Shire PLC's (SHPG) CEO Flemming Ornskov on Q4 2015 Results - Earnings Call Transcript

| About: Shire PLC (SHPG)


Q4 2015 Results Earnings Conference Call

February 11, 2016, 09:00 AM ET


Matthew Osborne - Head of IR

Flemming Ornskov - CEO

Phil Vickers - Head of R&D

Jeff Poulton - CFO


Ronny Gal - Sanford Bernstein

Keyur Parekh - Goldman Sachs

Ken Cacciatore - Cowen and Company

Graham Parry - Banks of America Merrill Lynch

John Boris - SunTrust

Douglas Miehm - RBC Capital Markets


Hello, and welcome to Shire's 2015 Full Year and Fourth Quarter Results. Throughout this, all participants will be in listen-only mode and afterwards there will be a question-and-answer session. Just to remind you, this is being recorded.

Today, I'm very pleased to pass it over to Matthew Osborne, Head of Investor Relations. Matthew, please begin.

Matthew Osborne

Thank you. Good morning and good afternoon, everyone. Thank you for joining us to discuss the press release Shire issued earlier today announcing our 2015 year end results. You should have received our press release. You can view the presentation via the link on Shire's website. For those not able to view the webcast, slides that accompany today’s call are located on the presentations and webcast page of Shire's corporate website at

Our speakers today are Chief Executive Officer Dr. Flemming Ornskov; Dr. Phil Vickers, Head of Research and Development and Jeff Poulton, Shire's Chief Financial Officer.

Before we begin, please refer to slides 2 and 3 of our presentation which provide information about certain statements to be made today that are forward-looking statements within the meaning of securities laws including those regarding our development programs, future financial results and statements regarding the potential impact of our announced combination with Baxalta.

Statements made during this call that 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.

The forward-looking statements in this presentation speak only as of today and we undertake no obligation to update or revise any of these statements. Additional information regarding these factors appears in our SEC filings.

Following our presentation today, we will also open up the call to your questions. We request that you only ask one or two, so that everyone has a chance to participate. We will also be available to follow up with you after the call.

I will now hand the presentation over to Flemming.

Flemming Ornskov

Thank you, Matt, and hello, everyone. We are pleased to be with you today to discuss our fourth quarter and our full year results. During today's call I will provide you with a greater understanding of our significant achievements made during 2015, one of the most remarkable year in the Shire's 30 year history.

I will then hand the call over to Phil to highlight some important advances in our innovative pipeline. Jeff will then take you through what was a strong Q4 2015 and full year financial performance for 2015. Finally, I'll make a few closing remarks before we move into Q&A.

Let's now all turn to Slide 5. In 2013, we laid out a strategy for long term growth and global biotechnology leadership with a focus on rare diseases and other specialty conditions. In 2015, we fast tracked our progress on this journey. We executed significant acquisitions to build category leadership and deliver best-in-class therapies in our core therapeutic areas.

We accelerated the growth of key rare diseases assets and built the best pipeline we've ever had. We also advanced lifitegrast, our innovative and promising dry eye treatment laying the foundation for ophthalmics leadership.

It is important to note that as we transformed our business in 2015, we also achieved record full year revenues and strong double digit earnings growth as measured by non-GAAP diluted earnings per ADS.

Let me briefly take you through what I see as the defining movements for us in 2015. So with that please turn to slide number 6.

Slide 6 highlights four accomplishments that distinguish 2015 and significantly transform the company. Each of these events is meaningful in its own right. First, early in the year we acquired NPS, which strengthened our GI business and brought in rare disease products, GATTEX or REVESTIVE and NATPARA.

Next, we successfully completed and reported positive topline results from the lifitegrast Phase 3 study called OPUS-3. We resubmitted the NDA and last week FDA accepted the NDA and established a PDUFA date of July 22, of this year for this submission. We are working towards the potential approval and launch in the second half of this year.

The third key milestone was Dyax. We recently completed the acquisition of Dyax which extended our leadership position in HereditaryAngioedema with the addition of SHP643 which you may have known as DX2930. You will hear more about this compound later in this presentation.

Finally, we announced a proposed combination with Baxalta. This transaction advances our goal of becoming the biotechnology global leader in rare diseases and expands our category leadership to now include franchises in hematology and immunology, as well as a growing franchise in oncology.

I want to take a brief movement to remind you why we are so excited about this combination with Baxalta. Together, we expect that Shire and Baxalta will generate double digit topline growth with revenues projected to exceed $20 billion by 2020, 65% of total annual revenues will come from rare diseases.

We will have more than 60 programs in development of which over 50 will be addressing rare diseases. We will launch over 30 products if approved from this pipeline by 2020 contributing a projected $5 billion in annual new product revenues by 2020.

We will deliver annual operating cash flow of approximately $6 billion beginning in 2018. And we will achieve an attractive return on invested capital projected to exceed Shire's cost of capital in 2020

The integration planning has started and is proceeding well. Numerous teams are in place to design and plan the new organization. I'm pleased by the progress and will keep you updated as this moves forward and more information becomes available.

Please now go to slide number 7. As this slide shows, amid all the M&A, we maintained focus and executed forcefully, delivering record annual revenues and strong double digit earnings growth as measured by non-GAAP diluted earnings per ADS.

We exceeded the upgraded full-year guidance as provided at Q2 in 2015, and Jeff will take you through the finances in greater detail later in this presentation. As shown, topline growth was primarily driven by VYVANSE, by LIALDA, by CINRYZE and by FIRAZYR, as well as by the assets we acquired from NPS, GATTEX/REVESTIVE and NATPARA.

In addition, during the year we continued to progress our innovative pipeline which now includes 26, yes 26 programs in clinical development with 14, yes 14 programs in Phase 3 already to be in Phase 3. And as mentioned, we continue to be very excited about our plan combination with Baxalta, which we expect to close mid this year.

Moving to slide number 8. Shire's underline business delivered on both the top and the bottomline during 2015. On a reported basis, the company delivered 5% year-over-year growth in product sales largely driven by volume which was at the upper end of our guidance at constant exchange rates and excluding the impact of generic INTUNIV, product sales for the year grew even higher at 14%.

