross margins will be marginally lower than 2011, driven by the full year impacts of our acquisition of ABH. And by marginally low, I mean less than half of 1 percentage point on gross margins. Lower royalties will hold back growth of our net margins as a percentage of total revenue. But I'm still expecting operating leverage to drive improvement in our underlying EBITDA margin as a percentage of product sales as we go into 2012.

Finally, 2 specific points: net interest, I expect to remain at a similar level to 2011; and our tax rate is likely to be in the range of 20% to 22%. Overall, these dynamics mean that we look forward to another year of good earnings growth whilst continuing to invest in the development of sustained future growth at Shire.

And with that, I'll hand you back to Angus.

Angus C. Russell

Thanks, Graham. So turning to the last couple of slides. Firstly, Slide 20. I'd just like to look at the upcoming year, 2012, and run you through what we believe are some of the key news flow items this year. I mentioned already the completion of the inspection now of our new Lexington facility in Boston and what we expect will be an imminent approval in the first quarter, which will allow both VPRIV and REPLAGAL manufacturing in that new plant. There's the potential REPLAGAL U.S. approval where, again, as I said, we have an upcoming PDUFA date in May and be working with FDA, I'm sure, over the next few months towards what we hope will be an approval.

And then as we get towards the middle of the year, I already pointed to some of the key milestones in our late stage R&D pipeline, first with LIALDA in diverticulitis, or diverticular disease, where we've had this very big Phase III program running for a couple of years, and we'll start annualizing that date around the middle of this year; and then another potential new use for VYVANSE in binge eating disorder, a psychological disease where there is no current treatment for that, estimated to be probably around 2%, 3% of the U.S. population. And we've agreed with the FDA now a Phase II study design, and we're already fully enrolled in that and underway. And we, again, hope to have the results of that proof of concept study in humans around the middle of the year.

There's a potential approval for DERMAGRAFT in the Canadian market where I said that we'd now filed that product for approval. And then later, towards the end of the year, we'd hoped to be hearing back on a decision on VENVANSE in the EU following the filing of that big clinical package at the end of 2011. And finally, again, the intrathecal programs. As we get towards the latter part of this year, we'll be looking at Hunters CNS and Sanfilippo A, our 2 lead programs, and starting to analyze the results of those early Phase I/II studies in humans.

Turning finally then to the last slide on Page 21. I believe again that these results demonstrate that our consistent application of this strategy of focusing on niche markets that can deliver very good value continues to bring 3 very significant outcomes for us: balanced product portfolio, which we expect to continue to deliver good earnings growth, as you heard from Graham; we're also, as he said, investing in very promising now mid- and late stage pipeline opportunities that will begin to shape for all of us the growth prospects post-2015 and up through 2020 and beyond; and with all of this, at the heart of it all, is the fact that we believe we're increasingly delivering valuable and innovative treatments to meet the challenging health care environment that we all now face.

So with that, let me hand back to the operator, and we invite you to ask your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] First one is from the line of Peter Verdult from Morgan Stanley.

Peter Verdult - Morgan Stanley, Research Division

Pete Verdult, Morgan Stanley. Two questions, one for Mike, one for Sylvie. Mike, just on VYVANSE, can you just remind us how many ADHD reps you currently have in Europe, whether you feel the need to increase that ahead of VYVANSE or VENVANSE coming to market? And then secondly and longer term, when you think about VYVANSE and the label expansion opportunities in the U.S., if that -- when it comes to fruition, would we expect an additional specialty sales force to be needed to support the launch of that? And then secondly, Sylvie, can you just update us on your thoughts on market share developments in Fabry's and Gaucher and the Gaucher market, given your competitor seems to be on track to returning to full supply within the next year? And specifically, I'm interested in your thoughts on their claim that more is better with respect to dosing in Fabry's, because the doc feedback we're getting is that, that is pretty mixed on that claim. But I would be interested in Shire's view.

Angus C. Russell

So Mike, 2 questions wrapped up as one, but maybe you'd like to address them.

