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`Shire Plc (SHPG) Flemming Ornskov on Q3 2015 Results -
`Earnings Call Transcript
`
`Oct. 23, 2015 1:43 PM
`ET
`
`SA Transcripts
`
`bout: Shire PLC (SHPG)
`
`| A
`
`Operator
`
`Good morning and good afternoon, ladies and gentlemen, and welcome to the Shire Q3 2015 results call,
`"Progressing our transformation to a leading global biotech." Throughout the call, all participants will be in listen-only
`mode, and afterwards there will be a question and answer session. Just to remind you, this conference call is being
`recorded. Today I'm pleased to present our speaker for today's call. Please go ahead.
`
`Matthew Osborne - Global Head-Investor Relations & Vice President
`
`Thank you. Good morning and good afternoon, everyone. Thank you for joining us to discuss the press release Shire
`issued earlier today announcing our 2015 third quarter results. You should have received our press release and
`should be viewing our presentation via our webcast on Shire.com. If you are unable to access the press release or
`presentation on our website, please contact Souheil Salah on our Investor Relations team at +44-1256-894-160, and
`he will be happy to assist you.
`
`Our speakers today are Chief Executive Officer Dr. Flemming Ornskov and Chief Financial Officer Jeff Poulton. We
`are also joined today by Dr. Phil Vickers. Phil is Shire's Head of Research and Development and will be available to
`answer questions related to our pipeline during the Q&A portion of the call.
`
`Before we begin, I would refer you to slide 2 of our presentation and remind you that any statements made during this
`call which are not historical statements will be forward-looking statements and as such will be subject to risks and
`uncertainties that if they materialize could materially affect our results.
`
`Following our presentation today, we will also open up the call to your questions. We request that you ask only two
`questions so that everyone has a chance to participate. We will also be available to follow up with you after the call. I
`will now hand the presentation over to Flemming.
`
`Flemming Ornskov - Chief Executive Officer & Director
`
`Thank you, Matt, and hello, everyone. It's good to be with you today to discuss our third quarter results. Over the next
`30 minutes or so, I'll give you a greater understanding of our progress towards becoming a leading global biotech
`company, with a focus on rare diseases and other specialty conditions. I will then hand over the call to Jeff to take you
`through what was a strong Q3 financial performance. I'm sure you're also interested in an update on Baxalta, and I
`will make some comments in regards to the combination we proposed at the conclusion of this call before we go into
`Q&A.
`
`Let's now all turn to slide number 4. As you're aware, we've been on a journey to build a leading global biotech
`company focused on rare diseases and other specialty conditions. Our initial priority was getting the basics right:
`creating one Shire, an organization that was more efficient and more profitable and could support our ambitious future
`growth plans. We achieved that, and we now have a more solid foundation from which to support our growth. As you
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`know, 2015 is a year of further investments that will allow us to continue to drive future growth to meet our 10x20 plan,
`which we are well on our way towards achieving.
`
`Let me now move on to slide 5 and take you through some of the highlights from the third quarter. During the third
`quarter, we delivered 12% year-over-year sales growth at constant exchange rates from our core products when you
`exclude INTUNIV. This was the result of growth from VYVANSE, CINRYZE, and FIRAZYR, as well as GATTEX or
`REVESTIVE and NATPARA as we continue to leverage Shire's rare disease platform.
`
`As you will recall, last quarter we increased our full-year guidance for non-GAAP diluted earnings per ADS to mid to
`high single digit growth, and we are reiterating this guidance today as we continue to invest in our innovative pipeline
`and support the recent launches of VYVANSE in binge-eating disorder in adults, NATPARA and GATTEX or
`REVESTIVE ex-U.S.
`
`We continue to see the benefit of investing in innovation, with progress this quarter in several areas of our pipeline.
`During the quarter, we received European approval for INTUNIV for the treatment of ADHD in children and in
`adolescents for whom stimulants are unsuitable, ineffective, or not tolerated. Patients in Europe can now benefit from
`having an additional choice of treatment.
