Shire's Record Year Bolstered By Baxalta, But Shows Across-The-Board Growth

Baxalta's hemophilia franchise immediately becomes Shire's top seller, but the specialty firm enjoyed sales growth across its business areas. Meanwhile, the launch of Xiidra is off to an impressive start in market share and patient access.

A celebratory tone permeated Shire PLC's earnings call Feb. 16, as typically all-business CEO Flemming Ornskov made multiple references to the recent success of Bayern Munich on the soccer pitch while overviewing a year in which the specialty pharma reported 79% year-over-year sales growth.

Shire conceded that adding Baxalta Inc.'s portfolio to its own spurred much of the revenue uptick reported for full-year 2016. (Also see "Shire's Ornskov Maps Out Future Prospects Post- Baxalta Merger" - Scrip, 6 Jun, 2016.) With the acquisition of Baxalta closing last June, Shire predicted the addition would be immediately accretive, and on schedule the hematology franchise acquired in that deal became the Dublin-based firm's top-selling franchise. Led by hemophilia A stalwart Adynovate (antihemophilic factor (recombinant), PEGylated), hematology yielded sales of nearly $3.7bn in 2016, up 3% year-over-year.

Not a primary topic on the investor call was M&A, an unusual turn of events for Shire, which is known for building pipeline and adding new franchises through business development. Ornskov even said he thought journalists and analysts following his company might be showing signs of withdrawal due to the lack of M&A talk.

For now, the company's focus is to stay disciplined and pay down its debt, the exec added. Shire always will keep an eye out, he said for smaller opportunities that fit into its areas of focus but "currently, major M&A is not something we’re focused on."

Shire cannot help but focus on the roiling US policy environment, however, although Ornskov turned down an opportunity to make predictions on policies regarding pricing, reimbursement, taxes and how possible repeal of the Affordable Care Act may affect patient access to drugs.

"The US is our largest and most important market," the CEO noted. "It's also where the majority of our 22,500 employees are based – actually about 14,000 are based in the US. The US is incredibly important to us in terms of our growth and in terms of our profitability, so of course we have to watch what happens."

ACA repeal is of considerable concern, he added, and Shire will remain a strong advocate for policies that assure patient access to affordable, high-quality care. Ornskov also pointed out that policy uncertainty is not limited to the US.

"What we see is that there is a lot of focus on growth, on business initiatives, but I think it is way too early to say what is going to come out," he said. "And it's not only the US. Some of the same challenges in predictability are occurring around the world. They are looking at the reimbursement system for medicines in Japan, with a major overhaul on the way." The implications of Brexit in the UK, including how that would affect the European Medicines Agency offices in that country, are another concern, he added.

Across-The-Board Sales Growth

Beyond hemophilia, the news was good across the board for Shire, however, as all six existing franchises posted sales growth, while the nascent ophthalmology business, spearheaded by the dry eye disease drug Xiidra (lifitegrast) enjoyed a stronger-than-expected start. Hematology was the biggest seller in terms of sales volume but it actually posted the lowest growth rate within Shire during 2016, although Ornskov told Scrip he was not surprised by that performance.

"Of course, given that I am ambitious and I like high growth, I think [Chief Financial Officer] Jeff [Poulton] and I both would prefer to see higher growth, but I think that the market is growing in the 3%-5% range," he said in a same-day interview. "We’re the largest player in the market, we have the broadest portfolio, and there is intense competition in the market, [with] new players coming into the market."

Shire CEO Flemming Ornskov

Source: Shire PLC

Ornskov pointed specifically to Roche's emicizumab, awaiting approval as prophylaxis for hemophilia A in patients with inhibitors to Factor VIII therapies, while also citing competition in the space from Biogen Inc., Novo Nordisk AS and Bayer AG. (Also see "Emicizumab Data Has Shire And Novo Looking Over Their Shoulders" - Scrip, 22 Dec, 2016.)

