Attached files
file | filename |
---|---|
EX-31.2 - EXHIBIT 31.2 - Shire plc | dp17367_ex3102.htm |
EX-10.27 - EXHIBIT 10.27 - Shire plc | dp17367_ex1027.htm |
EX-31.1 - EXHIBIT 31.1 - Shire plc | dp17367_ex3101.htm |
EX-32.1 - EXHIBIT 32.1 - Shire plc | dp17367_ex3201.htm |
EXCEL - IDEA: XBRL DOCUMENT - Shire plc | Financial_Report.xls |
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 March 31, 2010
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]
|
Indicate by check
mark whether the Registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (232,405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes [X]
|
No [
]
|
As at April 28,
2010 the number of outstanding ordinary shares of the Registrant was
562,110,523.
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 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:
ADDERALL XR®
(mixed salts of a single entity amphetamine)
CALCICHEW® range
(calcium carbonate with or without vitamin D3)
CARBATROL®
(carbamazepine extended-release capsules)
DAYTRANA® (methylphenidate
transdermal system)
ELAPRASE®
(idursulfase)
EQUASYM® IR
(methylphenidate hydrochloride)
EQUASYM® XL
(methylphenidate hydrochloride)
FIRAZYR®
(icatibant)
FOSRENOL®
(lanthanum carbonate)
INTUNIV™
(guanfacine extended release)
JUVISTA®
LIALDA®
(mesalamine)
MEZAVANT®
(mesalazine)
PENTASA®
(trademark of Ferring A/S Corp (“Ferring”))
RAZADYNE® (trademark of Johnson &
Johnson (“J&J”))
RAZADYNE® ER
(trademark of J & J)
REMINYL®
(galantamine hydrobromide) (United Kingdom ("UK”) and Republic of
Ireland) (trademark of J & J, excluding UK and Republic of
Ireland)
REMINYL XL™
(galantamine hydrobromide) (UK and Republic of Ireland) (trademark of J & J,
excluding UK and Republic of Ireland)
REPLAGAL®
(agalsidase alfa)
SEASONIQUE®
(trademark of Barr Laboratories, Inc. (“Barr”))
VYVANSE®
(lisdexamfetamine dimesylate)
VPRIVTM
(velaglucerase alfa)
XAGRID®
(anagrelide hydrochloride)
ZEFFIX®
(trademark of GlaxoSmithKline (“GSK”))
3TC®
(trademark of GSK)
2
SHIRE
PLC
Form
10-Q for the three months to March 31, 2010
Table
of contents
Page
|
||
PART
I FINANCIAL INFORMATION
|
||
ITEM
1. FINANCIAL STATEMENTS
|
||
Unaudited
Consolidated Balance Sheets at March 31, 2010 and December 31,
2009
|
4
|
|
Unaudited
Consolidated Statements of Income for the three months to March 31, 2010
and March 31, 2009
|
6
|
|
Unaudited
Consolidated Statements of Changes in Equity for the three months to March
31, 2010
|
8
|
|
Unaudited
Consolidated Statements of Comprehensive Income for the three months to
March 31, 2010 and March 31, 2009
|
9
|
|
Unaudited
Consolidated Statements of Cash Flows for the three months to March 31,
2010 and March 31, 2009
|
10
|
|
Notes to the
Unaudited Consolidated Financial Statements
|
12
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
29
|
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
40
|
|
ITEM
4. CONTROLS AND PROCEDURES
|
40
|
|
PART
II OTHER INFORMATION
|
40
|
|
ITEM
1. LEGAL PROCEEDINGS
|
40
|
|
ITEM
1A. RISK FACTORS
|
40
|
|
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
|
40
|
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
40
|
|
ITEM
4. OTHER INFORMATION
|
40
|
|
ITEM
5. EXHIBITS
|
41
|
3
ITEM
1. FINANCIAL STATEMENTS
SHIRE
PLC
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(In millions of US
dollars, except share data)
March 31,
|
December
31,
|
|||||||||||
2010
|
2009
|
|||||||||||
Notes
|
$’M | $’M | ||||||||||
ASSETS
|
||||||||||||
Current
assets:
|
||||||||||||
Cash and cash
equivalents
|
657.5 | 498.9 | ||||||||||
Restricted
cash
|
26.8 | 33.1 | ||||||||||
Accounts receivable,
net
|
5
|
620.7 | 597.5 | |||||||||
Inventories
|
6
|
215.6 | 189.7 | |||||||||
Deferred tax
asset
|
|
114.1 | 135.8 | |||||||||
Prepaid expenses and other current
assets
|
7
|
131.0 | 115.2 | |||||||||
Total current
assets
|
1,765.7 | 1,570.2 | ||||||||||
Non-current assets:
|
||||||||||||
Investments
|
8
|
109.6 | 105.7 | |||||||||
Property, plant and equipment,
net
|
668.5 | 676.8 | ||||||||||
Goodwill
|
373.2 | 384.7 | ||||||||||
Other intangible assets,
net
|
9
|
1,729.6 | 1,790.7 | |||||||||
Deferred tax
asset
|
80.9 | 79.0 | ||||||||||
Other non-current
assets
|
11.2 | 10.4 | ||||||||||
Total
assets
|
4,738.7 | 4,617.5 | ||||||||||
LIABILITIES AND
EQUITY
|
||||||||||||
Current
liabilities:
|
||||||||||||
Accounts payable and accrued
expenses
|
10
|
929.2 | 929.1 | |||||||||
Deferred tax
liability
|
3.3 | 2.9 | ||||||||||
Other current
liabilities
|
11
|
36.5 | 88.0 | |||||||||
Total current
liabilities
|
969.0 | 1,020.0 | ||||||||||
Non-current
liabilities
|
||||||||||||
Convertible
bonds
|
1,100.0 | 1,100.0 | ||||||||||
Other long-term
debt
|
43.7 | 43.6 | ||||||||||
Deferred tax
liability
|
321.3 | 294.3 | ||||||||||
Other non-current
liabilities
|
12
|
247.7 | 247.1 | |||||||||
Total
liabilities
|
2,681.7 | 2,705.0 | ||||||||||
Commitments and
contingencies
|
13
|
4
SHIRE
PLC
UNAUDITED
CONSOLIDATED BALANCE SHEETS (continued)
(In millions of US
dollars, except share data)
March 31,
|
December
31,
|
|||||||||||
2010
|
2009
|
|||||||||||
Notes
|
$’M | $’M | ||||||||||
Equity:
|
||||||||||||
Common stock of 5p par value;
1,000 million shares
authorized; and 562.1 million shares issued and outstanding (2009: 1,000
million shares authorized; and 561.5 million shares issued and
outstanding)
|
55.6 | 55.6 | ||||||||||
Additional paid-in
capital
|
2,697.9 | 2,677.6 | ||||||||||
Treasury stock: 15.7 million
shares (2009: 17.8
million shares)
|
(311.8 | ) | (347.4 | ) | ||||||||
Accumulated other comprehensive
income
|
107.3 | 149.1 | ||||||||||
Accumulated
deficit
|
(492.0 | ) | (622.4 | ) | ||||||||
Total
equity
|
2,057.0 | 1,912.5 | ||||||||||
Total liabilities and
equity
|
4,738.7 | 4,617.5 |
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
5
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
(In millions of US
dollars, except share and per share data)
3 months to
March 31,
|
2010
|
2009
|
||||||||||
Notes
|
$’M | $’M | ||||||||||
Revenues:
|
||||||||||||
Product
sales
|
718.2 | 756.0 | ||||||||||
Royalties
|
95.3 | 50.6 | ||||||||||
Other
revenues
|
2.7 | 11.2 | ||||||||||
Total
revenues
|
816.2 | 817.8 | ||||||||||
Costs and
expenses:
|
||||||||||||
Cost of product sales
(1)
|
101.9 | 83.6 | ||||||||||
Research and
development
|
131.0 | 185.9 | ||||||||||
Selling, general and
administrative
(1)
|
359.9 | 318.9 | ||||||||||
Reorganization
costs
|
4
|
5.0 | 2.2 | |||||||||
Integration and
acquisition costs
|
0.6 | 1.4 | ||||||||||
Total operating
expenses
|
598.4 | 592.0 | ||||||||||
Operating income
|
217.8 | 225.8 | ||||||||||
Interest
income
|
0.4 | 0.6 | ||||||||||
Interest
expense
|
(9.0 | ) | (11.0 | ) | ||||||||
Other income,
net
|
10.8 | 50.3 | ||||||||||
Total other income,
net
|
2.2 | 39.9 | ||||||||||
Income from continuing operations before
income taxes and equity in losses of equity method investees
|
220.0 | 265.7 | ||||||||||
Income
taxes
|
(53.6 | ) | (49.5 | ) | ||||||||
Equity in losses of equity method
investees, net of taxes
|
(0.5 | ) | (0.1 | ) | ||||||||
Income from continuing operations,
net of taxes
|
165.9 | 216.1 | ||||||||||
Loss from discontinued operations
(net of income tax expense of $nil and $nil
respectively)
|
- | (2.6 | ) | |||||||||
Net income
|
165.9 | 213.5 | ||||||||||
Add: Net loss attributable to the
noncontrolling interest in subsidiaries
|
- | 0.1 | ||||||||||
Net income attributable to Shire
plc
|
165.9 | 213.6 |
Cost of
product sales includes amortization of intangible assets relating to
favorable manufacturing contracts of $0.4 million for three months to
March 31, 2010 (2009: $0.4 million). Selling, general and administrative
costs includes amortization of intangible assets relating to intellectual
property rights acquired of $34.6 million for the three months to March
31, 2010 (2009: $32.5 million).
