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Edited Transcript of SHP.L earnings conference call or presentation 31-Jul-18 1:00pm GMT

Q2 2018 Shire PLC Earnings Call

DUBLIN Dec 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Shire PLC earnings conference call or presentation Tuesday, July 31, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christoph Brackmann

Shire plc - Interim Head of IR

* Flemming Ornskov

Shire plc - CEO, MD & Executive Director

* Thomas J. W. Dittrich

Shire plc - CFO & Director

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Conference Call Participants

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* Aaron Gal

Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

* Annabel Eva Samimy

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* David Michael Steinberg

Jefferies LLC, Research Division - Equity Analyst

* Louise Alesandra Chen

Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD

* Rebekah Harper

Crédit Suisse AG, Research Division - Research Analyst

* Richard J. Parkes

Deutsche Bank AG, Research Division - Director

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Presentation

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Operator [1]

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Welcome to Shire's Q2 2018 Results Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I'll now hand the floor to our first speaker, Christoph Brackmann, Head of IR for Shire. Please begin.

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Christoph Brackmann, Shire plc - Interim Head of IR [2]

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Hello, and welcome. Thank you for joining us to discuss our 2018 second quarter results, which were issued earlier today. You should have received our press release and can view this presentation on Shire's website. For those not able to view the webcast, you can find the relevant slides on the Presentations and Webcasts page of shire.com.

Our speakers today are Chief Executive Officer, Dr. Flemming Ornskov; and Thomas Dittrich, Shire's Chief Financial Officer. Please note that we are also joined by our financial adviser, Martin Weltman from Citibank.

Before we begin, please refer to Slide 2 of our presentation, which provides information about certain statements to be made today that are forward-looking statements within the meaning of the securities laws, including those regarding our strategic plans, development programs and future financial results. 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, we will also open up the call to Q&A. (Operator Instructions)

As you are aware, Shire is currently in an offer period, as defined under the U.K. Takeover Code. Due to restrictions under the Takeover Code, you will understand that we are limited in what additional information we can provide. I would ask you limit questions to Shire's current operations and performance.

I will now hand the presentation over to Flemming. Please turn to Slide 3.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [3]

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Thank you, Christoph, and hello, everyone. We are pleased to share with you our second quarter results that, once again, demonstrate Shire's strong execution against key priorities.

Now turning to the results. I will share an overall business update, and then Thomas will give you and go through the financial data. So please now turn to Slide 4.

We'll focus on key areas, of which there are 3 today. First, we will review our continued commercial execution, which generated product sales growth of 6% despite the entry of generic competition to LIALDA. Similar to the first quarter, immunology, recently launched products and international expansion continue to drive our growth. Second, we're actively progressing our pipeline with 16 programs in Phase III and VII in registration. Lanadelumab registrations are progressing well in the U.S., Europe, Canada and Australia, with the U.S. PDUFA date coming up at the end of August.

Finally, I would like to highlight several key events in the quarter. As you are aware, our board reached an agreement with Takeda on the terms of recommended offer for Shire. The closing is expected in the first half of 2019, subject to a number of conditions, including receipt of regulatory clearances and approval by the shareholders of both companies. We also received approval for our state-of-the-art Covington plasma manufacturing site. In addition, the divestment of our Oncology business is on track to close in the third quarter of this year.

Please now turn to Slide 5. In the second quarter, we delivered 6% year-over-year growth, with product sales reaching $3.8 billion. Product sales growth was 4% at constant exchange rates. Including royalties and other revenues, our total revenues were $3.9 billion for the quarter, reflecting a 5% growth. This is a good performance, especially when we consider this growth was achieved despite the entry of generic competition to LIALDA that occurred during the second half of 2017.

Non-GAAP earnings per share grew 4% versus last year, and non-GAAP free cash flow was approximately $750 million. Thomas will provide further details on our financial performance later in this presentation.

