Attached files

file filename
EX-31.1 - EXHIBIT 31.1 - Shire plcdp60717_ex3101.htm
EX-31.2 - EXHIBIT 31.2 - Shire plcdp60717_ex3102.htm
EX-32.1 - EXHIBIT 32.1 - Shire plcdp60717_ex3201.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2015

 

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 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 [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

 

Large accelerated filer [X] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes [  ] No [X]

 

As at October 23, 2015 the number of outstanding ordinary shares of the Registrant was 600,611,455.

 

1 

 

 

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, Shire’s results could be materially adversely affected. The risks and uncertainties include, but are not limited to, that:

 

·Shire’s products may not be a commercial success;

 

·product sales from ADDERALL XR and INTUNIV are subject to generic competition;

 

·the failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payers in a timely manner for Shire's products may affect future revenues, financial condition and results of operations;

 

·Shire conducts its own manufacturing operations for certain of its products and is reliant on third party contract manufacturers to manufacture other products and to provide goods and services. Some of Shire’s products or ingredients are only available from a single approved source for manufacture. Any disruption to the supply chain for any of Shire’s products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis for some period of time;

 

·the manufacture of Shire’s products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches;

 

·Shire has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval;

 

·the actions of certain customers could affect Shire's ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect Shire’s revenues, financial condition or results of operations;

 

·investigations or enforcement action by regulatory authorities or law enforcement agencies relating to Shire’s activities in the highly regulated markets in which it operates may result in significant legal costs and the payment of substantial compensation or fines;

 

·adverse outcomes in legal matters and other disputes, including Shire’s ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on Shire’s revenues, financial condition or results of operations;

 

·Shire faces intense competition for highly qualified personnel from other companies and organizations. Shire is undergoing a corporate reorganization and was the subject of an unsuccessful acquisition proposal and the consequent uncertainty could adversely affect Shire’s ability to attract and/or retain the highly skilled personnel needed for Shire to meet its strategic objectives;

 

·failure to achieve Shire’s strategic objectives with respect to the acquisition of NPS Pharmaceuticals Inc. (“NPS Pharma”) may adversely affect Shire’s financial condition and results of operations;

 

·Shire's strategy to acquire Baxalta may not be successful: Baxalta may refuse to cooperate with Shire; if the proposed combination is consummated, the businesses may not be integrated successfully, including that expected synergies and other benefits of the combination may not be realized and unforeseen costs may arise; and disruption caused by the proposed transaction may adversely affect Shire;

 

·Shire is dependent on information technology and its systems and infrastructure face certain risks, including from service disruptions, the loss of sensitive or confidential information, cyber-attacks and other security breaches or data leakages that could have a material adverse effect on Shire’s revenues, financial condition or results of operations; and

 

other risks and uncertainties detailed from time to time in Shire’s filings with the Securities and Exchange Commission, including those risks outlined in “Item 1A: Risk Factors” in Shire’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

2 

 

 

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)

BUCCOLAM® (midazolam hydrochloride oromucosal solution) 

CALCICHEW® (trademark of Takeda Nycomed AS) 

CINRYZE® (C1 esterase inhibitor [human]) 

DAYTRANA® (trademark of Noven Pharmaceutical Inc.) 

DERMAGRAFT® (trademark of Organogenesis Inc. (“Organogenesis”)) 

ELAPRASE® (idursulfase) 

ELVANSE® (lisdexamfetamine dimesylate) 

FIRAZYR® (icatibant) 

FOSRENOL® (lanthanum carbonate) 

GATTEX® (teduglutide [rDNA origin]) 

INTUNIV® (guanfacine extended release) 

LIALDA® (trademark of Nogra International Limited)  

MEZAVANT® (trademark of Giuliani International Limited) 

MIMPARA® (cinacalcet HCl) 

NATPAR® (parathyroid hormone) 

NATPARA® (parathyroid hormone (rDNA)) 

PENTASA® (trademark of Ferring B.V. Corp (“Ferring”))

PLENADREN® (hydrocortisone, modified release tablet) 

REGPARA® (cinacalcet HCl) 

REPLAGAL® (agalsidase alfa) 

RESOLOR® (prucalopride) 

REVESTIVE® (teduglutide) 

SENSIPAR® (cinacalcet HCl) 

VANCOCIN® (trademark of ANI Pharmaceuticals Inc.) 

VPRIV® (velaglucerase alfa) 

VYVANSE® (lisdexamfetamine dimesylate) 

XAGRID® (anagrelide hydrochloride) 

ZEFFIX® (trademark of GSK) 

3TC® (trademark of GSK)

 

3 

 

SHIRE PLC

Form 10-Q for the three months to September 30, 2015

 

Table of contents

 

    Page
PART I FINANCIAL INFORMATION 5
ITEM 1. FINANCIAL STATEMENTS  
Unaudited Consolidated Balance Sheets at September 30, 2015 and December 31, 2014 5
Unaudited Consolidated Statements of Income for the three months and nine months to September 30, 2015 and September 30, 2014 7
Unaudited Consolidated Statements of Comprehensive Income for the three months and nine months to September 30, 2015 and September 30, 2014 9
Unaudited Consolidated Statement of Changes in Equity for the nine months to September 30, 2015 10
Unaudited Consolidated Statements of Cash Flows for the nine months to September 30, 2015 and September 30, 2014 11
Notes to the Unaudited Consolidated Financial Statements 13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 62
ITEM 4. CONTROLS AND PROCEDURES 62
PART II OTHER INFORMATION 63
ITEM 1. LEGAL PROCEEDINGS 63
ITEM 1A. RISK FACTORS 63
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 63
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 63
ITEM 4. MINE SAFETY DISCLOSURES 63
ITEM 5. OTHER INFORMATION 63
ITEM 6. EXHIBITS 64

