Shire's CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Shire PLC (SHPG)

Shire (SHPGY) Q1 2012 Earnings Call April 26, 2012 9:00 AM ET


Eric Rojas - Director of Investor Relations - North America

Angus C. Russell - Chief Executive Officer and Executive Director

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

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

Jeff Jonas - Senior Vice President of Research & Development for Pharmaceuticals Business

Unknown Executive -


Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Brian White - Shore Capital Group Ltd., Research Division

David M. Steinberg - Deutsche Bank AG, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

David Amsellem - Piper Jaffray Companies, Research Division

Keyur Parekh - Goldman Sachs Group Inc., Research Division


Good day, ladies and gentlemen, and welcome to the Shire's 2012 First Quarter Results Call hosted by Eric Rojas. My name is Jo, and I'm your event manager today. [Operator Instructions] I would like to advise all parties that this conference is being recorded for replay purposes. And I would like to hand the call over to your host, Eric. Please go ahead.

Eric Rojas

Thanks, Jo. Good morning and good afternoon, everyone. Thank you for joining us today for Shire's First Quarter 2012 Financial Results. By now, you should have all received our press release and should be viewing our presentation via our website on If for some reason you have not received the press release or are unable to access our website, please contact Souheil Salah in our U.K. Investor Relations department at 1256-894-160, and he will be happy to assist you.

Our speakers today are Angus Russell, Graham Hetherington, Sylvie Gregoire and Jeff Jonas. Kevin Rakin will also be available for Q&A.

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. Sylvie will give an HGT business update. Graham will continue with a financial review, and Jeff Jonas will give a pipeline update for the Specialty Pharma and Regenerative Medicine businesses, including positive top line safety results for VYVANSE and binge eating disorder. Angus will then make closing remarks, and we'll open up for your questions.

[Operator Instructions] Our Investor Relations team will be more than happy to follow up offline for any subsequent questions.

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

Angus C. Russell

Thanks, Eric. Hi, everyone. So turning to Page 5, let me start by just summarizing these results overall. So once again, had a very strong quarter, very strong growth coming from a balanced product portfolio. You can see a consistent performance here. Overall product sales up 24% to $1.1 billion in the quarter, and total revenues up 21%.

We turn to the next slide, Slide 6. You can see the same consistent performance reflected in both the operating income and the diluted earnings per ADS. Operating income on a non-GAAP basis up 18% to $362 million, and non-GAAP diluted earnings per ADS up 20% to $1.48.

I'll now turn to some of the business highlights in the Specialty Pharma and Regenerative Medicine businesses, starting on Slide 7. VYVANSE grew very strongly again in this quarter. U.S. prescriptions grew 23% over the same quarter last year. We're now running at something like 16.8% market share. That's a gain of 1.7% versus the same period last year.

We recently announced the commencement of head-to-head trial of VYVANSE versus Concerta. If you remember, when Jeff talked about our European filing, he referred to that having a reference arm in one of the studies. That came out, if you remember, with a very favorable comparison. And on the basis of that, we feel very empowered now to conduct a full head-to-head study versus Concerta. You may ask why we're doing that at this stage of the product's life cycle. Simply put, it's to demonstrate to payors around the world, particularly as we contemplate the rolling out of VYVANSE on a global basis, that this is, by far and away, the best product in the class and offers best value to both patients and payors all over the world.

We're also ongoing with our enrollment in our major depressive disorder study, the first lead of our new uses of VYVANSE programs. And we also, today, have reported headline data from -- positive findings from headline data from a new Phase II study in binge eating disorder, and Jeff will be commenting on that in more detail later in his presentation.

Turning to INTUNIV. Again, very significant increase, up 54% in volume terms alone in scripts versus the same period last year. Market share really being driven by new consumer marketing campaigns and also the approval early last year of the extension of the label to adjunctive therapy in combination with a stimulant. We're also, remember, enrolling INTUNIV in a Phase III program in Europe, and it's again our intent to bring that product to Europe a little bit behind VYVANSE. But we will end up, we hope, with the 2 leading products in ADHD appearing in Europe in the next few years.

Now moving to what's becoming really an embryonic but emerging new business area franchise for Shire, and that's hematology. This quarter, you'll have seen us make the acquisition of a product from FerroKin Biosciences, FBS0701. It's in Phase II and again, Jeff will be giving a bit more detail as to what we intend to do with that product next.

We also, earlier in the quarter, signed a very interesting collaboration with a company called Sangamo, and this is focusing on developments of therapeutics for hemophilia. We've identified 3 blood factors. We're also looking at a range of potential HGT targets, and so we can talk about that later. And we're looking at other monogenic diseases based on Sangamo's technology, the so-called zinc finger protein technology.

And this adds to our existing hematology franchise of XAGRID, which is still commercialized in international markets as a rare orphan drug, and also SPD 535, which is still in development. And again, we're looking at that for different types of use in the hematology space, and we'll talk more about that probably later this year as we formalize our plans as to where we think that product can gain best utility.

And again during the quarter, we actually brought in a new product into the regenerative medicine space. This could have a very good fit with our historic presence in FOSRENOL in the dialysis suite. So the product here is VASCUGEL. We acquired it from Pervasis. Again, it's completed some early Phase II work. We'll be looking at doing more Phase II studies, and it really addresses the significant unmet medical need for improving hemodialysis access for patients with end-stage renal disease. So as I said, with our interest in FOSRENOL in the past, end-stage renal disease has been the space we've had strong relationships with the large dialysis companies. We're looking to leverage all those benefits in Shire and also bring our expertise in these sorts of technologies, cell-based technologies in the regenerative medicine field. Again, Jeff will give you a little bit more insights into next steps with that in his R&D presentation later.

So if we turn over to Slide 8, I just wanted to give you a summarized version here what the pipeline is looking like. It's very evident, I would say, from this that you see a lot of interesting projects now at all stages of development but most particularly, in the Phase II and Phase III area. And that's very important as we're all thinking about the next wave of growth that comes in Shire. We have, as you know, very strong growth prospects such as we're reporting today, and we see significant ongoing growth potential in the next few years. But like any pharmaceutical company, we have to be investing in the future. And that is what we intend to continue to do through other quarters in the future.

So with that, let me hand over to Sylvie to give you a little bit more information about the highlights from HGT during the quarter.

Sylvie Gregoire

Thank you, Angus. We're on Page 10. It's been another strong quarter for the rare disease business, and we've seen growth from all of our products. And so I'm going to give you a few highlights from what has happened during the quarter, and I'll start with FIRAZYR. We've been very pleased with the success of FIRAZYR. U.S. growth continues to be strong from both new patients that are starting treatment and also from repeat usage by existing patients.

In the more established markets in Europe, we've also seen much growth following the self-administration approval in the label that occurred last year. So we believe that the distinguishing features of FIRAZYR are the reason for that, for the rapid onset of action, the room-temperature storage, the pre-filled syringe for on-demand self-utilization or self-administration really underpin, I think, the success of the product that we see around the world for HAE.

Now moving on to REPLAGAL. And REPLAGAL also continues to deliver strong results. Sales have increased by 28% year-over-year, at 32% at constant exchange rates. And over, now 2,900 Fabry patients are treated with REPLAGAL. And that corresponds to an estimated x U.S. share for the product of about 82%. REPLAGAL has been on the market, as you know, for over 10 years and is available in 46 countries. And since the beginning of the shortage of Fabrazyme, over 1,000 patients have successfully switched from Fabrazyme to REPLAGAL.

