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Shire’s (SHPG - Analyst Report) first quarter 2013 earnings (excluding special items) of 1.63 as per American Depositary Share (ADS) beats the Zacks Consensus Estimate of $1.61. The reported quarter’s adjusted earnings also increased 10% from the year-ago period.
Quarterly revenues decreased 1% to $1.16 billion, missing the Zacks Consensus Estimate of $1.21 billion. The quarterly revenue declined as growth in product sales was more than offset by lower royalties.
Quarter in Detail
Royalty revenue mainly comprises income earned from the sale of the authorized generic version of Adderall XR, 3TC and Zeffix. Royalties were down 32% to $38.5 million in the first quarter primarily due to lower Adderall XR royalties received from Impax Laboratories (IPXL - Snapshot Report) as a result of lower volumes and a lower royalty rate payable since the launch of a new generic product in the second quarter of 2012.
In addition, royalty income from 3TC and ZEFFIX continued to decline due to increased competition from other products and the expiry of patents in certain territories.
Product sales went up 1% to $1.12 billion. The growth was driven by attention deficit hyperactivity disorder (ADHD) drug Vyvanse (up 15% to $298 million), ulcerative colitis drug Lialda (up 12% to $101 million), ADHD drug Intuniv (up 13% to $78 million), Gaucher disease Vpriv (up 14% to 82 million) and hereditary angioedema drug Firazyr (up 112% to $42 million).
The growth was partially mitigated by diabetic foot ulcers drug Dermagraft (down 62% to $19 million) primarily due to the ongoing restructuring of the Regenerative Medicine sales and marketing organization. Moreover, sales of Fabry disease drug Replagal (down 15% to $114 million) were impacted by shipment timings and increased competition while uneven ordering patterns in Latin America affected Hunter Syndrome drug Elaprase (down 9% to $114.3 million). Adderall XR, indicated for ADHD, decreased 10% to $99.8 million, due to generic competition.
Adjusted research & development (R&D) costs climbed 15% to $219.6 million in the reported quarter. Increased investments in R&D programs contributed to the rise. Selling, general & administrative (SG&A) expenses decreased 16% to $371.9 million.
In the fourth quarter of 2012, Shire initiated a share repurchase program of approximately $500 million. As of Apr 30, 2013, Shire repurchased 7.3 million shares at a cost of $222.7 million, of which $71 million was in the first quarter of 2013.
For 2013, Shire now expects product sales growth in the mid-to-high single digits compared to the earlier projection of growth in the low double digits due to declines in Dermagraft and Replagal. Dermagraft is projected to resume growth in the second half of 2013 although sales for the full year will still be lower than 2012 levels. Elaprase is expected to post double digit growth in 2013.
Royalties and other revenues are expected to decline 30%-40% in 2013 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 low single-digit growth in combined R&D and SG&A costs, as compared to earlier projection of high single digit growth.
Shire also stated that it is confident of delivering earnings growth in line with current consensus earnings expectations of $6.67. The Zacks Consensus Estimate currently stands at $6.71.
Shire currently carries a Zacks Rank #4 (Sell). Right now, stocks which look well placed include UCB SA (UCBJF) and Onyx Pharmaceuticals, Inc. . Both stocks carry a Zacks Rank #1 (Strong Buy).