Shire plc’s (SHPGY) fourth quarter 2011 earnings (excluding special items) of $1.51 per American Depository Share (“ADS”), were 47% above the year-ago earnings. The year-over-year increase was attributed to higher operating income partially offset by a higher tax rate for the reported quarter. The Zacks Consensus Estimate was $1.37 per share.
Quarter in Detail
Quarterly revenues increased 23% to $1,142 million, well above the Zacks Consensus Estimate of $1,126 million. Higher product sales and royalties helped boost revenues.
Product sales went up 23% to $1,049 million. Product sales were pushed by strong performances of Vyvanse (up 20% to $217 million), Adderall XR (up 40% to $125 million), Elaprase (up 17% to $124 million) and Intuniv (up 52% to $65 million). Replagal (up 17% to $124 million) and Lialda (up 14% to $96.1 million) also reported growth in revenues. Vpriv and Firazyr sales were $69.3 million and $14.9 million, respectively.
On January 31, 2012, the Food and Drug Administration (“FDA”) approved Vyvanse for the maintenance treatment of attention deficit hyperactivity disorder (“ADHD”) in adults. We expect this to further augment Vyvanse sales growth.
Royalties increased 14% to $83.7 million. The increase in royalty revenue was primarily due to an increase in Adderall XR ($40.5 million) and Fosrenol ($15.1 million) royalties partially offset by a 52% fall in 3TC and Zeffix royalties (combined $18.6 million).
Research & development (“R&D”) costs climbed 15% while selling, general & administrative (“SG&A”) expenses increased 6%. Combined R&D and SG&A spend increased 9% year over year due to investment in Sanfilippo A and new indications for Vyvanse, absorbing Advanced BioHealing Inc.’s operating costs and supporting product launches.
Annual Results
For full year 2011, Shire earned $5.34 per share on an adjusted basis, above the Zacks Consensus estimate of $5.22 and 26% above the year-ago earnings. Earnings were boosted by higher revenues, which climbed 23% to $4.3 billion. 2011 revenues were just above the Zacks Consensus Estimate of $4.2 billion. Higher product sales (up 26% to $3.9 billion) partially offset by a decrease in royalties (down 14% to $283.5 million) contributed to the rise in revenues.
Outlook
In addition to disclosing financial results, Shire provided its outlook for 2012. For 2012, Shire is anticipating good revenue (low-double-digit) and earnings growth. Product sales are expected to deliver low to mid teens growth in 2012. Gross margins are expected to be slightly lower than 2011 due to the Advanced BioHealing Inc. acquisition. Shire expects 2012 combined R&D and SG&A expenses (adjusted) to increase in the range of 10% – 12% on a year-over-year basis.
Our Recommendation
We currently have a Neutral recommendation on Shire, which is supported by a Zacks #3 Rank (short-term Hold rating).
Shire’s recent collaborations and acquisitions (including Movetis and Advanced BioHealing Inc.) have added immense potential to its pipeline. With several of its products already facing or likely to face generic competition, the company’s pipeline needs to deliver.
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