Another event in the quarter that we have already reported on is our decision to withdraw the U.S. BLA on the basis that feedback on our application from the agency led us to believe that additional clinical trials would be required for the agency to consider approval of REPLAGAL. As you know, we had informed the FDA from the outset that no new clinical -- controlled clinical trials have been performed. However, we did provide efficacy data from the treatment protocol in the U.S.; the use of REPLAGAL in outcome surveys that, since the product has been marketed, with a follow-up of at least 5 years in patients; and of an analysis of efficacy pulled from data from the original trials.

Since then, we've been asked by various stakeholders, patients included, what clinical data was in the application, and we thought it might be helpful actually today to summarize that and put this in the appendix alongside the existing publications. So if you look at the appendix later on, you'll see that there are 4 different publications and 2 Shire analyses in there, and they're all consistent in showing that REPLAGAL has a favorable impact on the progression of both renal and cardiac dysfunction observed in Fabry patients. Interestingly also, you'll see that these reports contain information on patients who have switched from Fabrazyme to REPLAGAL, and they also appear to maintain their renal and cardiac function. And I hope this is helpful information to you, and of course, I'll be happy to answer more details if you have some later on.

So let's move to VPRIV. We again also had a strong quarter performance for VPRIV with 22% growth year-over-year, which is underpinned by new patients starting on therapy and a higher rate of patient retention. We received approval during the quarter of our new manufacturing facility in Lexington for the manufacture of the VPRIV drug substance. This approval allows us to supply the x U.S. market from this facility while continuing to supply the U.S. market from our Alewife facility. We have sufficient capacity as is to supply all the anticipated demand for VPRIV this year. The benefit of approval of VPRIV in the U.S. market, however, will allow us to normalize our inventory levels in that country, or in the U.S., and as we have been able to do so following the EU approval of the facility, so that the inventory for the x U.S. has normalized.

Let me turn now to the status of the review of our application -- of the VPRIV application with the FDA. During the quarter, we've received a list of questions and remarks from the inspection in what is called a Complete Response Letter. We fully expect to be able to resolve the outstanding issues to the satisfaction of the agency and are, of course, working with them on that. Just because I've been asked before, I want to clarify that none of the observations or the questions that we received relate to the new single-use technology in the facility. They relate to more general-type questions asked during the review of a manufacturing process, and there are issues, as I state, that we are very confident to address.

So in summary for VPRIV, when it comes to an update on the manufacturing facility in Lexington as well, the main message is that we can supply from our existing approved capacity all the anticipated demand for VPRIV and for REPLAGAL, of course, for 2012. And the approval of the manufacture of VPRIV in the facility to supply the U.S. market by the Lexington facility will allow us to recover and normalize our inventory in the U.S.

Let us move maybe to the pipeline. As Angus mentioned a little earlier, we were able to add several new collaborations in this quarter in the research stage pipeline, which has broadened what we're doing. This allows us to add new technology platforms that will be tested for innovative therapies for patients with rare disease. Sangamo was mentioned by Angus. We've also done a collaboration work for arGEN-X and few others that will -- collaborations were also initiated that will help us expand our pipeline.

And now I will hand over to Graham for a financial review.

Graham Hetherington

Thank you, Sylvie. Good morning, good afternoon everyone. Today, you've seen that we've delivered another excellent set of first quarter results. I'm going to focus on first, the dynamics shaping our strong results this quarter. Second, I'll talk about the continued revenue and strong earnings growth we're seeing from across our broad-based portfolio, while we invest in future growth over the longer term. And finally, I'll talk for our expectations for the full year.

As we move on to Chart 12, Angus has highlighted the strong top line and earnings growth we've achieved in the first quarter. Product sales were up 24%, and 26% after stripping out effects of foreign exchange. This reported growth this quarter benefited from DERMAGRAFT, contributing just over 5 percentage points of our product sales growth, with the rest of the portfolio still posting 19% of year-on-year growth.

Total revenues were up 21%, lower than the growth in product sales, as we expected, due to lower royalties and other revenues. As I explained back in February, we expect to see royalties decline this year, resulting from increasing generic competition around the world.

EBITDA increased 18%, and 20% on a constant currency basis. The strong top line growth that we're demonstrating has allowed us to continue investing in the future success of our business while growing our operating margins. We also benefited from the tax rates of just below 20%, at the lower end of our full year expectations of 20% to 22%.

Earnings per ADS were up a full 20% to $1.48, representing our excellent start to 2012. And finally, we generated $310 million of cash in the quarter.

Turning now to Slide 13. You can see the strong performance of many of our key products this quarter, which have driven total revenue growth of $200 million. Our ADHD franchise continues to deliver sustained growth, driven by our key brands capturing an increased share of the U.S. ADHD market that grew 10% in volume and 22% in value in the quarter.

VYVANSE, in particular, has had a particularly strong start to the year, exiting the quarter with a U.S. market share of around 17%. And from this, product sales increased by 29%. INTUNIV also continues to perform strongly with product sales increasing by 63%. ADDERALL XR's combined revenues grew by 7%, driven by growth from royalties. Product sales were flat as higher sales deductions offset prescription growth. Looking forwards, we continue to expect sales deductions for ADDERALL XR to be in the range of 60% to 65% going forwards.

In our GI franchise, LIALDA/MEZAVANT continues to grow, up 3%, with year-on-year market share gains in the U.S. being partially offset by the impact of some de-stocking in the quarter.

In our HGT business, as Sylvie has outlined, we also saw strong growth. REPLAGAL and VPRIV continue to benefit from naive patients and those switching from other products. ELAPRASE sales were up, in part due to the phasing of some orders. And last but not least, FIRAZYR has posted a fourfold increase in sales to $20 million, following the progress that Sylvie has already highlighted.

Moving to Regenerative Medicine. Our recently acquired regenerative medicine product, DERMAGRAFT, contributed $49 million of sales in the quarter, up 10% on its sales in the same period last year. Further detailed analysis of this broad-based growth can be found on Slide 43 and 45 at the back of this presentation.

Turning to Slide 14, where we continue to see operating leverage this quarter, as combined R&D and SG&A grew 20% compared to the 24% growth in product sales. Recently, we've had encouraging results, which have given us the confidence to increase our investments in our pipeline, including the next stage of developing new uses for VYVANSE and also our intrathecal programs at HGT.

Moving from R&D to SG&A, where we saw an unusually high level of year-on-year growth this quarter. This rate of growth will not continue through the year because the underlying rate of growth in the first quarter is actually nearer 7%, and there are 3 factors driving this.

First, the operating cost from ABH this year of $31 million represent 9 percentage points of the year-on-year increase. Second, we've incurred some one-off litigation costs this year -- in the quarter this year, which drive about 3 percentage points of the increase. And specifically, finally, last year, the first quarter SG&A was particularly low, about $20 million low than the run rate for the rest of the year, which exaggerates the year-on-year growth by 6 percentage points.

All of these 3 things underpin the 7% underlying growth in SG&A in the quarter. And even with this SG&A, our EBITDA as a percentage of product sales increased by 1 percentage point to 29%.

Let's look at our cash flow on Slide 15. Cash generation was strong at $310 million, and has grown faster than earnings due to the first quarter of 2011 being negatively impacted by sales deduction payments. Our free cash flow of $250 million was also well up due to our higher cash generation and lower capital expenditure, reflecting completion of our new manufacturing facility at Lexington. We finished the quarter with cash of just short of $900 million and net debt of $214 million.

This month, the deadline passed for bondholders to elect to exercise their option to redeem their convertible bonds in May this year. As a result, the $1.1 billion of convertible bonds outstanding will become repayable at maturity in May 2014.

We continue to have a strong and flexible funding position supported by our 5-year $1.2 billion bank facility, which remains undrawn.