So now please turn to Slide #6. I would like to discuss our 3 areas of growth. First, our immunology franchise delivered 13% year-over-year product sales growth, fueled by the strong performances of our immunoglobulin business. Second, our recently launched brands contributed over $600 million in product sales in the quarter, up 67% versus the prior year, and continue to build positive momentum as we launch them in additional markets. Finally, we delivered solid 12% growth in international markets due to volume demand growth and a benefit from foreign exchange movements.

Please turn to Slide #7. We continue to advance our innovative late-stage pipeline with 16 programs in Phase III and VII in registration. We achieved important milestones, including the initiation of our Phase III studies for SHP647 in Crohn's disease and the label expansion of CINRYZE to pediatric patients in the U.S. I would note that the potential EU approval for XIIDRA will be delayed as we withdrew from the decentralized procedure for XIIDRA's European marketing authorization application, and are instead targeting the fourth quarter of 2018 for resubmission through a so-called centralized procedure.

Looking ahead, we have several key pipeline milestones in the second half of this year, including the August PDUFA date for lanadelumab for hereditary angioedema and the December PDUFA date for prucalopride for chronic idiopathic constipation, both occurring in the U.S.

Now please turn to Slide 8. We're pleased that the FDA approved our new state-of-the-art plasma manufacturing facility near Covington in Georgia for the production of GAMMAGARD LIQUID. This supports our long-term commitment to the immunology business by increasing our plasma manufacturing capacity. We commenced shipments with commercial shortly after receiving approval, and also expect to file a second submission to the FDA later this year or early next year for the production of albumin in the same facility.

Let me now hand it over to Thomas, who will discuss our financials in more detail.

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Thomas J. W. Dittrich, Shire plc - CFO & Director [4]

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Thank you, Flemming. Turning to Slide 10. Our strong focus on the business drove solid product sales performance in the second quarter.

Product sales grew 6% year-over-year, with 3% growth in the U.S., 6% international growth at constant exchange rates and a 2 percentage point benefit from foreign exchange. We delivered a solid performance despite the loss of roughly half of LIALDA sales or about $100 million due to U.S. generic competition.

Excluding the impact of generic LIALDA, product sales growth was 9% or 7% at constant exchange rates. We did see an approximate $100 million benefit from inventory stocking in the quarter, which we would expect to impact sales in the third quarter.

Moving to Slide 11, now our sales by franchise. As you may recall, in the first quarter of 2018, we introduced our new divisional structure and reporting as an initial output from our strategic review of the Neuroscience business. We also indicated that we would report on the next phase of our strategic review in the second half of 2018. In conjunction with the Takeda offer period, we have put this strategic review on hold. Therefore, we have returned to a single-segment approach to managing our business at this time. With that in mind, I will now discuss the performance of our franchises.

First, our Immunology franchise delivered another strong performance this quarter with 13% overall growth, driven by strong demand in immunoglobulin and bio therapeutics. The 20% growth in IG was driven by growth of our subcutaneous and intravenous brand. Some of the growth this quarter was also due to the timing of large orders in our international markets. And so I would not expect this rate of growth to continue in future quarters.

HAE product sales grew 9%, but the impact of competition to CINRYZE was more than offset by roughly $100 million year-over-year stocking benefit for CINRYZE and FIRAZYR. We would expect destocking to impact the Q3 sales of these brands. Bio therapeutics, which includes our albumin products, delivered low double-digit demand growth, which was offset by destocking in the quarter due to the timing of international orders.

Hematology was slightly down year-over-year. In line with our expectations, inhibitor sales declined 7% due to the impact of competition to favor in the U.S. and a few European markets. Our hemophilia sales were unchanged year-over-year, with continued growth of our extended half-life product, ADYNOVATE.

Given the change in segment reporting I previously mentioned, our Neuroscience franchise now includes our ADHD portfolio and other neuropsychiatry brands. Neuroscience grew 9%, with VYVANSE growing 7% due to price and demand growth in international markets. Underlying growth for MYDAYIS was marked by destocking compared to the second quarter last year, which had the initial launch-related inventory buildup.