`
`As we announced last week, the FDA requested additional information in response to our application for lifitegrast as
`a potential new treatment for the signs and for the symptoms of dry-eye disease. We have recently completed another
`Phase 3 study of lifitegrast called OPUS-3, and we expect top line results sometime during the fourth quarter of this
`year. If the data from this study are positive, they are expected to support resubmission to the FDA in the first quarter
`of 2016. I will have more to say on lifitegrast in just a few minutes.
`
`We are ahead of schedule with recruitment for the Phase 3 pediatric study of SHP465, and we also expect to initiate
`multiple Phase 3 studies with other pipeline assets by the end of this year or early next year. And we're truly excited
`by FST-100, which we now call SHP640, which is a potential therapy for the treatment of infectious conjunctivitis,
`which we bought into the company through the acquisition of Foresight Biotherapeutics. I'll come back to this
`acquisition later in this presentation.
`
`But let's now all move to slide number 6. Our core products when you exclude INTUNIV grew 12% at constant
`exchange rates over the third quarter of last year. As expected, INTUNIV sales continue to decline due to the entry of
`generics, but at the same time we're still dealing with foreign exchange headwinds. These factors combined reduced
`reported product sales by 10%, with 6% of that due to the decline in INTUNIV and 4% related to foreign exchange
`headwinds.
`
`I'm pleased to say that we grew our non-GAAP earnings per ADS by 11% on a reported basis and by 15% on a
`constant exchange rate basis, which benefited also in part from a lower tax rate this quarter. We delivered these
`results while we continue to invest in the launches of VYVANSE for binge-eating disorder in adults, the launches of
`GATTEX or REVESTIVE and NATPARA, and in preparation for the potential launch of lifitegrast in the U.S. initially.
`And as noted, I'm very pleased to reiterate our mid to high single digit growth in non-GAAP diluted earnings per ADS
`guidance for the full year, which we gave last quarter.
`
`Let's now all move on to slide number 7. The investments we have made in recent years to bring innovative products
`to patients are now driving the growth of our portfolio and will continue to do so well into the future. Our focus – our
`keen focus, I would even say – on commercial excellence has led to the continuing performance of our newest inline
`products. I'm very pleased with the double-digit growth we saw across several of our products during this quarter, and
`Jeff will go into further detail on what's driving this growth when he presents later today.
`
`One particular highlight worth noting was the VYVANSE IP victory, where the Court of Appeals affirmed the District
`Court's summary judgment ruling that 18 patent claims from four of the FDA Orange Booklets, the patents for
`VYVANSE, are valid and infringed. The ruling prevents the five ANDA defendants from launching generic versions of
`VYVANSE until the expiration of these patents, which is not until 2023. We were extremely pleased with this decision,
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`which further confirms that Shire has strong patents protecting VYVANSE.
`
`Let's look at slide 8 and subsequently slide 9. That deals with our pipeline progress. On slide 9 you will see this
`progress. We continue to advance our pipeline of innovative programs, and we have a very good mix of near- and
`longer-term growth opportunities. Our view is that a deep and innovative pipeline is at the core of becoming a leading
`biotech company. As you can see, we've come a long way in the last two years based on the robustness of our
`pipeline, a majority of which is focused on rare disease programs.
`
`Let's go through some of the key changes over the last quarter. In September, we received European approval for
`INTUNIV, which also triggers 10 years of exclusivity in the EU. SHP640 for infectious conjunctivitis is now ready for
`Phase 3. We discontinued our Phase 3 program for FIRAZYR in the treatment of ACE inhibitor induced angioedema.
`This decision follows recent top line data demonstrating the study did not meet its primary or secondary efficacy
`endpoints. While these results were disappointing, FIRAZYR continues to be an effective treatment option for acute
`hereditary angioedema attacks in adults aged 18 or older.