Finally, let's look at our full year outlook for 2012 on Slide 16. The strong start for the year means our expectations for full year revenues have increased marginally. As you can see, product sales continue to grow strongly. The rate of growth will moderate over the course of the year as a result of tougher comparatives and the inclusion of DERMAGRAFT in comparables from July 2011. However, I believe our diverse product portfolio will still deliver mid-teens product growth for the full year.

We continue to expect a decline in our overall royalty income as I've described earlier, which, combined with other revenue, will be 15% to 25% lower in 2012 than last year. Taken together, I'm expecting low-teens total revenue growth in 2012.

We'll continue to advance our promising pipeline of early- and late-stage programs and invest in our recent pipeline acquisitions. An example of this is the exciting program for VYVANSE in the treatment of binge eating disorder, which Jeff will describe in a moment.

The rate of increase in operating cost will be lower over the remainder of the year compared to this quarter. That said, we'll be supporting increased R&D activity and other activities, which will now drive expected combined R&D and SG&A spending to increase by between 12% and 14% compared to 2011. My expectations for the full year tax rate remains between 20% and 22%.

Taking all of these dynamics, together with a strong start we've made to the year, I'm reiterating our guidance from February of another year of good earnings growth, while we continue to invest in the development of a platform for sustained future growth.

And with that, over to Jeff.

Jeff Jonas

Thanks, Graham, and good morning and good afternoon to everybody. I'm on Slide 17 now, and I'll be giving you a overview and an update on the pipeline for Specialty Pharmaceuticals and Regenerative Medicine.

Turning to Slide 18. I'm going to begin by providing an update on the 4 new uses programs, focusing today, in particular, on our new data for binge eating disorder.

Slide 19 is just a reminder that the data we're showing you today are meant to inform the medical and financial communities and represent investigational programs. VYVANSE is only approved for the treatment of ADHD.

Turning to Slide 20. I know many of you have seen this slide before, but I want to remind you that all of the indications we are exploring in the new uses program are linked, we believe, by some abnormality in dopamine or how it is utilized in the brain. And our theory is that VYVANSE, in particular, may correct these imbalances, leading to a therapeutic benefit. I have to say that the data we've presented to-date and those data you'll see today all go to support this hypothesis.

On Slide 21, I'm going to summarize where we are in our 3 new uses programs and then turn to binge eating disorder subsequently in more detail. In major depression, we're enrolling in our Phase III program and currently on track. In negative symptoms schizophrenia, many of you may recall we had a positive signal-finding study. But we felt, based on the good tolerability we observed at the top dose of 70 milligrams, that we could and should explore higher doses. I can report today 2 important events in this program.

First, in our Phase I study of stable schizophrenics, doses of more than 3x the top dose of 70 milligrams were explored and well tolerated. Second, the FDA has granted Fast Track designation for the negative symptoms schizophrenia program. As a result, we'll be discussing with the FDA and other regulatory authorities potential paths forward.

In our program for excessive daytime sleepiness, we are completing our business assessment of the indication.

Moving onto binge eating disorder. I'm happy to report that, as announced today, the study made its primary endpoint, and I'd like to turn to that now on Slide 22.

First, I want to provide some background on binge eating disorder. Let me start by talking about binges. These are the rapid consumption of high-calorie foods in a short period of time, often more than 2,000 calories in a matter of minutes. After a binge, the patient will experience shame and distress and will describe feeling out of control. For a diagnosis to be made, the patient must experience binges for 2 days per week for a minimum of 6 months.

Binge eating disorder is the most common eating disorder. It is diagnostically distinct from bulimia and anorexia nervosa, and I'm happy discuss that in more detail in the question-and-answer section. Binge eating disorder has been described in epidemiologic surveys in the U.S., Europe and Asia and is seen in up to 3% of all population surveyed.

Binge eating disorder is also the most chronic of the eating disorders. Several studies have suggested that there is a genetic component to the disorder and also suggest that abnormal regulation of dopamine is related to its etiology. These biological and epidemiological findings have been made across geographies and across racial groups.

The large majority of patients with BED are overweight, and studies suggest these patients may have an increased risk of type 2 diabetes, elevated lipids and cardiovascular events. In addition, the cost of therapy and pharmaco-economic cost of binge eating disorder is similar to that seen for other eating disorders, with the caveat that the total cost to society may be more, as binge eating disorder is the most chronic of the eating disorders. Finally, patients with binge eating disorder suffer from the psychosocial morbidities seen with other psychiatric disorders.

Slide 23 shows an overview of the current and potential size and scope of the market for binge eating disorder in the United States. Looking at the slide, I want to point out that the number of patients treated currently is quite modest. That's not surprising, as there are no optimal treatments and no approved therapies for binge eating disorder, hence no rationale to drive patients into therapy. However, looking at the total binge eating disorder potential value, you can see that it is an area of significant unmet medical need, as well as a significant market opportunity.

Slide 24 describes our Phase II study in binge eating disorder. I'd like to start first, though, by talking about how we conducted this trial and the philosophy behind it. As with our other new uses trials, we specifically did not overpower this trial, but instead, looked at achieving an effect that was clinically meaningful. This in turn gives us the ability to avoid running an excessively large trial, or overpowered, but does give us information about how to structure our Phase III program.

As you can see from the slide, this was a double-blind, placebo-controlled, fixed-dose trial encompassing 271 patients. We studied patients without concomitant psychiatric diagnoses. The primary endpoint was the number of days binging each week. That is, how many days each week did the patients binge at the start of the study and how many days each week were they binging at week 11, at the end of the study.

Slide 25, the next slide, shows you the data. And I think this is a slide that speaks for itself. What you see first -- let me take you through the slide. On the top, upper left, this is a graphic display of the days binging per week, broken out by dose, at baseline, week 3 and week 11. What you see here first is a significant response in the days binging seen at both the 50-milligram and the 70-milligram dose but not at the 30. There is thus a clear dose response and statistical significance.

I want to point out here the placebo effect. Firstly, there is a placebo effect. But even with that effect, we achieved statistical significance. But clinically, it's important to understand the difference between continuing to binge one day a week versus virtually no days a week. You have to think about this almost like an addiction model. If one is an alcohol abuser, even one day of drinking per week isn't clinically acceptable.

So let's look at some data that may help you understand this more fully. Turning to the lower right, we have what I would consider possibly a gold standard in its psychiatric study, and that is the ability to achieve remission -- in this case, achieving remission for binges for at least 4 weeks. In this slide, the taller the bar, the better the result.

Once again, you see a number of important findings: first, there is a clear dose response; secondly, clear statistical significance. And very importantly, what we see here is that the placebo response in days binging doesn't translate into high rates of remission.

Slide 26 serves to emphasize this point. Here, we're looking at the ratings of patients overall on global clinical impression. What we see here is that patients on placebo, 61% of the time report themselves to be very much or much improved versus nearly all the patients, 94% -- 93.9% of patients at 70 milligrams report themselves as being very much or much improved. This shows the significance of the remission and the significance of this finding, even in the setting of what looks to be a placebo response.

Slide 27 summarizes the new uses program. For binge eating disorder, we've shown that VYVANSE significantly is superior to placebo on the primary endpoints for 50 milligrams and 70 milligrams, with a good dose response. It's important to note that safety was generally consistent with the well-documented profile of VYVANSE. At the present time, we are planning to meet with health authorities to establish the path forward for our Phase III program.

For the other new uses programs, major depression is currently on track and underway. We continue development planning for negative symptoms schizophrenia in the context of the new dose findings and the positive FDA Fast Track decision, and we'll be making a decision on excessive daytime sleepiness program in the setting of multiple opportunities provided by the VYVANSE new uses program.

I'd like to turn now to our discussion on Page -- Slide 28, our head-to-head program with Concerta. Angus mentioned this briefly at the beginning, but I'd like to take you through this a little bit more and review the rationale, as many of you have asked us about this program. So I want to review the strategy for a few minutes.