|
6
SHIRE
PLC
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME (continued)
(In millions of US
dollars, except share and per share data)
3 months to March 31,
|
Notes
|
2010
|
2009
|
||||||
Earning per ordinary share -
basic
|
|||||||||
Earnings from continuing
operations attributable to Shire plc shareholders
|
30.5 | c | 40.1 | c | |||||
Loss from discontinued operations
attributable to Shire
plc shareholders
|
- | (0.5c | ) | ||||||
Earnings per ordinary share
attributable to Shire plc shareholders - basic
|
30.5 | c | 39.6 | c | |||||
Earnings per ordinary
share -
diluted
|
|||||||||
Earnings from continuing
operations attributable to Shire plc shareholders
|
29.7 | c | 38.9 | c | |||||
Loss from discontinued operations
attributable to Shire plc shareholders
|
- | (0.4c | ) | ||||||
Earnings per ordinary share
attributable to Shire plc shareholders - diluted
|
29.7 | c | 38.5 | c | |||||
Weighted average number of shares
(millions):
|
|||||||||
Basic
|
16
|
543.9 | 539.2 | ||||||
Diluted
|
16
|
586.1 | 577.2 |
3 months to March
31,
|
2010
|
2009
|
||||||
$’M | $’M | |||||||
Amounts attributable to Shire
plc
|
||||||||
Income from continuing operations,
net of taxes
|
165.9 | 216.2 | ||||||
Loss from discontinued
operations, net of
taxes
|
- | (2.6 | ) | |||||
Net income attributable to Shire
plc
|
165.9 | 213.6 |
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
7
SHIRE
PLC
UNAUDITED
CONSOLIDATED STATEMENTS 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
|
Total equity
$'M
|
||||||||||||||||||||||
As at January 1,
2010
|
55.6 | 561.5 | 2,677.6 | (347.4 | ) | 149.1 | (622.4 | ) | 1,912.5 | |||||||||||||||||||
Net income
|
- | - | - | - | - | 165.9 | 165.9 | |||||||||||||||||||||
Foreign currency
translation
|
- | - | - | - | (35.1 | ) | - | (35.1 | ) | |||||||||||||||||||
Options
exercised
|
- | 0.6 | 1.4 | - | - | - | 1.4 | |||||||||||||||||||||
Share-based
compensation
|
- | - | 14.1 | - | - | - | 14.1 | |||||||||||||||||||||
Excess tax benefit associated with
exercise of stock options
|
- | - | 4.8 | - | - | - | 4.8 | |||||||||||||||||||||
Shares released by Employee Share Ownership
Trust ("ESOT") to satisfy exercise of stock options
|
- | - | - | 35.6 | - | (35.5 | ) | 0.1 | ||||||||||||||||||||
Unrealized holding loss on
available-for-sale securities, net of taxes
|
- | - | - | - | (6.7 | ) | - | (6.7 | ) | |||||||||||||||||||
As at March 31, 2010
|
55.6 | 562.1 | 2,697.9 | (311.8 | ) | 107.3 | (492.0 | ) | 2,057.0 |
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
8
UNAUDITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions of US
dollars)
3 months to March
31,
|
2010
|
2009
|
||||||
$'M
|
$'M
|
|||||||
Net income
|
165.9 | 213.5 | ||||||
Other comprehensive
income:
|
||||||||
Foreign currency translation
adjustments
|
(35.1 | ) | 13.8 | |||||
Unrealized holding (loss)/gain on
available-for-sale
securities (net of taxes of $1.6 million and $nil)
|
(6.7 | ) | 0.6 | |||||
Comprehensive
income
|
124.1 | 227.9 | ||||||
Add: net loss attributable to the
noncontrolling interest in subsidiaries
|
- | 0.1 | ||||||
Comprehensive income attributable
to Shire plc
|
124.1 | 228.0 |
The components of
accumulated other comprehensive income as at March 31, 2010 and December 31,
2009 are as follows:
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Foreign currency translation
adjustments
|
101.6 | 136.7 | ||||||
Unrealized holding gain on
available-for-sale securities, net of taxes
|
5.7 | 12.4 | ||||||
Accumulated other comprehensive
income
|
107.3 | 149.1 |
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
9
SHIRE
PLC
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of US
dollars)
3 months to
March 31,
|
2010
|
2009
|
||||||
$’M | $’M | |||||||
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
||||||||
Net income
|
165.9 | 213.5 | ||||||
Adjustments to reconcile net
income to net cash provided by operating
activities:
|
||||||||
Loss from discontinued
operations
|
- | 2.6 | ||||||
Depreciation and
amortization
|
64.3 | 55.3 | ||||||
Share based
compensation
|
14.1 | 15.8 | ||||||
Gain on sale of non-current
investments
|
(11.1 | ) | (55.2 | ) | ||||
Other
|
5.2 | 3.3 | ||||||
Movement in deferred
taxes
|
52.2 | 33.7 | ||||||
Equity in losses of equity method
investees
|
0.5 | 0.1 | ||||||
Changes in operating assets and
liabilities:
|
||||||||
Increase in accounts
receivable
|
(10.8 | ) | (151.0 | ) | ||||
Increase in sales deduction
accrual
|
64.9 | 121.9 | ||||||
Increase in
inventory
|
(24.2 | ) | (9.5 | ) | ||||
Increase in prepayments and other
current assets
|
(18.1 | ) | (12.3 | ) | ||||
(Increase)/decrease in other
assets
|
(0.6 | ) | 3.4 | |||||
Decrease in accounts and notes
payable and other liabilities
|
(116.1 | ) | (39.8 | ) | ||||
Returns on investment from joint
venture
|
- | 4.9 | ||||||
Cash flows used in discontinued
operations
|
- | (2.6 | ) | |||||
Net cash provided by operating
activities (A)
|
186.2 | 184.1 | ||||||
CASH FLOWS FROM INVESTING
ACTIVITIES
|
||||||||
Movements in restricted
cash
|
6.3 | (6.9 | ) | |||||
Purchases of subsidiary
undertakings and businesses, net of cash acquired
|
- | (74.1 | ) | |||||
Purchases of property, plant and
equipment
|
(43.6 | ) | (42.0 | ) | ||||
Purchases of intangible
assets
|
- | (6.0 | ) | |||||
Proceeds from disposal of
non-current investments
|
2.0 | 19.2 | ||||||
Proceeds from disposal of
property, plant and equipment
|
0.1 | 0.4 | ||||||
Returns from equity
investments
|
- | 0.2 | ||||||
Net cash used in investing
activities (B)
|
(35.2 | ) | (109.2 | ) |
10
SHIRE
PLC
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions of US
dollars)
3 months to
March 31,
|
2010
|
2009
|
||||||
$’M | $’M | |||||||
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||
Payment under building financing
obligation
|
(0.7 | ) | (0.7 | ) | ||||
Excess tax benefit associated with
exercise of stock options
|
4.8 | - | ||||||
Proceeds from exercise of
options
|
1.5 | 0.1 | ||||||
Net cash provided by/(used in)
financing activities(C)
|
5.6 | (0.6 | ) | |||||
Effect of foreign exchange rate
changes on cash
|
||||||||
and cash equivalents (D)
|
2.0 | (1.4 | ) | |||||
Net increase in cash and cash
equivalents (A+B+C+D)
|
158.6 | 72.9 | ||||||
Cash and cash equivalents at
beginning of period
|
498.9 | 218.2 | ||||||
Cash and cash equivalents at end
of period
|
657.5 | 291.1 |
Supplemental information
associated with continuing
|
||||||||
operations:
|
||||||||
3 months to March
31,
|
2010
|
2009
|
||||||
$’M | $’M | |||||||
Interest
paid
|
(0.7 | ) | (1.7 | ) | ||||
Income taxes
paid
|
(89.7 | ) | (50.4 | ) | ||||
Non cash
activities:
|
||||||||
Equity in Vertex Pharmaceuticals,
Inc. (“Vertex”) received as part
consideration for disposal of
non-current investment
|
9.1 | 50.8 | ||||||
Building financing
obligation
|
- | 8.5 |
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
11
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In millions of US
dollars, except where indicated)
1. Summary of Significant Accounting
Policies
(a) Basis of preparation
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, 2009 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, 2009.
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, 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, the valuation of equity investments, sales deductions, income taxes and
provisions for litigation
and legal proceedings.
(c) New accounting
pronouncements
Adopted during the
period
Amendments
to the Accounting and Disclosure Requirements for the Consolidation of Variable
Interest Entities
On January 1, 2010 the Company adopted new guidance issued
by the Financial
Accounting Standard Board (“FASB”) 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 also
requires 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 adoption
of the guidance did not impact the Company’s consolidated financial position,
results of operations or cash flows.
The effective date of these amendments
has been deferred for a reporting entity’s interest in an entity (1) that has
all the attributes of an investment company or (2) for which it is industry
practice to apply measurement principles for financial reporting purposes that
are consistent with those followed by investment companies.
Accounting
for Transfers of Financial Assets
On January 1, 2010 the Company adopted new guidance issued
by the FASB on the accounting for transfers of financial assets. This guidance
requires 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
12
additional disclosures. The adoption of the guidance did not
impact the Company’s consolidated financial position, results of operations or
cash flows.
Improving
Disclosures about Fair Value Measurements
On January 1, 2010 the Company adopted
new guidance issued by the FASB requiring new disclosures for amounts
transferred in and out of Levels 1 and 2 and for activity in Level 3 of the
hierarchy for fair value measurements. The guidance also clarifies
existing fair value measurement disclosures in respect of the level of
disaggregation and disclosures about inputs and valuation
techniques. This
guidance is effective for Shire from January 1, 2010, except for the additional
disclosures about activity in Level 3 of the hierarchy for fair value
measurements, which is effective from January 1, 2011 and for interim periods
within that year. The adoption of the guidance did not
impact the Company’s disclosure on fair value measurement.
To be adopted in future
periods
Revenue
Recognition in Multiple Deliverable Revenue Arrangements
In September 2009, the FASB issued
guidance on revenue recognition in multiple deliverable revenue arrangements.
This amends the existing guidance on
allocating consideration received between the elements in a multiple-deliverable
arrangement and
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 guidance 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. It will be effective prospectively for
revenue arrangements entered into or materially modified for fiscal years
beginning on or after June 15, 2010. The Company is currently evaluating the
impact of adopting this guidance.
Effect of
Denominating the Exercise Price of a Share-Based Payment Award in the Currency
of the Market in Which the Underlying Equity Security Trades
In April 2010, the FASB issued guidance
on the effect of denominating the exercise price of a share-based payment award
in the currency of the market in which the underlying equity security
trades. This guidance clarifies that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a
substantial portion of the entity’s equity securities trades should not be
considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The guidance will be effective for
fiscal years beginning on or after December 15, 2010. The Company is
currently evaluating the impact of adopting this guidance.
Milestone
Method of Revenue
Recognition
In April 2010, the FASB issued guidance
on defining a milestone and
determining when it may be appropriate to apply the milestone method of revenue
recognition for research or development transactions. This guidance clarifies
that: consideration that is contingent on achievement of a milestone in its
entirety may be recognized as revenue in the period in which the milestone is
achieved only if the milestone is judged to meet certain criteria to be
considered substantive; milestones should be considered substantive in their
entirety and may not be bifurcated; an arrangement may contain both substantive
and nonsubstantive milestones; and each milestone should be evaluated
individually to determine if it is substantive. The guidance will be effective on a
prospective basis for milestones achieved in fiscal years, and interim periods
within those years, beginning on or after June 15, 2010. Early adoption is
permitted. The Company is
currently evaluating the impact of adopting this guidance.
2.
Business combinations
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 2010 and 2011 if certain sales targets are met. This acquisition
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.
13
The acquisition of
EQUASYM IR and XL was accounted for as a business combination. The purchase
price was allocated to the currently marketed products acquired ($73.0 million),
IPR&D ($5.5 million), other liabilities ($0.7 million) and goodwill ($13.2
million).
3. Termination of Duramed Pharmaceuticals, Inc.
(“Duramed”) collaboration agreement
In August 2006,
Shire and Duramed, a subsidiary of Teva Pharmaceutical Industries Ltd, (“Teva”)
entered into an agreement related to SEASONIQUE, a number of products using
Duramed’s transvaginal ring technology and other oral products (the
“Collaboration Products”).
On February 24,
2009 Shire and Duramed amended this agreement such that it terminated on
December 31, 2009. Pursuant to this amendment, Shire returned to Duramed its
rights under the agreement effective February 24, 2009 and charged contract
termination costs totaling $65.0 million to research and development in the
three months to March 31, 2009. All contract termination costs have
been paid by March 31, 2010.
Opening liability
at
January 1,
2010
|
Amount paid
|
Closing liability at
March 31,
2010
|
||||||||||
$’M | $’M | $’M | ||||||||||
Contract termination
costs
|
10.0 | (10.0 | ) | - |
4.
Reorganization costs
Establishment
of Swiss Commercial Hub
In the three months
to March 31, 2010, the Company initiated plans to relocate certain commercial
and R&D operations to Switzerland over the next two years, and incurred
reorganization costs totaling $1.6 million during the period.
Owings
Mills
In March 2009 the
Company initiated plans to phase out operations and close the Company’s
Specialty Pharmaceuticals manufacturing facility at Owings Mills, Maryland.
Between 2009 and 2011, all products 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 months to March
31, 2010 the Company incurred reorganization costs of $3.4 million which relate
to employee involuntary termination benefits and other costs. The total
reorganization costs incurred since March 2009 are $16.1 million.
As a result of the
decision to transfer manufacturing from the Owings Mills site the Company
revised the useful life of property, plant and equipment in the facility, and in
the three months to March 31, 2010 incurred accelerated depreciation of $6.1
million, which has been charged to Cost of product sales. Consequently, the
Company estimates an annual accelerated depreciation charge, over the level
which would have been charged absent the wind down of operations, of $16.9
million in 2010. The reorganization costs and accelerated depreciation have been
recorded within the Specialty Pharmaceuticals reportable segment.
Jerini
non-core operations
In the second
quarter of 2009 the operations of Jerini Ophthalmic, Inc, (“JOI”) and certain
other non-core pre-clinical operations acquired through the acquisition of
Jerini AG (“Jerini”) were closed down, and the Company recorded a closure costs
liability of $9.1 million, relating to employee involuntary termination benefits
and other closure costs. At March 31, 2010 a liability of $1.6 million
remained for these closure costs.
The liability for
reorganization costs arising on the establishment of the Swiss commercial hub,
transfer of manufacturing from Owings Mills and the Jerini closure at March 31,
2010 is as follows:
14
Opening
liability
|
Amount
|
Closing
|
||||||||||||||
at January
1,
|
charged to
re-
|
liability
at
|
||||||||||||||
2010
|
organization
|
Paid/Utilized
|
March 31,
2010
|
|||||||||||||
$'M
|
$'M
|
$'M
|
$'M
|
|||||||||||||
Involuntary termination
benefits
|
4.1 | 2.1 | (0.5 | ) | 5.7 | |||||||||||
Contract termination
costs
|
2.8 | - | (1.2 | ) | 1.6 | |||||||||||
Other termination
costs
|
- | 2.9 | (1.3 | ) | 1.6 | |||||||||||
6.9 | 5.0 | (3.0 | ) | 8.9 |
At March 31, 2010
the closing reorganization cost liability was recorded within accounts payable
and accrued expenses ($4.1 million) and other non-current liabilities ($4.8
million).
5.
Accounts receivable, net
Accounts receivable
at March 31, 2010 of $620.7 million (December 31, 2009: $597.5 million), are
stated net of a provision for discounts and doubtful accounts of $20.1 million
(December 31, 2009: $20.8 million).
Provision for
discounts and doubtful accounts:
2010
|
2009
|
|||||||
$’M | $’M | |||||||
As at January
1,
|
20.8 | 20.2 | ||||||
Provision charged to
operations
|
39.5 | 32.5 | ||||||
Provision
utilization
|
(40.2 | ) | (25.8 | ) | ||||
As at March
31,
|
20.1 | 26.9 |
At March 31, 2010
accounts receivable included $93.2 million (December 31, 2009: $92.4
million) of receivables related to royalty income.
6.
Inventories
Inventories are
stated at the lower of cost or market value and comprise:
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Finished
goods
|
68.5 | 50.9 | ||||||
Work-in-progress
|
102.9 | 102.1 | ||||||
Raw
materials
|
44.2 | 36.7 | ||||||
215.6 | 189.7 |
At March 31, 2010
inventories included $nil (December 31, 2009: $18.8 million) for products which
have not yet received regulatory approval. Pre-approval inventories at December
31, 2009 related to VPRIV, which was granted marketing approval by the US Food
and Drug Administration (“FDA”) on February 26, 2010.