Michael Cola

Yes, we haven't given specific numbers as far as number of reps in Europe. The SP organization is about 450 in Europe overall. We don't view expanding the organization at all. Angus has talked on several calls about our strategy for Europe, it was to start our European footprint with EQUASYM. We look to build upon that, the learnings of it and the kind of operational excellence that we've built around that the last few years. As VYVANSE comes on, we'll obviously de-emphasize EQUASYM, and we don't see any type of expansion on the sales force side. MDD is off in the future, probably a couple of years. And again, we think it comes at a time for us when we could be de-emphasizing VYVANSE. ADHD, it'll be 7, 8 years into the marketplace, and we don't really see any large expansion at that point. Angus has talked a little bit about the other indication areas. I think it's to be determined for the rest of the new uses as to whether we need additional sales firepower for that.

Angus C. Russell

Sylvie, the current state of the market and everybody coming back on with new plants, et cetera?

Sylvie Gregoire

I think, Peter, you've asked about VPRIV and REPLAGAL, so maybe I'll start with the dynamics around VPRIV and then move to REPLAGAL and what we see in terms of dynamics for both markets. So you've seen that we've had a lot of growth of VPRIV year-over-year, and that basically comes from both patients that are new and patients that have been switching from Cerezyme. The dynamics in the fourth quarter, specifically, there was an acute shortage of Cerezyme, and we saw a lot of patients coming on to VPRIV in that quarter. And therefore, and since we've seen very little switching from VPRIV, we know that patients are very satisfied, and the market seems very satisfied. So going forward, what we expect is to continue to have VPRIV patients continue on their therapy in the most part, and then when exactly the dynamics or the normalization of the competitive dynamics take place in 2012 is not as clear as it can be, but what we know is that we'll continue to be able to compete effectively with our share of certainly new patients coming on therapy. Recall that this -- the Gaucher market is a market that grows not particularly quickly in the low-single digit, but then we expect to have our fair share of that market. So in terms of market share total, we have about 38% of the patients -- of the Gaucher patients in the U.S. are treated with VPRIV. And in Europe, a little over 20% of the patients are treated with VPRIV. Regarding REPLAGAL, the current status of REPLAGAL is that -- and again, the demand grew quite a lot last year, 35% year-over-year and mostly, again, driven by new patients coming on therapy, as well as patients switching from Fabrazyme to REPLAGAL. And so we're entering the market now this year with x U.S. having about 82% of patients that have Fabry disease and that are treated are on REPLAGAL. In the U.S., as you know, we provide REPLAGAL to about 140 patients free of charge. And that represents, we estimate, about 20% of the treated market of Fabry patients in the U.S. Fabry disease is a disease for which the market growth continues at a rate larger than the Gaucher market. So going forward, we would anticipate that we would continue, again, to get patients that are -- the new patients that need therapy in proportion to what the competitive dynamics are in the market. And regarding those, as you know, there's a new plant coming on board that was announced by Genzyme or Sanofi. And based on what they represent, the coming back of supply from Fabrazyme will be gradual over the year and starting with patients that are currently treated. So the percentage of market share that they have, going first onto full doses then maybe perhaps full regimen. Inventory needs to be built, and then perhaps new patients can be taken on board. So over the -- exactly the timing of all this through 2012 has some uncertainty around that. But in terms of REPLAGAL, therefore, we continue to believe that we'll continue our market leadership during this year, based on this -- based on the fact that patients that are receiving REPLAGAL today are very satisfied with their therapy. And as we've seen with VPRIV, satisfied patients tend to stay on the therapy that they are. And I'm glad I have an opportunity to talk about the difference in dosing that is being portrayed by Genzyme first, and now, I guess, by Sanofi. And frankly, I think that the differences between the dosing of the enzyme is quite misleading. And the reason I say that is there are various facts that point in a different direction, so let me walk you maybe through these particular pieces of information. So today, where we are anyway, like I said, 2,800 patients are treated with REPLAGAL for their Fabry disease in about 46 countries around the world. These products have been approved for therapy for over 10 years. And just in case you think that this market share is just recent, let me remind you that prior to the supply shortage in Europe, REPLAGAL was used at a rate of about 45%, or a little more than the market. So REPLAGAL has been known -- has been a recognized treatment for Fabry disease for over 10 years. Over the last several years, since June 2009, however, there's a particular experiment in a way that was conducted, which helps us distinguish, I think, quite clearly that one cannot make comparisons milligram-to-milligram relative to these 2 enzyme replacement therapies. Let me explain. The CHMP has issued a guideline with the evidence that -- stating the evidence that when lower doses of Fabrazyme are utilized, there's a recurrence of symptomatology or adverse event reports that are consistent with Fabry disease. And so, therefore, reducing the doses of Fabrazyme in Europe is not recommended according to this guideline. And in fact, the labeling for Fabrazyme in Europe has indicated as much. And the CHMP recommended switching from Fabrazyme to REPLAGAL, rather than use low doses of Fabrazyme. So that's one piece of evidence that these enzymes, at various doses, do not compare in terms of milligram-to-milligram. Another piece of evidence is that, of course, in Canada, when these enzymes became available, the Canadian government started a study called the Canadian Fabry Disease Initiative, where patients were prospectively randomized in a head-to-head comparison study. And this study has been reporting over the years, most recently this week at the LDN meeting, and 5 years of observation were reported. And there has been no difference in Fabry-related outcomes between the 2 products that use the licensed doses. So I think that's another piece of evidence that these 2 treatments used at their approved label dose lead to similar outcomes in the marketplace. And then -- and finally, I think the combination of all of this information is consistent with the treatment IND study that's been going on in the United States, where one could say that since June 2009, if you will, during the shortage, we've also seen in the marketplace over 1,000 patients have switched from Fabrazyme to REPLAGAL. So we have a lot of market data also to support that. There's been no new adverse events that are associated with Fabry disease, recurrence of Fabry disease as symptomatology as opposed to reducing the doses of Fabrazyme. But this information being market information, it's important to see if it's also observed in the clinical trial. And the treatment IND study in the U.S. is in the form of a trial where we follow patients, and we've seen the same type of information in that trial, that patients who switched from Fabrazyme to REPLAGAL do not experience an increase in Fabry-related adverse events. So frankly, if you take all of this information together, it seems quite clear to us that one can -- to make a milligram-to-milligram comparison of enzyme is not appropriate.