The genetic disease franchise was up 6%, with strong demand growth globally for ELAPRASE. The franchise also benefited from foreign exchange versus prior year, given its heavy international weighting.

Our newly launched products, including GATTEX, NATPARA and XIIDRA, continue to drive strong demand growth in our Internal Medicine and Ophthalmics franchises. While the potential approval of XIIDRA in Europe will take longer than previously anticipated, it is important to note that this was not considered a material growth driver in the near term.

Established brands, which includes brands facing generic competition, declined by 36%, driven by LIALDA. We continue to plan for a potential generic entrant this year.

The Oncology business delivered 14% growth. As Flemming mentioned earlier, the deal with Servier is on track to close in the third quarter.

Please now turn to Slide 12. Our second quarter non-GAAP gross margin was 73.6%. As I described last quarter, 2016 benefited from certain Baxalta-related manufacturing cost savings. Adjusted for this impact, gross margin in the second quarter of 2017 would have been around 74%. Gross margin improved from Q1 to Q2 this year, as we expected, driven by favorable mix, price and costs.

Our full year 2018 expectation is now towards the low end of our non-GAAP gross margin guidance range of 73.5% to 75.5% due to an inventory adjustment and slightly less favorable mix than previously expected for the balance of the year. This implies only modest gross margin improvement in the remaining quarters this year.

Moving on to the P&L, now on Slide 13. Total revenues grew 5% based on 6% product sales growth and the decline in royalties. Similar to last quarter, royalties and other revenues decreased, primarily due to lower SENSIPAR royalties, the reclassification of ADDERALL XR from royalty revenue to product sales and other changes, as required under the new revenue accounting standard. Non-GAAP gross margin declined versus the prior year and fiscal quarter. Non-GAAP operating expenses grew 2% year-over-year. Non-GAAP R&D expenses increased 6%, mostly driven by increased spend on late-stage programs, including SHP647 and ongoing development and post-marketing commitment with our recently launched products.

We held non-GAAP SG&A expenses flat. For Q3, I would expect a minor sequential increase in operating expenses, in line with our full year R&D and SG&A expense guidance.

Non-GAAP EBITDA grew 1%, as the benefit of higher product sales was partially offset by a lower gross margin compared to a year ago. The year-over-year increase in depreciation was driven primarily by placing our key assets into service, some initial depreciation expense for our new Covington plant as well as assets related to our enlarged international footprint. We would expect another small step-up in depreciation in Q3 due to the Covington approval, in line with our full year depreciation guidance.

You will notice a lower net interest expense and other line in the second quarter, which was driven by unrealized gains on equity investment and lower interest expense, partially offset by the impact of currency foreign exchange translation. As you are probably aware, starting this year, the accounting standards now require changes in the value of equity investment to go through the income statement.

Our non-GAAP tax rate was 15.8% in the quarter, in line with the year-ago period. Given our tax rate in the first half of 2018, we now expect the full year non-GAAP tax rate towards the low end of our guidance range of 16% to 18%. Non-GAAP net income and EPS growth both grew 4% in the quarter.

Now please turn to Slide 14. We generated approximately $750 million of free cash flow in the second quarter. The $300 million year-over-year decrease was driven primarily by higher cash tax payments due to higher taxable income and the timing of tax payments. CapEx was flat year-over-year at about $200 million.

We continued with our progressive dividend policy, as the board declared a 10% increase to the interim dividend in 2018 versus 2017. Our continued strong cash flows enabled us to pay down another $550 million of net debt in Q2, $1.4 billion in the first half of 2018 and $3.6 billion over the last 12 months. We ended this quarter with $17.7 billion of non-GAAP net debt and the non-GAAP net debt-to-EBITDA ratio of 2.7. We remain on track with our previously stated deleveraging plans.