We delivered a 43% non-GAAP EBITDA margin, while investing in the launches of VYVANSE for the binge-eating disorder indication, NATPARA for Hypoparathyroidism, as well as investing in lifitegrast, as we prepare for its potential approval and launch for dry eye disease later this year.

Shire's continued focus on generating sustainable growth through efficiency resulted in non-GAAP diluted earnings per ADS growth of 10% which exceeded our previous guidance of mid to high single digit earnings growth in 2015 compared to '14. At constant exchange rate, Shire's non-GAAP diluted earnings per ADS growth was even higher for the year, 14%.

Let’s now turn to slide number nine. Multiple products contributed to our strong growth in 2015 reflecting the investments that we made in recent years to bring these innovative products to market. Jeff will provide more detail on the performance of our portfolio but is worth highlighting the strength of the following products.

VYVANSE, VYVANSE continues to perform very well in the adult market which includes both ADHD and the binge-eating disorder education.

LIALDA, LIALDA continues to build on its market share leading position. Our two hereditary

angioedema products, CINRYZE and FIRAZYR surpassed $1 billion in combined annual revenues during 2015. The two rare disease products that we acquired from NPS, GATTEX and NATPARA both performed very well.

Let's now go to slide number 10. Refinement of our market segmentation and messaging has increased by VYVANSE's ability to compete particularly in the adult ADHD market, which is growing above the overall market. This above-market growth is also being driven by the use of VYVANSE in adults with moderate to severe binge-eating disorder.

In December, we submitted the supplemental NDA to the FDA with six months data for VYVANSE demonstrating long term maintenance of efficacy and safety in adults with moderate to severe binge-eating disorder.

Following FDA's feedback, we look forward to potentially including this data into VYVANSE's product label for the indication later this year, therefore enhancing the efficacy and safety label.

Please now go to slide number 11. Previously we have demonstrated our ability to leverage our rare disease infrastructure to accelerate the growth of CINRYZE post the ViroPharma acquisition. Similarly, we are now demonstrating our ability to accelerate the growth of both GATTEX and NATPARA which were assets we acquired through NPS.

Focusing first on GATTEX. Our strategy to grow product sales in the U.S. including identifying, converting and supporting patients and in the third quarter we also began to leverage our 100 person strong LIALDA sales rep force to enhance awareness of short bowel syndrome among GI physicians.

The result in 2015 was an increase in GATTEX patients start forms in the U.S. and a steady increase in GATTEX patients on therapy reaching 564 in the U.S. at the end of 2015.

REVESTIVE at GATTEX is known outside the U.S. is currently launched d in Germany, France, Norway, Sweden and Canada and 75 patients from these combined regions are already on therapy as measured by the end of 2015.

Please now move to slide number 12. NATPARA is also demonstrating strong patient growth from the approximately 200 patients in therapy at the end of Q2 2015 to the approximately 700 patients on therapy at the end of 2015.

NATPARA has been well received by physicians and patients as the only FDA approved medicine to treat hypocalcaemia for patients with hypoparathyroidism who are not well controlled on Calcium and Vitamin D.

We are also making progress with the approval of NATPAR, as NATPARA is known in the EU which Phil will discuss in more detail.

Let me now turn the call over to Phil Vickers, Shire's Head of R&D, who will highlight our pipeline progress and key pipeline programs. Phil?

Phil Vickers

Thank you, Flemming. I'm very pleased to highlight key aspects of Shire's innovative pipeline that continues to grow and advance. Our pipeline now includes 26 programs in clinical development and is the most robust pipeline in Shire's history. The vast majority of these programs are focused on the treatment of rare diseases.

Moving on to Slide 15, we now have 14 programs that are in Phase 3 or are Phase 3 ready. Three programs recently advanced to Phase 3. These are SHP616 or CINRYZE for AMR. This is an additional induction for CINRYZE for antibody mediated rejection in patients receiving a kidney transplant. Clinical trial centers are open and we expect to begin dosing patients imminently in this area of high unmet medical need.

Next program is subcutaneous CINRYZE. This is a subcutaneous formulation of CINRYZE for prophylactic treatment of HereditaryAngioedema where we recently initiated patient dosing.

Finally, there's SHP621 for the treatment of eosinophilic esophagitis or EoE, one of the programs obtained through the acquisition of ViroPharma.

Although, a rare disease, the prevalence of EoE approaches approximately 180,000 individuals in the U.S. alone and represents a significant unmet medical need. SHP621 has a potential to be the first approved product in this indication.

The Dyax acquisition added one-third of Phase 3 program that is SHP643 previously known as DX2930. It is been developed for the prophylactic of HereditaryAngioedema. SHP643 remains on track to start patient dosing in March of this year. It has the potential to lower rates of HAE attacks and significantly improve patient convenience based on the clinical data reported to-date.

Additionally, one more program will enter Phase 3 in the near future that is SHP620 or maribavir. An additional program acquired through our acquisition of ViroPharma and it is on track to enter a Phase 3 trial next quarter for cytomegalovirus infection in transplant patients. This is another area of high unmet need particularly for those patients resistant or refractory to the current standard of care.

Turning now to Slide 16. In addition to progressing a number of studies into Phase 3, we expect a number of key topline data readouts during the first half of the year. This include data from a Phase 3 study of SHP465 for the treatment of ADHD designed for the adult population. Phase 2b study of SHP610 the treatment of the rare lysosomal storage disease, SanFilippo A and a Phase 2 study of SHP607 for the prevention of retinopathy of prematurity which is another rare disease.

SHP465 is a three bid formulation of mixed amphetamine salts and has the potential to provide ADHD symptoms control from four to 16 hours post dose. An efficacy and safety study in pediatric patients which was a requirement of the FDA is very rapidly enrolled as to the study in adults investigating additional dose strengths of SHP465.

Topline data from the pediatric study along with the Phase 3 data in adults will form the basis of the planned resubmission to the FDA for this program and this is projected to occur later this year.

If it reaches the market SHP465 could offer new effective treatment for ADHD patients seeking a longer duration therapy, one of the largest unmet needs in adult ADHD.