15
7.
Prepaid expenses and other current assets
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Prepaid
expenses
|
42.6 | 44.9 | ||||||
Income tax
receivable
|
41.1 | - | ||||||
Value added taxes
receivable
|
21.4 | 37.3 | ||||||
Other current
assets
|
25.9 | 33.0 | ||||||
131.0 | 115.2 |
8.
Investments
On March 12, 2009
the Company completed the disposal of its investment in Virochem Pharma Inc.
(“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 investment in Virochem on March 12, 2009 was
$14.8 million. In 2009 Shire received consideration of $19.2 million in cash and
two million Vertex shares (valued at $50.8 million) from the disposal,
recognizing a gain of $55.2 million in the three months to March 31,
2009.
In the three months
to March 31, 2010 the Company received further consideration of $2.0 million in
cash and 0.2 million Vertex shares (valued at $9.1 million), which had been held
in escrow until certain conditions expired in March 2010. The Company recognized
an
additional gain on disposal of $11.1 million in the three months to March 31,
2010.
The Vertex stock
received has been accounted for as an available-for-sale
investment.
9.
Other intangible assets, net
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Intellectual property rights
acquired
|
||||||||
Currently marketed
products
|
2,330.1 | 2,351.6 | ||||||
IPR&D
|
6.1 | 6.1 | ||||||
Favorable manufacturing
contracts
|
8.7 | 8.7 | ||||||
2,344.9 | 2,366.4 | |||||||
Less: Accumulated
amortization
|
(615.3 | ) | (575.7 | ) | ||||
1,729.6 | 1,790.7 |
At March 31, 2010
the net book value of intangible assets allocated to the Specialty
Pharmaceuticals segment was $1,201.6 million (December 31, 2009: $1,238.0
million) and in the Human Genetics Therapies (“HGT”) segment was $528.0 million
(December 31, 2009: $552.7 million).
The change in the
net book value of other intangible assets for the three months to March 31, 2010
is shown in the table below:
16
Other
intangible
|
||||
assets
|
||||
$’M | ||||
As at January 1,
2010
|
1,790.7 | |||
Acquisitions
|
2.7 | |||
Amortization
charged
|
(35.0 | ) | ||
Foreign currency
translation
|
(28.8 | ) | ||
As at March 31,
2010
|
1,729.6 |
The weighted
average amortization period for acquired currently marketed products is 10
years.
The Company reviews
its intangible assets for impairment whenever events or circumstances suggest
that they may not be recoverable. During the first quarter of 2010, as a result
of continuing release liner removal specification concerns, the Company reviewed
the recoverability of its DAYTRANA intangible asset, (carrying value $105
million), and based on estimates and intentions at March 31, 2010 the Company
determined that its DAYTRANA intangible asset remained recoverable. However, it
is reasonably possible that changes to circumstances, estimates or
intentions existing at March 31, 2010 could result in impairment of the DAYTRANA
intangible asset in future periods.
Management
estimates that the annual amortization charge in respect of intangible assets
held at March 31, 2010 will be approximately $140 million for each of the five
years to March 31, 2015. 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.
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Trade accounts payable and
accrued
purchases
|
149.7 | 170.6 | ||||||
Accrued rebates – Medicaid
|
246.4 | 188.2 | ||||||
Accrued rebates – Managed
care
|
158.9 | 153.4 | ||||||
Sales return
reserve
|
63.9 | 62.7 | ||||||
Accrued
bonuses
|
30.8 | 66.8 | ||||||
Accrued employee compensation and
benefits payable
|
58.2 | 42.6 | ||||||
Research and development
accruals
|
40.3 | 53.1 | ||||||
Marketing
accruals
|
34.5 | 31.5 | ||||||
Deferred
revenue
|
34.3 | 52.2 | ||||||
Other accrued
expenses
|
112.2 | 108.0 | ||||||
929.2 | 929.1 |
11. Other
current liabilities
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Income taxes
payable
|
- | 46.7 | ||||||
Value added
taxes
|
8.8 | 10.3 | ||||||
Other accrued
liabilities
|
27.7 | 31.0 | ||||||
36.5 | 88.0 |
17
12. Other
non-current liabilities
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Income taxes
payable
|
170.0 | 170.4 | ||||||
Deferred
revenue
|
17.1 | 20.0 | ||||||
Deferred
rent
|
14.2 | 14.5 | ||||||
Insurance
provisions
|
20.8 | 18.3 | ||||||
Other accrued
liabilities
|
25.6 | 23.9 | ||||||
247.7 | 247.1 |
13. Commitments
and contingencies
(a)
Leases
Future minimum
lease payments under operating leases at March 31, 2010 are presented
below:
Operating
|
||||
leases
|
||||
$’M | ||||
2010
|
24.0 | |||
2011
|
30.4 | |||
2012
|
18.3 | |||
2013
|
17.0 | |||
2014
|
16.9 | |||
2015
|
16.1 | |||
Thereafter
|
57.6 | |||
180.3 |
The Company leases
land, facilities, motor vehicles and certain equipment under operating leases
expiring through 2027. Lease and rental expense amounted to $8.6 million and
$8.5 million for the three months to March 31, 2010 and 2009 respectively, which
is predominately included in Selling, general and administrative expenses in the
consolidated statements of income.
(b)
Letters of credit and guarantees
At March 31, 2010
the Company had irrevocable standby letters of credit and guarantees with
various banks totalling $16.0 million, providing security for the Company’s
performance of various obligations. These obligations are primarily in respect
of the recoverability of insurance claims, lease obligations and supply
commitments. The Company has restricted cash of $9.8 million, as required by
these letters of credit.
(c)
Collaborative arrangements
Details of
significant collaborative arrangements are included below:
18
In-licensing
arrangements
(i)
Research Collaboration with Santaris Pharma A/S (“Santaris”) on Locked Nucleic
Acid (“LNA”) Drug Platform
On August 24, 2009
Shire announced that it had entered into a research collaboration with Santaris,
to develop its proprietary LNA technology in a range of rare diseases. LNA
technology has the benefit of shortened target validation and proof of concept,
potentially increasing the speed and lowering the cost of development. As part
of the joint research project Santaris will design, develop and deliver
pre-clinical LNA oligonucleotides for Shire-selected orphan disease targets, and
Shire will have the exclusive right to further develop and commercialize these
candidate compounds on a worldwide basis.
Shire has remaining
obligations to pay Santaris $13.5 million subject to certain success criteria,
and development and sales milestones up to a maximum of $72 million for each
indication. Shire will also pay single or double digit tiered royalties on net
sales of the product.
Shire and Santaris
have formed a joint research committee to monitor R&D activities through
preclinical Lead Candidate selection at which point all development and
commercialization costs will be the responsibility of Shire.
(ii)
JUVISTA
On June 19, 2007
Shire signed an agreement with Renovo Limited (“Renovo”) to develop and
commercialize JUVISTA, Renovo’s novel drug candidate being investigated for the
reduction of scarring in connection with surgery, outside of the EU. On March 1,
2010, the license agreement was revised.
In the revised
license agreement, the rights to sell JUVISTA in all territories outside the
USA, Mexico and Canada were returned to Renovo. Milestone and royalty
obligations remain unchanged from the original agreement except that Shire will
pay Renovo an additional $5 million milestone if Shire elects to commence a
clinical trial following Shire’s review of the clinical trial report from
Renovo’s first EU Phase 3 clinical trial. Shire has remaining obligations to pay
Renovo $25 million on the filing of JUVISTA with the FDA; up to $150 million on
FDA approval; royalties on net sales of JUVISTA; and up to $525 million on the
achievement of very significant sales targets.
Under the revised
agreement, each party is responsible for its own development costs but future
development costs can be shared by agreement. Each party has free-of-charge
access to the other party’s data to support regulatory filings in their
respective territories. In the three months to March 31, 2010 Shire made a
payment to Renovo of $3.2 million (In the three months to March 31, 2009: $nil),
being the final payment under the terms of the original license
agreement.
Out-licensing
arrangements
Shire has entered
into various collaborative arrangements under which the Company has out-licensed
certain product or intellectual property rights for consideration such as
up-front payments, development milestones, sales milestones and/or royalty
payments. In certain of these arrangements Shire and the licensee are both
actively involved in the development and commercialization of the licensed
product and have exposure to risks and rewards dependent on its commercial
success. In the three months to March 31, 2010 Shire received milestone payments
totaling $nil (2009: $4.0 million). In the three months to March 31, 2010 Shire
recognized milestone income of $0.7 million (2009: $1.8 million) within Other
revenues and $12.8 million (2009: $5.7 million) within Product sales for
shipment of product to the relevant licensee.
Co-promotion agreements -
VYVANSE
On March 31, 2009
Shire announced a three-year co-promotion agreement with GSK for VYVANSE in the
US with the aim of improving recognition and treatment of ADHD in adults. The
agreement is based on profit sharing above an agreed upon baseline and these
profit share payments will be included within Selling, general and
administrative costs.
19
(d)
Commitments
(i)
Clinical testing
At March 31, 2010
the Company had committed to pay approximately $145.7 million (December 31,
2009: $183.9 million) to contract vendors for administering and executing
clinical trials. The Company expects to pay $80.9 million of these commitments
in the remainder of 2010 (December 31, 2009: $104.1 million in 2010), however
the timing of these payments is dependent upon actual services performed by the
organizations as determined by patient enrollment levels and related
activities.
(ii)
Contract manufacturing
At March 31, 2010
the Company had committed to pay approximately $98.8 million (December 31, 2009:
$152.3 million) in respect of contract manufacturing. The Company expects to pay
all of these commitments in the remainder of 2010 (December 31, 2009: $77.3
million in 2010).
(iii) Other
purchasing commitments
At March 31, 2010
the Company had committed to pay approximately $59.0 million (December 31, 2009:
$22.9 million) for future purchases of goods and services, predominantly
relating to active pharmaceutical ingredients sourcing and IT outsourcing. The
Company expects to pay $53.7 million of these commitments in the remainder of
2010 (December 31, 2009: $21.0 million in 2010).
(iv) Investment
commitments
At March 31, 2010
the Company had outstanding commitments to subscribe for interests in companies
and partnerships for amounts totaling $5.6 million (December 31, 2009: $5.4
million) which may all be payable in the remainder of 2010, depending on the
timing of capital calls.
(v)
Capital commitments
At March 31, 2010
the Company had committed to spend $16.5 million (December 31, 2009: $41.4
million) on capital projects. This includes commitments for the expansion and
modification of its offices and manufacturing facilities at its HGT campus in
Lexington, Massachusetts.
(e)
Legal and other proceedings
General
The Company
recognizes loss contingency provisions for probable losses when management is
able to reasonably estimate the loss. Where the estimated loss lies within a
range and no particular amount within that range is a better estimate than any
other amount, the minimum amount is recorded. In other cases management's best
estimate of the loss is recorded. These estimates are developed substantially
before the ultimate loss is known and the estimates are refined in each
accounting period in light of additional information becoming known. In
instances where the Company is unable to develop a reasonable estimate of loss,
no litigation loss is recorded at that time. As information becomes known a loss
provision is set up when a reasonable estimate can be made. The estimates are
reviewed quarterly and are changed when expectations are revised. Any outcome
upon settlement that deviates from the Company’s estimate may result in an
additional expense in a future accounting period. At March 31, 2010 provisions
for litigation losses, insurance claims and other disputes totaled $22.4 million
(December 31, 2009: $20.1 million).
Specific
VYVANSE
On February 24,
2009 Actavis Elizabeth LLC (“Actavis”) brought a lawsuit in the US District
Court for the District of Columbia (the “District Court”) against the FDA
seeking to overturn the FDA's decision granting new chemical entity exclusivity
to VYVANSE. Shire has intervened in the lawsuit. On October 23, 2009, following
a period for public comment, the FDA issued a letter setting forth its analysis
of the legal and regulatory issues and reaffirming its decision that VYVANSE is
entitled to new chemical entity exclusivity. A hearing on
cross-motions for summary judgment was held on
20
February 17, 2010.
On March 4, 2010 the District Court upheld the FDA’s decision that VYVANSE is
entitled to 5-year market exclusivity and confirmed that the FDA’s actions
complied with federal administrative law standards as a reasonable exercise of
the agency’s scientific expertise. Actavis has appealed the District
Court’s ruling to the US Court of Appeals for the DC Circuit. No
hearing date has been set.
FOSRENOL
In February 2009
Shire was notified that three separate abbreviated new drug applications
(“ANDAs”) were submitted under the Hatch-Waxman Act seeking permission to market
generic versions of 500mg, 750mg and 1,000mg strengths of FOSRENOL. The notices
were received from Barr; Mylan, Inc., Mylan Pharmaceuticals, Inc. and Matrix
Laboratories, Inc. (collectively “Mylan”); and Natco Pharma Limited (“Natco”).