Moving to Slide 15 on 2018 full year guidance. We are on track with our current 2018 non-GAAP EPS guidance. Our underlying revenue performance is solid, and our current revenue outlook is at the midpoint of our revenue guidance range. As I previously discussed, some gross headwinds are pushing us towards the low end of the non-GAAP gross margin guidance range, that on our first half tax rate, we now expect the full year tax rate towards the low end of the non-GAAP tax guidance range. Net of these items, we reiterate our full year non-GAAP earnings per share guidance range.

Importantly, these expectations exclude changes to foreign exchange rate assumptions. As you can see, we provide our foreign exchange rate assumptions on this guidance slide, and you will note that current rates are unfavorable to these rates due to the strengthening U.S. dollar. As a scenario, based on the sensitivities we provide on this slide, you will calculate a potential impact of roughly $150 million revenue and $0.15 EPS if current rates were to prevail for the remainder of the year.

And when thinking about the third quarter, please keep in mind my comments about Q2 inventory stocking as well as sequential gross margin, operating expense and depreciation expectations.

Lastly, please note we plan to update our guidance for the impact of the sale of our Oncology business after the closing of the transaction expected in Q3.

With that, I will turn the call back to Flemming.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [5]

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Thank you, Thomas, and please now turn your attention to Slide 17.

In the second quarter, we delivered solid results with 6% product sales growth, while overcoming the impact of generic LIALDA in the U.S. We also continue to progress our innovative pipeline, and we received FDA approval of our state-of-the-art Covington plasma manufacturing site. These achievements were made in the same quarter that our board reached an agreement with Takeda on the terms of recommended offer for Takeda to acquire Shire, which reaffirms our continued focus on our patients and our priorities.

As we look forward, we have additional regulatory milestones, including the potential approvals of lanadelumab in the U.S., Europe and Canada and prucalopride in the U.S. All of these events are, of course, subject to regulatory approval.

In summary, Shire delivered solid performance during the first half of this year, executing against our key priorities and advancing our late-stage pipeline. I'm extremely proud of the entire Shire team, and would like to thank all Shire employees for their dedication to our patients.

With that, I'll now turn the call over to the operator for the Q&A portion of our call. Please keep in mind Christoph's comments regarding the restrictions, resulting from us being in an offer period, and limit question to Shire's current operations and performance.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from the line of Ronny Gal of Bernstein.

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Aaron Gal, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [2]

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A couple of questions. First, the Specialty Pharma business has done very well this quarter, especially XIIDRA and LIALDA. So I just wanted to quickly touch base on those and ask, is XIIDRA -- is this a matter of inventory? Is this a matter of just higher realized price because you're pulling back on discounts -- gross-to-net discounts and patient assistance? Or what is driving that very high increase in revenue, given that at least the scripts we are seeing does not suggest that? On LIALDA, if you can comment a little bit on the situations on the generics. Essentially, are they simply not able to supply the market? How's the dynamics there? And if I can sneak one more. Obviously, you need to retain key staff during this transition period. Can you talk a little bit about the impact of those retentions on share count, on operating profit and so forth?

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [3]