We're also expecting topline Phase 2 results from our exciting program SHP607 for the prevention of retinopathy of prematurity or ROP in mid-2016. As a reminder, babies born prematurely are at risk of developing ROP, which is characterized by vision impairment and blindness. An estimated 30,000 babies are born at less than 28-weeks gestational age every year in the U.S. alone and so the opportunity for an effective therapy is significant.

As well as evaluating the impact of SHP607 in ROP, we're also assessing it in a number of key secondary endpoints associated with prematurity. For NATPARA in the EU, recent meetings with the CHMP have confirmed allowance for additional time to assess the NATPARA marketing authorization application.

We anticipate that the additional time will allow for satisfactory resolution of outstanding items related to this application and we expect the CHMP decision in the third quarter of this year potentially leading to launch in Europe during 2017.

Moving now to Slide 17. Shire is quickly becoming recognized among physicians, key opinion leaders and within the industry for our commitment towards driving true innovation in ophthalmology, having created an exciting portfolio of programs in just a few short years.

I mentioned earlier, the SHP607 program for ROP, within our pipeline we also have SHP640, a treatment for infectious conjunctivitis or pink eye, a potentially significant opportunity in one of the largest areas of ophthalmic medicine. This approach has a potential to address both the bacterial and viral causes of disease and will enter Phase 3 trials later this year.

Other ophthalmology programs in earlier stage development include treatments for glaucoma and Autosomal Dominant Retinitis Pigmentosa which recently received orphan drug designation in the U.S.

Turning now to Slide 18, as mentioned a tremendous focus this year for the entire team will be to advance lifitegrast which is in registration in the U.S. Lifitegrast is the subject of the largest clinical trial program for investigational compound for dry eye disease having been studied now in over 2500 patients in three rigorously designed Phase 3 trials, as well as a separate safety study.

On January 22 of this year we resubmitted the new drug application to the FDA for lifitegrast for the treatment of the signs and symptoms of dry eye disease in adults. The FDA recently acknowledged receipt of the resubmission, determined it complete and established a PDUFA date of July 22 of this year. We look forward to moving this program closer towards patients as we approach this date.

I'll now turn the call over to Jeff Poulton, who will review the fourth quarter and year end financials.

Jeff Poulton

Thank you, Phil. Good morning and good afternoon everyone. As Flemming has indicated we delivered strong top and bottomline growth during 2015 demonstrating continued positive momentum in our business as we enter 2016. Consistent with our previous calls discussed in 2015 results, I will focus on four key areas today.

First, I’ll provide detail on the drivers of the continued double digit sales growth from our core underlying business. Second, I’ll talk about delivering a 43% non-GAAP EBITDA margin in a year when we invested significantly in new future growth drivers. Third, I'll cover our continued strong cash generation. Finally, I'll discuss our outlook for 2016 for the current business which now includes Dyax.

Starting with Slide 20, we delivered product sales of $6.1 billion in 2015, a 5% increase over 2014 on a reported basis at the top end of our guidance range. On a constant exchange rate basis the year-over-year growth is 9% and was robust 14% excluding the impact of the INTUNIV loss of exclusivity in the U.S.

I’ll cover the drivers of this growth from the next slide which did include pricing actions on a variety of our products in the U.S. While this was a contributor to overall growth in 2015, the majority of U.S. growth was driven by volume increases.

Royalties and other revenues increased by 65% over 2014, a bit higher than what we anticipated for the full year. The year-over-year increase is primarily due to the benefit of the sense of power royalty which delivered more than 100 million in revenue in 2015 following the acquisition from NPS in the first quarter.

Total revenues were just over $6.4 billion up 7% on a reported basis and 11% on a constant exchange rate basis. Non-GAAP EBITDA increased by approximately 6% on reported basis and 10% on a constant exchange rate basis.

Our Non-GAAP EBITDA margin was 43% during the year in which we invested in the U.S. launches of VYVANSE for binge-eating disorder and NATPARA, as well as investing in GATTEX in the U.S. or REVESTIVE in international markets.

As we will show, we’re pleased with the growth we are driving from these investments. We also made investments to prepare for the anticipated launch of lifitegrast for dry eye disease, a key driver of future growth.

Non-GAAP diluted EPS per ADS was $11.68 or 10% higher than the $10.60 reported in the prior year and higher than the upgraded full year guidance that we issued at the second quarter. At constant exchange rates, this represents 14% year-over-year growth, although it is worth noting that 2015 did benefit from a non-GAAP effective tax rate of 16% or 2% lower than the comparable rate for 2014. We have a highly cash generated business and our non-GAAP cash generation was approximately $2.4 billion in 2015.

As you can see on this slide in comparison to the upgraded full year guidance that we issued in Q2, we delivered double digit non-GAAP diluted EPS growth slightly better than we expected. We consider 2015 another strong year of performance for Shire.

Turning to slide 21, let's take a more detailed look at product sales. As noted on the slide, core product sales were up approximately 800 million in 2015 or 14% at constant exchange rates. This growth was driven by VYVANSE, our HAE products and our GI franchise which includes the recently acquired NPS products GATTEX and NATPARA.

VYVANSE continues to show a very strong growth. VYVANSE’s 2015 sales slightly exceeded 1.7 billion delivering growth of 21% at constant exchange rates. The increase was driven by U.S. prescription growth of 8% outpacing ADHD market growth of 6%. VYVANSE’s performance continues to be particularly strong in the adult segment which includes both ADHD patients as well as binge-eating disorder patients. VYVANSE exited 2015 at a 16.7% market share up a half share point from December of 2014.

2015 performance also benefited from growth from international markets, stocking of approximately 30 million on a net sales basis during the year compared with approximately 25 million of destocking in 2014 and price increase has taken since the end of 2014.

We're also pleased with the performance of our HAE products. CINRYZE sales increased approximately 115 million or 24% on a constant exchange rate basis to 618 million for the year. The addition of more patients on therapy was the primary driver of CINRYZE's growth during the year.

For the fourth quarter, CINRYZE destocked by approximately 20 million following stocking in Q3 of a similar amount. FIRAZYR sales were 445 million in 2015 up 25% on a constant exchange rate basis from 2014. Sales benefitted primarily from an increased number of patients on therapy.