Operator

Moving onto our next question. It's from the line of Ken Cacciatore from Cowen.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Just a question first for Angus and Mike surrounding INTUNIV, if you could give us an update around the legal challenges there and then maybe put it into the context as you balance the ADHD portfolio around the timing of the takeback of the ADDERALL XR rights from your authorized competitors? And then maybe for Sylvie, if she could give us any anecdotal feedback that she's received during these, what are admittedly small-scale intrathecal studies for Sanfilippo and ELAPRASE, but understanding that sometimes we can see things in studies like this at a very early stage. So if she could put some context around what you're observing on those programs.

Angus C. Russell

So let me deal with perhaps the IP and legal issues around INTUNIV. You're probably aware that Actavis was the first to file against our patents. And subsequent to that, we've had other filers. And today, I think we've sued all of those Paragraph IV filers. So we're obviously into a litigation phase. What I would say is that -- remind you we have 3 patents. We have one used patent that goes out into September 2015. And then we have 2 formulation patents, one that goes till 2020 and one that goes till 2022. We remain very confident in our ability to defend our patent estates. So 3 patents together gives us a lot of different ways to look at this. We have a history, as you know, of defending these kind of cases against generic challengers who come in very early within an early phase of still the patent life of these products. When I think of the formulation patents out till '20 and '22, we're still a decade of life left on those. So we will robustly defend those patents against the various filers, and we'll see how that goes over the next few months. With that, XR and the contracts with the authorized generics. So Mike, do you want to...

Michael Cola

So, Ken, yes. I'll ham and egg it with Angus. I think that's a good bit forward, and I'm not sure it's worth commenting on. You know those were 5-year contracts with our authorized generics. I think as we get closer to the date, we'll review them. We're committed to supplying those AGs today. I think we've worked well over the last year or so with them and the DEA to keep the market supplied, and that's what we're focused on right now. Angus?

Angus C. Russell

Intrathecal programs, what can we perhaps anecdotally share, Sylvie, given this -- Ken says that these are very ill patients, and you can sometimes see changes, given that we're into, I think, our -- pretty much completed a year and heading into our second year of treatment with some of these lead programs?