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Okay. Thanks very much, Ronny, for your 3 questions. I noted one on XIIDRA, one on LIALDA and then one on staff turnover and impacts on the P&L for retention payments. So as comes to the 2 questions that pertain to the Specialty Pharma, part of our business, as you call it, XIIDRA, we continue to be very pleased with the performance of XIIDRA. As you know, we mainly have access to the commercial market. And there, if you look at new patients' prescriptions, we have a leading share. It is absolutely clear that, now we're out of the immediate launch phase. We have pulled back on some of the couponing and others, which is why you've seen the significant improved gross-to-net. So we're very pleased with that. We know it's a dynamic marketplace. There could be further changes, including generitization of Restasis. And we're absolutely confident that we'll continue to strengthen our performance and our access in the part of the market, which is about half of the market, we don't really have great access to today is Medicare Part D. What is very important and what we've seen is when we get access to Medicare Part D, we actually do very well and see very rapid share uptake. So we continue to be very optimistic and -- both about the profitability and the ongoing share gains of the product. LIALDA, yes, it's a dynamic marketplace. But we, of course, overall, have a significant impact of the genericization in terms of erosion of our share. And I'm not commenting on competitor's ability to supply or not supply. So I think all of those were in our prepared comments. We have put in place, in agreement with Takeda, which is commonly used in this transition situation, retention programs. And we see the impact of those, and we think that it's essential to keep the business going. And I think the strong performance of the business in a quarter that also had the announcement of this deal shows the dedication of our people and the need for continuing to focus on retaining key talents, which we have been able to, as has been seen also from the results at all levels of the company. Thomas, anything you want to add?

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Thomas J. W. Dittrich, Shire plc - CFO & Director [4]

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Yes. Maybe just on the LIALDA side, you mentioned that was mainly gross-to-net true-ups, and that's it, if you can.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [5]

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Okay. So I hope that answered the questions.

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Operator [6]

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Our next question is from the line of Richard Parkes of Deutsche Bank.

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Richard J. Parkes, Deutsche Bank AG, Research Division - Director [7]

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Great. Okay. Just got a couple of questions. Firstly, on lanadelumab. I just wondered if you could give us some confirmed regulatory process whether you've progressed labeling discussions with the FDA. I'm just assuming that there's not been anything unusual in your discussions with the FDA through that process. And then, secondly, on immunoglobulin sales obviously continue to doing incredibly well. Just wondered about your expectations in terms of plasma collection. Obviously, one of your competitors has been aggressively looking to secure access to plasma, and has been talking about the potential for that business to accelerate to group growth. So just one bit around your confidence around access to plasma looking out over the next 12 to 18 months.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [8]

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Thanks a lot, Richard. Thanks for your questions. So I noted 2 questions, one on lanadelumab, and then one on the overall Immunoglobulin business and the growth. So as pertaining to lanadelumab, we have a PDUFA date on the 26th of August. We don't comment on ongoing dealings with the FDA. I think we've all seen the data for lanadelumab. And what we can do is to make sure that we present the data, and that we work with the regulatory authorities, not only in the U.S., but as you've seen, we filed in multiple countries. Outside the U.S., everything is on track. And what is also on track is our readiness, both on the manufacturing side and the commercial side, for launch in the U.S. and outside the U.S. But I'm not going to comment on any specifics about interactions with the FDA. As pertaining to the strong performance about immunoglobulin, as you can see, we've outgrown the market that also has a very strong growth. We've been very forthright about it, that we see that as a future growth driver, and that we think we can somewhat outgrow the market. But we've also been very clear about the fact that the challenge that we and anyone have is, of course, keeping up on the plasma collection side and the manufacturing side. The good news is we've got Covington approved. That adds another 30% capacity. But both in the U.S. and outside the U.S., we continue to see strong growth opportunities. But we also, of course, don't have unrestricted supply of IgG. But I think our performance speaks for itself. And it's not just this quarter. If you look back, since we acquired this business from Baxalta, we've had an outstanding performance outgrowing the market. What our competitors say or telling about the future, I won't comment on. I think our performance speaks for itself.

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Operator [9]

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Our next question comes from the line of Annabel Samimy of Stifel.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [10]

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Want to ask about HAE within Immunology. Clearly, I can't help notice the stocking on both CINRYZE and FIRAZYR and the strong performance, which, I guess, seems unusual. Given the competitive environment, you would think they would be lightning up. So can you help us understand what the underlying demand actually is versus what the stocking is with HAEGARDA in the fold? And have you heard any more about capacity issues with HAEGARDA?