Turning now to our lysosomal storage disease products, which given their significant international mix were the products most impacted by the strengthening of the U.S. dollar. ELAPRASE sales increased 4% on constant exchange rate basis. Higher unit sales volumes for ELAPRASE driven by an increase in patients on therapy were partially offset by a lower average price due to modest price reductions in international markets in geographic mix.

REPLAGAL sales increased 1% on a constant exchange rate basis as the benefit of more patients on therapy was partially offset by modest price reductions in international markets and geographic mix. For REPLAGAL in particular, we are focused on and optimistic about driving improved growth during 2016.

VPRIV sales also increased by 1% on a constant exchange rate basis as competitive pressures in the U.S. market reduced the impact of growth and patients on therapy in the international markets.

LIALDA sales increased 10% at constant exchange rates. This growth reflects swift growth of 10% year-over-year, as well as a price increase taken at the beginning of 2015 offset by higher sales deductions and inventory destocking. LIALDA sales did benefit in the fourth quarter from approximately 15 million of stocking but destocked slightly for the full year 2015 compared with approximately 15 million of stocking for full year 2014.

LIALDA exit share in the U.S. market was approximately 36%, a three point increase from 2014 exit share, an impressive share again as LIALDA continues to bolster its market leading position.

The products acquired with our NPS acquisition earlier this year, contributed 166 million of sales in 2015, which favorably impacted Shire's total product sales growth rate by 3%.

GATTEX contributed a 142 million, and NATPARA contributed 24 million. For GATTEX as noted previously, we believe we are seeing positive results from leveraging our existing GI sales force to raise awareness of short bowel syndrome, and to help identify eligible patients, as our 100 LIALDA sales reps in the U.S. began making calls for GATTEX for the first time during the third quarter.

For NATPARA, the number of REM-certified physicians has increased to approximately 2,500 and we ended the year with approximately 700 patients on therapy, a 66% increase in the number of patients on therapy since the end of the third quarter.

We are pleased with the performance of both products and believe our rare disease expertise has benefited these products in the same way that we were able to accelerate growth in our HAE franchise, following the acquisition of CINRYZE from biopharma.

As you can see on the far right side of the chart, INTUNIV and foreign exchange headwinds continue to hold back reported performance. INTUNIV which lost exclusively in the U.S. in December 2014, held back reported full year sales growth by approximately five percentage points, as U.S. sales were impacted by the entry of multiple generics during the year. We were also impacted by foreign exchange headwinds from a stronger U.S. Dollar which held back reported growth by another four percentage points.

Turning to Slide 22, we’ve covered product sales, so I will turn my attention to operating expenses and ratios. R&D spending increased 5% from the prior year as we advance our pipeline during the year. Phil took you through the significant progress we are making as lifitegrast has been refiled with the FDA and we are now positioned with the most Phase 3 programs in our history.

SG&A was up 8% from the prior year as 2015 was a year of investment for us. We launched the binge-eating disorder indication for VYVANSE in the U.S. and made investments to help prepare for an anticipated 2016 launch of lifitegrast. We also assumed the cost associated with NPS acquired in the first quarter of this year.

As part of that transaction, we successfully launched NATPARA and invested in accelerating the growth of GATTEX. Taking together, we achieved a non-GAAP EBITDA margin of 43% in 2015 particularly impressive during year when we invested significantly behind future growth drivers.

Turning to Slide 23, my final slide focused on 2015. Given our strong operating performance, our cash generation remains strong in 2015. We generated approximately 2.4 billion of cash in 2015, up 1% from prior year. Free cash flow is down 12% to 2.2 billion, as 2014 free cash flow benefited from a repayment of over 400 million from the Canadian revenue authorities.

Excluding the one-time Canadian repayment, free cash flow increased 5% in 2015. We expect our business to continue to generate strong cash flow going forward.

We ended 2015 in a net debt position of approximately 1.5 billion. This has increased to approximately 7 billion as of the end of January, as we closed on the Dyax acquisition, which was financed with a new $5.6 billion of term loan bank facility in late January.

Turning to Slide 24, I’ll finish up with our outlook for 2016. Before moving into the detail, I’d like to make three points. First, the outlook includes the impact of the Dyax acquisition which closed on January 22, 2016.

Second, out outlook does not include the impact of our announced combination with Baxalta. We expect the transaction to close mid-2016 and we will update our guidance thereafter.

Third, our outlook assumes foreign exchange rates based on the January month-end exchange rates which are noted at the bottom of our guidance slide. Starting at the top, we are expecting product sales to grow double digits.

On a reported basis, we expect year-over-year growth between 11% and 14% in 2016. This includes the benefit of Kalbitor, the marketed product acquired as part of the Dyax transaction.

Based on current foreign exchange rates, we expect product sales to be held back approximately two to three percentage points by foreign exchange headwinds in 2016. So on a constant exchange rate basis, we expect product sales to grow between 13% and 17%.

Royalties and other revenues are anticipated to increase in the 5% to 10% range. This is less than the growth achieved in 2015 which benefited from the initial year of the SENSIPAR royalty stream, and from royalties associated with the in-tune of authorized generic in the U.S. in the first half of 2015.

Our non-GAAP gross margin is expected to be similar to 2015 levels. Our non-GAAP combined R&D and SG&A expense is expected to increase between 12% and 14% in 2016. The increase is primarily due to investment associated with the anticipated launch of lifitegrast, operating cost supporting the Dyax business from January 22, 2016, and investment in 14 programs in late stage clinical development.

Given the increase in our debt position in close of the Dyax acquisition, we are expecting our non-GAAP interest and other expense to increase by approximately 1.5 to 2 times at 2015 levels. We finished 2015 with a full year, non-GAAP effective tax rate of approximately 16%, and expect a slightly higher rate in 2016 of between 16% and 18%.

Taking together, we expect reported non-GAAP diluted per ADS growth of between 7% and 10% in 2016. On a constant currency basis, we anticipate non-GAAP diluted earnings per ADS growth of between 9% and 13%.

