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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2009
 
Commission File Number: 0-29630

 
SHIRE PLC
(Exact name of registrant as specified in its charter)
 
Jersey (Channel Islands)
(State or other jurisdiction of incorporation or organization)
98-0601486
(I.R.S. Employer Identification No.)
   
 
5 Riverwalk, Citywest Business Campus, Dublin 24, Republic of Ireland
 (Address of principal executive offices and zip code)
 
+353 1 429 7700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
 
Yes [X]                                No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
 
Large accelerated filer [X]             Accelerated filer [  ]             Non-accelerated filer [  ]                 Smaller reporting company [  ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes [  ]                                No [X]
 
As at October 30, 2009 the number of outstanding ordinary shares of the Registrant was 561,053,621.
 
 

 
 
THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
Statements included herein that are not historical facts are forward-looking statements. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, the Company’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, risks associated with: the inherent uncertainty of research, development, approval, reimbursement, manufacturing and commercialization of the Company’s Specialty Pharmaceutical and Human Genetic Therapies products, as well as the ability to secure and integrate new products for commercialization and/or development; government regulation of the Company’s products; the Company’s ability to manufacture its products in sufficient quantities to meet demand; the impact of competitive therapies on the Company’s products; the Company’s ability to register, maintain and enforce patents and other intellectual property rights relating to its products; the Company’s ability to obtain and maintain government and other third-party reimbursement for its products; and other risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
 
The following are trademarks either owned or licensed by Shire plc or its subsidiaries which are the subject of trademark registrations in certain territories, or which are owned by third parties as indicated and referred to in this Form 10-Q:
 
Shire Product
Active ingredient
ADDERALL® XR
(mixed salts of a single-entity amphetamine)
AMIGAL
(migalastat hydrochloride) (trademark of Amicus Therapeutics, Inc. (“Amicus”))
CALCICHEW® range
(calcium carbonate with or without vitamin D3)
CARBATROL®
(carbamazepine - extended-release capsules)
DAYTRANA®
(methylphenidate transdermal system)
ELAPRASE®
(idursulfase)
EQUASYM® IR
(methylphenidate hydrochloride) (trademark of UCB S.A.)
EQUASYM® XL
(methylphenidate hydrochloride) (trademark of UCB S.A.)
FIRAZYR®
(icatibant)
FOSRENOL®
(lanthanum carbonate)
INTUNIV
(guanfacine – extended release)
JUVISTA®
(human TGFβ3) (trademark of Renovo Limited (“Renovo”))
LIALDA®
(mesalamine)
METAZYM
(arylsulfatase-A)
MEZAVANT®
(mesalazine)
PENTASA®
(mesalamine) (trademark of Ferring A/S Corp)
PLICERA™
(isofagomine tartrate) (trademark of Amicus)
RAZADYNE®
(galantamine) (trademark of Johnson & Johnson (“J&J”))
RAZADYNE® ER
(galantamine) (trademark of J&J)
REMINYL®
(galantamine hydrobromide) (UK and Republic of Ireland)
REMINYL®
(galantamine hydrobromide) (trademark of J&J, excluding UK and Republic of Ireland)
REMINYL XL™
(galantamine) (UK and Republic of Ireland)
REMINYL XL™
(galantamine) (trademark of J&J, excluding UK and Republic of Ireland)
REPLAGAL®
(agalsidase alfa)
SEASONIQUE®
(trademark of Barr Laboratories, Inc. (“Barr”))
VYVANSE®
(lisdexamfetamine dimesylate)
XAGRID
(anagrelide hydrochloride)
ZEFFIX®
(lamivudine) (trademark of GlaxoSmithKline (“GSK”))
3TC®
(lamivudine) (trademark of GSK)
 
 
 
1

 
 
SHIRE PLC
Form 10-Q for the three months to September 30, 2009

Table of contents

   
 Page
PART I   FINANCIAL INFORMATION
   
ITEM 1.  FINANCIAL STATEMENTS
   
 
Unaudited Consolidated Balance Sheets at September 30, 2009 and December 31, 2008
 
3
 
Unaudited Consolidated Statements of Operations for the three months and nine months to September 30, 2009 and September 30, 2008
 
5
 
Unaudited Consolidated Statement of Changes in Equity for the nine months to September 30, 2009
 
7
 
Unaudited Consolidated Statements of Comprehensive Income for the three months and nine months to September 30, 2009 and September 30, 2008
 
8
 
Unaudited Consolidated Statements of Cash Flows for the nine months to September 30, 2009 and September 30, 2008
 
9
 
Notes to the Unaudited Consolidated Financial Statements
 
11
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
38
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
59
ITEM 4.  CONTROLS AND PROCEDURES
 
59
     
PART II  OTHER INFORMATION
 
60
ITEM 1.  LEGAL PROCEEDINGS
 
60
ITEM 1A.  RISK FACTORS
 
60
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
60
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
60
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
60
ITEM 5.  OTHER INFORMATION
 
60
ITEM 6.  EXHIBITS
 
61

 
 
2

 
PART I.   FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
 
 
SHIRE PLC
UNAUDITED CONSOLIDATED BALANCE SHEETS


         
September 30,
   
December 31,
 
         
2009
   
2008
 
   
Notes
      $’M       $’M  
ASSETS
                     
Current assets:
                     
Cash and cash equivalents
          332.7       218.2  
Restricted cash
          39.3       29.2  
Accounts receivable, net
   
9
      539.2       395.0  
Inventories
   
10
      173.3       154.5  
Assets held for sale
   
11
      1.7       16.6  
Deferred tax asset
            99.8       89.5  
Prepaid expenses and other current assets
   
12
      149.2       141.4  
Total current assets
            1,335.2       1,044.4  
                         
Non-current assets:
                       
Investments
   
13
      95.2       42.9  
Property, plant and equipment, net
            630.0       534.2  
Goodwill
            385.9       350.8  
Other intangible assets, net
   
14
      1,832.9       1,824.9  
Deferred tax asset
            136.7       118.1  
Other non-current assets
            11.6       18.4  
Total assets
            4,427.5       3,933.7  
LIABILITIES AND EQUITY
                       
Current liabilities:
                       
Accounts payable and accrued expenses
   
15
      938.9       708.6  
Deferred tax liability
            10.9       10.9  
Other current liabilities
   