Sylvie Gregoire

Yes. So maybe I'll take them one by one, Ken, so that we can summarize where we are, at least in terms of status of these trials. So these are Phase I/II trials for both of them. So it's the first time in man. Regarding idursulfase-IT or the treatment for Hunter CNS, the trial started in the first quarter of 2010, and we're still enrolling patients. But we expect this enrollment phase to be finished. We're comparing several doses, which is why it takes some time to finish the enrollment of these studies, and it's conducted at 2 sites only in order to make sure -- the very complex trials so that we can standardize the way in which these trials are done. As you know, the insertion of the ports as well as the neurological experiments or findings that we are measuring in these patients renders the whole trial quite complicated. So the trial is progressing well. And to date, more than 70 doses have been administered successfully, and several patients have had more than one year's exposure to the drug, and we haven't seen any issues that would impact their ability to continue in the trial. And every trial who's been offered to enter into an extension has agreed to be enrolled into an extension. In terms of data and reporting on it, I think we'll be in a position in the fourth quarter to be able to give you some amount of clinical data available around certainly markers of efficacy and safety, because this is the type of information that we require in order to be able to determine what kind of next phase trial or the pivotal trial that would be used in the -- that could be designed for the finalization of this program. For Sanfilippo A, in a way, it's quite similar. The Phase I/II trial has been continuing and proceeding. We also expect to finish enrollment this year and to be able to provide some data at the end of the year. And so the 2 programs are pretty much on the same sort of schedule. And again, it's the same several doses. 80 doses of drugs have been successfully administered, patients are continuing and, therefore, that all looks positive for us to be able to have continued programs with these 2 very important indications. You didn't ask about MLD. We should be able to be in a position to start this trial, enrolling in this trial very soon. The trial is open and has certainly a site in the U.K., which is looking at patients as we speak. And we've initiated a natural history study in Sanfilippo B, as mentioned earlier by Angus. And again, we'll need the data from this natural history to see how best to proceed with a potential program for Sanfilippo B.

Operator

Next question is from the line of Jo Walton from Crédit Suisse.

Jo Walton - Crédit Suisse AG, Research Division

One product, one financial question, please. FIRAZYR, a very strong uptake in sales. Do you have any idea of the repeat use of this? Or are all the patients busy getting the product, keeping it at home, but because they feel comfortable that they could inject it if they needed to, it's just been sitting on the shelf? I think it's more a question of what's the level of repeat usage that I'm trying to get at, and whether what we're just seeing at the moment is sort of a bolus take-up. And secondly, could you just tell us what the impact would be -- if I'm right, the bond could be called in May of this year. You gave us some guidance that the net interest charge would be the same. I'm assuming that, that's based on no change in the bond status?

Graham Hetherington

Let me cover the easy one first, which is -- that this is exactly the case, Jo. We are -- absent a very dramatic change in the market, we are almost certain that investors will not put the bond back to us. And therefore, that interest charge carries on into the balance of 2012.

Angus C. Russell

Okay, the easy one, as you said. FIRAZYR. So I know there are repeats. So, Sylvie, can you give us a bit more detail on that? It's not just a bolus of putting it on the shelf?

Sylvie Gregoire

Sure. Well, let's talk about where we are with FIRAZYR, maybe in the marketplace. So it's been a really strong start, as was mentioned already, in the U.S. And the fact that with -- the advantages of FIRAZYR, which are room temperature storage, pre-filled syringe and self-administration, have driven really high demand for this particular product. Several hundred patients have contacted our OnePath customer service and taken advantage of the coupon program that we've had. But more importantly, and to your question, are the patients that are coming onto FIRAZYR repeat patients and growing -- are the patients growing in numbers? So patient usage, as you know, for this acute therapy, is not a very good marker in terms of numbers of patients, I should say. Patient usage, like you said, repeat usage is a very important factor, but we've had -- we've seen both in the marketplace. So the underlying indicators of patient demand, which is new patients coming on therapy and repeat patients, is definitely the driver of the growth that you've seen, that we've seen in the U.S. And of course, it's also the driver of the growth in Europe. We've seen doubling of our European sales since the beginning of 2011. And again, the self-administration labeling has created an uptick in the demand based on the convenience of being able to use this therapy. And so that's where we are with FIRAZYR, to a very strong start.

