Business Context and Reporting Period
This Form 6-K, filed by Takeda Pharmaceutical Company Limited on June 24, 2020, furnishes the audited Consolidated Financial Statements of Shire plc for the years ended December 31, 2018, 2017, and 2016. Shire plc is a global biotechnology company focused on rare diseases. On January 8, 2019, Takeda completed the acquisition of Shire. The financial statements reflect Shire's operations prior to this acquisition.
Key Financial Metrics (Year Ended December 31, 2018)
- Revenue: Total revenues were $15,490.0 million, comprising $15,017.2 million in product sales and $472.8 million in royalties and other revenues.
- Profitability: Net income was $2,327.4 million. Operating income from continuing operations was $3,244.8 million.
- Cash Flow: Net cash provided by operating activities was $4,610.1 million. Net cash provided by investing activities was $1,454.2 million, driven largely by the sale of the Oncology franchise. Net cash used in financing activities was $5,596.2 million.
- Liquidity: Cash and cash equivalents totaled $924.6 million, with restricted cash of $42.0 million.
- Debt: Total borrowings and capital leases were $14,441.4 million ($3,336.7 million current; $11,104.7 million long-term).
- Assets: Total assets were $63,879.3 million, including $19,006.2 million in goodwill and $29,082.8 million in intangible assets, net.
Material Changes Versus Prior Period
- Revenue Growth: Total revenues increased 2.2% from $15,160.6 million in 2017 to $15,490.0 million in 2018. Product sales grew 3.9% to $15,017.2 million, while royalties and other revenues declined 33.6% to $472.8 million.
- Net Income Decline: Net income decreased significantly to $2,327.4 million in 2018 from $4,271.5 million in 2017. The 2017 figure included a $2,357.6 million income tax benefit related to U.S. tax reform, whereas 2018 included a $430.9 million tax expense.
- Asset Disposition: In August 2018, Shire sold its Oncology franchise to Servier S.A.S. for $2.4 billion, recognizing a gain of $266.6 million. This transaction significantly impacted investing cash flows and reduced intangible assets and goodwill.
- Debt Reduction: Total debt decreased from $19,541.1 million in 2017 to $14,441.4 million in 2018, primarily due to a debt tender offer in September 2018 where Shire purchased $2.3 billion in principal amount of Baxalta Notes.
- Integration Costs: Integration and acquisition costs were $585.1 million in 2018, down from $894.5 million in 2017, reflecting the ongoing integration of Baxalta and costs related to the Takeda acquisition.
Outlook, Risks, and Unusual Items
- Acquisition Completion: The filing notes that Takeda completed the acquisition of Shire on January 8, 2019. Shire shareholders received $30.33 in cash per share plus Takeda shares/ADSs.
- Legal Proceedings:
- ADYNOVATE: A jury found in favor of Bayer in a patent infringement case, awarding $155.2 million in damages. Shire established a reserve for this amount in 2018.
- MYDAYIS: Litigation is ongoing against Teva and Impax regarding generic versions of MYDAYIS, with trials scheduled for late 2019.
- VANCOCIN: An appeal by the FTC regarding antitrust allegations is pending.
- Contingent Consideration: As of December 31, 2018, Shire had $556.4 million in contingent consideration payable, primarily related to milestones for TAKHZYRO.
- Accounting Changes: Shire adopted new accounting standards in 2018, including ASU 2014-09 (Revenue from Contracts with Customers), which resulted in a $52.0 million cumulative-effect adjustment to retained earnings.
Investor Verification Checklist
- Verify the impact of the $155.2 million ADYNOVATE legal settlement reserve on future earnings and cash flows.
- Confirm the status of the Takeda acquisition integration and any post-closing adjustments or earn-outs.
- Monitor the outcome of the MYDAYIS patent litigation and potential generic competition timelines.
- Review the realization of deferred tax assets, noting the $868.3 million valuation allowance as of December 31, 2018.
- Assess the sustainability of operating cash flows given the significant debt reduction and ongoing integration costs.