Slide 29 summarizes our rationale for this program. Angus mentioned this earlier, in our 325 study, where used Concerta as a reference arm, we differentiated quite successfully for VYVANSE. And I'll show you those data on the next slide. And we believe that those findings allow us to de-risk a trial and succeed in differentiating VYVANSE from Concerta in a way that will be clinically meaningful to patients, physicians and payors.

Secondly, we believe it's incumbent on us, as a leader in ADHD, to continue expanding the body of knowledge around ADHD and its treatment. And finally, we do have an objective to generate superiority data versus Concerta that will allow us to differentiate VYVANSE from other products in the category. This is especially important as we expand the uses of VYVANSE and other new uses. We expect that we'll have these data in the second half of 2013.

Slide 30 once again reiterates and presents the data from our 325 study, where we used Concerta as a reference arm. In that study, it's important to point out that there were no formal comparisons planned between the 2, although post hoc comparisons obviously were done. And in those post hoc comparisons, what you see here are the results.

In this slide, we're looking at the response to VYVANSE or Concerta using an ADHD rating scale. And here, in this slide, lower is better. And what you can see from the outset from the study that VYVANSE is significantly improved over Concerta throughout the course of the study. I should point out again, this was a reference arm. And you see at the end of the slide, on the right-hand side of the slide, that patients seem to get worse. That's when treatment has been stopped at the end of the study.

I also want to point out again that this was designed for regulatory use, and there were no new safety findings in this study. These data, however, do show the rationale for our head-to-head program and show why we believe this is a significantly de-risked opportunity for us.

I want to now change gears and talk about another part of our business. On Slide 31, I'm going to begin to focus and move away from our behavioral health suite of products and talk about our therapeutic category, where Shire has always operated. But as Angus pointed at earlier on, it's now increasing its efforts based on interesting new signs and opportunities.

This area, as seen on Slide 22 (sic) [Slide 32], is the area of hematology. I won't take you through this slide in detail, but let me summarize its main points. Most of us know that iron is important for life. However, the body has a tough time eliminating it. However, any disease that requires multiple transfusions can lead to iron overload as result of all the blood transfusions. That iron overload, in turn, can be fatal. There is thus a significant need for clinical methods to eliminate iron in these situations. This is a developed market and one that's growing, currently estimated to be approximately $900 million.

The next slide, 33, summarizes the attributes of our new product, FBS0701, which is an oral iron chelator, and that is an oral agent that is designed to remove iron from the body. We acquired this FBS0701 to help patients suffering from iron overload and to provide a potentially improved therapy versus today's standard of care. As you can see from the slide, we already have good indications of efficacy at the middle dose range and an excellent safety profile. We have not seen indications of liver or kidney toxicity. Thus, we believe that based on the current data, this product may have real advantages for patients, and our program is anticipated to capitalize on this.

This program is seen on Slide 34. The first step will be to complete a dose-ranging program to define the risk-benefit profile of higher doses of FBS0701. After that, we intend to meet with the regulatory authorities to design our Phase III program. We intend to establish a clear demonstration of a favorable cost-effectiveness profile and to establish differentiation from current therapies.

Let me switch gears one last time now and turn to our Regenerative Medicine business. That's on Page -- or Slide 35. I know I speak for many of us at Shire in expressing our excitement in entering this area, and believe is a great platform to fuel future growth at Shire.

Our first Regenerative Medicine acquisition is a good example of how the Shire model provide broad experience in diverse areas that could be leveraged for new opportunities. Here we have an acquisition that takes advantage of several areas of Shire's expertise. ABH, or Advanced BioHealing, has clinical and regulatory expertise in bio matrices and cell combinations through its DERMAGRAFT product. Both ABH and Specialty Pharma have expertise in this space dealing with the complications of diabetes through their DERMAGRAFT and FOSRENOL programs. And Specialty Pharma has expertise in the dialysis suite through our experience with FOSRENOL. So VASCUGEL, this new product we have recently acquired represents a natural revolution, not only for ABH, but also for Shire as well.

Slide 36 describes the VASCUGEL product. Patients with end-stage renal disease require dialysis, and this in turn requires access to the bloodstream. A typical dialysis patient has to be dialyzed several times a week, each time requiring access to the bloodstream. To achieve this access, surgeons have to connect arteries to veins, as pictured in this slide, surgically, using either a fistula, which is a direct connection between a vein and an artery, or a graft, which is an artificial connection between a vein and an artery. This procedure is not dissimilar from putting together pipes, and the junctures needed to heal well for the graft or fistula to function. These access points must, in turn, be able to be punctured many times a week for dialysis to occur. And as a result, they may become infected, unstable and unusable. Thus, assuring good healing and stability is critical to patient safety and health.

You can think of VASCUGEL, as pictured here, like plumber's tape for surgeons to help assure the stability and healing of these grafts and fistulas. And thinking about Advanced BioHealing, VASCUGEL is a natural extension of our work with DERMAGRAFT. With DERMAGRAFT, we have a bio-matrix and fiber blast to aid wound healing. With VASCUGEL, we have a bio-matrix endothelial cells to aid in vascular healing.

Slide 37 answers the question, I hope, "Why move into this area at all?" Let me just summarize this slide for you. First, it's an increasing area of need. There are 160,000 of graft and the fistula procedures performed each year in the U.S. alone. Despite that fact, there's a very high failure rate. For those patients who do fail, there are very few treatment options. Importantly, and consistent with the Shire model of R&D, we believe we can design a Phase II study efficiently that will clearly de-risk this program and give us a clearer go/no-go answer at the end of Phase II. So all in all, we view VASCUGEL as an ideal next step for our Regenerative Medicine business.

I want to thank you all for your attention. And now I'd like to turn it back to Angus.

Angus C. Russell

Thanks, Jeff. So we just wrapped up with the final 2 or 3 slides.

Turn to Slide 39. This really is a slide you've seen before, but begins to demonstrate more and more the depth and growth of our product portfolio. To the right, you see the current market products in blue that are driving the excellent results you've seen in the past 2 or 3 years, but again in the first quarter of this year.

Behind that, as I said earlier on, we have a growing late stage pipeline with the new uses of VYVANSE with a major lead program in depressive disorder and now with this significant finding in binge eating disorder and also the other programs that Jeff talked about. And as I said, INTUNIV, we have plans to launch that eventually in Europe and then rolling the study there.

And behind that, Jeff has now highlighted new projects that we brought in, in just the current quarter. Sylvie also talked, as you get to the left of this chart, about new research programs, new collaborations, all of this with the view to continuing to sustain the good growth track record that we've established over recent years.

So if we turn to Slide 40, just also want to review for you the balance of news flow in the rest of this year. We have an upcoming approval, we hope, in the Canadian market for DERMAGRAFT, which shall be the first significant launch outside of the U.S. of that product. Lexington manufacturing plant approval for VPRIV, Sylvie gave you all the timelines and exactly where we stand at the moment. So as she said, we have confidence in our ability to answer the FDA's questions and move forward with that approval in due course.

Guanfacine Carrier Wave, we've mentioned that in the past. We didn't have updates on that today. But Jeff, again, will be back, I'm sure, later in the year to give you both an update on the latest data from the early studies and to talk about what our decisions are and how we advance those programs forward into later stages. But for now, we're making good progress.

At the end of the year, as we get there, we are obviously anticipating, obviously, approval of VENVANSE in Europe. And we hope, as we turn the year, an eventual launch of that product.

We would hope, now we're armed with this very good detailed data in binge eating disorder, as Jeff said, we've got to go in and talk to the FDA about that, but we now feel pretty confident about our ability to advance that program in Phase III. And as Jeff said earlier, we hope later this year, again, to be able to talk about those plans once we've finalized our discussions with FDA.