Within the requisite 45 day period, Shire filed lawsuits in the US District
Court of the Southern District of New York against each of Barr, Mylan and Natco
for infringement of certain of Shire’s FOSRENOL patents. The filing of the
lawsuits triggered a stay of approval of these ANDAs for up to 30 months. The
lawsuits have been consolidated into a single case. A Markman hearing is
scheduled to occur on June 17, 2010. No trial date has been
set.
INTUNIV
On March 16, April
5, and April 26, 2010 Shire received Paragraph IV Notice Letters from Teva,
Actavis, and Anchen Pharmaceuticals Inc. (“Anchen”), respectively, advising of
the filing of ANDAs for generic versions of Shire’s 1mg, 2mg, 3mg, and 4mg
guanfacine hydrochloride extended release tablets, INTUNIV. INTUNIV is protected
by three FDA Orange Book listed patents. The three patents expire in 2015, 2020
and 2022, respectively. Teva’s Paragraph IV Notice Letter was only directed to
the patents expiring in 2020 and 2022. On April 22 Shire filed a lawsuit
against Teva in the US District Court for the District of Delaware for the
infringement of these patents. Actavis’s and Anchen’s Paragraph IV Notice
Letters were directed to all three Orange Book listed patents. Shire is
currently reviewing the details of Actavis’s and Anchen’s Paragraph IV Notice
Letters.
CARBATROL
On March 10, 2010,
Shire settled the lawsuit with Nostrum Pharmaceuticals, Inc. (“Nostrum”)
relating to their ANDAs seeking approval to market generic versions of 100mg,
200mg and 300mg strengths of CARBATROL. No payments to Nostrum are involved in
the settlement. As required by law, the Company has submitted to the US Federal
Trade Commission and the US Department of Justice all of the agreements entered
into as part of this settlement.
REMINYL
Generics UK Limited
(“Generics UK”) commenced an action in 2007 against the UK Medicines and
Healthcare products Regulatory Agency (“MHRA”) seeking judicial review of the
MHRA’s application of data exclusivity for REMINYL and the MHRA’s corresponding
refusal to grant Generics UK a marketing authorization for a generic version of
REMINYL. This case was referred to the European Court of Justice (“ECJ”) which
decided the case in favor of the MHRA and upheld data exclusivity for REMINYL
until March 2010.
In separate
proceedings, Generics UK commenced an action in the UK seeking a declaration to
nullify the Supplementary Protection Certificate (“SPC”) for EP 236684 (the
patent that claims the use of galantamine for the treatment of Alzheimer’s
disease). This case was heard in December 2008, and the court’s decision
upholding the SPC (which extends the patent’s term to January 2012) was handed
down on May 20, 2009. Generics UK’s appeal of that decision was heard on October
14, 2009 the result of which was that the case was referred to the
ECJ.
REPLAGAL
On April 14, 2010
Mt. Sinai School of Medicine of New York University sought to initiate lawsuits
in Sweden and Germany alleging that Shire’s enzyme replacement therapy for Fabry
disease, REPLAGAL, infringes Mt. Sinai’s European Patent No. 1 942 189, granted
April 14, 2010. Mt. Sinai is seeking an injunction against the use of REPLAGAL
in these jurisdictions until expiration of the patent on November 30,
2013. Shire will defend its right to commercialize REPLAGAL in these
countries and will vigorously oppose the validity of this patent.
Subpoena
related to ADDERALL XR, DAYTRANA and VYVANSE
On September 23,
2009 the Company received a subpoena from the US Department of Health and Human
Services Office of Inspector General in coordination with the US Attorney for
the Eastern District of Pennsylvania seeking
21
production of
documents related to the sales and marketing of ADDERALL XR, DAYTRANA and
VYVANSE. The Company is cooperating with this investigation.
14. Derivative
instruments
Treasury
policies and organization
The Company’s
principal treasury operations are coordinated by its corporate treasury
function. All treasury operations are conducted within a framework of policies
and procedures approved annually by the Board of Directors. As a matter of
policy, the Company does not undertake speculative transactions that would
increase its currency or interest rate exposure.
Interest
rate risk
The Company is
exposed to interest rate risk on restricted cash, cash and cash equivalents and
on foreign exchange contracts on which interest is at floating rates. This
exposure is primarily to US dollar, Euro and Canadian dollar interest rates. As
the Company maintains all of its investments and foreign exchange contracts on a
short term basis for liquidity purposes, this risk is not actively managed. In
the three months to March 31, 2010 the average interest rate received on cash
and liquid investments was less than 1% per annum. The largest proportion of
investments was in US dollar money market and liquidity funds.
The Company incurs
interest at a fixed rate of 2.75% on Shire plc’s $1,100 million in principal
amount convertible bonds due 2014. The building financing obligation of $46.8
million is also subject to a fixed interest rate over the lease term on the
amount outstanding.
No derivative
instruments were entered into during the three months to March 31, 2010 to
manage interest rate exposure. The Company continues to review its interest rate
risk and the policies in place to manage the risk.
Market
risk of investments
As at March 31,
2010 the Company has $109.6 million of investments comprising available-for-sale
investments in publicly quoted companies ($90.9 million), equity method
investments ($14.8 million) and cost method investments in private companies
($3.9 million). The investments in public quoted companies and equity method
investments, for certain investment funds which contain a mixed portfolio of
public and private investments, are exposed to market risk. No financial
instruments or derivatives have been employed to hedge this risk.
Credit risk
Financial
instruments that potentially expose Shire to concentrations of credit risk
consist primarily of short-term cash investments, trade accounts receivable
(from product sales and from third parties from which the Company receives
royalties) and derivative contracts. Cash is invested in short-term money market
instruments, including money market and liquidity funds and bank term deposits.
The money market and liquidity funds in which Shire invests are all triple A
rated by both Standard & Poor’s and by Moody’s credit rating
agencies.
The Company is
exposed to the credit risk of the counterparties with which it enters into
derivative contracts. The Company aims to limit this exposure through a system
of internal credit limits which require counterparties to have a long term
credit rating of A / A2 or better from the major rating agencies. The internal
credit limits are approved by the Board of Directors and exposure against these
limits is monitored by the corporate treasury function. The counterparties to
the derivative contracts are major international financial
institutions.
The Company has
entered into many agreements with third parties for the provision of services to
enable it to operate its business. If the third party can no longer provide the
service on the agreed basis, the Company may not be able to continue the
development or commercialization of its products as planned or on a commercial
basis. Additionally, it may not be able to establish or maintain good
relationships with suppliers.
Foreign
exchange risk
The Company trades
in numerous countries and as a consequence has transactional and translational
foreign exchange exposure.
22
Transactional
exposure arises where transactions occur in currencies different to the
functional currency of the relevant subsidiary. The main trading currencies of
the Company are the US dollar, the Canadian dollar, Pounds Sterling and the
Euro. It is the Company’s policy that these exposures are minimized to the
extent practicable by denominating transactions in the subsidiary’s functional
currency.
Where significant
exposures remain, the Company uses foreign exchange contracts (being spot,
forward and swap contracts) to manage the exposure in respect of balance sheet
assets and liabilities that are denominated in currencies different to the
functional currency of the relevant subsidiary. These assets and liabilities
relate predominantly to intercompany financing and accruals for royalty
receipts. The Company utilizes these derivative instruments to manage currency
risk on balance sheet foreign exchange exposures but the foreign exchange
contracts have not been designated as hedging instruments.
Translational
foreign exchange exposure arises on the translation into US dollars of the
financial statements of non-US dollar functional subsidiaries.
At March 31, 2010
the Company had 20 swap and forward foreign exchange contracts outstanding to
manage currency risk. The swaps and forward contracts mature within 90 days. The
Company did not have credit risk related contingent features or collateral
linked to the derivatives. These foreign exchange contracts were classified in
the consolidated balance sheet as follows:
Fair value
|
Fair value
|
||||||||
March 31,
|
December
31,
|
||||||||
2010
|
2009
|
||||||||
$’M | $’M | ||||||||
Assets
|
Prepaid expenses and other current
assets
|
4.7 | 5.4 | ||||||
Liabilities
|
Other current
liabilities
|
1.4 | 1.2 |
Net gains and
losses (both realized and unrealized) arising on foreign exchange contracts have
been classified in the consolidated statements of income as
follows:
Location of net gain recognized in
income
|
Amount of net gain
recognized in
income
|
||||||||
Three months
to
|
March 31,
|
March 31,
|
|||||||
2010
|
2009
|
||||||||
$’M | $’M | ||||||||
Foreign exchange
contracts
|
Other income,
net
|
18.2 | 30.9 |
15.
Fair value measurement
Assets
and liabilities that are measured at fair value on a recurring
basis
The following
financial assets and liabilities are measured at fair value on a recurring basis
using quoted prices in active markets for identical assets (Level 1);
significant other observable inputs (Level 2); and significant unobservable
inputs (Level 3).
23
Carrying
|
Fair value
|
|||||||||||||||||||
value
|
||||||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||||||
$'M
|
$'M
|
$'M
|
$'M
|
$'M
|
||||||||||||||||
Financial
assets:
|
||||||||||||||||||||
Available-for-sale securities(1)
|
90.9 | 90.9 | 90.9 | - | - | |||||||||||||||
Foreign exchange
contracts
|
4.7 | 4.7 | - | 4.7 | - | |||||||||||||||
Financial
liabilities:
|
||||||||||||||||||||
Foreign exchange
contracts
|
1.4 | 1.4 | - | 1.4 | - |
(1)
|
Available-for-sale
securities are included within Investments in the consolidated balance
sheet.
|
Certain estimates
and judgments were required to develop the fair value amounts. The fair value
amounts shown above are not necessarily indicative of the amounts that the
Company would realize upon disposition, nor do they indicate the Company’s
intent or ability to dispose of the financial instrument.
The following
methods and assumptions were used to estimate the fair value of each material
class of financial instrument:
|
·
|
Available-for-sale
securities – the fair values of available-for-sale securities are
estimated based on quoted market prices for those
investments.
|
|
·
|
Foreign
exchange contracts – the fair values of the swap and forward foreign
exchange contracts have been determined using an income approach based on
current market expectations about the future cash
flows.
|
Financial
assets and liabilities that are not measured at fair value on a recurring
basis
The carrying
amounts and estimated fair values as at March 31, 2010 and December 31, 2009 of
the Company’s financial assets and liabilities which are not measured at fair
value on a recurring basis are as follows:
March 31,
2010
|
December 31,
2009
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
amount
|
Fair value
|
amount
|
Fair value
|
|||||||||||||
$’M | $’M | $’M | $’M | |||||||||||||
Financial
assets:
|
||||||||||||||||
Option over Avexa
shares
|
- | 0.1 | - | 0.1 | ||||||||||||
Financial
liabilities:
|
||||||||||||||||
Convertible bonds
|
1,100.0 | 1,098.0 | 1,100.0 | 1,067.0 | ||||||||||||
Building financing
obligation
|
46.8 | 47.8 | 46.7 | 47.3 |
Certain estimates
and judgments were required to develop the fair value amounts. The fair value
amounts shown above are not necessarily indicative of the amounts that the
Company would realize upon disposition, nor do they indicate the Company’s
intent or ability to dispose of the financial instrument.
The carrying
amounts of cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate to fair value because of the short-term maturity of
these amounts.
The following
methods and assumptions were used to estimate the fair value of each material
class of financial instrument:
|
·
|
Option over
Avexa shares - the fair values of the Avexa shares are based on quoted
market prices for the shares.
|
24
|
·
|
Convertible
bonds – the fair value of Shire $1,100 million 2.75% convertible bonds due
2014 is estimated by reference to the market price of the instrument as
the convertible bonds are publicly
traded.
|
|
·
|
Building
financing obligations - the fair value of building financing obligations
are estimated based on the present value of future cash flows, and an
estimate of the residual value of the underlying property at the end of
the lease term, associated with these
obligations.
|
25
The following table
reconciles net income attributable to Shire plc and the weighted average
ordinary shares outstanding for basic and diluted earnings per share for the
periods presented:
3 months to
March 31,
|
||||||||
2010
|
2009
|
|||||||
Amounts attributable to Shire plc
shareholders
|
$’M | $’M | ||||||
Numerator for basic earnings per
share
|
165.9 | 213.6 | ||||||
Interest on convertible bonds, net of tax
|
8.4 | 8.4 | ||||||
Numerator for diluted earnings per
share
|
174.3 | 222.0 | ||||||
Weighted average number of shares:
|
||||||||
|
Millions
|
Millions
|
||||||
Basic(1)
|
543.9 | 539.2 | ||||||
Effect of dilutive
shares:
|
||||||||
Stock based awards to
employees(2)
|
9.0 | 5.3 | ||||||
Convertible bonds 2.75% due
2014(3)
|
33.2 | 32.7 | ||||||
Diluted
|
586.1 | 577.2 |
(1)
Excludes shares purchased by the ESOT and presented by the Company as treasury
stock.
(2)
Calculated using the treasury stock method.
(3)
Calculated
using the “if-converted” method.