He also indicated a strong appetite for taking on the competition, noting the generally dismal assessment of Vyvanse's growth prospects when he took the CEO's chair in 2013 and that the ADHD drug now produces annualized revenues in the $2bn range. (Also see "Shire's Ornskov: The Modest Pediatrician With Fierce Corporate Ambition" - Scrip, 21 Dec, 2016.) Vyvanse (lisdexamfetamine) now is one of the five most-prescribed drugs on the market, Ornskov said, driven partially by the addition of binge-eating disorder to its label, but more attributable to Shire's commercial, medical and innovation execution.

"So there are going to be a lot of competitive dynamics but I still think that with the right focus, continued innovation, continued investment, and focus on commercial and medical execution, we can continue to have good growth in this market," he explained. "I like the hemophilia space, I think there's opportunity, but it's going to take us some time."

Still, despite Ornskov’s enthusiasm over what Shire has achieved with Vyvanse, the drug made a poor showing in the fourth quarter, with sales of $474m, 10% behind Street consensus.

Performance within Shire's other franchises should make it easier for investors to show patience. Led by its two-drug hereditary angioedema franchise (Cinryze and Firazyr) and its enzyme-replace therapies such as Elaprase (idursulfase), genetic disease sales grew 14% during 2016 to nearly $2.7bn. Immunology sales rose 9% to $2.5bn on the year, neuroscience – despite the disappointing 4Q Vyvanse sales – ticked up 14% to nearly $2.5bn, and internal medicine rose 17% to nearly $1.8bn.

Shire posted overall sales of nearly $10.9bn in 2016, attributing roughly $8bn of that total to immunoglobulins and therapies for orphan indications. Legacy Shire products posted 15% year-over-year growth, while the products added from Baxalta grew 8% on the year.

Xiidra Posts Solid Commercial Start

Meanwhile, the nascent oncology and ophthalmology franchises are enjoying solid beginnings, with cancer sales up 147% from 2015 to $215m. Xiidra has yielded $40m in sales since its September launch, exceeding Wall Street consensus projections of $32m. The story around Xiidra is one of strong early prescription trends, increasing market share against Allergan PLC's Restasis (cyclosporine), a good start on managed care access and the benefits of a disease-awareness campaign, Ornskov said.

Shire reported more than 274,000 total Xiidra prescriptions written as of Jan. 27, with the drug already taking a 19% market share in dry eye disease, including 50% of new-to-treatment patients. Monthly prescriptions increased consistently from September to December and 85% of US commercial lives now have coverage for the product under tier 2 or tier 3 of formularies. Ornskov showed a chart during the call indicating that dry eye prescription writing essentially had been flat until Xiidra entered the market – the company estimates 65% of Xiidra users are new to therapy.

"I always said to the team that the way we were going to develop this drug, given it will have a very long patent life, is we have to unlock the market because there's about 30m people in the US alone who have the condition, 15m are diagnosed, and only a few million have ever been or are on a treatment," Ornskov said.

"So, what you saw if you looked in 2015 was flat growth in that market, limited to no growth," he added. "Then we came in and the growth has been consistently rising. There have been some weeks where we saw 30% growth in this market. So, there is double-digit growth and that can only have been driven by all of the efforts we've put out there."

Analysts generally share Shire's bullishness on Xiidra and the dry eye market. Even Morningstar analyst Karen Andersen, who considers herself something of a holdout, said in a Feb. 16 note that the early returns show promise.

"We think initial prescription trends look very encouraging, as the drug is expanding the market, gaining 50% market share of new patients and locking in reimbursement on par with Allergan's Restasis in the commercial market," she wrote.

Morningstar maintains a $700m estimate for Xiidra sales in 2020, well below Shire's $1bn projection. "We think Allergan will fight aggressively for share, but we're incrementally more positive on the drug after fourth-quarter results," Andersen added.

Peter Welford of Jefferies noted another positive trend for Xiidra in that about 30% of prescriptions now are for repeat-users, up from about 11% in October.