 

4 

 

 

PART I: FINANCIAL INFORMATION 

ITEM1: FINANCIAL STATEMENTS

 

SHIRE PLC

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

      September 30,  December 31,
      2015  2014
   Notes  $’M  $’M
ASSETS               
Current assets:               
Cash and cash equivalents        44.9    2,982.4 
Restricted cash        102.0    54.6 
Accounts receivable, net   5    1,296.0    1,035.1 
Inventories   6    608.9    544.8 
Deferred tax asset        439.3    344.7 
Prepaid expenses and other current assets   8    215.0    221.5 
                
Total current assets        2,706.1    5,183.1 
                
Non-current assets:               
Investments        44.2    43.7 
Property, plant and equipment, net (“PP&E”)        795.9    837.5 
Goodwill   9    4,289.6    2,474.9 
Other intangible assets, net   10    9,450.6    4,934.4 
Deferred tax asset        143.6    112.1 
Other non-current assets        23.6    46.4 
                
Total assets        17,453.6    13,632.1 
                
LIABILITIES AND EQUITY               
Current liabilities:               
Accounts payable and accrued expenses   11    2,001.8    1,909.4 
Short-term borrowings   13    2,005.7    850.0 
Other current liabilities   12    257.0    262.5 
                
Total current liabilities        4,264.5    3,021.9 
                
Non-current liabilities:               
Long-term borrowings   13    70.7    - 
Deferred tax liability        2,824.8    1,210.6 
Other non-current liabilities   14    739.8    736.7 
                
Total liabilities        7,899.8    4,969.2 
                
Commitments and contingencies   15    -    - 

 

5 

 

 

SHIRE PLC

UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)

 

          
      September 30,  December 31,
      2015  2014
   Notes  $’M  $’M
          
Equity:               
Common stock of 5p par value; 1,000 million shares authorized; and 600.6 million shares issued and outstanding (2014: 1,000 million shares authorized; and 599.1 million shares issued and outstanding)        58.9    58.7 
Additional paid-in capital        4,439.2    4,338.0 
Treasury stock: 9.7 million shares (2014: 10.6 million shares)        (321.2)   (345.9)
Accumulated other comprehensive loss   16    (155.1)   (31.5)
Retained earnings        5,532.0    4,643.6 
                
Total equity        9,553.8    8,662.9 
                
Total liabilities and equity        17,453.6    13,632.1 

 

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

 

6 

 

 

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

      3 months to  3 months to  9 months to  9 months to
      September 30,  September 30,  September 30,  September 30,
      2015  2014  2015  2014
   Notes  $’M  $’M  $’M  $’M
Revenues:                         
  Product sales        1,576.8    1,552.0    4,476.2    4,329.7 
  Royalties          76.3    39.9    218.2    101.4 
  Other revenues        1.9    5.2    6.6    14.9 
                          
Total revenues        1,655.0    1,597.1    4,701.0    4,446.0 
                          
Costs and expenses:                         
  Cost of product sales        262.7    254.3    718.5    760.8 
  Research and development(1)        241.2    228.6    1,210.8    826.0 
  Selling, general and administrative(1)        575.0    522.9    1,708.9    1,449.4 
  Gain on sale of product rights        (0.7)   (46.0)   (13.0)   (86.2)
  Reorganization costs   3    31.1    28.2    59.6    123.4 
  Integration and acquisition costs   4    89.9    37.1    (46.8)   155.8 
                          
Total operating expenses        1,199.2    1,025.1    3,638.0    3,229.2 
                           
Operating income from continuing operations        455.8    572.0    1,063.0    1,216.8 
                           
Interest income        0.8    3.6    3.4    22.8 
Interest expense        (10.7)   (6.8)   (31.6)   (25.7)
Other income, net        9.6    6.8    11.9    14.8 
                          
Total other (expense)/ income, net        (0.3)   3.6    (16.3)   11.9 
                          
Income from continuing operations before income taxes and equity in (losses)/ earnings of equity method investees          455.5    575.6    1,046.7    1,228.7 
Income taxes   21    22.3    (61.2)   9.0    64.7 
                          
Equity in (losses)/ earnings of equity method investees, net of taxes        (0.7)   1.4    (1.6)   3.8 
                          
Income from continuing operations, net of taxes        477.1    515.8    1,054.1    1,297.2 
Loss from discontinued operations, net of  taxes   7    (24.3)   (36.1)   (31.3)   (64.0)
                          
Net income          452.8    479.7    1,022.8    1,233.2 

 

(1)Research and development (“R&D”) includes IPR&D intangible asset impairment charges of $nil for the three months to September 30, 2015 (2014: $nil) and $523.3 million for the nine months to September 30, 2015 (2014: $188.0 million). Selling, general and administrative (“SG&A”) costs include amortization of intangible assets relating to intellectual property rights acquired of $132.7 million for the three months to September 30, 2015 (2014: $62.9 million) and $352.3 million for the nine months to September 30, 2015 (2014: $181.9 million).