16
      124.6       104.3  
Total current liabilities
            1,074.4       823.8  
                         
Non-current liabilities
                       
Convertible bonds
            1,100.0       1,100.0  
Other long-term debt
   
17
      43.7       43.1  
Deferred tax liability
            315.5       377.0  
Other non-current liabilities
   
18
      219.5       291.3  
Total liabilities
            2,753.1       2,635.2  
Commitments and contingencies
   
19
                 
 
 
3


 
SHIRE PLC
UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)


   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
                 
Shareholders equity:
               
Common stock of 5p par value; 1,000 million shares authorized;
and 561.0 million shares issued and outstanding
(2008: 1,000 million shares authorized; and
560.2 million shares issued and outstanding)
    55.6       55.5  
Additional paid-in capital
    2,645.0       2,594.6  
Treasury stock: 19.2 million shares (2008: 20.7 million shares)
    (375.5)       (397.2)  
Accumulated other comprehensive income
    146.6       97.0  
Accumulated deficit
    (797.7)       (1,051.7)  
Total Shire plc shareholders equity
    1,674.0       1,298.2  
Noncontrolling interest in subsidiaries
    0.4       0.3  
Total equity
    1,674.4       1,298.5  
Total liabilities and equity
    4,427.5       3,933.7  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
4

 
SHIRE PLC
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

         
3 months to
   
3 months to
   
9 months to
   
9 months to
 
         
September 30,
   
September 30,
   
September 30,
   
September 30,
 
         
2009
   
2008
   
2009
   
2008
 
   
Notes
      $’M       $’M       $’M       $’M  
Revenues:
                                     
  Product sales
          602.5       712.5       1,916.8       2,049.9  
  Royalties
          60.3       60.8       177.8       190.7  
  Other revenues
          4.2       5.3       19.8       15.8  
Total revenues
          667.0       778.6       2,114.4       2,256.4  
Costs and expenses:
                                     
  Cost of product sales (1)
          104.9       84.2       284.9       317.4  
  Research and development (2)
          147.8       120.2       492.5       368.4  
  Selling, general and administrative (1) (2)
          320.6       327.3       973.8       1,109.7  
  In-process R&D ("IPR&D") charge
   
4
      -       120.5       -       255.5  
  Gain on sale of product rights
   
5
      (6.3)       (4.0)       (6.3)       (20.7)  
  Reorganization costs
   
6
      2.0       -       7.1       -  
  Integration and acquisition costs
   
7
      6.2       7.5       10.0       7.5  
Total operating expenses
            575.2       655.7       1,762.0       2,037.8  
Operating income
            91.8       122.9       352.4       218.6  
                                         
Interest income
            0.2       3.8       1.5       23.0  
Interest expense
            (9.4)       (92.9)       (30.6)       (127.0)  
Other income/(expenses), net
   
8
      7.0       (52.0)       61.9       (38.6)  
Total other (expenses)/income, net
            (2.2)       (141.1)       32.8       (142.6)  
Income/(loss) from continuing operations before income taxes and equity in earnings of equity method investees
            89.6       (18.2)       385.2       76.0  
Income taxes
            (30.6)       (18.7)       (56.7)       (63.0)  
Equity in earnings of equity method investees, net of taxes
            0.6       1.6       1.0       1.3  
Income/(loss) from continuing operations, net of taxes
            59.6       (35.3)       329.5       14.3  
                                         
Loss from discontinued operations (net of income tax expense of $nil in all periods)
   
11
      -       (0.9)       (12.4)       (0.9)  
Net income/(loss)
            59.6       (36.2)       317.1       13.4  
                                         
Add: Net loss attributable to the noncontrolling interest in subsidiaries
            -       1.3       0.2       1.3  
Net income/(loss) attributable to Shire plc
            59.6       (34.9)       317.3       14.7  

(1)
Cost of product sales includes amortization of intangible assets relating to favorable manufacturing contracts of $0.4 million for the three months to September 30, 2009 (2008: $0.4 million) and $1.3 million for the nine months to September 30, 2009 (2008: $1.3 million). Selling, general and administrative costs include amortization and impairment charges of intangible assets relating to intellectual property rights acquired of $34.8 million for the three months to September 30, 2009 (2008: $29.7 million) and $101.6 million for the nine months to September 30, 2009 (2008: $181.9 million).
(2)
Costs of $6.9 million and $26.0 million, predominantly relating to certain Medical affairs costs related to promotional and marketing activities, have been reclassified from Research and development costs to Selling, general and administrative costs for the three and nine months to September 30, 2008 respectively.
 

 
5

 
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (continued)


     
3 months to
   
3 months to
   
9 months to
   
9 months to
 
     
September 30,
   
September 30,
   
September 30,
   
September 30,
 
 
Notes
 
2009
   
2008
   
2009
   
2008
 
Earnings/(loss) per ordinary share -
                         
basic
                         
Earnings/(loss) from continuing operations attributable to Shire plc shareholders
      11.0c       (6.3c)       61.1c       2.9c  
Loss from discontinued operations attributable to Shire plc shareholders
      -       (0.2c)       (2.3c)       (0.2c)  
Earnings/(loss) per ordinary share attributable to Shire plc shareholders - basic
      11.0c       (6.5c)       58.8c       2.7c  
                                   
Earnings/(loss) per ordinary share -
                                 
diluted
                                 
Earnings/(loss) from continuing operations attributable to Shire plc shareholders
      10.9c       (6.3c)       60.3c       2.9c  
Loss from discontinued operations attributable to Shire plc shareholders
      -       (0.2c)       (2.3c)       (0.2c)  
Earnings/(loss) per ordinary share attributable to Shire plc shareholders - diluted
      10.9c       (6.5c)       58.0c       2.7c  
                                   
Weighted average number of shares (millions):
                                 
Basic
22
    540.6       540.3       540.0       542.6  
Diluted
22
    548.3       540.3       547.1       545.3  


   
3 months to
   
3 months to
   
9 months to
   
9 months to
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
      $M       $M       $M       $M  
Amounts attributable to Shire plc
                               
                                 
Income/(loss) from continuing operations, net of taxes
    59.6       (34.0)       329.7       15.6  
Loss from discontinued operations, net of taxes
    -       (0.9)       (12.4)       (0.9)  
Net income/(loss) attributable to Shire plc
    59.6       (34.9)       317.3       14.7  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
 