Operator

Moving on to our next question. It's from the line of David Steinberg from Deutsche Bank.

David M. Steinberg - Deutsche Bank AG, Research Division

I have a couple HGT questions. So early this week, we held a conference call with one of the leading lysosomal storage clinicians. And he postulated that he thought there was a minimum of 1,000 patients globally, Fabry's patients, who could benefit from therapy who are not on it. Do you agree with this estimate? And secondarily, once your new plan is up and running, how many of these patients, say, could you capture in the first 12 months? And then the related question is, in terms of switchbacks in Europe, once Sanofi is fully operational and can supply the world, I think, Angus, you were quoted as saying you thought there would be minimal switching. But obviously, at 82% share, there'll likely be some. Could you help us with a rough estimate of what might be a reasonable switchback percentage?

Angus C. Russell

Okay, David. So I think, Sylvie, you'd like to deal with both of those?

Sylvie Gregoire

Yes. So the Fabry disease market is -- Fabry disease is a disease in which there are a lot of diagnosed patients that are not treated. Whether the number is 1,000 that have reached a point in their disease where they should initiate therapy is certainly a lot. Pinpointing exactly how many were diagnosed and should be entering treatment is something difficult, because each physician really and patient usually gets diagnosed first and often or occasionally, certainly, in certain parts of the world, don't initiate treatment right away, and they wait to see if the -- to a certain degree of the progression of the disease to treat. But there's no doubt that, as Dr. Grabowski indicates, that there's a large portion of Fabry patients out there that are diagnosed and untreated, the dynamics being of supply over the last few years have created, I'm sure, sort of a pent-up demand and certainly in the U.S. where there hasn't been enough enzyme replacement therapy for new patients that are diagnosed to come on board. In terms of our capacity to suppliers, the second question relative to the facility, and maybe I can just provide a quick highlight here where we are with the approval of the Lexington facility, that might help put everything into context. We did file, as you know, for VPRIV to be manufactured in the facility in November of last year. And then we're having -- this is under review, therefore, with both authorities, the EU and the FDA. And as mentioned by Angus, these regulatory interactions are progressing well, and we anticipate approval of the facility for the manufacture of VPRIV in the first quarter. Recall that having that approval allows us to free up our Alewife facility to make enough -- to continue to make or dedicate, I would say, Alewife to the manufacturing of REPLAGAL. So the freeing up, the moving of the manufacture of VPRIV from Alewife to Lexington allows both products then to be made in sufficient quantity, really, once we've built a little inventory of both at the beginning of the year. But throughout the year, there's no doubt that we will be able, from our capacity, to be able to cover the world demand of Gaucher patients, as well as the Fabry patients. Now when it comes to REPLAGAL, we already have, as you have mentioned, more than 70% of the worldwide market. And so -- and patients, like I said, have been satisfied. We talked about the timing of the return of normal competitive dynamics, which will occur sometime during the year, probably more towards the end of the year. And then I think then the normal competitive dynamics will be that we will do our best to retain the patients on REPLAGAL. We see no reason why most of these patients wouldn't stay on REPLAGAL, since they've been treated, some of them, for more than 10 years. And some of them -- the thousands that have switched from Fabrazyme since 2009 for quite a while as well. But we also expect of course to have the competitor come back and try to convince patients otherwise. So it'll be normal competitive dynamics as they existed prior to the supply shortage.

David M. Steinberg - Deutsche Bank AG, Research Division

Okay, and just one quick follow-up. Due to the life-saving nature of these drugs, you've said in the past, there's been minimal pricing pressure, reimbursement issues. Have you seen any change recently? Or does that status pretty much remain intact?

Sylvie Gregoire

Well, relative to these particular categories of drugs, they've been, as you know, throughout the year last year, there's been some price pressures in certain countries that we've seen, specifically in Europe. And in general, the rare disease categories of products has been able to have a small impact on these products. So it's much smaller than other categories of products. So going forward, I think you can consider that there would be a normal small pricing erosion over time of these products, but that to date, and it can always change from one day to the next, but to date, the government seems to understand the, well, first of all, the small impact in total of these products on their budget combined with, as you said, the life-saving or the value that are provided to patients that needs be protected from a reimbursement perspective.