 

7 

 

 

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (continued)

 

      3 months to  3 months to  9 months to  9 months to
      September 30,  September 30,  September 30,  September 30,
   Notes  2015  2014  2015  2014
Earnings per ordinary share - basic                         
                          
Earnings from continuing operations        80.7c   87.8c   178.6c   221.3c
Loss from discontinued operations       (4.1c)   (6.1c)   (5.3c)   (10.9c)
                          
Earnings per ordinary share - basic        76.6c   81.7c   173.3c   210.4c
                          
Earnings per ordinary share - diluted                         
                          
Earnings from continuing operations        80.4c   87.0c   177.7c   219.1c
Loss from discontinued operations       (4.1c)   (6.1c)   (5.3c)   (10.8c)
                          
Earnings per ordinary share - diluted        76.3c   80.9c   172.4c   208.3c
                          
Cash dividends declared per common share        -    -    19.1c   16.9c
                          
Weighted average number of shares (millions):                         
Basic   19    590.9    587.6    590.2    586.1 
Diluted   19    593.4    592.6    593.2    592.1 

 

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

 

8 

 

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   3 months to
September 30,
  3 months to
September 30,
  9 months to
September 30,
  9 months to
September 30,
   2015  2014  2015  2014
   $'M  $'M  $'M  $'M
Net income   452.8    479.7    1,022.8    1,233.2 
Other comprehensive income:                    
Foreign currency translation adjustments   (41.6)   (86.1)   (124.9)   (75.9)
Unrealized holding (loss)/gain on available-for-sale securities (net of taxes of $nil, $3.4 million,  $nil and $1.3 million)   (2.0)   (7.2)   1.3    (3.5)
                     
Comprehensive income   409.2    386.4    899.2    1,153.8 

 

The components of accumulated other comprehensive income as at September 30, 2015 and December 31, 2014 are as follows:

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Foreign currency translation adjustments   (150.6)   (25.7)
Unrealized holding loss on available-for-sale securities, net of taxes   (4.5)   (5.8)
           
Accumulated other comprehensive loss   (155.1)   (31.5)


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

 

9 

 

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In millions of US dollars except share data)

 

    Shire plc shareholders' equity 
    Common stock Number of shares
M's
    Common stock
$'M
    Additional paid-in capital
$’M
    Treasury stock 
$'M
    Accumulated other comprehensive loss
$'M
    Retained earnings
$'M
    Total equity
$'M
 
As at January 1, 2015   599.1    58.7    4,338.0    (345.9)   (31.5)   4,643.6    8,662.9 
Net income   -    -    -    -    -    1,022.8    1,022.8 
Other comprehensive loss, net of tax   -    -    -    -    (123.6)   -    (123.6)
Options exercised   1.5    0.2    -    -    -    -    0.2 
                                    
Share-based compensation   -    -    70.8    -    -    -    70.8 
                                    
Tax benefit associated with exercise of stock options   -    -    30.4    -    -    -    30.4 
                                    
Shares released by employee benefit trust to satisfy exercise of stock options   -    -    -    24.7    -    (24.2)   0.5 
                                    
Dividends   -    -    -    -    -    (110.2)   (110.2)
As at September 30, 2015   600.6    58.9    4,439.2    (321.2)   (155.1)   5,532.0    9,553.8 

 

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

 

Dividends per share

 

During the nine months to September 30, 2015 Shire plc declared and paid dividends of 19.09 US cents per ordinary share (equivalent to 57.27 US cents per ADS) totalling $110.2 million.

 

10 

 

 

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   9 months to  9 months to
   September 30,  September 30,
   2015  2014
   $’M  $’M
       
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income   1,022.8    1,233.2 
           
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   457.4    307.1 
Share-based compensation   70.8    78.3 
Change in fair value of contingent consideration   (196.5)   26.3 
Impairment of intangible assets    523.3    188.0 
Write down of assets   -    14.0 
Gain on sale of product rights   (13.0)   (52.6)
Unwind of inventory fair value step-ups   23.0    90.6 
Other, net    (3.8)   16.5 
Movement in deferred taxes   (178.3)   63.1 
Equity in losses/(earnings) of equity method investees   1.6    (3.8)
           
Changes in operating assets and liabilities:          
Increase in accounts receivable   (288.1)   (92.1)
Increase in sales deduction accruals   100.0    28.2 
Increase in inventory   (21.7)   (15.8)
Decrease/(increase) in prepayments and other assets   21.2    (114.7)
Increase/(decrease) in accounts and notes payable and other liabilities   56.5    (92.8)
           
Net cash provided by operating activities (A)   1,575.2    1,673.5 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Movements in restricted cash   (48.0)   (32.3)
Purchases of subsidiary undertakings and businesses, net of cash acquired   (5,553.4)   (4,104.4)
Purchases of non-current investments   (5.2)   (22.8)
Purchases of PP&E   (62.1)   (49.8)
Proceeds from short-term investments   67.0    57.8 
Proceeds received on sale of product rights   14.5    122.7 
Proceeds from disposal of non-current investments   18.5    21.3 
Other, net   2.7    1.3 
           