6

 
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In millions of US dollars except share data)
 


   
Shire plc shareholders equity
             
   
Common
stock
$'M
   
Common
stock
Number of
shares
M's
   
Additional
paid-in
capital
$M
   
Treasury
stock
$'M
   
Accumulated
other
comprehensive
income
$'M
   
Accumulated
deficit
$'M
   
Non
controlling
interest in
subsidiaries
$'M
   
Total equity
$'M
 
As at January 1, 2009
    55.5       560.2       2,594.6       (397.2)       97.0       (1,051.7)       0.3       1,298.5  
                                                                 
Net income/(loss) for the period
    -       -       -       -       -       317.3       (0.2)       317.1  
                                                                 
Foreign currency translation
    -       -       -       -       39.8       -       -       39.8  
                                                                 
Options exercised
    0.1       0.8       0.3       -       -       -       -       0.4  
                                                                 
Share-based compensation
    -       -       50.1       -       -       -       -       50.1  
                                                                 
Shares purchased by the Employee Share Ownership Trust ("ESOT")
    -       -       -       (1.0)       -       -       -       (1.0)  
                                                                 
Shares released by ESOT to satisfy exercise of stock options
    -       -       -       22.7       -       (20.3)       -       2.4  
                                                                 
Unrealized holding gain on available-for-sale securities, net of taxes
    -       -       -       -       9.0       -       -       9.0  
                                                                 
Other than temporary impairment of available-for-sale securities, net of taxes
    -       -       -       -       0.8       -       -       0.8  
                                                                 
Capital contribution attributable to noncontrolling interest in Jerini AG ("Jerini")
    -       -       -       -       -       -       0.3       0.3  
                                                                 
Dividends
    -       -       -       -       -       (43.0)       -       (43.0)  
As at September 30, 2009
    55.6       561.0       2,645.0       (375.5)       146.6       (797.7)       0.4       1,674.4  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
Dividends per share
 
During the nine months to September 30, 2009 Shire plc paid a dividend of 7.76 US cents per ordinary share (equivalent to 23.28 US cents per American Depositary Share) totaling $43.0 million.
 
 
7

 
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


   
3 months to
   
3 months to
   
9 months to
   
9 months to
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
   
$’M
   
$’M
   
$’M
   
$’M
 
                         
Net income/(loss)
    59.6       (36.2)       317.1       13.4  
Other comprehensive income:
                               
Foreign currency translation adjustments
    28.4       28.1       39.8       20.7  
Unrealized holding (loss)/gain on available-for-sale securities (net of taxes of $nil, $nil, $nil and $nil)
    (2.3)       (10.8)       9.0       (39.5)  
Other than temporary impairment of available-for-sale securities (net of taxes of $nil, $nil, $nil and $nil)
    0.8       54.1       0.8       54.1  
Realized gain on available-for-sale securities (net of taxes of $nil, $nil, $nil and $4.0 million)
    -       -       -       (5.4)  
Comprehensive income
    86.5       35.2       366.7       43.3  
Add: Comprehensive loss attributable to the noncontrolling interest in subsidiaries
    -       1.3       0.2       1.3  
Comprehensive income attributable to Shire plc
    86.5       36.5       366.9       44.6  

The components of accumulated other comprehensive income as at September 30, 2009 and December 31, 2008 are as follows:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Foreign currency translation adjustments
    141.3       101.5  
Unrealized holding gain/(loss) on available-for-sale securities, net of taxes
    5.3       (4.5)  
Accumulated other comprehensive income
    146.6       97.0  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
8

 
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
9 months to
   
9 months to
 
   
September 30,
   
September 30,
 
   
2009
   
2008
 
      $’M       $’M  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
    317.1       13.4  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Loss from discontinued operations
    12.4       0.9  
Depreciation and amortization
    177.4       145.4  
Share based compensation
    50.1       52.0  
IPR&D charge
    -       120.5  
Impairment of intangible assets
    -       90.4  
Impairment of available-for-sale securities
    0.8       54.1  
Gain on sale of non-current investments
    (55.2)       (9.4)  
Gain on sale of product rights
    (6.3)       (20.7)  
Other
    10.7       6.4  
Movement in deferred taxes
    (87.5)       13.9  
Equity in earnings of equity method investees
    (1.0)       (1.3)  
Changes in operating assets and liabilities:
               
Increase in accounts receivable
    (156.4)       (40.7)  
Increase in sales deduction accrual
    212.2       36.9  
(Increase)/decrease in inventory
    (24.2)       39.6  
Increase in prepayments and other current assets
    (8.1)       (0.2)  
Decrease/(increase) in other assets
    5.3       (53.5)  
(Decrease)/increase in accounts and notes payable and other liabilities
    (56.3)       70.7  
Returns on investment from joint venture
    4.9       7.1  
Cash flows used in discontinued operations
    (5.9)       -  
Net cash provided by operating activities (A)
    390.0       525.5  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Movements in restricted cash
    (10.1)       7.7  
Purchases of subsidiary undertakings and businesses, net of cash acquired
    (75.5)       (462.5)  
Purchases of non-current investments
    -       (1.3)  
Purchases of property, plant and equipment
    (169.4)       (166.5)  
Purchases of intangible assets
    (7.0)       (25.0)  
Proceeds from disposal of non-current investments
    19.2       10.3  
Proceeds from disposal of property, plant and equipment
    0.5       1.8  
Proceeds/deposits received on sales of product rights
    -       5.0  
Proceeds from disposal of subsidiary undertakings
    6.7       -  
Returns from equity investments
    0.2       0.4  
Net cash used in investing activities (B)
    (235.4)       (630.1)  
 
 
9


 
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)


   
9 months to
   
9 months to
 
   
September 30,
   
September 30,
 
   
2009
   
2008
 
      $’M       $’M  
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payment under building financing obligation
    (3.9)       (1.3)  
Costs of issue of common stock
    -       (2.9)  
Proceeds from exercise of options
    2.8       1.7  
Payment of dividend
    (43.0)       (36.4)  
Payments to acquire shares by ESOT
    (1.0)       (140.2)  
Net cash used in financing activities (C)
    (45.1)       (179.1)  
                 