A final comment I’ll make regarding our outlook for 2016 relates to capital expenditure. As you see, we are expecting CapEx of approximately $300 million in 2016. We expect this will be our level of our CapEx investment over the next three years as we enhance and expand our manufacturing capabilities including our plan to break ground on a new biologic Greenfield manufacturing site during 2016. The new Greenfield site will ensure full redundancy capability for our biologics portfolio, and will more than double our current capacity.

And with that, I’ll hand you back to Flemming.

Flemming Ornskov

Thanks Jeff. 2015 was indeed a remarkable year for Shire. In 2015, we not only transformed our business and advanced our pipeline, but did so while delivering record revenue and strong earnings growth as measured by non-GAAP diluted earnings per ADS.

We delivered top and bottomline growth during the year, when we continue to invest in future growth drivers and achieved four significant milestones; NPS, Lifitegrast, Dyax, and of course, Baxalta.

All of this would not have been possible without the focus, dedication, and drive of our employees who continue to outperform in challenging environments. Before we take your questions, I’d like to emphasize the key drivers that all of us at Shire are most focused on delivering during 2016.

Integrate the recently closed acquisition of Dyax and advance SHP643 for Hereditary Angiodema prophylaxis, progress lifitegrast towards approval and launch for the second half of this year. We work towards closing the combination with Baxalta in the middle of this year and begin the process of integrating our two companies.

And finally, expand and strengthen manufacturing to support our global growth and importantly, execute and deliver forcefully across our entire portfolio and business.

We are absolutely committed to delivering another strong set of results in 2016. And to having our customer facing colleagues stay laser focused on delivery. I look forward to keeping you updated on our performance during 2016.

And operator, we are now ready to take questions from the audience.

Question-and-Answer Session


[Operator Instructions] We first go towards the line of [Carrie Halford] [ph] at Exane BNP Paribas. Please go ahead Carrie. Your line is open

Unidentified Analyst

Thank you. Two question please. Firstly, on [indiscernible] guidance to increase the level this year, but still be lower than your long term guidance to 17% to 19%. So if you could just provide details us to why that is not yet stepping up as you're expecting further tax provision releases in 2016.

And then on NATPARA you talked about a delay in Europe and essentially CHMP seemingly stopping the clock, and I wonder if you could just detail what’s caused that and how quickly you think that can be rectified. Thank you.

Flemming Ornskov

Thanks very much Carrie, I noted questions one and two, one on tax and us also not predicting to be at 17% to 19% level next year. So Jeff I'll ask you in a second to answer that and then NATPARA, what is holding us up there and I think Phil that fits perfectly into your expertise.

So Jeff you want to talk about tax on your outlook.

Jeff Poulton

Sure. So you’re correct here, we have guided to long term tax guidance of 17% to 19% and what I just guided Q4 for this year is 16% to 18%. Fairly modest difference I would say between the two but the favorable change in guidance for 2016 reflects changes to our profit mix as we invest in product launches and high tax jurisdictions. That’s probably the biggest driver of the slight improvement from what we had previously issued.

Flemming Ornskov

And the other question was on NATPARA which is a product we're very excited about. We see great uptick in the U.S. of NATPARA, so what's holding us back in Europe, Phil?

Phil Vickers

Yes, we're looking forward to bring in the product forward to patients in Europe. The discussions with the regulatory authorities in Europe are really focused in three areas, two of which are very standard that is definition of the patient population level that would get benefits. So those discussions are ongoing and the second is obviously around manufacturing questions that they have.

I’d say the third area which is a little bit more unusual for this product is around the device because you have to have a device with a CE Mark in Europe if you’re going to move forward in Europe. And so that’s really where much of the discussion has been with the regulatory authorities.

We've had some very positive and frequent discussions with them. They continue this quarter. We’re aiming to resolve all of the scientific issues in the first half of the year and the ongoing discussions about the device who are aiming for resolution of those as we go into the third quarter. So we're looking for a decision on the overall program by third or fourth quarter of this year.

Q – Unidentified Analyst

Thank you.

Flemming Ornskov

Thanks very much Carrie. Move to the next question or two.


Next is over to Ronny Gal of Bernstein. Please go ahead. Your line is open.

Ronny Gal

Hi, good morning, congratulations on a nice quarter. Couple of questions here first on the NASH program. Can you just give us an update where you stand on this? And then second, as you look at your mix of product, it looks epically the specialty pharma products that have delivered most of the growth in this year. And the question is, are we going to think about your mix of product going forward, is there more comfort with expanding that franchise or still the focus is primarily going to be orphan-drugs?

Flemming Ornskov

So a good observation, a good question, and maybe I take the first question on specialty and then we will talk about SHP626 which is the NASH compound we acquired from Lumena which is a bile acid inhibitor.

So maybe talk about specialty, Shire does not differentiate between specialty and rare diseases. We're focused on rare diseases and highly specialized conditions and we expect everybody within Shire to deliver phenomenal results this year. VYVANSE had delivered phenomenal results as have some other areas VYVANSE of course given we're in the launch mode there is penetrating the adult ADHD market significantly - outgrowing the market, market is growing 10%, adult they’re growing I think almost 15% over our market growth 5.8%, we're growing almost 2% more than that.

So clearly a very strong performance and also points to the fact that there is a significant unmet need in binge-eating disorder in the U.S. We're also continuing to see very strong growth of VYVANSE ex-U.S. So whether they’re in specialty and rare diseases, it's quite clear that if people perform and they have phenomenally growth franchises, we always will look at whether we should supplement the franchise.

The good news for ADHD, we have our own supplement a phenomenal product which is called SHP465. We have three studies, 111 then we have 305 and 306 that is ongoing. They are five to nine months ahead of schedule respectively. We plan by the end of the year to file that. That’s a product that has a long acting from four to 16 hours. I think it is and we think that will go into a significant unmet need particularly in the adult marketplace.

So we don’t differentiate but we are very pleased when our businesses and I think most of them if not all continue to deliver. What about NASH Phil?