Net cash used in investing activities (B)   (5,566.0)   (4,006.2)

 

11 

 

 

SHIRE PLC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

 

   9 months to  9 months to
   September 30,  September 30,
   2015  2014
   $’M  $’M
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from revolving line of credit, long term and short term borrowings   3,650.8    2,310.8 
Repayment of revolving line of credit and short term borrowings   (2,486.1)   (1,461.8)
Repayment of debt acquired through business combinations   -    (551.5)
Proceeds from ViroPharma call options   -    346.7 
Payment of dividend   (110.2)   (99.6)
Excess tax benefit associated with exercise of stock options   30.5    37.4 
Contingent consideration payments   (8.8)   (12.8)
Other, net   (21.3)   (2.0)
           
Net cash provided by financing activities(C)   1,054.9    567.2 
           
Effect of foreign exchange rate changes on cash and cash equivalents (D)   (1.6)   (6.2)
           
Net decrease in cash and cash equivalents(A+B+C+D)   (2,937.5)   (1,771.7)
Cash and cash equivalents at beginning of period   2,982.4    2,239.4 
           
Cash and cash equivalents at end of period   44.9    467.7 

 

Supplemental information associated with continuing
operations:

 

   9 months to  9 months to
   September 30,  September 30,
   2015  2014
   $’M  $’M
           
Interest (paid)/received   (13.1)   8.0 
Income taxes repaid   77.0    232.6 
Income taxes paid   (97.5)   (156.3)

 

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

 

12 

 

SHIRE PLC

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

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 balance sheet as at December 31, 2014 was derived from audited financial statements but does not include all disclosures required by US GAAP.

 

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, 2014.

 

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, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to fairly state the results of the interim period and the Company believes that the disclosures are adequate to make the information presented not misleading. 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. Estimates and assumptions are primarily made in relation to the valuation of intangible assets, sales deductions, income taxes (including provisions for uncertain tax positions and the realization of deferred tax assets), provisions for litigation and legal proceedings, contingent consideration receivable from product divestments and contingent consideration payable in respect of business combinations and asset purchases. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate.

 

(c) New accounting pronouncements

 

Adopted during the period

 

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

 

In April 2014 the Financial Accounting Standards Board (“FASB”) issued guidance on the reporting of discontinued operations and disclosures of disposals of components of an entity. The amendments in this update revise the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The guidance requires expanded disclosures for discontinued operations which provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations. The guidance also requires an entity to disclose the pre-tax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting.

 

Shire adopted this guidance in the period, which will be effective for discontinued operations occurring after January 1, 2015. The adoption of this guidance did not impact the Company’s consolidated financial position, results of operations or cash flows.

 

To be adopted in future periods

 

Revenue from Contracts with Customers

 

In May 2014 the FASB and the International Accounting Standards Board (together the “Accounting Standards Boards”) issued a new accounting standard that is intended to clarify and converge the financial reporting requirements for revenue

 

13 

 

from contracts with customers. The core principle of the standard is that an “entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services”. To achieve that core principle the Accounting Standards Boards developed a five-step model (as presented below) and related application guidance, which will replace most existing revenue recognition guidance in US GAAP.

 

Five-step model:

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract. 

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Accounting Standards Boards also issued new qualitative and quantitative disclosure requirements as part of the new accounting standard which aims to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

In August 2015 the FASB decided to defer the effective date of the guidance by one year. Based on this deferral, public entities would need to apply the new guidance for annual reporting periods beginning after December 15, 2017, and interim periods therein. The Company is currently evaluating the impact of adopting this guidance.

 

Amendments to the Consolidation Analysis

 

In February 2015 the FASB issued guidance to respond to stakeholders’ concerns about the current accounting for consolidation of certain legal entities. Financial statement users asserted that in certain situations in which consolidation is ultimately required, deconsolidated financial statements are necessary to better analyze the reporting entity’s economic and operational results. Previously, the FASB issued an indefinite deferral for certain entities to partially address those concerns. However, the amendments in this guidance rescind that deferral and address those concerns by making changes to the consolidation guidance.

 

Under the amendments, all reporting entities are within the scope of Subtopic 810-10, Consolidation, including limited partnerships and similar legal entities, unless a scope exception applies. The presumption that a general partner controls a limited partnership has been eliminated. In addition, fees paid to decision makers that meet certain conditions no longer cause decision makers to consolidate a VIE in certain instances. The amendments place more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (for example, debt or equity interests), guarantees of the value of the assets or liabilities of the VIE, written put options on the assets of the VIE, or similar obligations, including some liquidity commitments or agreements (explicit or implicit). Additionally, the amendments reduce the extent to which related party arrangements cause an entity to be considered a primary beneficiary.

 

The amendments are effective for public business entities for fiscal years, and for interim periods therein, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial position, results of operations and cash flows.

 

Simplifying the Presentation of Debt Issuance Costs

 

In April 2015 the FASB issued guidance to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.

 

In August 2015 the FASB issued further guidance to incorporate the SEC staff’s observation that, given the absence of authoritative guidance, the SEC staff would not object to an entity deferring and presenting debt issuance costs arising from line-of-credit arrangements as an asset and subsequently amortizing these costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

 

The amendments in these updates are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods therein. Early adoption is permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial position, results of operations and cash flows.