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [11]

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So I will start, and then I'll pass over to Thomas. As you know, this is not a market where you get very precise data on the number of patients that are on HAEGARDA. It is true. Also because you know we, over the last few quarters, but not this quarter, have had supply constraints. So of course, we have seen some shifts to HAEGARDA. But also, with the recent pediatric indication regarding for CINRYZE, we are starting to see that patients are coming back. I think the product and the strong patient assistance and service programs we have in place have helped us in this situation. We're very confident in the outlook, and also clear that with the potential new entrants with the safety, efficacy and convenience data we have for lanadelumab. If approved in the U.S., we expect that market dynamics to significantly change. We think there's still, both in terms of existing and treated patients, but also in terms of nontreated patients, a significant opportunity in this marketplace. It's quite clear that when you have a period of time when CINRYZE has been out of stock or we've not been able to supply the market, that there is various events on the intermediaries in terms of the stocking, how much they hold and all that, that creates some opportunistic situations. We through the issue now, we have a constant and good supply. And we're also now starting to be able to consider supplying the international market, which we were not able to supply for. So we feel ourselves in a very good situation, both with CINRYZE and with FIRAZYR and with the, hopefully, upcoming approval of lanadelumab and the launch. But Thomas, anything you want to add?

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Thomas J. W. Dittrich, Shire plc - CFO & Director [12]

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Yes. I will just mention that the stocking effect for HAE was $100 million, pretty much the same as the total company's effect, primarily led by CINRYZE and FIRAZYR, as you mentioned. I would also add that year-over-year impact of stocking was compounded by destocking a year ago due to the supply challenges Flemming just mentioned. And yes, as our improve -- situation improved in 2018, there is a benefit for stocking in the year-over-year comparison. And that's the one you were noting from the financials and about $100 million compounded by the destocking last year in Q2.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [13]

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And I think it's important to note is that continuous supply and now a new indication in the pediatric segment, of course, drives higher demand for this product, which we expect to see materialize over the coming quarters.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [14]

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Okay. And if I can have one follow-up on the hemophilia or Hematology franchise. It is relatively flat versus -- contrary to the fears that a lot have. So maybe you can help us understand some of the dynamics there because it doesn't seem like the inhibitor market is as down as we would have expected from such a dramatic entry of Hemlibra.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [15]

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Well, thanks very much. You used the term, dramatic. I'm not sure that would be in my vocabulary. I think that the impact of Hemlibra is totally in line with what we had predicted. And we don't see anything that would deviate from the guidance we've given previously about this. It's a very dynamic marketplace, both in the enhanced half-life products, in the noninhibitor and the inhibitor space. We all know that there's future potential entrants, both in the noninhibitor space in particular. We feel that if we look at the quarter, that ADYNOVATE, U.S. in particular, has done very well. We see huge benefit in the U.S. for us having myPKFiT and now with ADVATE and, hopefully, in future also with ADYNOVATE, which we're preparing for. So I think, overall, what is flat is still very good dynamics in a very competitive marketplace with new entrants. And I think that our product offerings is very attractive. Our market leadership is strong. And I'm very confident that the clients we've given, both on the inhibitor or the noninhibitor, is still what we will see. So there's no outlook change on our side. And I'm very proud of the team continuing to perform very well, and particularly also strengthening their position in the enhanced half segment of the market.

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Operator [16]

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Our next question comes from the line of Rebekah Harper of Crédit Suisse.

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Rebekah Harper, Crédit Suisse AG, Research Division - Research Analyst [17]

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I've got 2, please. Similar to the last one, you suggested that there was some destocking in bio therapeutics, so a drag from international order phasing. Could you tell us what the underlying trend is for that business? And then secondly, I'd just like to go into a little bit more detail on the headwinds you're talking about on the gross margin, which means you're now guiding towards the lower end of your guidance range in '18. Is this just higher expected costs for Covington? Or is there some other kind of product mix change?