And then something we've flagged up before -- flagged to you before, but we hope to be in a position later this year for Sylvie to talk about Sanfilippo A and Hunter intrathecal programs. Those are the 2 lead programs which we hope will prove the importance and efficacy of this intrathecal platform, which could be the basis of bringing more treatments to more patients in rare diseases in the future.

And finally, RESOLOR. Remember, we successfully negotiated the in-licensing of the rights for the U.S. market from Janssen. And following that, again, we are now looking at initiation of Phase III programs for RESOLOR in the U.S. market.

So turning to final slide on 41. I hope this presentation -- I know it's been a bit lengthy, but we wanted to give you all the exciting data on our newest programs that emerged in the current quarter. And we've again, I believe, delivered very, very strong sustained growth out of our ever-growing portfolio of global products.

Those programs we have talked about, as I said, have expanded the pipeline. And we believe that both our existing product pipeline and our future pipeline of new products continue to demonstrate the value we can bring to the health care system and to patients.

So thank you for your attention. And now I hand back to the operator, and we'll be -- look forward to answering your questions.

Question-and-Answer Session


[Operator Instructions] We do have our first question and that comes from the line of Gary Nachman.

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Sylvie, a couple for you on the VPRIV manufacturing at Lexington. Just a little bit more. What are the main issues the FDA raised in its Complete Response Letter, and how long do you think it will take to resolve those? And why isn't it worth doing clinicals for REPLAGAL in the U.S.? Why are you giving up in this market, given that there are only limited Fabry patients worldwide?

Sylvie Gregoire

Gary, I'll address your question as best as I can. Of course, the specific questions that we received from the agency, we don't normally disclose. But I can give you a little bit of color about what the types of questions that we've received and why we're confident basically that we can answer these questions. And in terms of timing, a complete response turnaround with the FDA normally carries a schedule of 6 months. So anytime between now and 6 months, we could expect to have this issue resolved with the agency. So the types of questions that we received -- and like I said, are not related to the fact that the new manufacturing technology used at the plant. As you know, we use this disposable technology that has the advantage of limiting contaminations in the plant. And so they relate to things that are usual of what we see in terms of a new application and manufacturing, so questions around specifications, the narrowing of specification in process parameters and assays. And so those are the types of things that we've received in terms of questions. So we believe that this can be -- we can address them. Clearly, the agency might want to come and see that whatever general quality systems questions they may have, have been resolved and come for a reinspection before they give approval. But all that would be in the 6 months that I talked about. Hopefully, that's helpful. Now on the complete response, I'm sorry -- the BLA at the agency and why we're not -- we've always said we weren't going to redo clinical trials. First of all, doing clinical trials in Fabry disease is difficult. There are no approved end points or clinical end points for the disease. It was part of the reason why it was difficult also, I think, for the FDA to look at the end points that we've looked that, even though they encouraged to look at renal function and cardiac functions. These are actually the endpoints that are used to follow Fabry patients. But formally, they are not end points that have been validated and used for approval before in the agency. So embarking on clinical trials certainly takes a long time, especially in the face of products that are already approved and can be used. Patients have a choice, and they generally want to be treated. And the market in the U.S. is actually not that big of a market relative to -- remember, the x U.S. market is very large already. And certainly for us, it represents a majority of our revenues, not just for a product like REPLAGAL, because REPLAGAL is not approved, but for all of our rare disease products. So in terms of market size, it's not maybe a sufficient motivator. We have other things of interest that we'd like to invest and do research on, and that's why we don't intend to continue in the U.S. at this stage.

Angus C. Russell

Just to add to that. I mean, as Sylvie was saying, in the context with HGT. She sits also on the leadership team with me. And we have to think about that, why the context is shed. And I've shown you, I think, already in this presentation, very rich range of opportunities now in the R&D pipeline. And when we look at the potential returns on investing in those kinds of treatments for diseases that are not -- have some of them, like Jeff said, in BED, no real effective treatment today. So when we look at that, that's good for patients there who have no treatment at all. And we have to think about the set of various investment opportunities and the confidence we have in gaining an approval. And when we weigh all that up, I'm sorry, it's a hard fact of life. We need to move on. We spent 18 months now investing time, effort, resources in this, and we've gotten to a point that we feel we have better opportunities so we need to move on. I stress I feel very badly for the patients. We're very committed with our bottlers to patients we've liaised heavily with patient advocacy groups around this, so it's disappointing for the patients, disappointing for us in that regard, but time to move on.

Sylvie Gregoire

And just as an add-on, REPLAGAL will continue to grow. You talk about the growth of the market, and there's new patients who get treated every year. And in essence, that represents the majority of the growth that you see in REPLAGAL now. So it's a market that -- or the product will continue to grow based on just the growth of the market.


The next question comes from the line of Brian White.

Brian White - Shore Capital Group Ltd., Research Division

I've got a couple of questions. First one is on INTUNIV. And I just kind of wonder, I guess the outlook for INTUNIV has changed a bit over the past couple of years. I think it's probably fair to say that it is now less relevant in Europe than it was, given the kind of patent challenges in the U.S. Perhaps it's more of a limited shelf life. I think there's a real challenge to deliver a differentiated carrier with VYVANSE [ph]. Your stimulants now, the stimulant class has a clean bill of health and now is the time to focus all of the promotional and development efforts behind VYVANSE [ph]. And then just secondly on VYVANSE and new indications, I just wondered how it was that you came to your allocation of priorities. Is it based on market potential or attrition, and does it make any sense to partner these?

Angus C. Russell

Okay, Brian. I'd like, if I may, just to kind of refute some of the things you said about INTUNIV, so let me start. Starting with the U.S., we have a 4.5% market share. It's growing all the time, very consistently. I had said it was only a year on, really, from gaining the adjunctive therapy label. We are finding that to be a very effective paradigm of treatment for physicians, something they never had as an alternative to use a product like this, a very long-acting product to address sleep disturbance and issues of patients not being controlled when they wake up first thing in the morning, so have a very effective role to play in that space. And we're still growing nicely in the U.S. You mentioned the IP and the challenges to patents. And I know people have seen developments in the quarter. It's difficult because we are in, obviously, litigation. We never comment on those. And rather, as I remember, and those of you who followed the company many years ago about our ADDERALL XR patents and the defense of those, we don't comment on specific patent strategy, if you will, or litigational strategy. If I come back to -- we remain extremely confident about 2 formulation patents that are dated '20 and '22. As you know, Actavis is the first filer, and that's where we're in the lead litigation. We recently had a Markman hearing in February, and we actually feel pretty good about the claims set that we've discussed there. There was nothing negative that came out of that, and we feel it's very much in line with how we would wish to defend our patents. So the Markman hearing was a good result in how that came out. As I say, we have a September date for the litigation. But as ever, we look forward to moving forward. And there's always scope for things like settlements if we can find a reasonable basis. But we come back to we're very confident in our 2 formulation patents that are dated out there in '20 and '22 against the lead filer, Actavis. So that deals with the IP. Let me move on now to the expansion in Europe. I would just conjecture, again, about it not being worth anything in Europe. I think we all know that Europe has a greater propensity and concern about the use of stimulants to treat particularly maybe the pediatric population. Therefore, for some time, we've held the believe that actually it wouldn't surprise us if eventually INTUNIV went on to be a good standard of care for pediatrics in the European market. And with that in mind, we've obviously spent a lot of time talking to regulators. That was framed for us, the opportunity, and that's why we're doing a full Phase III clinical program in Europe to gain registration, is they have offered us 10 years' exclusivity -- data exclusivity. So we will not be necessarily dependent on the IP. I believe in the IP, as I said, but we're not dependent on it for Europe because we will have separately 10 years' data exclusivity. And the significance, as you know, of that is as that runs -- or is only triggered, that 10-year period, from launch. So it's rather like with VYVANSE, we have a composition of matter patent until 2024 in Europe and other international markets. We have a nice long runway. I've made that point very many times before, and I believe that we're only just beginning to see the awareness gain into these international markets. We're seeing the growth really begin to build as we and others now bring more of this debate to international markets. So I feel that this is only the start of what could be a very big opportunity. We have the 2 gold standard products that are very complementary and most importantly, offer our physicians the whole range of different treatments to treat the various different conditions that they see presented in ADHD. Like many diseases, there isn't a "one size fits all" solution to this kind of a disease. It's very true with many psychiatric kind of diseases. The final thing is Carrier Wave. I said Jeff will be back later in the year, but we believe that Carrier Wave will show us some interesting results. We'll see what more of that solidifies as the results read out, suss [ph] out. I don't want to begin to preempt that now, but Jeff will be back later in the year to discuss what we think INTUNIV can do in Carrier Wave form for us.