The share
equivalents not included in the calculation of the diluted weighted average
number of shares are shown below:
2010 (1)
|
2009 (1)
|
|||||||
No. of
shares
|
No. of
shares
|
|||||||
Millions
|
Millions
|
|||||||
Share options out of the
money
|
16.1 | 16.6 |
(1)
|
In the three
months to March 31, 2010 and 2009 certain stock options have been excluded
from the calculation of diluted Earnings per share because their exercise
prices exceeded Shire plc’s average share price during the calculation
period.
|
26
17. Segmental
reporting
Shire’s internal
financial reporting is in line with its business unit and management reporting
structure and includes two segments: Specialty Pharmaceuticals and HGT. The
Specialty Pharmaceuticals and HGT reportable segments represent the Company’s
revenues and costs for currently promoted and sold products, together with the
costs of developing projects for future commercialization. ‘All Other’ has been
included in the table below in order to reconcile the two operating segments to
the total consolidated figures.
The Company
evaluates performance based on revenue and operating income. The Company does
not have inter-segment transactions. Assets that are directly attributable or
allocable to the segments have been separately disclosed.
Specialty
Pharmaceuticals
|
HGT
|
All Other
|
Total
|
|||||||||||||
3 months to March 31,
2010
|
$’M | $’M | $’M | $’M | ||||||||||||
Product
sales
|
541.4 | 176.8 | - | 718.2 | ||||||||||||
Royalties
|
58.6 | - | 36.7 | 95.3 | ||||||||||||
Other
revenues
|
0.7 | 0.7 | 1.3 | 2.7 | ||||||||||||
Total
revenues
|
600.7 | 177.5 | 38.0 | 816.2 | ||||||||||||
Cost of product sales(1)
|
80.4 | 21.5 | - | 101.9 | ||||||||||||
Research and
development(1)
|
73.9 | 57.1 | - | 131.0 | ||||||||||||
Selling, general and
administrative(1)
|
249.5 | 62.7 | 47.7 | 359.9 | ||||||||||||
Reorganization
costs
|
3.4 | - | 1.6 | 5.0 | ||||||||||||
Integration and acquisition
costs
|
0.6 | - | - | 0.6 | ||||||||||||
Total operating
expenses
|
407.8 | 141.3 | 49.3 | 598.4 | ||||||||||||
Operating
income/(loss)
|
192.9 | 36.2 | (11.3 | ) | 217.8 | |||||||||||
Total
assets
|
1,997.6 | 1,613.1 | 1,128.0 | 4,738.7 | ||||||||||||
Long-lived assets(2)
|
184.6 | 436.2 | 53.7 | 674.5 | ||||||||||||
Capital expenditure on long-lived
assets(2)
|
2.3 | 25.5 | 1.9 | 29.7 |
(1)
|
Depreciation
from manufacturing plants ($8.6 million) and amortization of favorable
manufacturing contracts ($0.4 million) is included in Cost of product
sales; depreciation of research and development assets ($3.7 million) is
included in Research and development; and all other depreciation and
amortization ($51.6 million) is included in Selling, general and
administrative.
|
(2)
|
Long-lived assets comprise all
non-current assets, excluding goodwill and other intangible assets,
deferred tax assets, investments, income tax receivable and financial
instruments.
|
27
Specialty
Pharmaceuticals
|
HGT
|
All Other
|
Total
|
|||||||||||||
3 months to March 31,
2009
|
$’M | $’M | $’M | $’M | ||||||||||||
Product
sales
|
632.5 | 123.5 | - | 756.0 | ||||||||||||
Royalties
|
0.9 | - | 49.7 | 50.6 | ||||||||||||
Other revenues
|
7.0 | 1.4 | 2.8 | 11.2 | ||||||||||||
Total
revenues
|
640.4 | 124.9 | 52.5 | 817.8 | ||||||||||||
Cost of product sales(1)
|
61.2 | 19.9 | 2.5 | 83.6 | ||||||||||||
Research and development(1)
|
126.6 | 56.8 | 2.5 | 185.9 | ||||||||||||
Selling, general and
administrative(1)
|
229.8 | 46.0 | 43.1 | 318.9 | ||||||||||||
Reorganization
costs
|
2.2 | - | - | 2.2 | ||||||||||||
Integration and acquisition
costs
|
0.7 | 0.7 | - | 1.4 | ||||||||||||
Total operating
expenses
|
420.5 | 123.4 | 48.1 | 592.0 | ||||||||||||
Operating
income
|
219.9 | 1.5 | 4.4 | 225.8 | ||||||||||||
Total
assets
|
2,302.6 | 1,194.0 | 791.0 | 4,287.6 | ||||||||||||
Long-lived assets(2)
|
203.8 | 296.2 | 63.3 | 563.3 | ||||||||||||
Capital expenditure on long-lived
assets(2)
|
7.0 | 39.5 | 4.0 | 50.5 |
(1)
|
Depreciation from
manufacturing plants ($3.6 million) and amortization of favorable
manufacturing contracts ($0.4 million) is included in Cost of product
sales; depreciation of research and development assets ($4.0 million) is
included in Research and development; and all other depreciation and
amortization ($47.3 million) is included in Selling, general and
administrative.
|
(2)
|
Long-lived assets
comprise all non-current assets, (excluding goodwill and other intangible
assets, deferred tax assets, investments, income tax receivable and
financial instruments).
|
28
ITEM
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following
discussion should be read in conjunction with Shire plc and its subsidiaries’
(collectively “Shire” or the “Company”) unaudited consolidated financial
statements and related notes appearing elsewhere in this report.
Overview
Shire’s mission is
to be the most valuable specialty biopharmaceutical company in the world,
focused on enabling people with life altering conditions to lead better lives.
Shire focuses its business on ADHD, HGT and gastrointestinal (“GI”) areas as
well as opportunities in other therapeutic areas to the extent they arise
through acquisitions. Shire’s in-licensing, merger and acquisition efforts are
focused on products in specialist markets with strong intellectual property
protection and global rights. Shire believes that a carefully selected and
balanced portfolio of products with strategically aligned and relatively
small-scale sales forces will deliver strong results.
Significant
events in the three months to March 31, 2010 and recent
developments
Products
VPRIV – for the
treatment of Type 1 Gaucher disease in the US
|
·
|
On February
26, 2010 the FDA granted marketing approval for VPRIV, a human cell line
derived enzyme replacement therapy (“ERT”) for the long-term treatment of
Type 1 Gaucher disease in pediatric and adult patients. The FDA designated
VPRIV for Priority Review and granted marketing approval in just six
months. VPRIV offers patients and their physicians a new treatment option
at a critical time, as the supply of a previously approved ERT for Gaucher
disease is uncertain and remains
disrupted.
|
VYVANSE – for the
treatment of ADHD
|
·
|
On February
1, 2010 Shire announced the Canadian availability of VYVANSE, the first
and only prodrug therapy approved for ADHD treatment in Canada. This is
the first launch of VYVANSE outside the
US.
|
|
·
|
On March 4,
2010 the District Court upheld the FDA’s decision that VYVANSE is entitled
to five-year market exclusivity in the US. The five-year exclusivity
period for VYVANSE expires on February 23, 2012, and precludes generic
manufacturers from submitting an ANDA to the FDA until that time, or until
February 23, 2011 should a generic applicant challenge the US patents
covering VYVANSE, which remain in effect until June 29, 2023. Actavis
Elizabeth LLC (“Actavis”) has appealed the District Court’s ruling to the
US Court of Appeals for the DC Circuit. No hearing date has
been set.
|
INTUNIV – for the
treatment of ADHD
|
·
|
On March 16,
April 5, and April 26, 2010 Shire received Paragraph IV Notice Letters
from Teva Actavis, and Anchen, respectively, advising of the filing of
ANDAs for generic versions of Shire’s 1mg, 2mg, 3mg, and 4mg guanfacine
hydrochloride extended release tablets, INTUNIV. INTUNIV is protected by
three FDA Orange Book listed patents. The three patents expire in 2015,
2020 and 2022, respectively. Teva’s Paragraph IV Notice Letter was only
directed to the patents expiring in 2020 and 2022. On April 22,
Shire filed a lawsuit against Teva in the US District Court for the
District of Delaware for the infringement of these patents. Actavis’s and
Anchen’s Paragraph IV Notice Letters were directed to all three Orange
Book listed patents. Shire is currently reviewing the details of
Actavis’s and Anchen’s Paragraph IV Notice
Letters.
|
REPLAGAL – for the
treatment of Fabry disease
|
·
|
On April 14,
2010 Mt. Sinai School of Medicine of New York University sought to
initiate lawsuits in Sweden and Germany alleging that Shire’s ERT for
Fabry disease, REPLAGAL, infringes Mt. Sinai’s European Patent No. 1 942
189, granted April 14, 2010. Mt. Sinai is seeking an injunction against
the use of REPLAGAL in these jurisdictions until expiration of the patent
on November 30, 2013. Shire will defend its right to commercialize
Replagal in these countries and will vigorously oppose the validity of
this patent.
|
29
Other
events
US Healthcare
Reform
|
·
|
During the
quarter, President Obama signed into law the Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation Act
(together “Healthcare
Reform”), with
the goal of expanding healthcare access to millions of Americans currently
without health insurance and lowering the overall costs of healthcare.
Healthcare Reform will affect Shire in a number of ways, including a
limited impact coming from the changes to the calculation of Medicaid
rebates effective from this quarter, and from Shire's share of the
industry wide excise tax starting in 2011. Shire is pleased with the
expansion of healthcare coverage to previously uninsured patients and
believe this should provide a positive benefit
for Shire. Furthermore, Shire is also pleased with Healthcare
Reform providing certainty regarding regulatory exclusivity for biologics.
Healthcare Reform did not materially impact Shire’s results in the first
quarter of 2010, and Shire believes that it is well placed to manage the
changes Healthcare Reform will bring in future
periods.
|
Board
changes
On March 15, 2010
Mr Bill Burns was appointed to the Board as a Non Executive Director with
immediate effect. Mr Burns has also been appointed a member of Shire's
Remuneration Committee.
Research
and development
Products
in registration as at March 31, 2010
FOSRENOL
for the treatment of pre-dialysis chronic kidney disease (“CKD”)
Shire is continuing
to explore the regulatory pathway required to secure a label extension for
FOSRENOL to treat hyperphosphataemia in pre-dialysis CKD in the US.
VPRIV
– for the treatment of Type 1 Gaucher Disease in the EU
On November 24,
2009 Shire submitted a European Marketing Authorization Application (“MAA”) to
the European Medicines Agency (“EMA”). The submission has been granted
accelerated review by EMA. VPRIV is available prior to commercial launch on a
pre-approval basis in response to the ongoing shortage of a currently marketed
treatment for Gaucher disease. VPRIV was approved in February 2010 in the US for
the long-term treatment of Type 1 Gaucher disease in pediatric and adult
patients.
REPLAGAL
– for the treatment of Fabry disease
On February 24,
2010 Shire announced its receipt of Fast Track designation from the FDA for
REPLAGAL, an ERT for Fabry disease. Shire filed a Biologics License Application
(“BLA”) for REPLAGAL in December 2009, and in the first quarter of 2010 the FDA
requested additional pharmacokinetic comparability data. As a result of this
request, Shire withdrew its December BLA filing, and, at the suggestion of the
FDA, requested and received Fast Track designation. Shire immediately initiated
the rolling submission of the REPLAGAL BLA, and expects to submit the requested
pharmacokinetic data around mid-year. REPLAGAL is currently approved for the
treatment of Fabry disease in 45 countries and has been available to US patients
since December 2009 under an FDA-approved treatment protocol filed at the
request of FDA. The Company is also supporting emergency Investigational New
Drug requests in the US. The REPLAGAL early access program was put in place as a
result of the supply disruption of the only currently marketed treatment for
Fabry disease in the US.
30
Products
in clinical development as at March 31, 2010
Phase
3
VYVANSE
for ADHD in EU
VYVANSE for the
treatment of ADHD in children aged 6 to 17 in the EU is in Phase 3 development.
Shire anticipates submission of
the regulatory filing for VYVANSE in Europe in 2011.
INTUNIV
for use in combination with other ADHD treatments
Phase 3 trials in
the US are ongoing to investigate the efficacy and safety of INTUNIV when
combined with other approved ADHD treatments.
LIALDA
for the maintenance of remission in ulcerative colitis in the US
Phase 3 trials
investigating the use of the product to maintain remission in patients who have
ulcerative colitis were initiated in 2006 for the US market and continued
through 2009. The product was indicated for the maintenance of remission in
patients who have ulcerative colitis on approval in the EU.
LIALDA/MEZAVANT
for the treatment of diverticulitis
LIALDA/MEZAVANT is
being investigated as a treatment to prevent recurrent attacks of
diverticulitis. Phase 3 worldwide clinical trials investigating the use of the
product for the treatment of diverticulitis were initiated in 2007 and are
ongoing. Enrollment in these trials has completed and data is estimated to be
available in 2012.
JUVISTA
for the improvement of scar appearance
Renovo initiated
its first pivotal European Phase 3 trial in scar revision in the fourth quarter
of 2008 to support the filing of a European regulatory dossier. If the outcome
from Renovo’s multi centre, EU Phase 3 study is positive, the data will be used
to inform the strategy and design of Shire’s US development plan.