Phil Vickers

So you’re right Flemming, this is 626 which we got from the Lumena acquisition along with 625. We've recently completed a Phase 1 study successfully with that program. We’re now engaging regulatory authorities. We’re planning to move towards a Phase 2 study. We’re planning to initiate that to probably be third quarter of this year I would anticipate.

Flemming Ornskov

The 626 has a very attractive profile both in its impact on lipids and plasma glucose but it’s too early and we want to see the Phase 2 data before we get too excited. But it is of course a significant unmet need with a very attractive compound with strong IP status.

Ronny Gal

Do we understand now what happened with 625? Do we understand what's the issue with the ABS mechanism?

A – Flemming Ornskov

Yes, we're continuing to look at that Ronny and as you know we still have studies ongoing with over two pediatric studies and two adult studies and one of the adult studies is still ongoing. So we’re still getting data in from the studies with 625 and it was one of those programs where we didn’t see everything that we wanted in the pediatric studies but in the PFIC patients, we saw very profound activity where we saw effects on biomarkers and really affecting the course of the disease, as measured by liver markers for example.

So where we saw an activity we saw very profound activity, so we’re now going through engaging world leaders in this space and in the very near future we anticipate coming up with a plan to move forward.

So certainly in PFIC we plan to move forward with that program and we're considering how broad we want that program to be as we move forward initially but we do plan to move forward.

Phil Vickers

And a guiding principle for us in this category, now the category is all the same, one is that we innovate for our patients, there are significant unmet needs among these patients many of which go into transplants. So we will do everything we can to find a treatment that is safe and efficacious.

And secondly we shy no obstacle if you look at our ophthalmic lifitegrast and others, we don’t jump away just because we run into an initial obstacle for our patients, we do everything we can to find a product that works but with that maybe we move on to the next question.


Okay, I’ll go to the line of Keyur Parekh of Goldman Sachs. Please go ahead. Your line is open.

Keyur Parekh

Good afternoon, two questions please. One Flemming, if you can just highlight for us kind of how you see this steps forward for lifitegrast in Europe kind of any conversations you might have had with the CHMP post OPUS-3.

And then secondly, kind of as you think about the focus kind of for Shire over the next 12 to 18 months, can you help us think about what kind of priority from your perspective, what it is that you need to get absolutely spot-on? Thank you.

Flemming Ornskov

Thanks Keyur, this is quite clear, let me start with the last question because that will lead into the other question. The next 12 to 18 months as I outlined is an absolutely sharp and un-diminishing focus on customer facing commercial execution for all the products we have.

That also means in particular that the launches of NATPARA and ongoing strong growth of GATTEX and binge-eating disorder have to continue and that's an absolutely key focus for the company.

Number two is integrating Dyax and making sure that SHP643, their lead compound that’s quickly gets into Phase 3. We’re on track for that in a few months to start that and then with Baxalta that we as quickly as possible set out the framework and make a smooth and integration and start capturing the 500 plus million in synergies that we set out as a goal and deliver the double digit topline growth through commercial focus.

So that's the absolute focus and the final and not least is of course on the commercial side is going to be lifitegrast. That is absolutely a bellwether for us. We have come a long way since 2013. I think we have now an excellent package that's going to the FDA in record time January 22 we submitted that, people had to work over the holidays, they know how important it is to get quickly to market. We’re ready manufacturing wise. We have the commercial infrastructure, almost fully ready, we have the plans ready. We do tons of market research that reconfirms to us how strong our product is potentially could be.

In Europe we had meetings with 1 or 2 regulators and after sent and got their products approved based on I'd say mainly a science data, they are very interested in our products and I think we will finalize these discussion and then look at that market. We have also had engagements in Japan with those, and of course also Canada. Anything you want to supplement Phil?

Philip Vickers

Nothing, I think you’re right Flemming, we’ve got a laser like focus on moving forward in the U.S. towards approval and that’s where our focus has been. We’ve had some discussion with European Regulatory Authorities and I think those characterize those as being very positive and productive discussions, now we've resubmitted in the U.S., we will again turn our focus to Europe with a plan to move forward.

Flemming Ornskov

Our absolute goal is to make this a leading global ophthalmic brand in this category. So we will pursue down that path.


Okay, we now over the line of Ken Cacciatore at Cowen and Company. Please go ahead. Your line is open.

Ken Cacciatore

Great, thanks. Question on 607, just wondering if you can remind on those secondary endpoints what we should be looking at. And then also maybe discuss if you’re successful on hitting the secondary clearly we’re all fingers crossed on the primary but if you’re not successful on the primary and do hit the secondary's, can you just talk about whether those could be made primary in a Phase 3 program?

And then my second question is, Flemming clearly understand what’s in front of you over the next 12 to 18 months, but just if you could put us a little bit of context into your really broader vision for the company, now that you’re hopefully going to be closing on Baxalta, hopefully launching lifitegrast. Where are we in term of kind of the transformation of the company? Do you see yourself with this as midway true meaning we could have just as large transformational deal of Baxalta? If we look 24 months forward or do you think we are going to be focused on more smaller or orphan assets.

Can you give us a broader perspective, kind of where we stand in the evolution of the company in your head? Thank you.

A – Flemming Ornskov

Thanks very much Ken. So, on 607 as you know given that I started off working in a neonatal intensive care units in my training as physician in Denmark, this is close to my heart. I know what the significant unmet need is. This is clearly a challenging program. There is a significant unmet need, we are going for a first primary endpoint of retinopathy of prematurity but there are number of very attractive secondary endpoint.

This is a Phase 2, I don’t think we want to be indicating that we think that’s enough. There is clearly probably going to be a need for additional data. We think it’s one of our most challenging but also our most attractive program just given the Shire size of neonates in U.S. that will fall under this category and globally 65 plus thousand and significant unmet need and particularly in the category of 24 to 28 weeks premise.

But do you want to say anything about what you think we’re going do?

Philip Vickers

Yes, thanks for asking about the program Ken. I am personally very excited about this program just as the company is. You’re right, we are looking with focusing on retinopathy of prematurity, we’re fully enrolled in this program now and by the middle of this year we will get the topline date from that Phase 2 study.

We are looking at other endpoint that you can have a rationale, the idea form, which is what 607 is with its binding protein could have an effect for example on lung function, on growth, so a variety of different endpoints.