Unknown Executive

He asked about the new uses.

Angus C. Russell

Oh, new uses. You talked about partnering and whatever. I mean, maybe just to take you back in time as -- when we did one of the early presentations on it. Remember what we said was, you have to look at both the clinical impact to this and how we position that. And it aligns very well with, if you like, the life cycle of these products and the history of primary agents that have been used to-date. So we made the point early on in the discussion of new uses programs. But to reiterate that, that was -- many of these primary agents have been used. And despite the use of SSRIs, if you will, as the leading agent to treat major depressive disorder and the atypical antipsychotics to treat schizophrenia, despite that, there are many people left out there with high unremitting symptoms in these diseases. It also fits, I said, with the life cycle. Many of these drugs, we knew from day one that many of these drugs will be genericized and there will be good generic alternatives to those kind of first line products by the time we develop and launch these drugs. But the point is, these people have tried all of that, so it aligns very well in both a payor strategy and a clinical strategy. Number one is when all the primary care physicians have run out of all the first-line treatments and they're still left with someone with unremitting conditions, they refer back to the psychiatrist. It will go back there. That's back to a specialist physician. That's our sweet spot. That's our target audience. Equally from the payor side, the propensity, as we know, would be to use that generic front line. They should do. Our point is not to go up against that. It's to actually offer an adjunctive therapy or a substitute for a patient who's tried that and failed on those therapies. So again, there is no alternative. There is no competition, by definition. So we believe in this marketing positioning and so we offer a clinical opportunity that goes right to the sweet spot of our normal promotional model, if you will. And at the same time, we offer strong value proposition to the payor community because there are no other alternatives out there. So that, simply put, Brian, is where we are. So at this stage, we wouldn't be looking for a partner. I mean, we'll never rule that out. But we've tried collaborations in the past. They've generally not worked. It's proved yet again to us in numerous different settings, as you know, that the specialist model works best with a small, targeted sales force, with a specialist company behind it like ourselves.

Graham Hetherington

If I could just add, you asked a question in the context of prioritization, Brian. If we'd had -- if you had asked that question a year ago, we'd have been talking about prioritization being driven by the results coming out of the micro-dosing data and our view on the commercial potential coming out of that, i.e., the value proposition at the end of it. We're in the incredibly fortunate position, 18 months on, that all of these programs have proven to be worth investing in post micro-dosing studies. And there's only one outstanding at the moment, which is excessive daytime sleepiness. And that is where we're examining the commercial -- the value proposition, and that's what Jeff was talking about earlier.

Angus C. Russell

Yes, and that will ultimately guide our decisions on Phase III programs and the launch. By the end of this year, I think you'll have a clear framework. We'll have Jeff back to talk about what our programs are, where they are targeted, and it will be very clear to everybody. But I'm very confident, and I know Jeff is as well, about our ability now to prosecute on most of these opportunities.

Jeff Jonas

Just a couple of quick points. When you talk about partnering, I think one of the misunderstandings is that these would have to be large Phase III programs. And I think it's very important to remember that these programs have all been based on the fact that we've have a large effect size, and we've been able to do them with efficiencies. So if you look at our depression program, we're going to -- our file is expected to only have about 1,500 patients. The same will be true, we hope, for binge eating disorder. And these are programs that are easily manageable by Shire and are well within our wheelhouse for how we operate. And secondly, I want to point out that from a drug development standpoint, there are 2 types of populations where you have a high probability of success. And one is those patients who have already failed one treatment, they're, in effect, enriched. So Angus has just spoken to that. And the other is when you're the first significant opportunity in a new disease state [ph]. There you have fresh patients who are more -- who typically are more responsive, so I think that's been a Shire thesis. So I don't think there's a real need for partnering for these from that standpoint.


We do have another question and that comes from the line of David Steinberg.

David M. Steinberg - Deutsche Bank AG, Research Division

I had a couple questions on REPLAGAL. First, now that your principal competitor is now able to manufacture at full capacity, I was wondering what you're seeing in Europe given your 80%-plus market share with REPLAGAL? Are you seeing any switchbacks at all from REPLAGAL to Fabrazyme? And then related to that, given that you can now manufacture at full capacity for REPLAGAL, you indicated, Sylvie, that there are 2,900 patients plus on therapy. I was wondering, now that you can turn your attention to more aggressively recruiting new patients with Fabry's around the world, what -- how many patients do you believe are not on therapy who share that first-time estimate of over 1,000 with the Shire estimate? And then finally, in Germany, as I understand it, there's a legal decision indicating that REPLAGAL infringed a Mt. Sinai patent. I was wondering what the next steps would be for Shire. Is there a possibility you could be blocked from the market in Germany, and what's the range of possible outcomes in that case?

Sylvie Gregoire

All right. Those were many questions, David, and I'll try to answer them. I'll start with the beginning. So first of all, maybe your first statement on the fact that Fabrazyme is back in full supply around the world is, I think, not what Sanofi has indicated. In the U.S., the product is back, and they are taking on new patients. And in fact, they will be probably taking on the patients that we've been treating free of charge, 140 patients and which were basis of some studies that were published. And they have indicated that they would take on these patients. And so there is a waiting list, or a list for onboarding these patients has been created in the U.S. X U.S., to-date, the product has not been surfaced, certainly not to a full supply, and we've seen very little switchback. In fact, certainly, the amount of new patients coming onto therapy -- remember, there were about 300 to 400 new patients per year that come onto therapy, still the majority come onto -- they all come onto REPLAGAL. And remember that some of the patients around the world are using low doses of REPLAGAL -- of Fabrazyme, I'm sorry, at the moment. And so the first aim will be to -- with any inventory, presumably to bring these patients to full doses before they can take on new patients. So those are the dynamics certainly in the marketplace x U.S., I would say, for the Fabry market are that the majority of the patients are on REPLAGAL, and the new patients get onto REPLAGAL. You asked about the market growth. The market -- the underlying market growth, if you look at these new patients, as I have said, 300 to 400 per year, that represents about 5% to -- somewhere around 5% to 8% of the market growth, the market that will continue to grow. And the majority of the patients come from the pool of patients that have been diagnosed already. We believe there's at least 2,000 of those patients that have been diagnosed and are not yet under treatment. So as there is some hematology [ph] progress, they come onto treatment. And so there's a -- certainly, a pool of -- a large pool of diagnosed patients around the world. And I'm not sure if I'm missing on other things. I know Mt. Sinai was the -- so yes, we've been in discussion with Mt. Sinai relative to the patents and the licensing of patents in the territory and the EU territory. And we believe that a satisfactory outcome will be reached in the future on that.