FIRAZYR for Hereditary angioedema (“HAE”) in the
US
Prior to its
acquisition by Shire, Jerini AG received a not approvable letter for FIRAZYR
from the FDA. In December 2008 Shire met with FDA to discuss the
development of FIRAZYR. It was agreed that an additional clinical study would be
required and that a response to the not approvable letter would be filed after
completion of this study.
In June 2009 Shire
initiated a Phase 3 study in patients with acute attacks of HAE, known as the
FAST-3 trial, which is designed to support filing of a New Drug Application
(“NDA”) for FIRAZYR in the US in early 2011. This trial is ongoing.
Phase
2
VYVANSE
for the treatment of non ADHD indications in adults
Shire is conducting Phase 2 pilot
clinical trials to assess the efficacy and safety of VYVANSE as adjunctive
therapy in depression, for the treatment of negative symptoms and cognitive
impairment in schizophrenia, and for the treatment of cognitive impairment in
depression.
Phase
1
SPD
535 for the treatment of arteriovenous grafts in hemodialysis
patients
SPD 535 is in
development as a novel molecule with platelet lowering ability and without
phosphodiesterase type III inhibition. The initial proof-of-concept program will
target prevention of thrombotic complications associated with arteriovenous
grafts in hemodialysis patients. Phase 1 development was initiated in
the third quarter of 2009.
HGT-2310
for the treatment of Hunter syndrome with central nervous system (“CNS”)
symptoms, idursulfase-IT (intrathecal delivery)
HGT 2310 is in
development as an ERT delivered intrathecally for Hunter syndrome patients with
CNS symptoms. The Company initiated a Phase I/II clinical trial in the first
quarter of 2010. This product has been granted orphan designation in the
US.
31
Products in pre-clinical development
as at March 31, 2010
HGT-1410
for Sanfilippo Syndrome (Mucopolysaccharidosis IIIA)
HGT-1410 is in
development as an ERT for the treatment of Sanfilippo Syndrome
(Mucopolysaccharidosis IIIA), a lysosomal storage disorder. The product has been
granted orphan drug designation in the US and in the EU. The Company plans to
initiate a Phase I/II clinical trial in mid-2010.
HGT-1110
- for the treatment of Metachromatic Leukodystrophy (“MLD”)
Development of a
formulation of HGT-1110, expressed from Shire’s human cell platform and suitable
for direct delivery to the CNS, is ongoing, and preclinical studies are planned
for 2010. The Shire platform for direct delivery of proteins to the CNS was
advanced in the first quarter of 2010 with the initiation of intrathecal
delivery of idursulfase in the Phase I/II study in Hunter Syndrome.
HGT-2610 for the treatment of Globoid
cell leukodystrophy
(“GLD”)
HGT 2610 is an ERT
for the treatment of GLD, a lysosomal storage disorder. This program is in early
development and preclinical studies.
Other
pre-clinical development projects
A number of
additional projects are underway in the early stages of pre-clinical development
for the Specialty Pharmaceuticals area, including potential programs leveraging
CarrierWave technology primarily focused in the areas of pain and
ADHD. More data on these programs is expected in the second half of
2010.
32
Results
of operations for the three months to March 31, 2010 and 2009
The Company’s
management analyzes product sales growth for certain products sold in markets
outside of the US on a constant exchange rate (“Non GAAP CER”) basis, so that
product sales growth can be considered excluding movements in foreign exchange
rates. Product sales growth on a CER basis is a Non-GAAP financial measure,
computed by comparing 2010 product sales restated using 2009 average foreign
exchange rates to 2009 actual product sales. Average exchange rates for the
three months to March 31, 2010 were $1.56:£1.00 and $1.38:€1.00 (2009:
$1.44:£1.00 and $1.31:€1.00).
Financial
highlights for the three months to March 31, 2010 are as follows:
|
·
|
Product sales
excluding ADDERALL XR (“Core Products”) were up 36% to $626 million (2009:
$460 million). On a Non GAAP CER basis, Core Product sales were up 33%.
Growth in Core Product sales was achieved by strong performance throughout
the portfolio including:
|
|
·
|
VYVANSE (up
32% to $154 million, Non-GAAP CER: up
32%);
|
|
·
|
ELAPRASE (up
22% to $101 million, Non-GAAP CER: up
17%);
|
|
·
|
REPLAGAL (up
69% to $68 million, Non-GAAP CER: up
60%);
|
|
·
|
LIALDA/MEZAVANT (up
29% to $64 million, Non-GAAP CER: up 28%);
and
|
|
·
|
Recently
launched INTUNIV ($35
million) and VPRIV ($6
million).
|
|
·
|
Product sales
including ADDERALL XR were down 5% to $718 million (Non-GAAP CER: down
7%), as the decline in ADDERALL XR sales compared to the same period in
2009 (down 69% to $92 million) offset the Core Product sales growth. The
decline in ADDERALL XR product sales was expected, as the first quarter of
2009 was the last quarter of ADDERALL XR exclusivity prior to the launch
of authorized generic versions by Teva in April 2009 and Impax
Laboratories, Inc. (“Impax”) in October
2009.
|
|
·
|
Total
revenues of $816 million remained at 2009 levels (Non-GAAP CER: down 2%;
2009: $818 million) as higher royalty income (primarily received on
Impax’s sales of authorized generic ADDERALL XR) offset lower product
sales.
|
|
·
|
Operating
income in the first quarter of 2010 was $218 million, compared to $226
million in 2009, a decrease of 4%. Operating income in the first quarter
of 2009 included costs of $65 million on termination of the Women’s Health
development agreement with Duramed. Excluding this item, operating income
decreased by 25% in 2010 as a result of increased investment in research
and development (“R&D”) and higher selling, general and administrative
(“SG&A”) costs in support of recent product
launches.
|
Total
revenues
The following table
provides an analysis of the Company’s total revenues by source:
3 months to
|
3 months to
|
|||||||||||
March 31,
|
March 31,
|
|||||||||||
2010
|
2009
|
change
|
||||||||||
$'M
|
$'M
|
%
|
||||||||||
Product
sales
|
718.2 | 756.0 | -5 | |||||||||
Royalties
|
95.3 | 50.6 | +88 | |||||||||
Other
revenues
|
2.7 | 11.2 | -76 | |||||||||
Total
|
816.2 | 817.8 | - |
33
Product
sales
The following table
provides an analysis of the Company’s key product sales:
3 months to
|
3 months to
|
|||||||||||||||||||||||
March 31,
|
March 31,
|
Product
sales
|
Non-GAAP
CER
|
US
prescription
|
Exit market
|
|||||||||||||||||||
2010
|
2009
|
growth
|
growth
|
growth1
|
Share1
|
|||||||||||||||||||
$'M
|
$'M
|
%
|
%
|
%
|
%
|
|||||||||||||||||||
Specialty
Pharmaceuticals
|
||||||||||||||||||||||||
ADHD
|
||||||||||||||||||||||||
VYVANSE
|
154.4 | 116.6 | +32 | +32 | +32 | 14 | ||||||||||||||||||
ADDERALL XR
|
91.8 | 295.8 | -69 | -70 | -60 | 8 | ||||||||||||||||||
INTUNIV
|
34.5 | - | n/a | n/a | n/a | 2 | ||||||||||||||||||
DAYTRANA
|
18.4 | 19.9 | -7 | -7 | -12 | 1 | ||||||||||||||||||
EQUASYM
|
2.4 | - | n/a | - | n/a | n/a | 2 | |||||||||||||||||
GI
|
||||||||||||||||||||||||
LIALDA /
MEZAVANT
|
63.6 | 49.4 | +29 | +28 | +23 | 19 | ||||||||||||||||||
PENTASA
|
58.2 | 51.2 | +14 | +14 | -6 | 15 | ||||||||||||||||||
General
Products
|
||||||||||||||||||||||||
FOSRENOL
|
47.1 | 39.8 | +18 | +14 | -12 | 7 | ||||||||||||||||||
CALCICHEW
|
9.4 | 9.6 | -2 | -10 | n/a | n/a | 2 | |||||||||||||||||
CARBATROL
|
20.1 | 18.1 | +11 | +11 | -6 | 14 | ||||||||||||||||||
REMINYL/REMINYL
XL
|
12.5 | 7.4 | +69 | +56 | n/a | n/a | 2 | |||||||||||||||||
XAGRID
|
23.3 | 20.1 | +16 | +8 | n/a | n/a | 2 | |||||||||||||||||
Other product
sales
|
5.7 | 4.6 | +24 | +15 | n/a | n/a | ||||||||||||||||||
541.4 | 632.5 | -14 | ||||||||||||||||||||||
Human Genetic
Therapies
|
||||||||||||||||||||||||
ELAPRASE
|
100.8 | 82.8 | +22 | +17 | n/a | n/a | 2 | |||||||||||||||||
REPLAGAL
|
68.0 | 40.2 | +69 | +60 | n/a | n/a | 3 | |||||||||||||||||
VPRIV
|
5.8 | - | n/a | n/a | n/a | n/a | ||||||||||||||||||
FIRAZYR
|
2.2 | 0.5 | +340 | +313 | n/a | n/a | 3 | |||||||||||||||||
176.8 | 123.5 | +43 | ||||||||||||||||||||||
Total product
sales
|
718.2 | 756.0 | -5 |
(1)
|
Data provided
by IMS Health National Prescription Audit (“IMS NPA”). Exit market share
represents the US market share in the week ending March 26,
2010.
|
(2)
|
IMS NPA Data
not available.
|
(3)
|
Not sold in
the US in Q1 2010, or awaiting approval in the
US.
|
Specialty
Pharmaceuticals
VYVANSE
– ADHD
The increase in
VYVANSE product sales was driven by increased US prescription demand compared to
the first quarter of 2009, 10% growth in the US ADHD market and price
increases.
34
INTUNIV
– ADHD
In line with
Shire’s revenue recognition policy for launch shipments, initial stocking
shipments in November 2009 were deferred, and are being recognized into revenue
in line with end-user prescription demand. At March 31, 2010 deferred revenues
on the balance sheet represented gross sales of $18.8 million.
Litigation proceedings regarding
Shire’s INTUNIV
patents are ongoing. Further information about this litigation can be found in
ITEM 1 of this Form 10-Q.
LIALDA/MEZAVANT
– Ulcerative colitis
Strong product
sales of LIALDA/MEZAVANT continued in the first quarter of 2010 driven by
increased US prescription demand compared to the first quarter of 2009 and price
increases. The US oral mesalamine market was flat year on year.
PENTASA
– Ulcerative colitis
Product sales of
PENTASA increased in the first quarter of 2010 compared to the first quarter of
2009 primarily driven by price increases.
FOSRENOL
– Hyperphosphatemia
Product sales
increased as FOSRENOL grew its share of existing markets outside the US. Product
sales also grew in the US due to price increases and growth in non-retail demand
which offset the decline in US retail prescription demand.
Litigation
proceedings regarding Shire’s FOSRENOL patents are ongoing. Further information
about this litigation can be found in ITEM 1 of this Form 10-Q.
ADDERALL
XR – ADHD
ADDERALL XR product
sales decreased in the first quarter of 2010 compared to the same period in 2009
as the first quarter of 2009 represented the final quarter of exclusivity prior
to the launch of authorized generic versions by Teva and Impax in April and
October 2009, respectively. The launch of authorized generic versions resulted
in a lower prescription demand in 2010 compared to 2009 resulting in a
corresponding reduction in ADDERALL XR’s share of the US ADHD market (8% for the
first quarter of 2010, compared to 21% in the first quarter of
2009).
Despite price
increases taken since the first quarter of 2009, product sales in 2010 declined
at a faster rate than US prescription demand due to increased sales deductions
as a percentage of branded ADDERALL XR gross sales, representing 61% of
gross revenues in 2010 (2009: 37%). Sales deductions in the first quarter of
2010 included the effect of a change in estimate of inventory in the wholesaler
pipeline, which decreased sales deductions as a percentage of gross sales by 8
percentage points.
There are
potentially different interpretations as to how shipments of authorized generic
ADDERALL XR to Teva and Impax should be included in the Medicaid rebate
calculation pursuant to Medicaid rebate legislation, including the Deficit
Reduction Act of 2005 (the “Medicaid rebate legislation”). As a result, more
than one unit rebate amount (“URA”) is calculable for the purposes of
determining the Company’s Medicaid rebate liability to the States after
authorized generic launch. In the first quarter of 2010, the Company has
recorded its accrual for Medicaid rebates based on its best estimate of the
rebate payable. This best estimate is consistent with (i) the Company’s
interpretation of the Medicaid rebate legislation, (ii) the Company’s repeated
and consistent submission of price reporting to the Center for Medicare and
Medicaid Services, (“CMS”) using the Company’s interpretation of the Medicaid
rebate legislation, (iii) CMS calculating the URA based on that interpretation,
(iv) States submitting Medicaid rebate invoices using this URA, and (v) Shire
paying these invoices.
Shire believes that
its interpretation of the Medicaid rebate legislation is reasonable and correct.