 

14 

 

 

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

 

In April 2015 the FASB issued guidance to simplify the customer’s accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted for all entities. An entity can elect to adopt the guidance either a) prospectively to all arrangements entered into or materially modified after the effective date or b) retrospectively. The Company is currently evaluating the impact of adopting this guidance.

 

Simplifying the Measurement of Inventory

 

In July 2015 the FASB issued guidance to simplify the measurement of inventory which currently requires an entity to measure its inventory at the lower of cost or market, whereby market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendment provides guidance that an entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last in first out or the retail inventory method. This amendment will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted for all entities. The Company is currently evaluating the impact of adopting this guidance.

 

Simplifying the Accounting for Measurement-Period Adjustments

 

In September 2015 the FASB issued guidance to simplify the accounting for measurement-period adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance further requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date and present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance will be effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued.

 

2. Business combinations

 

Acquisition of NPS Pharma

 

On February 21, 2015 Shire completed its acquisition of 100% of the outstanding share capital of NPS Pharma. The acquisition-date fair value of cash consideration paid on closing was $5,220 million.

 

The acquisition of NPS Pharma added GATTEX/REVESTIVE, approved in the US and EU for the treatment of adults with short bowel syndrome (“SBS”), a rare and potentially fatal gastrointestinal disorder and NATPARA/NATPAR approved in the US for the treatment of hypoparathyroidism (“HPT”), a rare endocrine disease, to Shire’s portfolio of currently marketed products.

 

The acquisition of NPS Pharma has been accounted for as a business combination using the acquisition method. The assets acquired and the liabilities assumed from NPS Pharma have been recorded at their preliminary fair values at the date of acquisition, being February 21, 2015. The Company’s consolidated financial statements include the results of NPS Pharma from February 21, 2015.

 

The amount of NPS Pharma’s post-acquisition revenues and pre-tax losses included in the Company’s consolidated statement of income for the three months to September 30, 2015 were $86.7 million and $47.5 million respectively. The pre-tax loss includes charges relating to the unwind of inventory fair value adjustments of $6.7 million, intangible asset amortization of $70.9 million and integration costs of $16.2 million.

 

The amount of NPS Pharma’s post-acquisition revenues and pre-tax losses included in the Company’s consolidated statement of income for the nine months to September 30, 2015 were $193.8 million and $207.4 million respectively. The pre-tax loss includes charges on the unwind of inventory fair value adjustments of $21.7 million, intangible asset amortization of $172.4 million and integration costs of $76.9 million.

 

15 

 

 

The Company’s preliminary allocation of the purchase price to the assets acquired and liabilities assumed, including certain immaterial measurement period adjustments recorded in the second quarter of 2015, is outlined below:

 

   Preliminary
   Fair value
   $’M
    
ASSETS   
Current assets:     
Cash and cash equivalents   41.6 
Short-term investments   67.0 
Accounts receivable   33.4 
Inventories   89.4 
Deferred tax assets   156.3 
Other current assets   11.1 
      
Total current assets   398.8 
      
Non-current assets:     
PP&E   4.8 
Goodwill   1,679.4 
Other intangible assets     
 - currently marketed products   4,640.0 
 - royalty rights (categorized as "Other amortized intangible assets" )   353.0 
      
Total assets   7,076.0 
      
LIABILITIES     
Current liabilities:     
Accounts payable and other current liabilities   72.5 
Short-term debt   27.4 
      
Non-current liabilities:     
Long-term debt, less current portion   78.9 
Deferred tax liabilities   1,673.1 
Other non-current liabilities   4.5 
      
 Total liabilities   1,856.4 
      
Fair value of identifiable assets acquired and liabilities assumed   5,219.6 
      
Consideration     
Cash consideration paid   5,219.6 

 

The purchase price allocation is preliminary pending final determination of the fair values of certain assets and liabilities. In particular the fair values of intangible assets and current and deferred tax assets and liabilities are preliminary pending receipt of the final valuations for those items. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

 

(a) Other intangible assets – currently marketed products

 

Other intangible assets totaling $4,640.0 million relate to intellectual property rights acquired for NPS Pharma’s currently marketed products, primarily attributed to NATPARA/NATPAR and GATTEX/REVESTIVE. The fair value of the currently marketed products is preliminary and has been estimated using an income approach, based on the present value of incremental after tax cash flows attributable to each separately identifiable intangible asset.

 

16 

 

 

The estimated useful lives of the NATPARA/NATPAR and GATTEX/REVESTIVE intangible assets are 24 years, with amortization being recorded on a straight-line basis.

 

(b) Other intangible assets – Royalty rights

 

Other intangibles totaling $353.0 million relate to the royalty rights arising from the collaboration agreements with Amgen, Janssen and Kyowa Hakko Kirin. Amgen markets cinacalcet HCl as Sensipar in the US and as Mimpara in the EU; Janssen Pharmaceuticals markets tapentadol as Nucynta in the US; and Kyowa Hakko Kirin markets cinacalcet HCI as Regpara in Japan, Hong Kong, Malaysia, Macau, Singapore, and Taiwan. NPS Pharma is entitled to royalties from the relevant net sales of these products.