Effect of foreign exchange rate changes on cash
and cash equivalents (D)
    5.0       (5.5)  
Net increase/(decrease) in cash and cash equivalents (A+B+C+D)
    114.5       (289.2)  
Cash and cash equivalents at beginning of period
    218.2       762.5  
Cash and cash equivalents at end of period
    332.7       473.3  


Supplemental information:
 
Notes
   
9 months to
   
9 months to
 
         
September 30,
   
September 30,
 
         
2009
   
2008
 
            $’M       $’M  
                       
                       
Interest paid
          (17.4)       (25.1)  
Income taxes paid
          (205.2)       (106.2)  
                       
Non cash activities:
                     
Equity in Vertex Pharmaceuticals, Inc. (“Vertex”) received as consideration for disposal of non-current investment
   
13
      50.8       -  
Building financing obligation
            7.1       -  
Equity in Avexa Ltd received as proceeds from product out licensing
            -       5.0  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
10

 
SHIRE PLC
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
Summary of Significant Accounting Policies
 
(a)
Basis of Presentation
 
These interim financial statements of Shire plc and its subsidiaries (collectively “Shire” or “the Company”) and other financial information included in this Form 10-Q, are unaudited. They have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and US Securities and Exchange Commission (“SEC”) regulations for interim reporting.
 
The December 31, 2008 balance sheet was derived from audited financial statements but does not include all disclosures required by US GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading.
 
These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year to December 31, 2008.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from these interim financial statements. However, these interim financial statements include all adjustments, which are, in the opinion of management, necessary to fairly state the results of the interim period. Interim results are not necessarily indicative of results to be expected for the full year.
 
(b)
Use of estimates in interim financial statements
 
The preparation of interim financial statements, in conformity with US GAAP and SEC regulations for interim reporting, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to the valuation of intangible assets, sales deductions, the valuation of equity investments, income taxes and provisions for litigation.
 
(c)
Accounting pronouncements adopted during the period
 
The Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“the Codification”)
 
On July 1, 2009 the FASB established the Codification as the single source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification is effective prospectively from July 1, 2009 and has superseded all existing non-SEC accounting and reporting standards. From July 1, 2009 the FASB has issued new guidance in the form of Accounting Standards Updates (“Updates”). The Codification did not impact the Company’s financial position or results of operations.
 
Subsequent Events
 
On April 1, 2009 the Company adopted new guidance issued by the FASB on subsequent events. This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this guidance provides: the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The guidance is effective prospectively from April 1, 2009. The adoption of the guidance did not impact the Company’s consolidated financial position, results of operations or cash flows. The Company has evaluated subsequent events from October 1, 2009 to November 6, 2009, the latter of which is the date when the financial statements were issued.
 
Disclosures about Derivative Instruments and Hedging Activities
 
On January 1, 2009 the Company adopted new guidance issued by the FASB on disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures about an entity’s derivative instruments and hedging activities, and these disclosures are included within Note 20.
 
Noncontrolling Interests in Consolidated Financial Statements
 
On January 1, 2009 the Company adopted new guidance issued by the FASB on noncontrolling interests in consolidated financial statements. This guidance establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this guidance requires the recognition of a noncontrolling interest (formally known as a minority interest) as equity in the consolidated financial statements, separate from the parent's equity. In addition, the amount of net income or losses attributable to
 
11

 
noncontrolling interests is required to be included in consolidated net income on the face of the income statement. This guidance also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. As a consequence of the adoption of this guidance, the balance of noncontrolling interests has been reclassified to within shareholders’ equity and net income attributable to Shire plc shareholders has been shown separately from that attributable to noncontrolling interests in the unaudited consolidated statements of operations and the unaudited consolidated statement of changes in equity. The adoption of this guidance has not had an impact on the Company’s consolidated cash flows.
 
Business Combinations
 
On January 1, 2009 the Company adopted new guidance issued by the FASB on business combinations. The guidance significantly changed the accounting for business combinations. Under the guidance, an acquiring entity is required to recognize all the assets acquired, liabilities assumed and noncontrolling interests in a transaction at the acquisition date fair value with limited exceptions. The guidance also amended the accounting treatment for certain specific items including: the expensing of acquisition costs; the capitalization of in-process research and development; recording of contingent consideration at fair value with subsequent changes in fair value being generally reflected in earnings; and the introduction of a substantial number of new disclosure requirements. The guidance has been applied to those business combinations completed in the nine months to September 30, 2009.
 
Determining whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock
 
On January 1, 2009 the Company adopted new guidance issued by the Emerging Issues Task Force (“EITF”) on determining whether an instrument (or embedded feature) is indexed to an entity's own stock. The guidance provides a new method to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock. The adoption of the guidance did not impact the Company’s consolidated financial position, results of operations or cash flows.
 
Accounting for Collaborative Arrangements
 
On January 1, 2009 the Company adopted new guidance issued by the EITF on accounting for collaborative arrangements. This guidance defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows. The disclosures required by this guidance have been included in Note 19.
 
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 
On January 1, 2009 the Company adopted new guidance issued by the FASB on accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). This guidance clarified that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) do not fall within the scope of the existing guidance on accounting for convertible debt and debt issued with stock purchase warrants. It requires issuers of such instruments to separately account for the liability and equity components of those instruments by allocating the proceeds from issuance of the instrument between the liability component and the embedded conversion option (i.e., the equity component). The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
 
Fair Value Measurements
 
On January 1, 2009 the Company adopted new guidance issued by the FASB which delayed the effective date of the FASB guidance on fair value measurements for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The guidance has been applied to the fair value measurement of non-financial assets and non-financial liabilities in the nine months to September 30, 2009.
 
Determination of the Useful Life of Intangible Assets
 
On January 1, 2009 the Company adopted new guidance issued by the FASB on the determination of the useful life of intangible assets. This guidance amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The adoption of the guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
 
 
12

 
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
 
In April 2009 the FASB issued new guidance on accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. This provides additional guidance on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The guidance was effective from January 1, 2009. The effect of the guidance on the consolidated financial position, results of operations and cash flow statements will depend on the nature and terms of any business combinations that occur after its effective date.
 