Operator

Moving on to our next question. It's from the line of James Gordon from JPMorgan.

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

James Gordon from JPMorgan. One question on HGT and one on Regenerative. On HGT, this morning, Sanofi announced the 4-year follow-up Phase II data for eliglustat for Gaucher's, and that's an oral therapy. And so far, it has shown similar efficacy to VPRIV. So assuming that, that equivalent efficacy is confirmed in the Phase III data in H1 in 2013, and that's head-to-head with Cerezyme, why would a patient choose to use an IV rather than -- if they had an oral option? Wouldn't everyone go for an oral? And should we consider that VPRIV might decline in 2014? And then just on Regenerative Medicine, you mentioned Canada for your plans to develop DERMAGRAFT. Will we see any studies, any other new indications, or maybe Europe starting this year? And if not, are there any other plans for how you'll build out the Regenerative Medicine platform this year?

Angus C. Russell

Sylvie, do you want to address the Phase II data on the oral?

Sylvie Gregoire

Yes. We've seen the data that's been presented at LDN in terms of continuous or the extension of the Phase II study. It's not, of course, head-to-head with any enzyme replacement therapy, and certainly not VPRIV, as you've mentioned. But clearly, this therapy would be -- to be successful, it would be a good news for patients. There's no doubt about that. But the reality is that we will only know when the Phase III data is available, which is the study that's ongoing at present, in comparison to perhaps -- and it's not really in comparison or perhaps relative to another trial format enzyme replacement therapy, what the benefits of this therapy might be and which patient populations might it be destined to. So I think we have to wait really for the Phase III data to have a better appreciation of what product will do in the marketplace.

Angus C. Russell

And then in regards to DERMAGRAFT, as you said, I mentioned earlier on the formal presentation, we're seeking approval in the Canadian market. The product is actually approved in a number of other markets, actually. And so we're looking at whether there's anything else we can do in some of those other markets. And then beyond that, we're also studying the possibility of new indications. Now you know that there was a VLU study. It didn't actually meet the end point, but we've been looking very hard at that data and continue to analyze that, see if there's anything we might be able to do with that. So if we can, we'll update more on that later. But for now, you assume, as we said, that it didn't meet the end point set by FDA. And then in regard to other uses, yes, we're looking at other potential uses of DERMAGRAFT, which would involve actually more than just the European. I mean, it could be even a potentially global opportunity. And again, we're really working on the shape of those development programs, what would be necessary to do, and I would expect, yes, during the current year, you're going to hear, probably more like the middle or maybe second half this year, you'll hear more about those plans of how we think we can continue to expand DERMAGRAFT usage into other areas and other geographies.

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

And do you have to decide what you're going to do with DERMAGRAFT before you think about bolting anything else to Regenerative Medicine? Or could we see other therapies enter Regenerative Medicine this year as well?

Angus C. Russell

Yes. We're looking at other things. And no, there's no sort of sequence of events here, as you put it. So we're actually looking at a whole lot of things in parallel. We remain -- as I said, this was a first move into it. I see this as a very interesting space for future growth. And we're studying a number of different assets and pipeline opportunities that are out there. So I remain hopeful that we will be able to find other assets and bring those into play in this area.

Operator

Next question is from the line of Bill Tanner from Lazard Capital.

William Tanner - Lazard Capital Markets LLC, Research Division

First one, Sylvie, just on -- with respect to the 140 patients in the U.S. on REPLAGAL, curious once the drug is approved, over what time frame you think those patients might be converted over to being paying patients. And then, Angus, just your last comment on global development of some of the DERMAGRAFT or the Advanced BioHealing products, curious if that would be done by Shire or with a partner. And would it then potentially lead you into new geographic areas that you're not currently in?

Angus C. Russell

Okay. So, Sylvie, you want to just talk about the U.S., what would happen when converting?