 

The fair value of these royalty rights is preliminary and has been estimated using an income approach, based on the present value of incremental after tax cash flows attributable to each royalty right.

 

The estimated useful lives of these royalty rights range from 4 to 5 years (weighted average 4 years), with amortization being recorded on a straight-line basis.

 

(c) Goodwill

 

Goodwill arising of $1,679.4 million, which is not deductible for tax purposes, includes the expected synergies that will result from combining the operations of NPS Pharma with the operations of Shire, particularly those synergies expected to be realized due to Shire’s structure; intangible assets that do not qualify for separate recognition at the time of the acquisition; and the value of the assembled workforce.

 

In the three and nine months to September 30, 2015 the Company expensed costs of $13.6 million and $131.2 million respectively, relating to the acquisition and post-acquisition integration of NPS Pharma, which have been recorded within Integration and acquisition costs in the Company’s consolidated statement of income.

 

Supplemental disclosure of pro forma information

 

The following unaudited pro forma financial information presents the combined results of the operations of Shire and NPS Pharma as if the acquisition of NPS Pharma had occurred as at January 1, 2014. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the acquisition been completed at the date indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.

 

   9 months to  9 months to
   September 30,  September 30,
   2015  2014
   $’M  $’M
Revenues   4,730.9    4,603.4 
           
Net income from continuing operations   1,005.6    1,028.8 
           
Per share amounts:          
Net income from continuing operations per share - basic   170.4c   175.5c
           
Net income from continuing operations per share - diluted   169.5c   173.8c

 

The unaudited pro forma financial information above reflects the following pro forma adjustments:

 

(i)an adjustment to decrease net income by $105.2 million for the period to September 30, 2014 to reflect acquisition costs incurred by Shire and NPS Pharma, and increase net income by $105.2 million for the period to September 30, 2015 to eliminate acquisition costs incurred;

 

(ii)an adjustment to decrease net income by $13.4 million for the period to September 30, 2014 to reflect charges on the unwind of inventory fair value adjustments as acquisition date inventory is sold, and a corresponding increase in net income for the period to September 30, 2015;

 

17 

 

 

(iii)an adjustment of $16.7 million in the period to September 30, 2014 to reflect additional interest expense associated with the drawdown of debt to partially finance the acquisition of NPS Pharma and the amortization of related deferred debt issuance costs; and

 

(iv)an adjustment to increase amortization expense by approximately $21.2 million in the period to September 30, 2015 and $126.5 million in the period to September 30, 2014 related to amortization of the fair value of identifiable intangible assets acquired and the elimination of NPS Pharma’s historical intangible asset amortization expense.

 

The adjustments above are stated net of their tax effects, where applicable.

 

Acquisition of Foresight Biotherapeutics, Inc. (“Foresight”)

 

On July 30, 2015 Shire completed the acquisition of 100% of the outstanding share capital of Foresight, a privately owned company incorporated in New York. The acquisition-date fair value of cash consideration, which was paid on closing, was $298.8 million.

 

With this acquisition, Shire acquired the global rights to SHP640 (formerly FST-100), a Phase-3 ready therapy for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye.

 

The acquisition of Foresight has been accounted for as a business combination using the acquisition method. The assets and liabilities acquired from Foresight have been recorded at their preliminary fair values at the date of acquisition, being July 30, 2015. The Company’s consolidated financial statements include the results of Foresight from July 30, 2015.

 

The purchase price allocation is preliminary pending the determination of the fair values of certain assets and liabilities. The purchase price has been allocated on a preliminary basis to the SHP640 IPR&D intangible asset ($300.0 million), net current assets assumed ($3.0 million), net non-current liabilities assumed (including deferred tax liabilities) ($116.3 million) and goodwill ($112.1 million). Goodwill is not deductible for tax purposes.

 

Unaudited pro forma financial information to present the combined results of operations of Shire and Foresight is not provided as the impact of this acquisition is not material to the Company’s results of operations for any period presented.

 

Acquisition of Solpharm d.o.o (“Solpharm”)

 

On September 28, 2015 Shire completed the acquisition of 100% of the outstanding share capital of Solpharm, a privately-owned company incorporated in Croatia. The acquisition-date fair value of consideration was $5.2 million, comprising cash paid on closing of $4.5 million and the fair value of contingent consideration payable of $0.7 million (maximum payable $3.1 million dependent upon achievement of post-closing milestones). Shire has preliminarily allocated the purchase price to goodwill ($4.4 million) and other net assets ($0.8 million).

 

Unaudited pro forma financial information to present the combined results of operations of Shire and Solpharm is not provided as the impact of this acquisition is not material to the Company’s results of operations for any period presented.

 

Acquisition of Meritage Pharma Inc. (“Meritage”)

 

Prior to the acquisition of ViroPharma Incorporated (“ViroPharma”) by Shire (see below), ViroPharma had entered into an exclusive development and option agreement with Meritage, a privately owned US company focusing on developing oral budesonide suspension (“OBS”) as a treatment for eosinophilic esophagitis. Under the terms of this agreement Meritage controlled and conducted all related research up to achievement of pre-defined development success criteria at which point ViroPharma had the option to acquire Meritage.