`
`Now turning to the next few slides, I'll provide an update on a few of our key pipeline assets. Slide 10. Let's first talk
`about lifitegrast. As you're well aware, on October the 16th, the FDA requested an additional clinical study as part of
`the complete response letter to our new drug application for lifitegrast for the signs and symptoms of dry eye disease
`in adults. At the same time, we announced the recent completion of another Phase 3 study of lifitegrast called OPUS-
`3, which we expect to be the basis of Shire's response to the complete response letter from the FDA. We do indeed
`expect top line results of OPUS-3 sometime during the fourth quarter of this year, and, if positive, we plan to provide
`these data as part of a resubmission to the FDA during the first quarter of 2016. During their product quality review,
`the FDA also requested more information related to lifitegrast and its formulation, which Shire is confident it can also
`address as part of its resubmission to the FDA.
`
`I want to emphasize Shire's commitment to working closely with the FDA to provide the evidence required to deliver a
`new prescription treatment option for the 29 million adults in the U.S. living with this chronic and progressive disease.
`This is an area of significant unmet medical need for which there has been no new treatment in over a decade.
`
`Let's turn to slide number 11. Along with lifitegrast, our commitment to building an innovative pipeline in
`ophthalmology continues with SHP640, which we formerly called FST-100, which is a late-stage asset we added to
`the portfolio through our recent acquisition of Foresight Biotherapeutics, which took place in August. 5.9 million cases
`of infectious conjunctivitis – by many also known as pink eye – occur in the U.S. each year, and 5.4 million cases in
`the EU. Unfortunately, existing therapies may not treat the cause of this condition, so many physicians are unable to
`differentiate between the viral and the bacterial form of so-called pink eye. If approved, SHP640 has the potential to
`become the first agent to treat both the viral and the bacterial form of conjunctivitis, addressing a significant unmet
`medical need.
`
`With two Phase 2 studies in adenoviral conjunctivitis already complete, we discussed with the FDA a path forward for
`Phase 3 studies. We are currently in the trial design phase and anticipate the Phase 3 program to include
`investigation for the treatment of bacterial conjunctivitis. Overall, we are excited about the potential of SHP640. It's a
`clear strategic fit with lifitegrast and the overall ophthalmics business unit, treating a serious and highly prevalent eye
`condition. And as a reminder, we now have three unique clinical programs in ophthalmology: lifitegrast for the
`treatment of dry eye disease, SHP607 for the prevention of retinopathy of prematurity, and also now SHP640 for the
`treatment of infective conjunctivitis.
`
`Let's all now move to slide number 12. Starting with INTUNIV, as mentioned, we recently received marketing approval
`in the EU for the treatment of ADHD in children and adolescents for whom stimulants are not suitable, not tolerated, or
`have been shown to be ineffective. When we consider the complexities and different manifestations of ADHD in
`children and adolescents, it is incredibly important that physicians will soon be able to choose a non-stimulant option
`that may best suit the needs of their patients. We are preparing for launches in the EU in 2016 and expect to make
`the product available initially in the UK and in Germany and then to expand to other countries in Europe.
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`In the coming months, we also expect to advance four programs into Phase 3, the first time this has occurred in
`Shire's history. Together, these four products have the potential to generate several hundreds of millions of dollars in
`sales. This includes plans to initiate this month a Phase 3 trial of CINRYZE in adults with antibody-mediated rejection
`in renal transplant recipients, representing a potentially new indication for CINRYZE. Earlier this month, the FDA
`granted fast-track destination for CINRYZE in this important indication. We also hope to initiate a Phase 3 study of the
`subcutaneous formulation of CINRYZE in the near future, having recently submitted an IND to the FDA.
`
`During the first half of next year, we intend to initiate a Phase 3 program of SHP620, also called maribavir, in
`cytomegalovirus infection in transplant patients. Finally, we have been in discussions with the FDA regarding a path
`forward for Phase 3 studies of SHP621, which is our oral budesonide suspension for use in the treatment of
`eosinophilic esophagitis, which came to us through the acquisition of Meritage Pharma, also earlier this year. We
`expect these studies to commence by early 2016.
`
`Well, let me now turn the call over to Jeff Poulton, Shire's CFO, to review third quarter financial results in more detail.
`Jeff?
`
`Jeffrey Poulton - Chief Financial Officer & Director
`
`Thank you, Flemming. Good morning and good afternoon, everyone. As Flemming has highlighted, our core business
`delivered strong results in Q3 as we continued to position the business for longer-term growth.
