Shire's 4Q EPS In Line, Revs Beat
Shire’s (SHPG) fourth quarter 2012 earnings (excluding special items) of $1.58 per American Depositary Share (ADS) were in line with the Zacks Consensus Estimate. However, the reported quarter’s adjusted earnings increased 4% from the year-ago period.
For 2012, earnings per ADS of $6.10 missed the Zacks Consensus Estimate of $6.12. Nevertheless, earnings were up 14% from 2011 due to increased operating income. A lower tax rate also aided earnings.
Shire posted revenues of $4.7 billion in 2012, up 10% due to growth in product sales, which was partially offset by lower royalties and other revenues.
Quarter in Detail
Quarterly revenues increased 5% to $1,201 million driven by higher product sales and royalties and beat the Zacks Consensus Estimate of $1,195 million.
Product sales went up 5% to $1,098 million. Product sales, excluding Adderall XR, grew 10% boosted by strong performances of Vyvanse (up 18% to $257 million), Intuniv (up 24% to $81 million) and Firazyr (up 132% to $35 million).
This growth was partially mitigated by Dermagraft (down 65% to $19 million) primarily due to the ongoing restructuring of the Regenerative Medicine sales and marketing organization.
Adderall XR performed disappointingly in the fourth quarter of 2012. Sales of the drug decreased 35% to $82 million, hurt by generic competition.
We note that in Jun 2012, the US Food and Drug Administration (:FDA) approved the abbreviated new drug application (ANDA) filed by Actavis (ACT) for its generic version of Adderall XR. The litigation settlement with Impax Laboratories, Inc (IPXL) also impacted sales.
Royalty revenue mainly comprises income earned from the sale of the authorized generic version of Adderall XR, 3TC and Zeffix. Royalties grew 4.2% to $87.2 million in the fourth quarter, driven by a one-time royalty income of $38 million for 3TC and Zeffix.
Adjusted research & development (R&D) costs climbed 13.6% to $233.5 million in the reported quarter. Increased investments in R&D programs contributed to the rise. Selling, general & administrative (SG&A) expenses increased 4.6% to $411.7 million
In the fourth quarter, Shire initiated a share repurchase program of approximately $500 million. As of Feb 13, 2013, Shire repurchased 4.8 million shares at a cost of $143 million.
Outlook
In 2013, royalties and other revenues are expected to decline 30%–40% from 2012 levels due to a full year’s impact of the lower Adderall XR authorized generic royalty rate receivable from Impax. In addition, generic competition and patent expiry on other products will also impact royalties.
Gross margins are expected to be approximately flat with 2012 levels. Shire expects high single-digit growth in combined R&D and SG&A costs, with significant increase in R&D expenses as the company continues to invest in its pipeline.
Management at Shire also stated that it is confident of delivering impressive earnings growth in 2013.
Shire currently carries a Zacks Rank #2 (Buy). Bayer (BAYRY) also looks attractive with a Zacks Rank #2 (Buy).
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