 

On February 18, 2015, following the exercise of the purchase option, Shire acquired all the outstanding equity of Meritage. The acquisition date fair value of the consideration totalled $166.9 million, comprising cash consideration paid on closing of $74.8 million and the fair value of contingent consideration payable of $92.1 million. The maximum amount of contingent cash consideration which may be payable by Shire in future periods is $175.0 million dependent upon achievement of certain clinical development and regulatory milestones.

 

With the Meritage acquisition, Shire has acquired the global rights to Meritage’s Phase 3-ready compound, OBS (now SHP621), for the treatment of adolescents and adults with eosinophilic esophagitis.

 

The acquisition of Meritage has been accounted for as a business combination using the acquisition method. The assets and liabilities assumed from Meritage have been recorded at their preliminary fair values at the date of acquisition, being

 

18 

 

February 18, 2015. The Company’s consolidated financial statements and results of operations include the results of Meritage from February 18, 2015.

 

The purchase price allocation is preliminary pending the determination of the fair values of certain assets and liabilities. The purchase price has been allocated on a preliminary basis to the SHP621 IPR&D intangible asset ($175 million), net current assets assumed ($5.5 million), net non-current liabilities assumed (including deferred tax liabilities) ($54.7 million) and goodwill ($41.1 million). Goodwill arising of $41.1 million is not deductible for tax purposes.

 

Unaudited pro forma financial information to present the combined results of operations of Shire and Meritage is not provided as the impact of this acquisition is not material to the Company’s results of operations for any period presented.

 

Acquisition of ViroPharma

 

On January 24, 2014 Shire completed its acquisition of 100% of the outstanding share capital of ViroPharma. The acquisition-date fair value of cash consideration paid on closing was $3,997 million.

 

The acquisition of ViroPharma added CINRYZE to Shire’s portfolio of currently marketed products. CINRYZE is a leading brand for the prophylactic treatment of Hereditary Angioedema (“HAE”) in adolescents and adults.

 

The acquisition of ViroPharma has been accounted for as a business combination using the acquisition method. The assets acquired and the liabilities assumed from ViroPharma have been recorded at their fair values at the date of acquisition, being January 24, 2014. The Company’s consolidated financial statements include the results of ViroPharma from January 24, 2014.

 

The purchase price allocation was finalized in the fourth quarter of 2014. The Company’s allocation of the purchase price to the fair value of assets acquired and liabilities assumed is outlined below:

 

19 

 

  

   Acquisition date fair value
   $’M
Identifiable assets acquired and liabilities assumed   
    
ASSETS     
Current assets:     
Cash and cash equivalents   232.6 
Short-term investments   57.8 
Accounts receivable   52.2 
Inventories   203.6 
Deferred tax assets   100.7 
Purchased call option   346.7 
Other current assets   50.9 
      
Total current assets   1,044.5 
      
Non-current assets:     
PP&E   24.7 
Goodwill   1,655.5 
Other intangible assets     
 - Currently marketed products   2,320.0 
 - In-Process Research and Development (“IPR&D”)   315.0 
Other non-current assets   10.4 
      
Total assets   5,370.1 
      
LIABILITIES     
Current liabilities:     
Accounts payable and other current liabilities   122.7 
Convertible bond   551.4 
      
Non-current liabilities:     
Deferred tax liabilities   603.5 
Other non-current liabilities   95.5 
      
 Total liabilities   1,373.1 
      
Fair value of identifiable assets acquired and liabilities assumed   3,997.0 
      
Consideration     
Cash consideration paid   3,997.0 

 

(a) Other intangible assets – currently marketed products

 

Other intangible assets totaled $2,320.0 million at the date of acquisition, relating to intellectual property rights acquired for ViroPharma’s then currently marketed products, primarily attributed to CINRYZE, for the routine prophylaxis against HAE attacks in adolescent and adult patients. Shire also obtained intellectual property rights to three other

 

20 

 

 

commercialized products, PLENADREN, an orphan drug for the treatment of adrenal insufficiency in adults, BUCCOLAM, an oromucosal solution for the treatment of prolonged, acute, and convulsive seizures in infants, toddlers, children and adolescents and VANCOCIN, an oral capsule formulation for the treatment of C. difficile-associated diarrhea (“CDAD”), which was divested by Shire in the third quarter of 2014. The fair value of currently marketed products has been estimated using an income approach, based on the present value of incremental after tax cash flows attributable to each separately identifiable intangible asset.

 

The estimated useful lives of the CINRYZE, PLENADREN and BUCCOLAM intangible assets range from 10 to 23 years (weighted average 22 years), with amortization being recorded on a straight-line basis.

 

(b) Other intangible assets – IPR&D

 

The IPR&D asset of $315.0 million relates to maribavir (now SHP620), an investigational antiviral product for cytomegalovirus. The fair value of this IPR&D asset was estimated based on an income approach, using the present value of incremental after tax cash flows expected to be generated by this development project after the deduction of contributory asset charges for other assets employed in this project. The estimated cash flows have been probability adjusted to take into account the stage of completion and the remaining risks and uncertainties surrounding the future development and commercialization.