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
 
On June 15, 2009 the Company adopted new guidance issued by the FASB on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. The adoption of the guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
 
Recognition and Presentation of Other-Than-Temporary Impairments
 
On June 15, 2009 the Company adopted new guidance issued by the FASB on recognition and presentation of other-than-temporary impairments. This amends the other-than-temporary guidance for debt securities in existing US GAAP to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The adoption of the guidance did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
 
Interim Disclosures about Fair Value of Financial Instruments
 
On June 15, 2009 the Company adopted new guidance issued by the FASB on interim disclosures about fair value of financial instruments. This guidance requires disclosures about fair value of financial instruments for interim reporting periods and those disclosures have been included in Note 21.
 
(d)
Accounting pronouncements to be adopted in future periods

 
Revenue Recognition in Multiple Deliverable Revenue Arrangements
 
In September 2009, the FASB issued an Update to the guidance on revenue recognition in multiple deliverable revenue arrangements. The Update amends the existing guidance on allocating consideration received between the elements in a multiple-deliverable arrangement. The Update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor specific objective evidence (“VSOE”) if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE or third party evidence is available. It replaces the term fair value in the revenue allocation with selling price to clarify that the allocation of revenue is based on entity specific assumptions rather then the assumptions of a market place participant. The Update will eliminate the residual method of allocation and requires that arrangement consideration be allocated using the relative selling price method. It will also significantly expand the disclosures related to a vendor’s multiple-deliverable revenue arrangements. The Update will be effective prospectively for revenue arrangements entered into or materially modified for fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of adopting this Update.
 
Fair Value Measurements and Disclosures
 
In August 2009 the FASB issued an Update to the guidance on fair value measurements and disclosures, which amends the guidance for the fair value measurement of liabilities and provides clarification on the measurement of fair value in circumstances in which a quoted price in an active market for the identical liability is not available. The Update is effective for interim periods beginning after August 26, 2009. The Company is currently evaluating the impact of adopting this Update.
 
Amendments to the Accounting and Disclosure Requirements for the Consolidation of Variable Interest Entities
 
In June 2009 the FASB issued a revision to the existing guidance on the consolidation of variable interest entities. This guidance changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The guidance will also require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to such involvement. The guidance is effective for financial statements issued for fiscal years and interim periods within those fiscal years beginning after
 
13

 
November 15, 2009. Early adoption is not permitted. The Company is currently evaluating the impact of adopting this guidance.
 
Accounting for Transfers of Financial Assets
 
In June 2009 the FASB issued new guidance on the accounting for transfers of financial assets. This guidance will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. The guidance is effective for financial statements issued for fiscal years and interim periods within those fiscal years beginning after November 15, 2009. Early adoption is not permitted. The Company is currently evaluating the impact of adopting this guidance.
 
2.
Business combinations
 
EQUASYM IR and XL
 
On March 31, 2009 the Company acquired the worldwide rights (excluding the US, Canada and Barbados) to EQUASYM IR and XL for the treatment of attention deficit and hyperactivity disorder (“ADHD”) from UCB Pharma Limited (“UCB”) for cash consideration of $72.8 million. Included within the recognized purchase price for the acquisition is further consideration of $18.2 million, which may become payable in 2009 and 2010 if certain sales targets are met. This acquisition has broadened the scope of Shire’s ADHD portfolio and facilitated immediate access to the European ADHD market as well as providing Shire the opportunity to enter additional markets around the world.
 
The acquisition of EQUASYM IR and XL has been accounted for as a business combination. The purchase price has been allocated on a preliminary basis to the currently marketed products acquired ($73.0 million), IPR&D ($5.5 million), other liabilities ($0.7 million) and goodwill ($13.2 million). The goodwill has been assigned to the Specialty Pharmaceuticals segment.
 
Jerini acquisition
 
During the third quarter of 2008, the Company launched a voluntary public takeover offer for all outstanding shares in Jerini, a German corporation, at a price of €6.25 per share. By December 31, 2008 the Company had acquired rights to 98.6% of the voting interests in Jerini for a cash consideration of $556.5 million, by (i) subscribing for new Jerini shares; (ii) acquiring voting interests through the completion of sale and purchase agreements entered into with institutional shareholders and certain members of Jerini’s Management and Supervisory Boards; and (iii) acquiring voting interests through market purchases. The acquisition added Jerini’s hereditary angioedema (“HAE”) product FIRAZYR to Shire’s portfolio.
 
During the nine months to September 30, 2009 through on-market purchases the Company acquired additional voting interests totaling 0.2% of Jerini’s issued share capital, for a cash consideration including direct acquisition costs of $2.7 million. These additional voting interests have been accounted for as step-acquisitions using the purchase method of accounting. In respect of the step acquisitions made in 2009, the Company has recognized additional goodwill of $1.7 million, intangible assets in respect of the currently marketed product of $0.7 million, and IPR&D of $0.3 million. By September 30, 2009 Shire had acquired rights to a 98.8% voting interest in Jerini for a total consideration of $559.2 million.
 
Shire and Jerini continue to follow procedures under German law to effect the acquisition of the remaining shares. On April 24, 2009 Shire (through its wholly owned subsidiary, Shire Deutschland Investments GmbH) informed the Supervisory Board and Management Board of Jerini that it would offer €7.53 per share for the remaining shares. On June 16, 2009 the shareholders’ meeting of Jerini approved the transfer of all shares of the minority shareholders in Jerini to Shire Deutschland Investments GmbH against a cash compensation of €7.53 per share ('squeeze out' resolution). One shareholder has challenged the squeeze out resolution by filing a rescission proceeding in the Berlin Regional Court. Jerini  has: (i) submitted on October 23, 2009 to the Court of Appeals in Berlin a motion to clear the squeeze out resolution for registration in the Commercial Register notwithstanding the pending rescission proceeding (clearing motion); and (ii) submitted on October 26, 2009 a defence to the rescission proceeding. The Court of Appeals in Berlin is to decide on the clearing motion by January 25, 2010, but may extend such deadline. 
 
During the second quarter of 2009, the Management and Supervisory Board of Jerini announced the closure of Jerini Ophthalmic, Inc. (“JOI”) and certain other pre-clinical operations. Following this announcement the Company adjusted its preliminary purchase price allocation to recognize assumed liabilities for onerous contract costs and employee involuntary termination costs incurred on closure of these operations totaling $9.1 million. This adjustment to the preliminary purchase price allocation and additional goodwill recognized on the acquisition of additional voting interests during 2009 has increased the goodwill arising on the acquisition of Jerini to $158.8 million.
 