Sylvie Gregoire

Bill, if indeed we gain U.S. approval, we have some experience with how quickly a patient can be converted. As you recall, we had in the U.S also, our VPRIV patients were on therapy, ahead of commercialization of this product. And it takes, from a reimbursement and going through the process of reimbursement, somewhere between, and it really depends on the insurance company, 45 days to up to 2.5 months in order for patients -- or 3 months for patients to convert. And really, that's highly dependent on the type of coverage that they have. But that's the sort of the time frame that generally occurs for this type of transition.

Angus C. Russell

As regards the Regenerative Medicine question, I mean, we're looking at a number of different things, so I don't want to get into too much detail where we're actively working on all of these plans. But there's some very interesting things. I've said we already have the product approved in some markets in, for instance, an Asian market, which is of interest. So we're looking at a number of different opportunities. First off, it's obviously focusing on other ways we can grow the product in the initial U.S. market. I pointed to the fact we only have a 6.3% share of the current diabetic foot ulcer market. So a lot of growth potential still there. As I said, we're looking at other indications into what would be effectively be new diseases, and that's the big kind of global, I think, program opportunity that I hope we can finalize our plans and announce some details of later this year. And then, as I said, these new geographies, yes, they're in interesting ways. I mean, we all know that the emerging markets are very interesting, and they throw up, I think, interesting opportunities in how you can develop products and meet, perhaps, local market needs. So all of these things are being reviewed. And then, of course, as ever, we'll need to prioritize those into some kind of order, what are the best opportunities that we wish to pursue from an investment point of view.

Operator

Next question is from the line of Brian Bourdot from Barclays Capital.

Brian Bourdot - Barclays Capital, Research Division

Could you just update us, please, on what you think is driving growth in the ADHD market? We've seen a few recent months where year-on-year growth has been single-digit rather than the double-digit rates that we saw perhaps a year ago. And just wondering if you're seeing any changes in trends of growth rates between pediatric and adult segments. And just wondering what your expectation is or best guess for market volume growth in 2012 that's encompassed in your guidance. And just second question on use of cash or financing. Just wondering if you need to hold a high level of cash than you otherwise would do against a possible redemption of the convertible, and whether you need to do that through to maturity and whether you feel that constrains your capital budgeting at all over the next couple of years.

Angus C. Russell

A quick answer to the last one, Graham, is...

Graham Hetherington

The short answer is anticipating the potential, and it's not certain, of having to refinance a $1.1 billion convertible in 2014 is not a constraint to our capital allocation. Our growing cash flow generation will more than give us the flexibility to be able to handle that and continue to invest in the business.

Angus C. Russell

Mike, the growth in ADHD. What's going on there?

Michael Cola

I hope I know.

Angus C. Russell

So do I.

Michael Cola

We have -- I think there's a lot of confusion in the marketplace based on the second half of the year. There were definitely shortages of ADDERALL IR, a product that Shire does not manufacture or have anything to do with in the second half of the year. You saw about a 6-point market share reduction in the short-acting amphetamine category, and I think that really impacted the overall market growth. If you were to strip that out and normalize, the market growth was probably about the same as 2010, about 12%. If you look at where that growth’s coming from, and this has been a consistent message for a number of years now, it's probably coming 2:1 approximately out of the adult market. So mid-teens, roughly 15 versus 7 to 8 adult versus peds. You're starting to see the balance tip in the marketplace. Adult is now, depending on what part of the year, more than 50% of the market. And I think you'll see over time that adult will be the much more important market. We still figure it's less than 35% penetrated, where the peds market, although growing, is probably 75% to 80% penetrated.

Operator

Next question is from the line of David Buck from Buckingham Research.

James Dawson

It's Jim Dawson for David Buck. Yes, I just had a question on REPLAGAL and VPRIV. Do you see those 2 parts growing in 2012, supply going back to normal conditions? And then also, just on INTUNIV, could you comment on just cost avoidance opportunities if there's a negative outcome on the patent case?

Angus C. Russell

Well, let me deal with the last one, INTUNIV. I mean, I’ve said we're going to robustly defend these patents. I go back to -- we have 3 patents: we have the use patent till 2015; we have formulation patents out till '20 and '22, and we'll defend them very vigorously. So I don't think we're into giving any kind of guidance on cost constraints and offsets on any kind of negative scenario. We're keeping our minds very positively focused on defending our patents right now.