`
`Today I'd like to focus on four areas of performance. First, I will provide detail on the drivers of the double-digit sales
`growth from our core underlying business. Second, I will cover the delivery of a third quarter non-GAAP EBITDA
`margin of 43%. Third, I will cover our continued strong cash generation. And finally I will reiterate our guidance that
`was upgraded during our second quarter call to mid to high single digit non-GAAP diluted EPS growth for 2015.
`
`Moving to slide 14, you can see the components of our third quarter performance. Product sales were approximately
`$1.6 billion or 6% above the prior year in constant exchange rates. Excluding INTUNIV, product sales were up 12% at
`constant exchange rates, as our underlying business continues to deliver strong growth. Royalties and other
`revenues continue to benefit from the SENSIPAR royalty stream acquired as part of the NPS transaction, with
`royalties increasing approximately $35 million from the same period in the prior year.
`
`We've delivered non-GAAP EBITDA of $758 million in the quarter, representing 43% of product sales. Our margins
`are down slightly from 2014, as we are investing in our future growth drivers, including VYVANSE for binge-eating
`disorder, GATTEX/REVESTIVE, NATPARA and lifitegrast. The 43% delivered in Q3 represents an increase from our
`Q2 operating margin as we move beyond the initial launch phase of the VYVANSE BED indication.
`
`Our third quarter non-GAAP dilutive earnings per ADS increased to $3.24, or up 11% from the prior year. At a
`constant exchange rate, this represents a 15% increase. Our non-GAAP diluted EPS benefited from a low non-GAAP
`effective tax rate of 10% in the quarter, due to the timing of quarterly tax charges. However, for the full year, we still
`expect our non-GAAP effective tax rate to be in the 15% to 17% range. Finally, our cash generation remains strong,
`and we generated approximately $600 million of cash in the quarter. I will go into additional detail on this shortly.
`
`Now moving to slide 15, I will cover our product performance and add to comments previously made by Flemming.
`Starting with our HAE franchise, CINRYZE and FIRAZYR both delivered strong year-over-year growth. For
`CINRYZE, product sales increased to $187 million in the third quarter of this year, a 30% increase over the prior year
`at constant exchange rates. This increase includes the benefit of additional patients on therapy and, to a lesser
`extent, price increases since the third quarter of 2014. Net sales in the third quarter of 2015 also benefited from
`approximately $20 million of stocking, which was slightly above the $15 million of stocking for CINRYZE in Q3 of
`2014. The stocking in the third quarter followed an estimated $10 million of destock in the second quarter of this year.
`
`FIRAZYR delivered sales of $123 million for the quarter, up approximately 28% on a constant exchange rate basis.
`FIRAZYR sales growth was primarily driven by new patients on therapy, with some benefit from pricing actions taken
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`since the third quarter of 2014. We remain very pleased with the performance of the HAE franchise, with both
`CINRYZE and FIRAZYR continuing to perform strongly as we leverage our rare disease expertise following the
`acquisition of ViroPharma in early 2014.
`
`Turning to our lysosomal storage disease products. ELAPRASE and REPLAGAL sales were down compared to the
`prior year at constant exchange rates, as Q3 2014 contained a bigger benefit from the timing of large orders in
`markets that order infrequently. ELAPRASE's year-over-year growth was negatively impacted by approximately $20
`million and REPLAGAL's growth by about $10 million of less large orders. VPRIV declined 4% at constant exchange
`rates from the prior year, as the impact of increased competition in the U.S. Gaucher market was only partially offset
`by our international performance.
`
`Moving on to VYVANSE, we remain pleased with VYVANSE's performance, particularly in the U.S. adult market since
`the launch of the BED indication in the first quarter of this year. VYVANSE exited the quarter at a 16.8% share of the
`ADHD market, up 0.5 percentage point from September 2014. As a reminder, BED scripts are not tracked separately,
`so BED scripts are included in the overall ADHD market basket.