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [18]

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Thanks very much, Rebekah. I think if you look at our product mix, it's quite clear that most of that will have driven the margin impact, but I'll let Thomas elaborate on that. So Thomas, do you want to take over?

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Thomas J. W. Dittrich, Shire plc - CFO & Director [19]

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Yes. I'll take the margin piece. And really, the headwinds have to do with some inventory adjustments that were related to temporary underutilization of one of our [large] manufacturing plant that we see in our results here. And you have to recall a pretty large portfolio of products and geographies. And therefore, mix impacts can fluctuate a little bit. Also, keep in mind, it's notably forward that we have seen strong sales of hemophilia that have a lower margin profile than some of our other products. And those 2 effects rolled forward, make us point to lower end of the gross margin guidance range. And then I think your other question was around bio therapeutics. We called our albumin product included. That delivered low double-digit demand growth, which was offset by destocking. So really, when you look at it, you had bio therapeutics. You had -- the main driver was demand, and then that was really offset by the destocking. And then you -- net-net, that came out at pretty much 0. But yes, that was just this marketing effect. But the driver was demand. And this time -- and you draw down from stock. Then that goes -- that delivery will flatten out. I hope I answered your question with that, Rebekah.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [20]

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So I think in summary on that one, it's quite clear. We have a bit of a change in product mix. We see strong demand growth and some inventory changes. But overall, the business is, also in these aspects, in a very strong situation.

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Operator [21]

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Our next question comes from the line of David Steinberg of Jefferies.

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David Michael Steinberg, Jefferies LLC, Research Division - Equity Analyst [22]

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I have 2 questions. They both revolve around XIIDRA. One is ex U.S., and one is U.S. So for ex U.S., I noted that you mentioned you're pulling the decentralized filing in order to do the normal centralized route. Why is that? And will that delay the launch timing at all? And then also, in Japan, remind us of your current launch timing in regulatory filings. In the United States, you did about $100 million in XIIDRA. Is this the first quarter where you'd say it's sort of a normalized run rate, i.e. when you first launched it, there was a lot of couponing and giving away the product for free? Is this the first sort of normalized? Or is there still some understatement to the revenues? And finally, assuming Restasis does not go generic next year, I know you've had a tough time with Medicare Part D access, do you see that changing at all in 2019?

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [23]

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Thanks very much, David. The good news is I didn't count all the questions, but at least they were centered in groups around XIIDRA. So I think that counts. So you read correctly that we decided to pull the file from the U.K.'s Medicines and Healthcare products Regulatory Agency, MHRA. So as you probably know, they have to finish their open cases by March 2019 due to Brexit, and we had a number of questions and a few open items that we concluded that this may not be able to be -- starting with them, be terminated by the time that they actually have to terminate and make a decision. So we decided to refile, which we'll do later this year with a centralized filing. It will cause some delay, but we don't think there's any change to the underlying potential or the underlying dynamics or anything related to the product. As you know, probably better than many, that the European dry eye market is quite different, both in terms of size and scope than is the U.S. So this will have marginal impact. I share your implied enthusiasm for Japan as a dry eye market. As you know, in Japan, there is a requirement for additional studies. I would say the team has made huge progress. We are doing the necessary steps to gather the additional data. I don't think we've given any specific guidelines on when we expect a potential approval there. But it's quite clear, when you compare the Japanese market to the European market, currently as it is, the Japanese market is a significantly larger dry eye market and more developed market than Europe, particularly, on the prescription side. So your final set of question was, are we now through the period of couponing? And will we see continued gross-to-net improvements? I think we have seen significant improvements. We have decelerated couponing, particularly, of course, in the commercial part of the business, where we have great access, and where we have a leading -- a new patient share. Of course, we still have some of that going on in the Medicare Part D, where we have less access. I'm not going to speculate. I think what I can read, and what various stakeholders say, that there's a high likelihood of generitization of Restasis. And either way, we are hopeful that we will get better access to Medicare Part D. These talks are ongoing. There's, of course, no guarantee. As I mentioned in my prepared remarks, where we have gained access to Medicare Part D, we've seen rapid share uptake. So I'm very confident. And I think the $100 million quarter is also a milestone for us. So thanks very much for noticing that.