Angus C. Russell

So to answer directly your question, David, we don't expect to be blocked in that German market. As Sylvie said, we're in discussion, and we remain hopeful and confident that we'll reach an agreeable solution with them.


The next question comes from the line of Graham Parry.

Graham Parry - BofA Merrill Lynch, Research Division

Just wanted to be absolutely clear on the Lexington Complete Response Letter. That usually indicates that you have additional data to file and that the FDA requests some specific data. So can you just clarify when you actually received the Complete Response Letter and whether you've actually filed back all data that you think they require, that would then be the period within the 6 months that you're looking to settle that? And if the questions that the FDA is asking don't correspond to the fact that you're using a new technology in the plant, why do you think it is taking so long relative to the approval of the Genzyme Framingham plant that was approved at the beginning of the year? And then secondly, when you say you can supply all demands for VPRIV but with low inventory, that presumably does not assume share gains from Sanofi, just the new patients that are being taken onto the product. And then one on VYVANSE and negative symptoms schizophrenia, I was just wondering what exactly drove the decision to go to higher doses and when you expect to be able to move to Phase III at those higher doses.

Sylvie Gregoire

All right. I'll start maybe on the -- Graham, on the Complete Response. And so they didn't ask for new data. I mean, the questions on the application come in terms of clarification. Or they ask, especially do your -- the data that you have, more data or new analysis of the existing data. Or they might ask, on specifications, to narrow the specifications. This doesn't imply that you actually need additional data. In the plant, they will have made remarks or observations for us to make certain changes in the way that perhaps we conduct an investigation. So again, that is not new data. It's just a way that -- a change in how we perhaps do our SOP to conduct an investigation. And that's what they will be -- we have responded to and that they will be coming back to see, in a reinspection, whether you've implemented the suggestions or the changes that they recommended. So there's not new data that was created for responding to the agency. I'd just like again -- and then you talked a little bit about inventory. Remember, the purpose of adding capacity is to get sufficient inventory to meet market demand. And so we've talked about the fact that our existing inventory now with Lexington and the combination of where they're approved in the world and Alewife allows us to meet the demand of VPRIV that we anticipate. And that demand includes the continued some continued switching of patients from Cerezyme to VPRIV and not necessarily flatten -- no increase in the -- in the anticipated [ph] demand. Clearly, when the market dynamics are back, as they are now between Cerezyme and VPRIV, the base will be lower than it was in the past when there was huge shortages of Cerezyme. But we can change to accommodate the growth. Again, the plant will allow us to have enough -- rebuild the inventory that we like to have in order to keep the risk levels in the inventory, or in the supply chain, low relative to what they are today, for all of the enzyme replacement therapies.

Angus C. Russell

Something Sylvie said earlier, Graham, not to miss the point. I mean, there's always focus on the FDA. I have to say, once again, we have EMA approval for this plant. So remembering that when you look at our entire portfolio, I mentioned it before, the greater demand for rare genetic diseases is outside the U.S., so we need to put this in some context.

Graham Parry - BofA Merrill Lynch, Research Division

Okay. And then the negative symptoms schizophrenia?

Angus C. Russell

The dosing, Jeff. Why don't we do that?

Jeff Jonas

I'm glad you asked. You may remember, you may not, from the original signal-finding study, we had -- we really showed good tolerability. That was a single-blind study. And I have to tell you that it really ran contrary, as you know, to conventional wisdom. And the drug was really quite well tolerated. And even at 70 milligram, on top of the typical antipsychotics, the side effect profile was consistent already with the label -- if anything, even perhaps more benign. So we thought at that point that in order to maximize the response, frankly, because this is a very sick population where there's really no other alternative, we needed to establish a full dose response. And so we really needed to -- so we really had to look at dose selection. And I'll tell you again, I mean, the data we found was really quite striking, and that is that we have patients tolerating over 200 milligrams of VYVANSE. And these are schizophrenic patients, which really runs counter to pretty much every available theory about dopamine function in these patients. So that's why we did it, and that's -- I mean, it's an opportunity and a challenge about how to find the optimal dose now, which is one of the reasons we're going to back to the agencies and to discuss what the next steps are. We are very encouraged that we have Fast Track designation. I think that's just signifies that this is an area of unmet medical need. But again, unexpected finding, good news. But like all things in drug development, we have to learn how to work with it and move it forward.

Angus C. Russell

I think you'll follow up about what would that mean for Phase III. I said Jeff will come back when he's concluded his discussion with the agency. It would be premature now to comment on the scale of the Phase III program before discussing all of this with the FDA.

Graham Parry - BofA Merrill Lynch, Research Division

Okay. And so your discussion with the FDA is planned for when? And so I mean, realistically, are we going to see Phase III start this year or is that probably a next-year event now?

Jeff Jonas

I don't know. I prefer not to speculate. We're preparing for a meeting with them. It's up to the FDA scheduling and so forth. So we're going to do this as expeditiously as possible. We certainly have the bandwidth to do it.

Angus C. Russell

Well, it seems they will be willing to work with us, Graham. From what Jeff said, they gave us Fast Track status. So one would expect that, that means they're as keen as we are to see this move forward.


The next question comes from the line of David Amsellem.

David Amsellem - Piper Jaffray Companies, Research Division

Just a couple. On ADDERALL XR, what's your latest thoughts on the potential for approval of the ANDAs on ADDERALL? And with the FDA approving Ritalin LA generic late last year and more recently has changed rev [ph] guidance on Focalin XR generics, do you see the agency getting any closer to approving the ANDAs for ADDERALL XR?

Angus C. Russell

Yes, that's a good question. I'll try and keep it as simple as possible. Most people know it's a pretty complicated situation and one to answer. Let me try and give it the best shot. So where we stand at the moment is, in history, as you know, we now have 2 authorized generics. We had a number of other filers years ago who all settled with us on the basis of recognizing all our patents or both our patents. We have 2 of them were fully enforceable. They were valid and fully enforceable. And that's where the situation stands today. We have citizens petition, and that's been there some years now. People will note this period, and it's public record now. It's on the FDA's website. We supplemented that CP. And that was really because, as most people know, again, and in the last -- as you pointed at, David, in your own comments, there's been an evolution of the debate around this in terms of the FDA's thinking, the kind of guidelines they've given. And this has very much settled on this partial area under the curve. So we thought about that and we, like you, watched Actavis gain these approvals for their ANDA s against Ritalin LA and Focalin XR. The significant point when the FDA talked about the guidelines and the issues, the partial area under the curve is they did say it would be a customized approach. In other words, they said it would be on a product-by-product basis review. They would look at all these individual ANDAs against the different products. So #1 point is there isn't an immediate read-over from Ritalin LA and Focalin XR into ADDERALL XR. The product is quite different. It's got its own proprietary unique technology. Most people know it. It's what we call a biphasic release profile. And as a result of that, our supplementary CPs, if you read that, you'll see it talks very much about the importance of time intervals with that technology and how that links to efficacy and side effects. It really builds on the initial arguments we put in that first CP. And that's important if the FDA are beginning to contemplate, which they clearly are, approving ANDAs based on the partial area under the curve, the time intervals, when they choose to look at that. And so we've drawn that to their attention in more detail, and we've done some more work to support that in filing our supplementary CP. Basically, the evolution is quite interesting given the -- what's been talked about and what's emerging in terms of M&A activity out there, as people are very aware now of the expected acquisition of Actavis by Watson. If you remember, one of the original