`
`VYVANSE sales grew approximately 22% from Q3 2014 on a constant exchange rate basis. This increase was driven
`by U.S. script growth of 9% compared to the prior period, outpacing ADHD market growth of 6%. U.S. pricing actions
`since Q3 2014 and the performance in our international markets also contributed to growth in the quarter. Third
`quarter net sales also benefited from approximately $20 million of stocking, which compared with $10 million of
`destocking in the same period last year.
`
`Finishing up with our GI products, LIALDA sales were $177 million for the quarter, up 2% on a constant exchange rate
`basis. We are pleased with LIALDA's market performance, as we have ended the quarter at a 35.4% market share,
`up from 33% at the end of 2014, as LIALDA continues to take share from the competition. Resulting increase in
`scripts versus the prior year, as well as the benefit of a pricing action since the third quarter of 2014, was offset by
`higher sales deductions as the percentage of product sales and less stocking in Q3 2015 than in the same period of
`2014.
`
`The products acquired with our NPS acquisition earlier this year contributed $50 million of sales in Q3.
`GATTEX/REVESTIVE contributed $43 million, and NATPARA contributed $7 million for the quarter. For
`GATTEX/REVESTIVE, we are starting to see positive results from leveraging our existing GI sales force to raise
`awareness of short bowel syndrome and to help identify eligible patients as our 100 LIALDA sales reps in the U.S.
`began making calls for GATTEX for the first time during the third quarter.
`
`For NATPARA, the number of REMS-certified physicians has increased from approximately 1,900 at the end of the
`second quarter to more than 2,400 by the end of the third quarter, and we have added approximately 250 new
`patients onto commercial therapy in the quarter, more than doubling the number of patients on therapy from the end of
`the second quarter. We are pleased with the performance of both products and believe our rare disease expertise will
`benefit these products in the same way that we were able to accelerate growth in our HAE franchise.
`
`Lastly, you can see on the far right side of the chart two items that significantly held back reported sales growth this
`quarter. INTUNIV held back reported sales growth by 6 percentage points, as we've seen the impact from multiple
`generics, and we were also impacted by foreign exchange headwinds from a stronger U.S. dollar, which held back
`growth by 4 percentage points.
`
`Moving on to slide 16 and our operating ratios. Non-GAAP R&D has increased 8% year to date as we continue to
`invest in our pipeline, including the inclusion of NPS's R&D costs. Non-GAAP SG&A has increased 10% year to date
`as we've invested behind future growth drivers, including launching VYVANSE for BED, NATPARA, and
`GATTEX/REVESTIVE, as well as the potential launch for lifitegrast. Excluding our investments year to date in BED,
`NPS, and lifitegrast, non-GAAP R&D and SG&A was broadly flat compared to the first nine months of 2014. Despite
`our investments in these areas, we have delivered a robust non-GAAP EBITDA margin year to date of 43%.
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`Now turning to slide 17, our business continues to generate strong cash flows with non-GAAP cash generation of
`approximately $600 million for the quarter. For the first nine months, we have generated approximately $1.6 billion of
`cash. We ended the quarter with approximately $2 billion of non-GAAP net debt. Our ability to generate operating
`cash, combined with a relatively modest level of debt, continues to provide us with the financial flexibility to invest in
`additional growth opportunities, including funding the acquisition of Foresight Biotherapeutics in the third quarter. We
`will of course be disciplined with how we use this flexibility.
`
`Let me finish my prepared remarks on slide 18. Based on the results through the first nine months of the year, we are
`comfortable reiterating our previous full-year guidance. We expect 2015 product sales to increase 4% to 5% from
`2014 with the impact of FX headwinds moderating in the fourth quarter, such that the full year FX impact is expected
`to be between 3% and 4%. On a constant exchange rate basis, we expect 2015 product sales to grow in the high
`single digits. Excluding INTUNIV and at constant exchange rates, we expect growth in the low teens.
`
`We expect royalties and other revenues to grow 45% to 55% over the prior year. We've been pleased with the
`SENSIPAR royalty stream acquired as part of the NPS transaction, which should help us achieve 2015 royalties and
`other revenues at the upper end of this range. Our non-GAAP gross margin should be similar to the rate achieved in
`2014. We continue to expect high single digit growth from our combined non-GAAP R&D and SG&A costs as we
`invest in progressing our pipeline further, and in the continued growth of both VYVANSE in the adult market and the
`products acquired from NPS, NATPARA and GATTEX. We will also continue to make prudent commercial
`investments in lifitegrast, as we hope to bring this product to market in 2016.