Michael Cola

And we don't see any scenario where that happens in the near term, David.

Graham Hetherington

Exactly. Yes.

Angus C. Russell

So, Sylvie, on the...

Sylvie Gregoire

VPRIV and the REPLAGAL?

Angus C. Russell

Are they going to grow this year?

Sylvie Gregoire

Yes. Yes, we do expect both products to grow, certainly for various reasons. One is the momentum that they're coming out of from the end of the year this year, would certainly allow them to grow from that basis into next year. And then of course, for REPLAGAL, if we get approval in the U.S., there's a chance to grow from that source as well. And then for VPRIV, we continue, like I said, to expect that new patients being diagnosed would also -- would come onto VPRIV in the sense that -- in terms of their availability from -- based on supply, availability for this product. So both products, we expect to grow.

Operator

From the line of Keyur Parekh from Goldman Sachs.

Keyur Parekh - Goldman Sachs Group Inc., Research Division

I have 2 questions, one financial and then one strategic. On the financial, Graham, can you just throw some color around the drivers behind the guidance for the product sales for 2012? What are your assumptions for kind of the U.S. ADHD market growth? And secondly, Angus, on the strategic side, can you just give us sort of an update on what you are seeing in terms of the M&A landscape? Any areas of particular interest from your perspective?

Angus C. Russell

Okay. Graham?

Graham Hetherington

I think the -- we've started to give some parameters around it. Mike has suggested that the underlying growth of the ADHD market in the U.S. continues in double-digit terms, and our assumption running into 2012 is that we'll see something around the 10% mark going forward. The biggest driver of growth is the gains in market share, and we continue to anticipate share gains on many of our key brands. And as Sylvie has suggested, we're expecting to see continued growth in most of our -- or in fact, all of our HGT brands. And that's what supports our confidence in good product sales growth running into 2012. And that underpins our confidence in delivering good earnings growth through the year.

Angus C. Russell

Okay. So on the kind of M&A front, I mean, it goes without saying, we're always looking, as I said before, for interesting assets that will bolt on to existing areas of interest. I just talked a moment ago about Regenerative Medicine, one where we have a new area to actively consider assets. Another thing I'd probably point to we didn't talk about yet on this call but is the recent collaboration that we announced with Sangamo. I think it's interesting on 2 fronts. Those of you that know that company, and our announcement just last week, was that we are now looking at 7 different targets in a number of diseases. I might give you a bit of a point to say that 4 of those targets we specifically highlighted were in hematology. And so the heme space is an interesting one that we've been studying again for a long time in Shire. We have a history, at least in heme-onc, in terms of what used to be AGRYLIN in the U.S. and is XAGRID now in international markets. So we've had a background in there. We've been working, as you know, on a product, SPD -- or SP 535. So that's something that Mike's referred to in the pipeline, and we continue to look at that, which is in that kind of space again. So this is very interesting. The point about Sangamo though is it's an early technology, but it is a gene therapy approach. And also, we announced that alongside 4 hematology targets, we'll be identifying over the next few months 3 different targets in rare genetic diseases. So it'll span, if you like, the 2 business areas: SP and HGT in Shire and, as I say, is our first kind of real interesting entry into gene therapy space. And as you know, this is something that a lot of companies are focused on, and the world is increasingly seeing evidence of these technologies move forward now in gene therapy. So there's certainly a couple of new spaces there that we remain very interested in, in Shire, that we're continuing to look at. And I say we're always interested obviously in the areas of business in GI, ADHD and anything to do with rare orphan diseases. So that's what we're looking at.

So with that, as I said, I'd like to make that the last question. We appreciate the time you spent with us. In conclusion, I say one more time that, again, it was a tremendous year for Shire, again in progressing not only great financial outcomes and results, but also evolution of our pipeline. And for me, that's going to be a very interesting feature of the current year, the number of milestones I highlighted earlier on which we'll continue to update you on through the current year. As Graham said, we're looking to another good year this year in terms of further earnings growth and revenue growth. And we look forward to talking to you again in the future. So with that, thank you, and all have a good weekend.

Operator

Thank you. Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.

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