7817 Annual Report 2009.qxd - Shire

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8 Shire plc Annual Report and Accounts 2009Page Financial titlereviewThe following review should be read in conjunction with the consolidated financial statements and related Notes on pages 64 to 118 of this Annual Report.OverviewShire plc (the ‘Company’) and its subsidiaries (collectively referred to as ‘Shire’ or the ‘Group’) has the mission to be the most valuable specialtybiopharmaceutical company in the world that focuses on enabling people with life-altering conditions to lead better lives. Shire focuses its business onADHD, HGT and gastrointestinal (‘GI’) diseases as well as opportunities in other therapeutic areas to the extent they arise through acquisitions. Shire’sin-licensing, merger and acquisition efforts are focused on products in specialist markets with strong intellectual property protection and global rights.Shire believes that a carefully selected and balanced portfolio of products with strategically aligned and relatively small-scale sales forces will deliverstrong results.Substantially all of the Group’s revenues, expenditures and net assets are attributable to the development, manufacture, sale and distribution ofpharmaceutical products within two reporting segments: Specialty Pharmaceuticals and HGT. The Group also earns royalties (where Shire has outlicensedproducts to third-parties) which are recorded as revenues.Revenues are derived primarily from two sources—sales of the Group’s own products and royalties:— 90% (2008: 91%) of total revenues are derived from product sales, of which 79% (2008: 83%) are within Specialty Pharmaceuticals and 21%(2008: 17%) are within HGT; and— 9% of total revenues are derived from royalties (2008: 8%).Shire’s strategic objectives are set using a balanced Scorecard approach. Strategic and operational objectives are set at the corporate level andcascaded to the segment (Specialty Pharmaceuticals/HGT), therapeutic area and functional levels so that these objectives are aligned with thecorporate objectives. The Group therefore takes a fully integrated approach to strategic management and uses key performance indicators (‘KPIs’)to measure the achievement of these objectives. For 2009, Shire’s corporate KPIs included certain financial and non financial measures.The markets in which the Group conducts its business are highly competitive and highly regulated. The healthcare industry is experiencing:— pressure from governments and healthcare providers to keep prices low while increasing access to drugs;— increased research and development (‘R&D’) costs as development programs are typically larger and take longer to get approval from regulators;— challenges to existing patents from generic manufacturers;— governments and healthcare systems favoring earlier entry of low-cost generic drugs; and— higher marketing costs due to competition for market share.Shire’s strategy to become the leading specialty biopharmaceutical company has been developed to address these industry-wide competitivepressures. This strategy has resulted in a series of initiatives in the following areas.MarketsHistorically, Shire’s portfolio of approved products has been heavily weighted towards the North American market. The acquisition in 2005 of TKT (andthe consequent establishment of our HGT business) and the acquisition of EQUASYM in 2009 (which facilitated immediate access to the EuropeanADHD market) provided Shire with the platforms to increase its presence in Europe and the rest of the world (‘RoW’), thereby working towardsdiversifying the risk associated with being reliant on one geographic market. In 2009 the HGT business derived more than 75% of its revenues fromoutside of the US. In addition to the marketed products and products in development obtained through the acquisition of TKT (ELAPRASE, REPLAGALand VPRIV), Shire has made significant progress on a path to geographic diversification with additional development and commercialization activitiesin 2009, including:— continued roll-out of ELAPRASE in certain Latin American and RoW countries;— continued roll-out of MEZAVANT, FOSRENOL and FIRAZYR in Europe; and— the entering into a licensing arrangement for LIALDA/MEZAVANT in Japan.Shire’s long-term mission is to increase the proportion of its product sales from outside of the US and outside of the US, UK, Germany, France,Italy, Spain and Canada by 2015. Shire has late-stage development activities ongoing which are expected to further supplement the diversificationof revenues in the future, including:— VYVANSE launches in Canada and Latin American countries and the registration program for approval in the EU;— VPRIV launches in the EU and certain Latin American countries;— the continued roll out of FIRAZYR in certain European and Latin American countries;— LIALDA/MEZAVANT diverticulitis registration program; and— the continued roll-out of FOSRENOL, LIALDA/MEZAVANT and EQUASYM in EU and RoW countries.R&DOver the last five years Shire has focused its R&D efforts on products in its core therapeutic areas, which meet the needs of the specialist physician,and has concentrated its resources on obtaining regulatory approval for later-stage pipeline products within these core therapeutic areas.Evidence of the successful execution of this strategy can be seen from the progression of the Group’s development pipeline over the last five years.Since January 2005, several products have received regulatory approval; in the US, DAYTRANA and ELAPRASE in 2006, LIALDA and VYVANSE in2007, and INTUNIV in 2009; in the EU, FOSRENOL in 2005, ELAPRASE and MEZAVANT in 2007. The Group had VPRIV in registration in the US andEU and filed a Biologics License Application (‘BLA’) for REPLAGAL in the US at December 31, 2009. In February 2010, Shire withdrew its DecemberBLA filing for REPLAGAL, and, at the suggestion of the FDA, requested and received Fast Track designation. Shire immediately initiated a rolling BLAsubmission in February.Shire’s strategy is focused on the development of product candidates that have a lower risk profile. R&D costs in 2010 will include expenditure onseveral pre-clinical to Phase 3 studies for products in development and Phase 3(b) and Phase 4 studies to support recently launched products in theSpecialty Pharmaceuticals and HGT businesses, together with the development of new projects in both the Specialty Pharmaceuticals and HGTbusinesses.