Supplemental Disclosure of Pro-Forma Information
 
The following unaudited pro forma financial information presents the combined results of the operations of Shire and Jerini as if the acquisition had occurred at January 1, 2008 based upon Shire’s ownership interest of 92.7% of Jerini at September 30, 2008. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the acquisition been completed at the dates
 
14

 
indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.
 
   
3 months to
September 30,
2008
   
9 months to
September 30,
2008
 
      $’M       $’M  
Revenues
    779.8       2,265.8  
                 
Net loss attributable to Shire plc
    (44.5)       (40.7)  
Add: Net loss attributable to the non controlling interest in subsidiaries
    1.6       3.9  
Net loss attributable to Shire plc
    (42.9)       (36.8)  
                 
Per share amounts:
               
Net loss per ordinary share basic and diluted
    (7.9c)       (6.8c)  

The unaudited pro forma financial information above reflects the following pro forma adjustments:
 
(i) An adjustment to decrease interest income by $1.8 million and $7.2 million in the three months and nine months to September 30, 2008 respectively, to reflect the interest foregone on the Company’s cash resources used to fund the acquisition of Jerini.
 
(ii) An adjustment to increase amortization expense by approximately $2.8 million and $11.4 million for the three and nine months to September 30, 2008 respectively, to reflect amortization of intangible assets relating to the currently marketed product, over the estimated useful life of 17 years.
 
Included in the pro forma financial information for the three and nine months to September 30, 2008 is the IPR&D charge of $120.5 million in respect of FIRAZYR outside of the EU.
 
3.
Termination costs
 
In August 2006, Shire and Duramed Pharmaceuticals, Inc. (“Duramed”), a subsidiary of Teva Pharmaceutical Industries Ltd, entered into an agreement related to SEASONIQUE, a number of products using Duramed’s transvaginal ring technology and other oral products (the “Collaboration Products”). Under this agreement, Shire was required to reimburse Duramed for US development expenses incurred on Collaboration Products up to a maximum of $140 million over eight years from September 2006, and Shire had the right to commercialize these products in a number of markets outside of North America, including the larger European markets.
 
On February 24, 2009 Shire and Duramed amended this agreement so that it will now terminate on December 31, 2009. Pursuant to this amendment, Shire agreed to return to Duramed its rights under the agreement effective February 24, 2009. Shire also agreed to reimburse Duramed for incurred US development expenditures in 2009 up to a maximum of $30.0 million. Shire has no rights with respect to the products on which such development expenditures are incurred. In addition, Shire agreed to a one-time payment to Duramed of $10.0 million, (which was paid during the first quarter of 2009), and to forego royalties receivable from Barr (a subsidiary of Teva Pharmaceutical Industries Ltd) and cost of goods otherwise payable by Barr to Shire in 2009 under the License Agreement between the parties for the supply of authorized generic ADDERALL XR, up to a maximum of $25.0 million. During the nine months to September 30, 2009 the Company recorded a charge of $65.0 million to research and development to reflect the cash payment made in the first quarter of 2009 and other termination related costs.
 
A reconciliation of the contract termination liability is presented below:
 
Nine months to September 30, 2009
 
Amount charged
to R&D
   
Amount paid
   
Utilization of
reserve
   
Closing liability
 
      $M       $M       $’M       $’M  
                                 
Contract termination costs
    65.0       (20.8)       (25.0)       19.2  
 
15

 
The charge of $65.0 million has been included within the Specialty Pharmaceuticals segment in the Company’s segmental analysis, see Note 23.
 
4.
IPR&D charge
 
On June 4, 2008 Shire completed the acquisition of the global rights to METAZYM from Zymenex A/S (“Zymenex”) for $135.0 million in cash, and recognized an IPR&D charge of $135.0 million during the second quarter of 2008 for the acquired development project. In the three months to September 30, 2008 the Company recognized an IPR&D charge of $120.5 million for FIRAZYR in markets outside of the EU, which Shire acquired through the acquisition of Jerini, see Note 2.
 
5.
Gain on sale of product rights
 
Following receipt of the relevant regulatory or other consents in the three months and nine months to September 30, 2009 the Company recognized $6.3 million of gains deferred since the relevant non-core product was disposed of during the 2007 financial year, see Note 11.
 
In the three months and nine months to September 30, 2008 the Company recognized $4.0 million and $15.7 million, respectively, of gains deferred since the disposal of the relevant non-core products during the 2007 financial year. In the nine months to September 30, 2008 the Company also received cash consideration of $5.0 million in respect of the divestment of the Beta range of hormone replacement products to Meda AB, realizing a gain of $5.0 million.
 
6.
Reorganization costs
 
Owings Mills
 
In March 2009 the Company’s management approved and initiated plans to phase out operations and close the Company’s Specialty Pharmaceuticals manufacturing facility at Owings Mills, Maryland. Over the next three years, all products currently manufactured by Shire at this site will transition to DSM Pharmaceutical Products, and operations and employee numbers at the site will wind down over this period. During the three and nine months to September 30, 2009 the Company incurred reorganization costs of $2.0 million and $7.1 million respectively which relate to employee involuntary termination benefits, impairment charges for property, plant and equipment and other costs.
 
As a result of the decision to transfer manufacturing from the Owings Mills site the company has revised the life of property, plant and equipment in the facility, and in the three and nine months to September 30, 2009 has incurred accelerated depreciation of $4.5 million and $7.5 million respectively, which has been charged to Cost of product sales. Consequently, the Company estimates an annual accelerated depreciation charge of $18.0 million and $3.5 million in 2010 and 2011 respectively. The reorganization costs and accelerated depreciation have been recorded within the Specialty Pharmaceuticals operating segment.
 
Jerini non-core operations
 
In the second quarter of 2009 as outlined in Note 2, the operations of JOI and certain other non-core pre-clinical operations acquired with Jerini were closed down. On closure of these operations the Company recorded a liability for costs associated with these closures of $9.1 million, relating to employee involuntary termination benefits and other closure costs. This liability has been recorded within accounts payable and accrued expenses with a corresponding increase to goodwill arising on the acquisition.
 
