Shire looking beyond attention-deficit drugs

Shire P.L.C. is hoping that one day soon investors will pay less attention to its attention-deficit drug franchise.

The company's drugs in this category, which include Adderall XR and Vyvanse, accounted for about one-third of Shire's second-quarter sales. That figure at one time was as high as 50 percent.

But even though the company has diversified its revenues, attention-deficit hyperactivity disorder treatments remain so dominant that after Adderall XR faced its first generic competition in April, Shire's second-quarter sales shrank 19 percent from a year ago.

Chief executive Angus Russell, who is based at the Wayne U.S. headquarters of the British company, thinks that performance signals success. Second-quarter sales of Adderall XR, after all, fell 77 percent in the last year, but growth in the rest of the portfolio led to a $44 million quarterly profit. Investors, however, have yet to decide whether the company has overcome the patent-expiration hurdle.

Shares have traded the last year between $31.66 and $54.03. They closed yesterday at $50.56, up 35 cents.

About six years ago, Shire overhauled its business model, a remake that Russell said has worked. Shire dropped in-house research and development because it requires squadrons of expensive scientists whose efforts often fail.

"You're just kind of drilling holes, and a lot of them come up dry," Russell said in an interview.

Instead, Shire buys drugs from other companies after they have showed some promise in human testing. Case in point: A 2005 partnership with New River Pharmaceuticals to develop Vyvanse eventually led Shire to buy the company for $2.6 billion in 2007, just a few months before the drug went on the market. In the first half of this year, Vyvanse generated $335 million in sales, a 120 percent yearly increase, according to data provider IMS Health.

In 2005, Shire bought Boston's Transkaryotic Therapies Inc. for $1.6 billion and now markets several of its drugs, including Replagal for Fabry disease and Elaprase for Hunter syndrome.

At the time of the acquisition, Transkaryotic was losing money and employed 390 people. Russell told the company's employees that Transkaryotic reminded him of Shire in its early days and predicted it would soon be profitable.

"They all thought I was crazy," Russell said. Today, Transkaryotic is earning money and employs 1,000 of Shire's total 3,700 employees worldwide. About 700 of those work in Wayne.

The sales of those drugs are tiny compared with the ADHD franchise. Replagal, for example, reported just $44 million in sales in the second quarter of this year. The disease it treats, Fabry, is a rare genetic disorder, believed to affect 5,000 to 10,000 people in developed countries. Fabry causes abnormal fat deposits along the walls of blood vessels that can lead to heart and kidney problems.

The company hopes to have the drug, now marketed abroad, approved quickly in the United States, because manufacture of a rival drug has been temporarily halted.

Sales of treatments for rare disorders are unlikely ever to rival those of ADHD drugs, but Russell likes the category because only a few doctors treat each disease, so Shire can maintain a lean sales force. Shire's sales team for Lialda, an ulcerative colitis treatment, consists of 120 people, for example.

"I like to say that we're in the 'ist' business," Russell said. Consumers who take Shire's drugs almost always first see a specialist, a psychiatrist in the case of ADHD, or a gastroenterologist in the case of Lialda.

Larger companies such as GlaxoSmithKline and AstraZeneca recently have decided that buying promising treatments instead of developing them in-house can save them money. That leaves Shire competing with giants who can bid up prices of attractive assets.

Russell relies on Shire's ability to move more quickly than larger companies.

"Often, we're giving them an answer by the time big pharma is having its first committee meeting," Russell said.

Despite Shire's efforts to diversify its portfolio, Wall Street remains convinced that attention must be paid to the company's ADHD drugs.

Sanford Bernstein analyst Jack Scannell said generic competition threatened the ADHD franchise in more than one way. Because insurers now have a cheaper alternative, Shire has had to lower prices on Vyvanse to keep it on the lists of drugs insurance will pay for. Scannell estimated that the average price paid for a Vyvanse prescription fell from $93 to $88 between the first and second quarters of this year.

"Shire is difficult to value given its unusual business mix, lumpy profits in 2009 and 2010, and uncertainties for the ADHD franchise," Scannell said in an Aug. 6 investor note.

Shire maintains that Vyvanse delivers steadier relief of ADHD symptoms than alternatives.

The company also continues to give investors what they most crave. Later this year, Shire expects to start selling Intuniv, an ADHD drug that, unlike others in its category, is not considered addictive and will not be regulated as strictly by the Drug Enforcement Administration. That means patients will be able to get refills without getting a new prescription from a doctor, a time- and money-saver in today's hyperactive world.

Second-quarter sales

of Shire drugs. Adderall XR (below), Vyvanse (right), and Daytrana treat ADHD. Generic versions of Adderall became available in April. In millions of dollars:

Drug                        2008        2009     % chg.

Adderall XR (ADHD)       $296        $67     -77.3%

Vyvanse (ADHD)               65     114     75.2

Daytrana (ADHD)               23     15     -34.1

Lialda/Mesavant                32       55     70.6

Pentasa                         45     54     20.5

Fosrenol                      42     50     17.0

Xagrid                         21     20     -2.9

Elaprase                      81     85     5.6

Replagal                      45     44     -0.7

Other                       126     125     -0.6

Total Revenue                  776     630     -18.8

SOURCE: Corporate reports, StreetAccount, Bloomberg L.P., BernsteinResearchEndText