`
`We expect interest and other expenses to remain broadly in line with 2014. We continue to expect full-year non-
`GAAP effective tax rate in the 15% to 17% range before reverting to the longer-term range of 17% to 19% in 2016.
`Taken together, we expect our overall non-GAAP dilutive earnings per ADS to grow in the mid to high single digits on
`a reported basis, or in the low double digits on a constant exchange rate basis.
`
`In summary, our core business remains strong, driven by executing against our commercial priorities. And we have
`the financial flexibility to add to our business going forward. We are excited about our growth prospects.
`
`With that I'll hand back to Flemming.
`
`Flemming Ornskov - Chief Executive Officer & Director
`
`Thanks, Jeff.
`
`So please turn to slide 20. And here I wanted to just take a few minutes to update you on Baxalta. Let me briefly
`remind you why we are so excited by the potential of a combined Baxalta and Shire. Firstly, it would create the
`leading global rare disease biotech company. We continue to believe this highly complementary business
`combination would have the potential to deliver sales of $20 billion by 2020. Secondly, we believe this combined
`company would have a compelling financial profile and create significant value for shareholders. And, thirdly, the
`combined company would have a strong outlook, with more than 30 new product launches planned by 2020. Any
`large deal takes time, and we've taken a focused and a disciplined approach to Baxalta from day one but are naturally
`not solely focused on this deal. As part of our strategy, we continue in parallel to pursue smaller but clearly value-
`adding deals in core areas of strategic interest to us.
`
`Let's all go to slide 21. We continue to execute against our four strategic pillars to generate strong and sustained
`sales and earnings growth. And this quarter affirms – or one would say reaffirms – we are making great progress
`across all areas. Specifically, we are continuing to execute commercially, including maximize the potential of our
`treatments by expanding their indications, as you have seen by VYVANSE's approval in binge-eating disorder for
`adults. We're leveraging the NPS assets. We're making significant progress with our innovative pipeline, as we move
`a number of candidates into the final clinical stages, Phase 3.
`
`We're developing an innovative portfolio in ophthalmology, and we're executing on strategic business development
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`opportunity across a range of sizes and geographies, including the recent acquisition of CellPharm, (31:28) which
`expands our commercial capabilities in the Adriatic (31:31) region. We also have a number of exciting data readouts
`coming up, including the top line results of OPUS-3 sometime during the fourth quarter of this year. We are fully
`committed to working with the FDA to provide the evidence required to support the resubmission of lifitegrast, and if
`approved, bring to patients in need a new treatment for the signs and for the symptoms of dry eye disease.
`
`In summary, it's been another strong quarter, with 12% growth excluding INTUNIV and the impact of foreign
`exchange, non-GAAP diluted earnings per ADS increasing by 11% on a reported basis and by 15% on a constant
`exchange rate basis. And I'm very optimistic about Shire's future. I look forward to keeping you up to date as we
`progress on our journey.
`
`And with that, we're pleased to take questions.
`
`Question-and-Answer Session
`
`Operator
`
`Thank you. Our first question comes from the line of Ken Cacciatore from Cowen & Co. Please go ahead with your
`question. Your line is now open.
`
`Ken C. Cacciatore - Cowen & Co. LLC
`
`Great. Good morning, guys. Just a couple of questions. First, Flemming, initially when you announced the Baxalta
`transaction, your shareholders, there wasn't a lot of enthusiasm from your shareholders, and as time has gone by,
`that enthusiasm gap between you and your shareholders, at least to me, seems to have persisted. So can you tell me,
`what are they telling you that they would rather you do maybe versus this deal? And what is your response to their
`general alternatives? And then secondly, you touched on it, but maybe talk about if you could, the changing asset
`price environment and your willingness to access the debt markets which are available to you to act maybe sooner
`rather than later on some of the things that you might be looking at. Thank you.