Shire plc Annual Report and Accounts 20099Patents and market exclusivityThe loss or expiration of patent protection or regulatory exclusivity with respect to any of the Group’s major products could have a material adverseeffect on the Group’s revenues, financial condition and results of operations as generic manufacturers may enter the market. Generic manufacturersoften do not need to complete extensive clinical studies when they seek registration of a copy product and accordingly, they are generally able to sellthe Group’s drugs at a much lower price.As expected, in 2009 Teva Pharmaceutical Industries Ltd (‘Teva’) and Impax Laboratories, Inc. (‘Impax’) commenced commercial shipments of theirauthorized generic versions of ADDERALL XR. During the year to December 31, 2009 the Group’s sales of ADDERALL XR declined by 43% to$626.5 million, representing 21% of total revenues in 2009 (2008: 36%). In October 2005 the Group filed a Citizen Petition with the FDA requesting thatthe FDA require more rigorous bioequivalence testing or additional clinical testing for generic or follow-on drug products that reference ADDERALL XRbefore they can be approved. The Group received correspondence from the FDA in April 2006 stating that, due to the complex issues raised, whichrequire extensive review and analysis by the FDA’s officials, a decision cannot yet be reached by the FDA. The FDA has not yet reached a decisionon this Citizen Petition and did not provide any guidance as to when that decision may be reached.Shire is engaged in various legal proceedings with generic manufacturers with respect to its FOSRENOL and CARBATROL patents, as well as thepatents for certain other products. During 2009 Shire settled certain legal proceedings relating to ADDERALL XR and CARBATROL. Shire has alsointervened in a lawsuit brought by Actavis Elizabeth LLC against the FDA concerning FDA’s decision to grant VYVANSE new chemical entity regulatoryexclusivity. For more detail of current patent litigation, see Note 24 to the consolidated financial statements for further details.Products under developmentSPECIALTY PHARMACEUTICALSTreatments for ADHDVYVANSE for ADHD in EUVYVANSE for the treatment of ADHD in children aged six to 17 in the EU is in Phase 3 development. Shire anticipates submission of the regulatoryfiling for VYVANSE in Europe in 2011.INTUNIV for use in combination with other ADHD treatmentsPhase 3 trials in the US are ongoing to support the efficacy and safety of INTUNIV when combined with other approved ADHD treatments.Treatments for GI diseasesLIALDA for the maintenance of remission in ulcerative colitis in the USPhase 3 trials investigating the use of the product to maintain remission in patients who have ulcerative colitis were initiated in 2006 for the US marketand continued through 2009. The product was indicated for the maintenance of remission in patients who have ulcerative colitis on approval in the EU.LIALDA/MEZAVANT for the treatment of diverticulitisDiverticulosis is among the most common diseases in developed countries and manifests as weaknesses or out-pouches of the bowel wall primarilyin elderly populations. Approximately 15-20% of people with diverticulosis go on to develop diverticulitis which is an acute inflammation, infection andmicro or macro-perforation of these out-pouches. The current standard of care requires treatment with antibiotics and depending on the frequencyor severity of attacks, may require surgery. LIALDA/MEZAVANT is being investigated as a treatment to prevent recurrent attacks of diverticulitis.Phase 3 worldwide clinical trials investigating the use of the product for the treatment of diverticulitis were initiated in 2007 and are ongoing.Treatments for diseases in other therapeutic areasFOSRENOL for the treatment of pre-dialysis chronic kidney disease (‘CKD’)Shire is continuing to explore the regulatory pathway required to secure a label extension for FOSRENOL to treat hyperphosphataemia in pre-dialysisCKD in the US.JUVISTA for the improvement of scar appearanceRenovo initiated its first pivotal European Phase 3 trial in scar revision in the fourth quarter of 2008 to support the filing of a European regulatorydossier. If the outcome from Renovo’s multi-center, EU Phase 3 study is suitably positive, the data will be used to inform the strategy and designof Shire’s US development plan.VYVANSE for the treatment of non-ADHD indications in adultsShire is conducting Phase 2 pilot clinical trials to assess the efficacy and safety of VYVANSE as adjunctive therapy in depression, for the treatmentof negative symptoms and cognitive impairment in schizophrenia, and for the treatment of cognitive impairment in depression.SPD 535 for the treatment of arteriovenous grafts in hemodialysis patientsSPD 535 is in development as a novel molecule with platelet lowering ability and without phosphodiesterase type III inhibition. The initial proofof concept program will target prevention of thrombotic complications associated with arteriovenous grafts in hemodialysis patients. Phase 1development was initiated in the third quarter of 2009.Projects in pre-clinical developmentA number of additional projects are underway in the early stages of pre-clinical development for the Specialty Pharmaceuticals area, including potentialprograms leveraging Carrierwave technology primarily focused in the areas of pain and ADHD. More data on these programs is expected in the secondhalf of 2010.
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