However, CMS could disagree with the Company’s interpretation, and require Shire
to apply an alternative interpretation of the Medicaid rebate legislation and
pay up to $185 million above the recorded liability at March 31, 2010. For
rebates in respect of 2009 prescriptions of ADDERALL XR (“2009 rebates”) this
would represent a URA substantially in excess of the unit sales price of
ADDERALL XR and accordingly in excess of the approximate amount of the full cost
to the States of reimbursement for Medicaid prescriptions of ADDERALL XR. For
rebates in respect of 2010 prescriptions, as a result of Healthcare Reform, the
URA would be limited to an amount approximating the unit sales price of ADDERALL
XR.
Should CMS require
Shire to apply an alternative interpretation of the Medicaid rebate legislation,
Shire could seek to limit any additional payments for 2009 Rebates to a level
approximating the full, un-rebated cost to the States of ADDERALL XR, or $105
million above the recorded liability. Further, Shire believes it has a strong
legal basis supporting its interpretation of the Medicaid rebate legislation,
and that there would be a strong basis to initiate litigation to recover any
35
amount paid in
excess of the recorded liability. The result of any such litigation cannot be
predicted and could result in additional rebate liability above Shire’s current
best estimate.
Human
Genetic Therapies
ELAPRASE – Hunter syndrome
The growth in
product sales of ELAPRASE was driven by increased volumes across all regions
where ELAPRASE is sold. On a Non-GAAP CER basis sales grew by 17% (79% of
ELAPRASE sales are made outside of the US).
REPLAGAL
– Fabry disease
The growth in
REPLAGAL product sales in the first quarter of 2010 over the same period in 2009
was driven by an increase in demand due to significant switching of patients to
REPLAGAL in the EU, attributable in part to supply shortages of a competitor
product. Sales increased 60% on a Non-GAAP CER basis (REPLAGAL is sold primarily
in Euros and Pounds sterling).
VPRIV
– Gaucher disease
Product sales were
primarily generated on a pre-approval basis via patient early access programs in
the EU throughout the first quarter of 2010 and in the US after February 26,
2010 when approval was received from the FDA.
FIRAZYR
- HAE
Product sales of
FIRAZYR increased as volumes grew across European Markets. FIRAZYR is the
first new product for HAE in Europe in 30 years and has orphan exclusivity for
acute attacks of HAE in adults in the EU until 2018.
Royalties
Royalty revenue
increased by 88% to $95.3 million for the three months to March 31, 2010 (2009:
$50.6 million). The following table provides an analysis of Shire’s royalty
income:
3 months to
|
3 months to
|
|||||||||||
March 31,
|
March 31,
|
|||||||||||
2010
|
2009
|
Change
|
||||||||||
$'M
|
$'M
|
%
|
||||||||||
3TC and
ZEFFIX
|
36.6 | 38.8 | -6 | |||||||||
ADDERALL XR
|
40.8 | - | n/a | |||||||||
Others
|
17.9 | 11.8 | +52 | |||||||||
Total
|
95.3 | 50.6 | +88 |
3TC
(HIV infection and AIDS) and ZEFFIX (Chronic hepatitis B infection)
Shire receives
royalties from GSK on worldwide 3TC and ZEFFIX sales: royalties received from
GSK on 3TC were down 9% mainly due to competition from other HIV treatments
which was partially offset by an increase in royalties received from GSK on
ZEFFIX.
Generic drug
companies have filed ANDAs seeking approval for COMBIVIR in the US. GSK has
filed lawsuits against both Teva and Lupin Ltd (“Lupin”), each of whom have
filed ANDAs and Paragraph IV certifications for generic versions of COMBIVIR.
The lawsuit against Lupin has been stayed pending resolution of the Teva
lawsuit. Neither Teva nor Lupin has challenged the patents licensed by
Shire to GSK. The thirty month stay of approval for Teva's ANDA expired in March
2010. No trial date has been set.
36
ADDERALL
XR – ADHD
Shire receives
royalties on Impax’s sales of its authorized generic version of ADDERALL XR,
which commenced in October 2009.
Other royalties
Other royalties
increased in the three months to March 31, 2010, principally due to higher
royalties on sales of FOSRENOL in Japan. Other royalties are also received on
worldwide (excluding UK and Republic of Ireland) sales of REMINYL and REMINYL XL
(known as RAZADYNE and RAZADYNE ER in the US).
Cost of product
sales
Cost of product
sales increased to $101.9 million for the three months to March 31, 2010 (14% of
product sales), up from $83.6 million in the corresponding period in 2009 (2009:
11% of product sales). The increase in cost of goods as a percentage of product
sales primarily resulted
from changes in product mix following the launch by Teva and Impax of their
authorized generic versions of ADDERALL XR in April and October 2009, and the
inclusion of lower margin sales of the authorized generic version of ADDERALL XR
to Teva and Impax which depressed gross margins in the first quarter of 2010
compared to the same period in 2009.
For the three
months to March 31, 2010 cost of product sales included depreciation of $8.6
million (2009: $3.6 million). Depreciation charged in 2010 is higher than 2009
due to accelerated depreciation of $6.1 million in 2010 following a change in
the estimate of the useful lives of the property, plant and equipment at Shire’s
Owings Mills facility as a result of the anticipated closure of the facility in
2011.
R&D
R&D expenditure
decreased to $131.0 million for the three months to March 31, 2010 (18% of
product sales), compared to $185.9 million in the corresponding period in 2009
(25% of product sales). R&D costs in the three months to March 31, 2009
included costs of $65.0 million (9% of product sales) following the agreement
with Duramed to terminate the development of Women’s Health products. Excluding
these termination costs, R&D increased by $10.1 million in first quarter of
2010 compared to the same period in 2009 as the Company has continued to
increase investment in R&D programs, in part as a result of acceleration of
the REPLAGAL and VPRIV programs. For the three months to March 31, 2010 R&D
included depreciation of $3.7 million (2009: $4.0 million).
SG&A
SG&A expenses
increased to $359.9 million (50% of product sales) for the three months to March
31, 2010 from $318.9 million (42% of product sales) in the corresponding period
in 2009, primarily due to increased selling and marketing costs incurred in
support of recent product launches. For the three months to March 31, 2010
SG&A included depreciation of $16.3 million (2009: $14.8 million) and
amortization of $34.6 million (2009: $32.5 million).
Reorganization
costs
For the three
months to March 31, 2010 Shire recorded reorganization costs of $5.0 million
(2009: $2.2 million) principally relating to the transfer of manufacturing from
its Owings Mills facility.
Interest
expense
For the three
months to March 31, 2010 the Company incurred interest expense of $9.0 million
(2009: $11.0 million). Interest expense principally relates to the coupon and
amortization of issue costs on Shire’s $1,100 million 2.75% convertible bonds
due 2014.
37
Other
income, net
For the three
months to March 31, 2010 the Company recognized Other income, net of $10.8
million (2009: $50.3 million). In the first quarter of 2010 Shire recognized a
gain of $11.1 million (2009: $55.2 million) relating to the disposal of its
investment in Virochem in March 2009. At the time of the disposal, an element of
the consideration was held in escrow for twelve months pending any warranty
claims and breaches of representations made by Virochem and by all selling
shareholders, including Shire. The consideration was released from escrow in
March 2010, resulting in gain of $11.1 million being recognized in the first
quarter of 2010.
Taxation
For interim
reporting purposes, the Company calculates its tax expense by estimating its global annual effective
tax rate and applies that rate in providing for income taxes on a year-to-date
basis. The Company has calculated an expected annual effective tax rate,
excluding significant, unusual or extraordinary items, and the tax effect of
jurisdictions with losses for which a tax benefit cannot be recognized. In
the three months to March 31, 2010 the effective tax rate was 24%
(2009: 19%). The tax rate in 2010 was higher than 2009 due to unfavorable
changes in profit mix and the recording of valuation allowances in 2010 in
relation to loss carry forward amounts which were not recorded in the first
quarter of 2009. The effective rate of tax in the first quarter of 2009 also
benefited from discrete tax deductions in that quarter, in respect of the
termination of the Women’s Health development agreement, being incurred in a
territory with a higher rate of tax than the annual effective
rate.
Liquidity
and capital resources
General
The Company’s
funding requirements depend on a number of factors, including the timing and
number of its development programs; corporate, business and product
acquisitions; the level of resources required for the expansion of manufacturing
and marketing capabilities as the product base expands; increases in accounts
receivable and inventory which may arise with any increase in product sales;
competitive and technological developments; the timing and cost of obtaining
required regulatory approvals for new products; the timing and quantum of
milestone payments on collaborative projects; the timing and quantum of tax and
dividend payments; the timing and quantum of purchases by the ESOT of Shire
shares in the market to satisfy option exercises; the timing and quantum of any
amount that could be paid by the Company if CMS were to employ an alternative
interpretation of the URA in respect of ADDERALL XR Medicaid rebates; and the
continuing cash generated from sales of Shire’s products and royalty
receipts.
An important part
of Shire’s business strategy is to protect its products and technologies through
the use of patents, proprietary technologies and trademarks, to the extent
available. The Company intends to defend its intellectual property and as a
result may need cash for funding the cost of litigation.
The Company
finances its activities through cash generated from operating activities; credit
facilities; private and public offerings of equity and debt securities; and the
proceeds of asset or investment disposals.
Shire’s balance
sheet includes $657.5 million of cash and cash equivalents at March 31, 2010.
Substantially all of Shire’s debt relates to its $1,100 million 2.75%
convertible bond which matures in 2014, although these bonds include a put
option which could require repayment of the bonds in 2012. In addition, Shire
has a revolving credit facility until 2012 of $1,200 million, which is currently
undrawn.
Financing
Shire anticipates
that its operating cash flow together with available cash, cash equivalents and
the revolving credit facility will be sufficient to meet its anticipated future
operating expenses, capital expenditures, interest payments and lease
obligations as they become due over the next twelve months.
If the Company
decides to acquire other businesses, it expects to fund these acquisitions from
existing cash resources, the revolving credit facility and possibly through new
borrowings and the issue of new equity if necessary.
Sources
and uses of cash
The following table
provides an analysis of the Company’s gross and net debt (excluding restricted
cash), as at March 31, 2010 and December 31, 2009:
38
March 31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
$’M | $’M | |||||||
Cash and cash
equivalents
|
657.5 | 498.9 | ||||||
Convertible
debt
|
1,100.0 | 1,100.0 | ||||||
Building financing
obligation
|
46.8 | 46.7 | ||||||
Total debt
|
1,146.8 | 1,146.7 | ||||||
Net debt
|
(489.3 | ) | (647.8 | ) |
Cash
flow activity
Net cash provided
by operating activities for the three months to March 31, 2010 increased by $2.1
million to $186.2 million (2009: $184.1 million), primarily due to higher gross
cash receipts from product sales and royalties, offset by higher sales
deductions payments, increased investment in R&D and SG&A, and higher
cash tax payments in the first quarter of 2010 compared to the same period in
2009.
Net cash used in
investing activities was $35.2 million in the three months to March 31, 2010.
This included cash expenditure on property, plant and equipment of $43.6
million. Capital expenditure on property, plant and equipment included $35.4
million on construction work at the HGT campus in Lexington,
Massachusetts.
Net cash used in
investing activities was $109.2 million in the three months to March 31, 2009.
This included the cash cost of purchasing EQUASYM of $72.8 million and
expenditure on purchases of property, plant and equipment of $42.0 million,
which was partially offset by receipts of $19.2 million from the sale of
long-term investments. Capital expenditure on property, plant and equipment
included $29.2 million on construction work at the HGT campus in Lexington,
Massachusetts and $3.3 million on construction work at the UK office in
Basingstoke, Hampshire.
Net cash provided
by financing activities was $5.6 million for the three months to March 31, 2010
of which $4.8 million relates to the excess tax benefit associated with exercise
of stock options and $1.5 million of proceeds from the exercise of stock
options.
Net cash used in
financing activities was $0.6 million for the three months to March 31, 2009.
Proceeds received from the exercise of share options of $0.1 million were offset
by payments under the building finance obligation of $0.7 million.
Obligations
and commitments
During the three
months to March 31, 2010 there have been no material changes outside the
ordinary course of the Company’s business to the contractual obligations
previously disclosed in ITEM 7 of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2009.
39
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Note 14 to the
condensed consolidated financial statements included in ITEM 1 of this Form 10-Q
and ITEM 7A of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009 contains a discussion of the Company’s exposure to market and
other risks.
ITEM
4. CONTROLS AND PROCEDURES
As at March 31,
2010 the Company, under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer and the Chief
Financial Officer, had performed an evaluation of the effectiveness of the
Company’s disclosure controls and procedures, including those with respect to
the Income Access Share (“IAS”) Trust. The Company’s management necessarily
applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature can provide only reasonable assurance
regarding management’s control objectives. Based on this evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures, including those with respect to
the IAS Trust, are effective at the reasonable level of assurance for gathering,
analyzing and disclosing the information the Company is required to disclose in
the reports it files under the Securities Exchange Act of 1934, within the time
periods specified in the SEC’s rules and forms.
There has been no
change in the Company’s internal control over financial reporting that occurred
during the period covered by this quarterly report that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The information required by this Item is
incorporated herein by reference to Note 13 to the condensed consolidated
financial statements included in ITEM 1 of this Form
10-Q.