`
`Flemming Ornskov - Chief Executive Officer & Director
`
`Thanks very much, Ken. And also good morning to you. I think there can be different perspectives on what
`shareholders are telling us. The good news is I think I've spoken to most of our major shareholders regarding Baxalta.
`I think that initially Baxalta was not a known entity to many of our shareholders; neither was the therapeutic areas that
`Baxalta was operating in. I think as we've had an opportunity to explain Baxalta and the excellent strategic fit to our
`shareholders, I actually think that that gap has diminished. What has been adverse to execution of any large deal over
`the last few weeks or months have of course been the macroeconomic climate, where prices for – or asset valuations
`of most biotech companies are down approximately 20%. But I don't think that people are focused so much on the
`strategic fit. They're more focused on whether a deal can be executed. So I think broad support has been generated
`for the strategic fit. But people are more questioning whether a deal can be done.
`
`I'm not going to comment on that. We continue to pursue Baxalta. It is one of several targets that we look at. We also
`look at smaller and value-adding targets, and we will continue to do that. M&A is part of our growth strategy to
`become the leading rare disease company.
`
`Asset prices, yes, they have changed, but I'm not sure the mentality of many of the sellers have already changed. We
`continue to have dialogue with a number of companies. I have not yet seen a swift change in assessment on seller
`side what is an appropriate valuation in price. But I'm sure over time if this market consists, that will be an opportunity.
`Shire is capable of both pursuing a large-scale deal as it is capable of pursuing a number of smaller deals, and we
`will continue to do that.
`
`Ken C. Cacciatore - Cowen & Co. LLC
`
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`Great. Thank you.
`
`Operator
`
`Our next question comes from the line of Graham Parry from Bank of America Merrill Lynch. Please go ahead with
`your question. Your line is now open.
`
`Graham G. Parry - Bank of America Merrill Lynch
`
`Great. Thanks for taking my questions. So firstly on Baxalta, on the Baxalta slide, you're highlighting EPS accretion in
`year one, but that was clearly using the original offer at a price that was rejected and using a Shire stock price that
`was a lot higher than it is now. So can you clarify whether you think it is possible to buy Baxalta without diluting your
`EPS, given where your current share price is and Baxalta's apparent reticence to be acquired? And then, secondly, a
`question actually specifically on the quarter. Can you quantify the order phasing deficit in the rare disease products,
`ELAPRASE, VPRIV, REPLAGAL, and the destocking in LIALDA to clarify whether that effectively is a wash relative to
`the $30 million in VYVANSE stocking? So are we really looking at a clean revenue number for the quarter? Thanks.
`
`Flemming Ornskov - Chief Executive Officer & Director
`
`So maybe I take the first part of the question and Jeff takes the second part of the question. So I'm not going to
`comment on any specific progress that may or may not have happened versus the Baxalta deal. I think – and I know
`everybody is watching screens and wants progress by the minute. I think that in order to build a company like the one
`we aspire to build at Shire, you have to take a strategic point of view. And in this situation, market conditions may
`change, short term, as they have right now. The deal makes a lot of strategic and financial sense to both sets of
`shareholders. Large deals are typically more complex to do, and I know that a lot of people have had comments
`about the initial approach, hostile, not hostile, and successes and history about that. I listen to all of that, but I'm not
`going have a public debate about Shire's deal tactics. It's a deal that makes a lot of strategic sense. I'm still optimistic
`that it potentially can be done. I'm focused, I'm disciplined, and I'm also working on alternatives if that should not work,
`and that's the way you approach, from a portfolio perspective, any M&A.
`
`Jeffrey Poulton - Chief Financial Officer & Director
`
`Graham, on the question about the impact on the rare disease products, for ELAPRASE and REPLAGAL, that's
`where we had the significant impact on timing of large orders. We had large orders Q3 of last year for both of those
`products from Latin America compared to this quarter. So that held back, on a comparative basis, ELAPRASE about
`$20 million during the quarter and REPLAGAL about $10 million. From an overall stocking perspective for the quarter,
`we had about $45 million of incremental stocking