The aggregate liability for reorganization costs arising on the Owing Mills and Jerini closures at September 30, 2009 is as follows:
 
16


         
Assumed
             
   
Amount
   
liability through
             
   
charged to
   
business
         
Closing
 
   
reorganization
   
combinations
   
Paid
   
liability at
 
Nine months to September 30, 2009
 
$'M
   
$'M
   
$'M
   
$'M
 
                         
Involuntary termination benefits
    3.9       5.5       (5.7)       3.7  
Contract termination costs
    -       3.6       (0.1)       3.5  
Other termination costs
    0.6       -       (0.6)       -  
      4.5       9.1       (6.4)       7.2  
Impairment charges
    2.6                          
Reorganization costs for the nine months to September 30, 2009
    7.1                          

At September 30, 2009 the closing reorganization cost liability was recorded within Accounts payable and accrued expenses of $5.7 million and $1.5 million within Other non-current liabilities.
 
7.
Integration and acquisition costs
 
Integration costs of $5.5 million (2008: $7.5 million) and $7.7 million (2008: $7.5 million), primarily relating to the integration of Jerini into Shire, were incurred in the three and nine months to September 30, 2009 respectively.
 
Acquisition costs of $0.7 million (2008: $nil) and $2.3 million (2008: $nil), primarily relating to direct acquisition costs and changes in the fair value of contingent consideration recognized on the acquisition of EQUASYM, were incurred in the three and nine months to September 30, 2009 respectively.
 
8.
Other income/(expense), net
 
Other income, net of $7.0 million (2008: Other expenses, net of $52.0 million) and $61.9 million (2008: Other expenses, net of $38.6 million) was recognized in the three and nine months to September 30, 2009 respectively.
 
Other income, net in the three months to September 30, 2009 principally related to a gain of $5.7 million on substantial modification of the building finance obligation for leased properties (see Note 17). In the nine months to September 30, 2009 the Company also recorded a gain of $55.2 million arising on the disposal of its cost investment in Virochem Pharma Inc (“Virochem”) (see Note 13).
 
In the three months to September 30, 2008 the company recorded an other-than-temporary impairment charge of $54.1 million in respect of its available-for-sale securities, of which $43.7 million related to the Company’s investment in Renovo Group plc. In the nine months to September 30, 2008 the Company also recorded a gain of $9.4 million from the sale of its available-for-sale investment in Questor Pharmaceuticals, Inc.
 
17

 
9.
Accounts receivable, net
 
Accounts receivable at September 30, 2009 of $539.2 million (December 31, 2008: $395.0 million), are stated net of a provision for discounts and doubtful accounts of $14.5 million (December 31, 2008: $20.2 million).
 
Provision for discounts and doubtful accounts:
   
2009
   
2008
 
      $’M       $’M  
As at January 1
    20.2       9.8  
Provision charged to operations
    85.4       64.8  
Provision utilization
    (82.8)       (59.2)  
Reclassification
    (8.3)       -  
As at September 30
    14.5       15.4  

During the nine months to September 30, 2009 the Company reclassified its provision for Tricare Health Care Program rebates of $8.3 million at January 1, 2009 from provisions for discounts and doubtful accounts to accounts payable and accrued expenses.
 
10.
Inventories
 
Inventories are stated at the lower of cost or market and are analyzed as follows:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Finished goods
    52.4       41.4  
Work-in-process
    82.4       78.7  
Raw materials
    38.5       34.4  
      173.3       154.5  

At September 30, 2009 inventories included $13.5 million (December 31, 2008: $11.5 million) of costs capitalized prior to the regulatory approval of the relevant product.
 
11.
Assets held for sale and discontinued operations
 
At September 30, 2009 assets held for sale had a carrying value of $1.7 million (December 31, 2008: $16.6 million), represented by intangible assets and attributed goodwill for certain products divested to Laboratories Almirall S.A. (“Almirall”) in 2007. The recognition of the gains arising on the disposal of these products and the de-recognition of the related assets have been deferred pending the completion of the transfer of the relevant regulatory and other consents to the acquirer. These assets divested to Almirall form part of the Specialty Pharmaceuticals operating segment.
 
At December 31, 2008 assets held for sale also included $14.9 million for the operations of JOI and Jerini Peptide Technologies GmbH, (“JPT”), which were acquired through the Jerini acquisition but were deemed non-strategic to the combined business. From the acquisition of Jerini until the second quarter of 2009 the Company classified JOI and JPT as disposal groups held for sale and as discontinued operations. In May 2009, JPT was divested for cash consideration of $6.7 million, and a loss on disposal of $0.5 million has been recognized within discontinued operations for the nine months to September 30, 2009.
 
During the second quarter of 2009 it was determined that JOI was no longer going to be divested, and its assets were reclassified as held-and-used, resulting in a re-measurement adjustment of $5.9 million being recognized to record these assets at the lower of their fair value and carrying value. The Company subsequently closed JOI during the
 
18

 
second quarter of 2009 and JOI was reclassified as a discontinued operation. The re-measurement adjustment has accordingly been presented within discontinued operations for the nine months to September 30, 2009.
 
The Company has presented JOI and JPT as discontinued operations, recording a net loss from these operations of $nil and $12.4 million in the three and nine months to September 30, 2009 (2008: $0.9 million and $0.9 million). Revenues from discontinued operations for the three and nine months to September 30, 2009 were $nil and $2.3 million (2008: $1.4 million and $1.4 million), and the pre-tax loss from discontinued operations for the three and nine months to September 30, 2009 were $nil and $12.4 million (2008: $0.9 million and $0.9 million) respectively.
 
12.
Prepaid expenses and other current assets
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Prepaid expenses
    49.8       47.6  
Income tax receivable
    35.4       33.2  
Value added taxes receivable
    28.1       19.3  
Other current assets
    35.9       41.3  
      149.2       141.4  
 
13.
Investments
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Investments in private companies
    3.9       19.3  
Available-for-sale securities
    76.2       6.1  
Equity method investments
    15.1       17.5  
      95.2       42.9  

On March 12, 2009 the Company completed the disposal of its minority equity investment in Virochem to Vertex in a cash and stock transaction. The disposal was part of a transaction entered into by all the shareholders of Virochem with Vertex. The carrying amount of the Company’s minority equity investment in Virochem on March 12, 2009 was $14.8 million. Shire received total consideration of $19.2 million in cash and two million Vertex shares (valued at $50.8 million) from the disposal, recognizing a gain on disposal of $55.2 million which has been recognized in Other income/(expenses), net during the nine months to September 30, 2009.
 