ITEM
1A. RISK FACTORS
There have been no
material changes from the risk factors set forth in the Company’s Form 10-K for
the year ended December 31, 2009.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. OTHER INFORMATION
None.
40
ITEM
5. EXHIBITS
EXHIBITS
2.01
|
Agreement and
Plan of Merger by and among Shire Pharmaceuticals Group plc, Transkaryotic
Therapies, Inc. and Sparta Acquisition Corporation, dated as of April 21,
2005.(1)
|
2.02
|
Agreement of
Merger dated as of February 20, 2007 among Shire plc, Shuttle Corporation
and New River Pharmaceuticals, Inc.(2)
|
2.03
|
Business
Combination Agreement dated as of July 3, 2008 between Maia Elfte
Vermögensverwaltungs GmbH and Jerini AG. (3)
|
3.01
|
Form of
Memorandum of Association of Shire plc as adopted by a special resolution
passed on April 10, 2008 and amended by a special resolution passed on
September 24, 2008 and the form of Articles of Association of Shire plc as
adopted by a special resolution passed on May 8, 2008 and amended by a
special resolution passed on September 24, 2008.
(4)
|
4.01
|
Form of
Assignment and Novation Agreement between Shire Limited, Shire plc,
JPMorgan Chase Bank, N.A. dated April 16, 2008 relating to the Deposit
Agreement among Shire plc, JPMorgan Chase Bank, N.A. as depositary and all
holders from time to time of ADRs issued thereunder dated
November 21, 2005.(5)
|
4.02
|
Form of
Deposit Agreement among Shire plc, JPMorgan Chase Bank, N.A. as depositary
and all holders from time to time of ADRs issued thereunder dated November
21, 2005.
(6)
|
4.03
|
Form of
Ordinary Share Certificate of Shire Limited.
(7)
|
4.04
|
Form of
American Depositary Receipt Certificate of Shire Limited.
(8)
|
4.05
|
Trust Deed
for the New Shire Income Access Trust, dated August 29, 2008.
(9)
|
10.01
|
Tender and
Support Agreement dated as of February 20, 2007 among Shire plc, Mr.
Randal J. Kirk and the other parties named therein.
(10)
|
10.02
|
Multicurrency
Term and Revolving Facilities Agreement as of February 20, 2007 by and
among Shire plc, ABN AMRO Bank N.V., Barclays Capital, Citigroup Global
Markets Limited, The Royal Bank of Scotland plc, and Barclays Bank
plc.
(11)
|
10.03
|
Accession and
Amendment Deed dated April 15, 2008 between Shire Limited, Shire plc,
certain subsidiaries of Shire plc and Barclays Bank PLC as Facility Agent
relating to a US $1,200,000,000 facility agreement dated February 20, 2007
(as amended by a syndication and amendment agreement dated July 19,
2007).
(12)
|
10.04
|
Subscription
Agreement dated May 2, 2007 relating to the 2.75% Convertible Bonds due
2014 between Shire plc and ABN AMRO Bank N.V. and NM Rothschild & Sons
Limited (trading together as ABN AMRO Rothschild, an unincorporated equity
capital markets joint venture) and Barclays Bank PLC and Citigroup Global
Markets Limited and Goldman Sachs International and Morgan Stanley &
Co. International plc and others.
(13)
|
10.05
|
Amending
Subscription Agreement dated May 8, 2007 relating to the 2.75% Convertible
Bonds due 2014 between Shire plc and ABN AMRO Bank N.V. and NM Rothschild
& Sons Limited (trading together as ABN AMRO Rothschild, an
unincorporated equity capital markets joint venture) and Barclays Bank PLC
and Citigroup Global Markets Limited and Goldman Sachs International and
Morgan Stanley & Co. International plc and others.
(14)
|
10.06
|
Trust Deed
dated May 9, 2007 relating to the 2.75% Convertible Bonds due 2014 between
Shire plc and BNY Corporate Trustee Services Limited.
(15)
|
10.07
|
Supplemental
Trust Deed dated April 15, 2008 between Shire Limited, Shire plc and BNY
Corporate Trustee Services Limited relating to a trust deed dated May 9,
2007 relating to US $1,100,000,000 2.75% Convertible Bonds due 2014.
(16)
|
10.08
|
Accession and
Amendment Agreement dated April 15, 2008 between Shire Limited, Shire plc,
BNY Corporate Trustee Services Limited and The Bank of New York relating
to a paying and conversion agency agreement dated May 9, 2007 relating to
US $1,100,000,000 2.75% Convertible Bonds due 2014.
(17)
|
10.09*
|
Revised and
Restated Master License Agreement dated November 20, 1995 among Shire
BioChem Inc (f/k/a BioChem Pharma Inc.), Glaxo Group Limited, Glaxo
Wellcome Inc. (formerly Glaxo Canada Inc.), Glaxo Wellcome Inc. (formerly
Glaxo Inc.), Tanaud Holdings (Barbados) Limited, Tanaud International B.V.
and Tanaud LLC.
(18)
|
41
10.10*
|
Settlement
Agreement, dated August 14, 2006 by and between Shire Laboratories Inc.
and Barr Laboratories, Inc.
(19)
|
10.11*
|
Product
Development and License Agreement, dated August 14, 2006 by and between
Shire LLC and Duramed Pharmaceuticals, Inc.
(20)
|
10.12*
|
Product
Acquisition and License Agreement, dated August 14, 2006 by and among
Shire LLC, Shire plc and Duramed Pharmaceuticals, Inc.
(21)
|
10.13
|
Service
Agreement between Shire plc and Mr Angus Russell, dated March 10,
2004.
(22)
|
10.14
|
Novation
Agreement dated November 21, 2005 relating to the Employment Agreement of
Angus Russell dated March 10, 2004.
(23)
|
10.15
|
Novation
Agreement dated April 11, 2008 relating to the Employment Agreement of
Angus Russell dated March 10, 2004, as previously novated on November 21,
2005.
(24)
|
10.16
|
Form of
Amended and Restated Employment Agreement between Shire plc and Mr Matthew
Emmens, dated March 12, 2004.
(25)
|
10.17
|
Amendment
Agreement dated November 21, 2005 relating to the Amended and Restated
Employment Agreement of Matthew Emmens dated March 12, 2004.
(26)
|
10.18
|
Ratification
and Guaranty dated November 21, 2005 relating to the Amended and Restated
Employment Agreement of Matthew Emmens dated March 12, 2004.
(27)
|
10.19
|
Amendment
Agreement dated May 20, 2008 relating to the Amended and Restated
Employment Agreement of Matthew Emmens dated March 12, 2004, as amended on
November 21, 2005.
(28)
|
10.20
|
Ratification
and Guaranty dated May 20, 2008 relating to the Amended and Restated
Employment Agreement of Matthew Emmens dated March 12, 2004.
(29)
|
10.21
|
Form of
Indemnity Agreement for Directors of Shire Limited. (30)
|
10.22
|
Service
Agreement between Shire Limited and Mr Angus Russell, dated July 2, 2008.
(31)
|
10.23
|
Service
Agreement between Shire Limited and Mr Graham Hetherington, dated July 2,
2008. (32)
|
10.24
|
Form of
Settlement Agreement and Mutual Release in re: Transkaryotic Therapies,
Inc., by and between Shire Human Genetic Therapies, Inc., Shire plc
and the parties set forth therein. (33)
|
10.25
|
Amended
Agreement dated February 24, 2009 relating to the Product Development and
License Agreement dated August 14, 2006. (34)
|
10.26
|
Amendment of
the Service Agreement of A.C. Russell dated January 15, 2010. (35)
|
10.27
|
Amendment to
the Shire Portfolio Share Plan as adopted by the annual general meeting
held on April 27, 2010.
|
21
|
List of
Subsidiaries.
(36)
|
31.1
|
Certification
of Angus Russell pursuant to Rule 13a – 14 under The Exchange
Act.
|
31.2
|
Certification
of Graham Hetherington pursuant to Rule 13a – 14 under The Exchange
Act.
|
32.1
|
Certification
of Angus Russell and Graham Hetherington pursuant to Section 906 of the
Sarbanes – Oxley Act of 2002.
|
* Certain
portions of this exhibit have been omitted intentionally, subject to a
confidential treatment request. A complete version of this agreement has been
filed separately with the Securities and Exchange Commission.
(1)
|
Incorporated
by reference to Exhibit 99.02 to Shire’s Form 8-K filed on April 25,
2005.
|
(2)
|
Incorporated
by reference to Exhibit 2.1 to Shire’s Form 8-K filed on February 23,
2007.
|
(3)
|
Incorporated
by reference to Exhibit 2.1 to Shire’s Form 8-K filed on July 10,
2008.
|
(4)
|
Incorporated
by reference to Exhibit 99.02 to Shire’s Form 8-K filed on October 1,
2008.
|
(5)
|
Incorporated
by reference to Exhibit 4.01 to Shire’s Form 8-K filed on May 23,
2008.
|
42
(6)
|
Incorporated
by reference to Exhibit 4.02 to Shire’s Form 8-K filed on May 23,
2008.
|
(7)
|
Incorporated
by reference to Exhibit 4.03 to Shire’s Form 8-K filed on May 23,
2008.
|
(8)
|
Incorporated
by reference to Exhibit 4.04 to Shire’s Form 8-K filed on May 23,
2008.
|
(9)
|
Incorporated
by reference to Exhibit 4.05 to Shire’s Form 10-K filed on February 27,
2009.
|
(10)
|
Incorporated
by reference to Exhibit 99.1 to Shire’s Form 8-K filed on February 23,
2007.
|
(11)
|
Incorporated
by reference to Exhibit 10.2 to Shire’s Form 10-Q filed on May 1,
2007.
|
(12)
|
Incorporated
by reference to Exhibit 10.01 to Shire’s Form 8-K filed on May 23,
2008.
|
(13)
|
Incorporated
by reference to Exhibit 10.1 to Shire’s Form 10-Q filed on August 2,
2007.
|
(14)
|
Incorporated
by reference to Exhibit 10.2 to Shire’s Form 10-Q filed on August 2,
2007.
|
(15)
|
Incorporated
by reference to Exhibit 10.3 to Shire’s Form 10-Q filed on August 2,
2007.
|
(16)
|
Incorporated
by reference to Exhibit 10.02 to Shire’s Form 8-K filed on May 23,
2008.
|
(17)
|
Incorporated
by reference to Exhibit 10.03 to Shire’s Form 8-K filed on May 23,
2008.
|
(18)
|
Incorporated
by reference to Exhibit 10.09 to Shire’s Form 10-K/A filed on May 30,
2008.
|
(19)
|
Incorporated
by reference to Exhibit 10.1 to Shire’s Form 10-Q filed on November 7,
2006.
|
(20)
|
Incorporated
by reference to Exhibit 10.2 to Shire’s Form 10-Q filed on November 7,
2006.
|
(21)
|
Incorporated
by reference to Exhibit 10.3 to Shire’s Form 10-Q filed on November 7,
2006.
|
(22)
|
Incorporated
by reference to Exhibit 10.11 to Shire’s Form 10-K filed on March 12,
2004.
|
(23)
|
Incorporated
by reference to Exhibit 10.03 to Shire’s Form 8-K filed on November 25,
2005.
|
(24)
|
Incorporated
by reference to Exhibit 10.06 to Shire’s Form 8-K filed on May 23,
2008.
|
(25)
|
Incorporated
by reference to Exhibit 10.13 to Shire’s Form 10-K filed on March 12,
2004.
|
(26)
|
Incorporated
by reference to Exhibit 10.01 to Shire’s Form 8-K filed on November 25,
2005.
|
(27)
|
Incorporated
by reference to Exhibit 10.02 to Shire’s Form 8-K filed on November 25,
2005.
|
(28)
|
Incorporated
by reference to Exhibit 10.04 to Shire’s Form 8-K filed on May 23,
2008.
|
(29)
|
Incorporated
by reference to Exhibit 10.05 to Shire’s Form 8-K filed on May 23,
2008.
|
(30)
|
Incorporated
by reference to Exhibit 10.07 to Shire’s Form 8-K filed on May 23,
2008.
|
(31)
|
Incorporated
by reference to Exhibit 10.22 to Shire’s Form 10-Q filed on November 10,
2008.
|
(32)
|
Incorporated
by reference to Exhibit 10.23 to Shire’s Form 10-Q filed on November 10,
2008.
|
(33)
|
Incorporated
by reference to Exhibit 10.24 to Shire’s Form 10-Q filed on November 10,
2008.
|
(34)
|
Incorporated
by reference to Exhibit 10.25 to Shire’s Form 10-Q filed on May 7,
2009.
|
(35)
|
Incorporated
by reference to Exhibit 10.26 to Shire’s Form 10-K filed on February 26,
2010.
|
(36)
|
Incorporated
by reference to Exhibit 21 to Shire’s Form 10-K filed on February 27,
2009.
|
43
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date:
May 6,
2010
|
/s/ Angus
Russell
|
|
Angus
Russell
Chief
Executive Officer
|
||
Date:
May 6,
2010
|
/s/ Graham
Hetherington
|
|
Graham
Hetherington
Chief
Financial Officer
|
||
44