So we are looking at those and of course if we saw benefit there than that would be tremendous part, but we should say, we obviously cannot power for those endpoints, so if we don’t see those – we saw a trend but we didn’t get statistical significance than that in itself would be encouraging.

And of course as always we will respond to the data that we get. So if we saw a trend in some of those that looked exciting and we think could demonstrate benefit to patients then we would factor that into the design of future studies and either have core primary endpoints or indeed as you’re suggesting we would be free to switch the endpoint in the future clinical studies.

So, we are excited about it, wait till we get the data and decide how to move forward but it is an exciting program.

A – Flemming Ornskov

And I think to your second question I think the team and I since I arrived in 2013, I think we’ve made good progress to make Shire into a leading candidates for being one of the premier biotechnology companies, we are not there yet, we clearly with Baxalta would be number one in rare diseases.

We are in some very attractive specialty areas for the next 18 months. I think the focus is to integrate both Dyax and at least Baxalta deliver on the many launches they have which are incredibly attractive like HYQVIA, [indiscernible] all the products that they have will soon be launching. And all the launches we have with GATTEX, NATPARA, Lifitegrast coming up and in many countries we are launching other products.

So that’s going to be the focus. And I’m sure Jeff want me to say and I’ll let him say something is pay down the debt as fast we can, and stay disciplined, and extract the 500 plus million we have promised in synergies naturally as an accusatory company. We will keep an eye on what’s going on in both small and large, but the focus right now is clearly, clearly on integrating and delivering.

So Jeff, you want to say something?

Jeff Poulton

You got the script right on in terms of the focus on the next 12 to 18 months around the balance sheet, not focus on using free cash flow to pay down debt when we announced the Baxalta deal on call in January, we talked about being at 5 times or just under 5 times net debt EBITDA when the deal closes. And we think, given the cash generation capability that combined organization, we can pay it down fairly quickly and we plan to do that in 2 to 3 times by the end of '17.


Okay. We're not over to Graham Parry at Banks of America Merrill Lynch. Please go ahead. Your line is open

Graham Parry

Thanks for taking my questions. Firstly, you mentioned some price pressure in REPLAGAL and ELAPRASE address. Just wondering if you could expand on that, where is it? How much you’re seeing? I think it's a growing trend spreading to other products and whether you are seeing any price pressure at all in the U.S.

And then secondly, on the cash and balance sheet again, only 135 million on the balance sheet at the end of the year. So in terms of the cash need for operational need, after you drawn on the debt facility, how much of that you actually have to hive off?

And at which point do you think the balance sheet will be in a position for you to think about having any of the businesses that you could be looking at. So the 2 to 3 times that you’ve talked about, is that a point for the threshold point you think about future M&A.

A – FlemmingOrnskov

Thanks very much Graham. So I think maybe there was a potential misunderstanding on the cash available there but I’ll let Jeff comment on that. I think even at the close of this deal, we still have of course sufficient cash and plenty of it to do all what we need to do. Maybe we take that as a first question Jeff.

Jeff Poulton

Yes, I think that’s right Flemming. You’re correct that the short term liquidity is in good shape. I think the focus of the question was really on the balance sheet. How leverage will be and how quickly can you pay down, and how quickly can you start to consider M&A again.

Again, I’ll repeat what I've said previously the focus and Fleming said as well, the focus in the near term is going to be on integrating Baxalta and using free cash flow from the combined operations to pay down debt.

We have talked about 2 to 3 times at the end of '17 and I think that would certainly be a place where we would have multiple options to consider in terms of how to deploy cash. It could be M&A, it could be share buybacks, if that was something that looked attractive at that time but that would be a good place I think to start to reconsider different ways to deploy cash.

A – FlemmingOrnskov

I think the most important thing here is to stay disciplined. We have a number of key growth drivers that are in the launch phase. So we will be focused on that. We are a company that constantly looks both at tuck-ins on the product side and we will continue to do that.

We also look at M&A of course. That's part of our DNA. But I think the focus right now is on the integration which will be the largest we’ve ever done. Actually the two largest we’ve ever done.

So we are confident, we have all the plans in place. And I’m absolutely sure we will do it. We’ve shown with every other acquisition that we do. We know how to do it and we do it quickly.

The other thing is of course, with the combined company, we will take a look at all the franchises and just make sure we think that they are all franchise that stay with us going forward. On price, do you want to say a word or two about price?

Jeff Poulton

Yes, I think the headwinds that we saw on the lysosomal storage disease product in terms of price in 2015 are fairly consistent with what we’ve seen for the last several years. So these are low single-digit over the course of the year, price reductions across the portfolio.

Again, nothing is specific, or in particular, to highlight or point out. I’d say it’s fairly consistent with what we’ve seen for the last several years.

Phil Vickers

But I think the overall thing not to forget here is, like this is a company that is one of the very few that delivered strong results this quarter in our space.

Secondly, this is a company that has done more M&A and business development in 2015, and yet, we come out and deliver records results. So we can boast too and walk at the same time. So maybe with that we should get the next question.


Next over to John Boris of SunTrust. Please do go ahead John. Your line is open.

John Boris

Thanks for taking the questions and congratulations on the very robust momentum of your business. First question has to do with lifitegrast. You mentioned Flemming that you've done some market research and would like to focus on any product concept, blinded product concept testing that you’ve done and how that shapes and tend to prescribe going forward.

Obviously, the brand has some features, advantages, and benefits of that of the current product with spaces. And then if you have any commentary about the recent FDA draft guidance on [indiscernible] and the possibility of the generic entering the market and influence of that. That will be very helpful.

And secondly, any update from an intellectual property standpoint on LIALDA, that was a marketing carrying and also GATTEX and IPR timing.

A – FlemmingOrnskov

Yes, I count a bit more than two. But we are in a generous mode today given the general depressed markets. So we’ll be optimistic and put them into pockets. So let’s talk about lifitegrast first.

So our strategy to entering into the ophthalmic market is to bring innovation. Lifitegrast is a totally differentiated molecule. I think we've shown both in terms of symptoms and signs and on set of action that we have a very differentiated. I think the data shows a good tolerability and safety profile.