Additional consideration of $2.0 million in cash and 0.2 million Vertex shares is being held in escrow until March 11, 2010 pending any warranty claims and breaches of representations made by Virochem and by all selling shareholders, including Shire. The escrow conditions are considered substantive and hence a gain has not been recognized relating to these amounts in the nine months to September 30, 2009. The Vertex stock received has been accounted for as an available-for-sale investment and included within non-current investments.

19

 
14.
Other intangible assets, net
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Intellectual property rights acquired
               
Currently marketed products
    2,368.3       2,253.2  
IPR&D
    6.1       -  
Favorable manufacturing contracts
    8.7       8.7  
      2,383.1       2,261.9  
                 
Less: Accumulated amortization
    (550.2)       (437.0)  
      1,832.9       1,824.9  

Intellectual property rights relate to currently marketed products and IPR&D for those acquired products which have not yet obtained regulatory approval. At September 30, 2009 the net book value of these intellectual property rights allocated to the Specialty Pharmaceuticals operating segment was $1,267.2 million (December 31, 2008: $1,244.9 million) and in the Human Genetic Therapies operating segment was $564.9 million (December 31, 2008: $579.3 million).
 
The increase in the net book value of other intangible assets for the nine months to September 30, 2009 is shown in the table below:
 
   
Other intangible
 
   
assets
 
      $’M  
         
As at January 1, 2009
    1,824.9  
Acquisitions
    80.2  
Amortization charged
    (102.9)  
Foreign currency translation
    30.7  
As at September 30, 2009
    1,832.9  

During the nine months to September 30, 2009 the Company acquired intangible assets totaling $80.2 million, principally relating to $78.5 million for EQUASYM IR and XL for the treatment of ADHD ($73.0 million for currently marketed products and $5.5 million for IPR&D). The weighted average amortization period for acquired currently marketed products is 13 years.
 
The FASB issued new guidance applicable for business combinations completed from January 1, 2009 relating to IPR&D acquired in a business combination. Following the issuance of this guidance, IPR&D is now capitalized and considered to be an indefinite lived intangible asset until the completion or abandonment of the associated research and development (“R&D”) efforts. Once the R&D efforts are completed the useful life of the relevant assets will be determined. Management estimates that the annual amortization charge in respect of intangible assets held at September 30, 2009 will be approximately $125 million for each of the five years to September 30, 2014. Estimated amortization expense can be affected by various factors including future acquisitions, disposals of product rights, regulatory approval and subsequent amortization of the acquired IPR&D projects, foreign exchange movements and the technological advancement and regulatory approval of competitor products.

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15.
Accounts payable and accrued expenses
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Trade accounts payable
    59.0       102.4  
Accrued rebates Medicaid
    272.9       162.6  
Accrued rebates Managed care
    155.7       59.9  
Sales return reserve
    53.1       47.1  
Accrued bonuses
    51.6       62.0  
Accrued employee compensation and benefits payable
    45.2       36.7  
Accrued coupons
    4.9       4.0  
Research and development accruals
    30.7       29.3  
Marketing accruals
    39.9       22.1  
Deferred revenue
    15.7       9.6  
Other accrued expenses
    210.2       172.9  
      938.9       708.6  
 
Accrued Medicaid rebates have increased by $110.3 million to $272.9 million at September 30, 2009 (2008: $162.6 million). The higher rebate liability has principally resulted from increased accrued rebates on ADDERALL XR following shipment of authorized generic versions of ADDERALL XR to Teva in April 2009 and to Impax Laboratories Inc (“Impax”) in September 2009. This higher rebate liability for ADDERALL XR is due to the accrual for Medicaid rebates being based on a higher unit rebate amount (“URA”) subsequent to authorized generic launch.
 
How shipments of authorized generic ADDERALL XR by the Company to Teva and Impax should be included in the Medicaid rebate calculation pursuant to the Deficit Reduction Act of 2005 (the “DRA”) has introduced additional uncertainty into the Company’s estimation of its Medicaid liability for ADDERALL XR. As a result of this uncertainty, a range of reasonably possible rebate levels are calculable under the Medicaid rebate legislation. The Company considers that the low end of this reasonably possible range is the correct interpretation of the DRA and related guidance. The State Medicaid agencies have invoiced Shire for second quarter Medicaid rebates based on a URA at the low end of this range and the Company has paid the Medicaid rebates based on this URA. However, given the uncertainties, the Centers for Medicare and Medicaid Services (“CMS”) could employ an alternative interpretation of the DRA. In determining the Medicaid liability to be recorded at September 30, 2009 the Company’s management has applied its current best estimate of the rebate payable. That current best estimate is the amount that could be paid by the Company were CMS to employ an alternative interpretation of the DRA (notwithstanding the fact that, following payment, either the Company or CMS would have the right to challenge the amount paid, and that the result of any such challenge could affect whether or not the estimated accrued rebate amount ultimately reflects the Company’s actual obligation). As a result, the Company recorded a Medicaid liability for ADDERALL XR of $194.2 million, near the mid point of the range of reasonably possible rebate levels.
 
In future periods the Company’s management may need to revise its current best estimate of its ADDERALL XR Medicaid liability, (by revising the best estimate of the rebate payable, as well as any changes to expected Medicaid utilization and the level of ADDERALL XR in the distribution channel), which could significantly increase or decrease the Company’s results of operations in the period of any such change in estimate. If the Company were to accrue at the lower end of the range at September 30, 2009, the liability would decrease by $83 million, and if it accrued at the higher end of the range, the liability would increase by $120 million.
 
Accrued Managed Care rebates have increased by $95.8 million to $155.7 million (2008: $59.9 million), principally due to higher rebates on ADDERALL XR offered to Managed Care Organizations (“MCOs”) from April 1, 2009.
 
16.
Other current liabilities
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
      $’M       $’M  
Income taxes payable
    80.2       25.8  
Value added taxes
    11.7       4.4  
Derivative financial instruments
    2.1       46.9  
Other accrued liabilities
    30.6