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we talked about earlier who signed one of the settlements with us was Watson. We've talked about this before. They officially pulled their original ANDA because they clearly decided they couldn't get approved with their original ANDA filing against the new guidelines against XR. So they pulled that and they refiled. And we're now in the process of -- based on Paragraph 4, we sued them, and we're in the 30-month time clock situation on the litigation there. So that expires in August next year, in August '13. We've made that clear that worst-case scenario, we'd see one more entrant potentially if -- in August next year. But I'll make the point that what was significant in refiling the ANDA, it means our patents are fully enforceable. And they've reissued in the time interval between that original sentiment with Watson and where we are today. So we do intend to fully defend those patents and prosecute them against Watson's new ANDA, and that's part of that litigation. In terms of Actavis, Actavis are involved here in the -- I think, if time memory serves me, the third filer behind Teva and Impax was a company called Colony at the time. Colony eventually got taken over by Actavis, and they took over that ANDA filing. So one of those original filers is now Actavis. And so again very interesting when you think of what's mooted out there in terms of the M&A deal, if that does go through, the situation where those 2 ANDAs can come together under one company with Watson. So we're very aware of all of these developments at the moment. Again, as I've said before, we don't comment on individual strategy behind our litigations or defending our patents. I'd just come back to remind you and say, we have 2 patents. What's required, and the standard that will be required, is those companies who filed those original ANDAs to meet that new standard of the partial area under the curve that the FDA clearly established. We've spoken to that. I suggest, if you go read the supplementary CP, you'll see more detailed information around that in regard to ADDERALL XR. So I think that kind of hits all the key elements.

David Amsellem - Piper Jaffray Companies, Research Division

Sure. Just one follow-up on Activis. I mean, presumably, one of those filings will have to be divested, so that Activis filing will either be divested or it will remain under the new entity. But do you see any movement with Actavis getting their Ritalin approval? Do you see the FDA potentially getting close on a decision on the Actavis filing? And then there's been a lot of noise recently that Actavis is feeling pretty good about where they stand. What are your thoughts on that?

Angus C. Russell

I can only come back to what I said. I mean, we don't have a discussion with the generic division of FDA. Only Actavis do, so we wouldn't be privy to those discussions or know what's going on there. All -- what I said is we know that -- what you know, basically. The evidence is they clearly have approved these 2 ANDAs from Activis, but I make the point -- and FDA was very clear in stating that with the original guidelines, they will look at this on a product-by-product basis. And ADDERALL XR is our own proprietary formulation, and it doesn't bear any relationship to the formulations behind either Ritalin LA or Focalin XR.

David Amsellem - Piper Jaffray Companies, Research Division

And then one last quick one on ADDERALL. Any update on the litigation with Impax? I believe there was a settlement conference on April 11. Any movement towards the settlement? What can you add there?

Angus C. Russell

Yes, I mean, we've been in discussions with Impax. We're moving forward, so I'm not going to go in any details in that. As I said, we're still in litigation. And as you said, there are discussions. We have to report back to the judge who's presiding over that particular case, and there have been discussions. We believe that our case is as strong as it ever was against Impax, and we'll continue to defend our position accordingly.

Okay. In the interest of time, I can see time getting on here. We've been 1 hour and 20 minutes on the call, so I suggest we'd probably take one more question at this stage and then wrap up. We'd be happy to deal with your questions over the telephone later with Eric and Sarah.


We do have another question and that comes from the line Mr. Keyur Parekh.

Keyur Parekh - Goldman Sachs Group Inc., Research Division

Angus, if you could broadly address your priorities for cash over the next kind of 5 years. On my numbers, you expected to be generate somewhere north of $5 billion to $6 billion of cash. If you can just take us through your thinking on your best use of that cash. And secondly, as it relates to the ADHD market in the U.S., we've continued to see strong data, but I think the March data appeared to be slightly below trend, so any clarity you might be able to provide around that would be very useful.

Angus C. Russell

Keyur, yes, I'm glad you asked that last one. I saw that in your report recently. So let's deal with the cash first, $5 billion to $6 billion. Wow. Yes, I guess that's what happens over time. But right now, Graham just gave you the numbers. We're kind of a bit neutral on the position, but I don't refute your numbers, if we all run those numbers. I think Shire has demonstrated a pretty good track record in the past with our bolt-on acquisition strategy and sometimes, something -- one or 2 slightly larger ones. But in the past, it's been mostly the bolt-ons, and they continue to really mop up the cash generation, so there's been a nice kind of match. We would intend to continue with that. I think we just demonstrated in this quarter that we continue to find attractive assets. We continue to do that. We find attractive entire businesses, in the case of Kevin Rakin's ABH that we bought last year. So we'll continue that process. We continue to look for things that add to our portfolio, that clearly add to this portfolio, a growing portfolio of treatments for chronic and acute diseases and ones that we believe will bring significant value to the health care system in the future. In regards to the ADHD growth, I know you highlighted that the exit rate in March seemed to have dropped somewhat. I mean, we always take a bit of a caution over weekly and monthly data. We start by focusing on the quarter. So let me get into that and then draw specifics about March and why that looked like it was lower and what's going on there. So for the quarter, just to remind everybody, 9.7% growth. It's actually continuing to creep up, so we're nearly hitting 10% now, as Graham, I think, addressed in his comments about the underlying growth rate in the market. So we're still seeing still very strong ongoing growth. And it's still the same dynamics. We're seeing above that trend in adults, as we continue to pick up this history of untreated adults. And we're seeing good growth still in the pediatric and adolescent categories of the market as well. So coming back to this issue about March. And this is where I just caution everybody that individual percentage data, you have to be a little bit careful. One other thing we'd talk about is look at individual products and look at the actual number of scripts and calculate that. Because sometimes when you look at the published data and the overall market statistics, they can be a bit misleading. And the reason they're a bit misleading at the moment is we've got this issue of shortages that have occurred in the U.S. market, primarily in ADHD. They've been mostly associated with ADDERALL Instant Release, which I once again get an opportunity to say publicly, has nothing to do with Shire. If you remember in the settlements I referred to earlier under ADDERALL XR litigation and patents, we divested all rights to ADDERALL XR -- IR, rather, to Barr Laboratories, as it was then, now owned by Teva. So we neither market, have any other ongoing interest, we don't even own the brand or the manufacturing. That's entirely Teva's responsibility. And it's very clear from the data and what was reported in these articles about shortages in the U.S. that Teva encountered some kind of manufacturing problem in regard to IR during 2011. I believe that's now probably rectifying itself. We haven't heard the same sort of noise, if you'd like, around the shortages in recent months. So we believe that's starting to come back. But we had this period where the loss of IR in the market clearly distorted the overall kind of percentages and showed this slowing of growth. The other aspect is March this year -- last year, March was very high. It was an abnormally high month. If you go back and track the details of last year, you'll see that March was a very high month. I wonder what that is. I could speculate that, that was all that timing of the AHRQ long-term studies in ADHD coming on probably led to a bit of a surge in those months around the end of the first quarter when people were feeling more confident about that data coming out and the results of the findings. And then we had a situation where in March this year, we ended up with one less working day compared to the same period last year. And that obviously also has a small percentage impact on total market. So we've had all these 3 factors that have kind of all gone the same way and had that impact. But I'd say, I look at the quarter, I look at the underlying growth, looking at the number of just sheer volume of scripts written for our products and everything, it looks still very strong. And we're pretty confident that this strong growth rate will continue into the foreseeable future.

Okay. So at that point, I'd like to thank everybody for -- I know it's been a longer call. I hope you enjoyed in terms of the length of the call, the data that we brought to you today, which, yet again, I think, demonstrate -- along with the acquisitions that were talked about with that data, demonstrate our desire to continue to focus on acute and chronic conditions for patients with seriously life-altering conditions, where we can bring real, meaningful treatments. And more importantly, and that's the world we are all aware of today, where we can we bring real value to the health care systems.

So with that, again, I thank for your attention. We look forward to talking to you again in the future. Wish you all a good day.


Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.

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