So we think we absolutely have a product that is a very good match to the needs that we see in the marketplace. We don’t see generic to being where we would be seeing competition from. We have to show the virtues of lifitegrast, all our market research shows clearly that we have a differentiated molecule.

We know there is significant pent-up demand for a differentiated molecule. We know there is significant unmet need. We know that the current product which doesn’t meet all of the needs of this marketplace that we think there is absolutely a clear place for lifitegrast.

So our focus right now is on getting the best and most differentiated label but also have the best and most educated and launch force in place. And I’m absolutely sure we have that.

On IP, there are a lot of things going on in the IP space. I think you mentioned LIALDA, so Actavis and Watson there was a trial recently which was in California, which took place in January and there is on 11, March, there is going to be final augment in that particular case.

Shire still has the first filer status. They are under other cases that have been staged. So I’d mention that we have focused on the situation with IPR review. Do you want to say something about that?

Jeff Poulton

Yes, we don’t expect anything, John, more in terms of additional information on the IPR until the second half of 2016 in the fourth quarter. I think it’s the best guess in terms of timing.

A – FlemmingOrnskov

And for GATTEX, we also had a question on GATTEX.

Jeff Poulton

I'm sorry, that was the question I was answering in terms of the next step in IPR process. It should in second half of '16. Did that answer your questions?

John Boris

Sure did. Thank you very much.


Over to Douglas Miehm of RBC Capital Markets. Please go ahead Douglas. Your line is open.

Douglas Miehm

Perhaps if you go into a bit more detail on the eosinophilic esophagitis trial, when that might start, when do you expect that moment to be completed and when we could see same data, if you don’t mind?

A – FlemmingOrnskov

So given the Phase 2 data, Phil is extremely excited about that. It’s a total breakthrough in this category where there is no available treatment. So I limit him to two minutes. Is that okay?

Phil Vickers

That’s fine. But thanks for the question. We were excited to get this program, as you may remember it came from ViroPharma, it was acquisition of Meritage that resulted in this compound SHP621.

Pleased to say that, effective at the beginning of this year, we've now transitioned from Phase 2 where we looked at signs and symptoms of the disease and we've seen some very encouraging data in both of those at Phase 2.

So we therefore acquire the asset, and we've now started the Phase 3 study. We’ve got the first patient in the Phase 3 study in January of this year. So we are now moving forward with that program.

So, and again, from primary end points, looking at [indiscernible] and dysphagia. So programs started now so you can expect to see some data from that as we move forward and into towards 2017.

Douglas Miehm

Perfect. And then just a follow up question as it relates to the LSD products in the pricing, how deep the models slight price decreases in that portfolio offset by continued growth in the patient population on net-net somewhere between the 1% and 5% CER growth that - is out those products in 2015?

Flemming Ornskov

I'm not sure, could you repeat the question as it is breaking up a little bit when you asked it. We couldn’t quite hear it.

Douglas Miehm

I just wanted to circle back to the LSD products. You indicated that we have the slight price decreases. I just want to know if it's fair to assume to see a little bit more of that but offset by continued growth in patient population.

Flemming Ornskov

It was largely a mix issue in terms of which countries we had sales in.

Phil Vickers

Yes, I would say for the three products for '16 as it relates to expectations. I'll take one at a time. I think VPRIV and Gaucher I think is probably the most competitive space with three enzyme replacement therapies currently marketed by three different companies. And you've got a couple of different oral products on the market.

And the organic growth of Gaucher in terms of the number of percentage of new patients you'll see on therapy in a given year is generally low single digits. So we're probably going to see lower growth, may be consistent with what we saw in 2015 as we move ahead.

ELAPRASE grew 4% at constant exchange rates. We've had ELAPRASE on the market in the U.S. since 2006 and then broadly in the main markets in Europe since 2007. So we're fairly well penetrated in terms of patients on therapy and the key markets around the world.

We still are getting growth primarily from developing markets and I think we will continue to see that but I would say the kind of growth that we delivered in '15 is what I would expect for the next couple of years on a constant exchange rate basis.

For REPLAGAL I think we're more optimistic about the kind of growth that we might see really for three or four different reasons. One is that the Fabry market growth from an organic perspective does grow mid-to-high single digit on an annual basis. So there is more opportunity for growth here.

I also think that we've seen the switching from REPLAGAL to Fabry really minimize over the course of the year which I think will help our growth going forward.

We also saw stronger second half performance out of REPLAGAL. If you look at it on the constant exchange rate basis second half versus fast half we were up about 8% and we also increased the number of diagnosed patients that we identified during 2015. It was up about 25% versus the number of patients we identified in 2014.

And I think that’s a precursor to good revenue growth going forward. So again for a variety of reasons around Fabry and REPLAGAL I think we're optimistic that we'll see better growth in '16.

Flemming Ornskov

So with that, I think we will thank you all for all your great questions. Maybe leave you with a few thoughts. 2015 was clearly a record year for Shire. Record topline sales, very, very strong double digit earnings growth. You saw the best pipeline we've ever had 14 products now in Phase 3 or just about to enter into Phase 3. We delivered both on the topline, the bottomline very strong margins 43% and we had more acquisitions in M&A and BD activity than ever before.

You hardly can remember the full list or maybe repeat it to you, so we started off with NPS. We also had of course the foresights acquisition. We've had Dyax and so we have Baxalta being closed in the beginning - or being announced in the beginning of this year in closing this year.

So, despite all of that there is some people who calls distraction. My team delivered phenomenal results. I think that speaks to the resilience and the ability to focus on customers and patients during this process.

We absolutely are equally dedicated in 2016 to focus on our product which is focused on delivering on the product launches we have or will be having on the integration of Dyax and integration of Baxalta making sure we have sufficient supply for our high growth outlook.

And I hope that you understand that - you don’t see that every day. So on behalf of my colleagues, we're really proud of what we established in 2015 but the benchmark will be - I’m sure higher in 2016 but we will make it as well. Thanks a lot.


This now concludes today's webcast. Thank you all very much for attending. You may now disconnect.

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