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Operator [24]

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And our final question comes from the line of Louise Chen of Cantor Fitzgerald.

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Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [25]

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So I had a question back on lanadelumab. Could you elucidate more the market opportunity for the product, and how it's going to affect CINRYZE and FIRAZYR in terms of pricing and margins?

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [26]

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So that was one question? Thanks very much, Louise. We're not going to comment, of course, at this stage about any potential pricing for lanadelumab. But if we go back to the previous discussion, which we had, I think, 2 questions on, which was the overall margin of the company going forward, not this year because, honestly, a peer guided there. It's quite clear that lanadelumab is a significantly higher-margin product. So that's very good for the further outlook. As you know, even if a product is approved by the PDUFA date, it still takes time to get access in the U.S. with getting on formularies. So there would still be quite some time also this year where we'll have the opportunity to enjoy sales from FIRAZYR and from CINRYZE. And what we've also seen since the introduction of HAEGARDA, this is not a market where one size fits all. There's going to be patients that will be wanting on an acute treatment. Some -- probably the majority will be on a prophylaxis treatment. Some will use both. So we're very confident that lanadelumab, with its profile, that meets a lot of the decide criteria of efficacy, safety and convenience, if approved, will have a very significant role and share in the U.S. market. If you look at both new-to-market patients, if you look at existing patients, the number of attacks being prevented, there is still significant opportunity, both with existing patients, but also with new-to-market patients for the ability to grow a product like lanadelumab. It's also important for you to realize, as I also said, we had multiple other markets where we had full activity with regulatory discussions. And as you know, we've previously had limited ability to supply the market outside the U.S. with CINRYZE. With better opportunities now, with better supply, that will help us. But also, of course, lanadelumab will allow us to penetrate the outside U.S. market much more, and particularly with the product, with the profile of lanadelumab. So we feel very confident, and we've always seen that as one of our key future growth driver. It is also a product with a very attractive profitability image going forward. So with that, I will thank -- yes. Sorry, Louise.

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Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [27]

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I had a second question, if I could ask it.

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [28]

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Oh, yes. Absolutely. You're allowed 2, like everybody else.

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Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [29]

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Okay. All right. So my second question, I don't know if you can answer this in light of the deal with Takeda, but just curious if there's going to be any divestitures or selling of franchises that need to happen before closing the deal. And if so, what areas are you looking at and why?

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Flemming Ornskov, Shire plc - CEO, MD & Executive Director [30]

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So I think that's really a question for Takeda. I think Takeda can only comment on things that would happen after the close of the deal. We run our business separately until then, and we have no announcements to make about any planned divestitures. But what Takeda is going to do and do after their -- if this deal goes forward, is that the question is probably better directed at them. And I heard that they also got that question this morning. So if you read the transcript, I think you'll get a very good answer to that particular question. So thanks very much, Louise. And absolutely, you got your 2 questions like anyone else or if you've got a little bit more than 2 questions in, but that's fair and square.

So I think in summary, I'm very pleased, despite us in the midst of a potential deal with Takeda, that we continue to deliver very strong results. I think 6% product sales despite the impact of generic LIALDA in the U.S. is very strong. I think if you look at various regulatory milestones, being that Covington being approved, being that various other regulatory milestones, all the pending approvals that we have, lanadelumab in the U.S., Europe and Canada, prucalopride in the U.S. potentially and all the other milestones we've achieved, I think you can see that we continue to deliver, and we're very confident in the guidance that Thomas gave you an update on. So with that, thank you very much for your time and for your questions, and look forward to addressing you at the next quarter..

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Operator [31]

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Thank you. This now concludes the conference. Thank you, all, very much for attending. You may now disconnect.