Generic competition for its former best-selling drug, and legal costs that include settling a lawsuit from one of its generic rivals, lowered Shire profits during the fourth quarter of 2012—though the company says it is in strong shape this year following investments in late-stage pipeline drug candidates.

Shire saw operating income slide 74% from the final three months of 2011, to $79 million, despite a 5% year-over-year increase in quarterly revenue, to $1.2 billion. The drop in operating income deflated Shire’s earnings per American depository receipt, which finished Q4 2011 at 22 cents, down 83% from $1.33 a year earlier. The company trumpeted non-GAAP results of $1.58 per ADR, up from $1.51 in Q4 2011.

More than $1 billion of Shire’s revenue consisted of product sales, which rose 10% excluding the attention deficit hyperactivity disorder (ADHD) drug Adderall XR (amphetamine and dextroamphetamine mixed salts).

Sales of Adderall XR tumbled 35% during Q4, to $82 million. The drug finished all of 2012 with a 19% sales decline, to $429 million, due to reduced U.S. prescription demand, according to Shire. A price increase partially offset reduced sales and the one-time charge, as well as higher sales deductions and the greater effect of product destocking compared with 2011.

Also offsetting lower Adderall XR sales, said Shire, was a one-time $38 million boost in royalty income after resolving a dispute with GlaxoSmithKline and ViiV Healthcare over such payments for Zeffix® (3TC or lamivudine) for Hepatitis B and HIV.

While Adderall XR has had an authorized generic version for four years, the drug was buffeted last year by competition from generics not supplied by Shire, starting with a generic version from Actavis that launched in Q2 2012. The Actavis generic version resulted in a 34% drop in royalties, to $70.3 million, from an authorized generic version of Adderall XR by Impax Laboratories.

Shire agreed on February 1 to pay Impax a $48 million one-time cash payment to settle litigation focusing on a Shire contract to supply Impax with the drug—reflected in a $42 million reduction in product sales and $6 million dip in royalties. The payment was part of a total charge against Q4 results of $57.5 million taken by Shire to resolve an investigation by the U.S. Department of Health and Human Services and the U.S. Attorney’s Office for the Eastern District of Pennsylvania related to Shire’s U.S. sales and marketing practices for Adderall XR; another ADHD drug, Vyvanse (lisdexamfetamine); and the ADHD/narcolepsy drug Daytrana® (methylphenidate), for which Shire sold rights to Noven Pharmaceuticals in 2010.

Shire can expect even more generic competition for Adderall this year, since FDA on February 12 approved another generic version of the drug, ANDA, to be sold by Teva’s Barr Pharmaceuticals unit. Since 2009, Barr has been selling an authorized generic version of Adderall XR, from which Shire said “we derive insignificant income.”

“We believe that branded Adderall XR can continue to compete successfully in a generic market as it has done over the last four years,” Shire said in a statement.

Adderall XR has anchored Shire’s product offerings in ADHD, which include two newer medications with growing sales. Vyvanse—Shire’s current best-selling drug—saw its Q4 sales jump 18% over the previous fourth quarter, to $256.5 million, while Intuniv sales zoomed 24% during the final three months of 2012, to $81.2 million. For all of 2012, Vyvanse racked up $1.03 billion in sales, up 28% over 2011, while Intuniv (guanfacine) finished last year at $287.8 million, a 29% leap.

“Shire is in great shape with the current business performing well, a promising pipeline of new growth opportunities, and the strategy in place to deliver an exciting future,” CEO Angus Russell said in the statement. Russell, who has served as CEO since 2008, will retire in May and be succeeded by Flemming Ornskov, who joined Shire in January from Bayer, where he served as chief marketing officer and global head of strategic marketing for general and specialty medicine. 

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