 

The major risks and uncertainties associated with the timely completion of the acquired IPR&D project include the ability to confirm the efficacy of the technology based on the data from clinical trials, and obtaining the relevant regulatory approvals as well as other risks as described in the Company’s Annual Report on Form 10-K. The valuation of IPR&D has been based on information available at the time of the acquisition (and information obtained during the measurement period) and on expectations and assumptions that (i) have been deemed reasonable by the Company’s management and (ii) are based on information, expectations and assumptions that would be available to a market participant. However, no assurance can be given that the assumptions and events associated with such assets will occur as projected. For these reasons, the actual cash flows may vary from forecast future cash flows.

 

The estimated probability adjusted after tax cash flows used in fair valuing other intangible assets have been discounted at rates ranging from 9.5% to 10.0%.

 

(c) Goodwill

 

Goodwill arising of $1,655.5 million, which is not deductible for tax purposes, includes the expected operational synergies that will result from combining the commercial operations of ViroPharma with those of Shire (valued at approximately $400 million); other synergies expected to be realized due to Shire’s structure; intangible assets that do not qualify for separate recognition at the time of the acquisition; and the value of the assembled workforce.

 

3. Reorganization costs

 

One Shire business reorganization

 

On May 2, 2013, the Company initiated the reorganization of its business to integrate the three divisions into a simplified One Shire organization in order to drive future growth and innovation.

 

In 2014 certain aspects of the One Shire program were temporarily put on hold due to AbbVie’s offer for Shire, which was terminated in October 2014. Subsequent to the termination of AbbVie’s offer, Shire announced on November 10, 2014 its plans to relocate over 500 positions to Lexington, Massachusetts from its Chesterbrook, Pennsylvania, site and establish Lexington as the Company’s US operational headquarters in continuation of the One Shire efficiency program. This relocation will streamline business globally through two principal locations, Massachusetts and Switzerland, with support from regional and country-based offices around the world.

 

In the three and nine months to September 30, 2015 the Company incurred reorganization costs totaling $31.1 million and $59.6 million respectively, relating to employee involuntary termination benefits and other reorganization costs. Reorganization costs of $305.1 million have been incurred since May 2013. The One Shire reorganization is expected to be substantially completed by the end of 2015. Currently, the Company estimates that further costs in respect of the One Shire reorganization of approximately $85 million will be expensed as incurred.

 

The liability for reorganization costs arising from the One Shire business reorganization at September 30, 2015 is as follows:

 

21 

 

 

   Opening liability at January 1,  Amount charged to re-     Closing liability at September 30,
   2015  organization  Paid/Utilized  2015
   $'M  $'M  $'M  $'M
             
Involuntary termination benefits   38.0    38.5    (53.7)   22.8 
Other reorganization costs   -    21.1    (10.4)   10.7 
    38.0    59.6    (64.1)   33.5 

 

At September 30, 2015 the closing reorganization cost liability was recorded within accounts payable and accrued expenses.

 

4. Integration and acquisition costs

 

For the three months to September 30, 2015 integration and acquisition costs of $89.9 million principally comprise costs related to the acquisition and integration of NPS Pharma, Viropharma and the proposed combination with Baxalta ($30.7 million) and charges related to the change in the fair value of contingent consideration liabilities ($59.2 million) principally in relation to the acquisition of Lumena Pharmaceuticals, Inc. (“Lumena”), following the agreement to settle all future contingent milestones payable to former Lumena shareholders through a one-time $90 million payment.

 

For the nine months to September 30, 2015 Shire recorded a net credit to integration and acquisition costs of $46.8 million. The net credit principally comprises costs related to the acquisition and integration of NPS Pharma, Viropharma and the proposed combination with Baxalta ($149.7 million), offset by a net credit relating to the change in the fair value of contingent consideration liabilities ($196.5 million). The net credit relating to the change in fair value of contingent consideration liabilities in the nine months to September 30, 2015 principally relates to the acquisition of Lumena, reflecting (i) a lower probability of success for the SHP625 asset following the receipt of data from certain Phase 2 studies and (ii) the aforementioned agreement in the third quarter of 2015 to settle all future contingent milestones payable to former Lumena shareholders, and the acquisition of Lotus Tissue Repair, Inc. reflecting a lower probability of success for the SHP608 asset (for the treatment of Dystrophic Epidermolysis Bullosa (“DEB”)) as a result of certain preclinical toxicity findings (see note 10 for further details).

 

In the three and nine months to September 30, 2014 Shire recorded integration and acquisition costs of $37.1 million and $155.8 million respectively. In the three months to September 30, 2014 the charge comprised a $4.9 million net charge on the change in fair value of contingent consideration liabilities and $32.2 million relating to the acquisition and integration of ViroPharma. In the nine months to September 30, 2014 the charge comprised $129.5 million relating to the acquisition and integration of ViroPharma and a net charge of $26.3 million relating to the change in fair value of contingent consideration liabilities (principally in relation to the acquisition of SARcode Bioscience Inc. (“SARcode”), reflecting Shire’s increased confidence in the SHP606 asset, offset by credits in relation to the acquisition of FerroKin BioSciences, Inc., reflecting the decision to place the Phase 2 clinical trial for SHP602 on clinical hold).

 

5. Accounts receivable, net

 

Accounts receivable at September 30, 2015 of $1,296.0 million (December 31, 2014: $1,035.1 million), are stated net of a provision for discounts and doubtful accounts of $55.7 million (December 31, 2014: $48.5 million).

 

22 

 

 

Provision for discounts and doubtful accounts:

 

   2015  2014
   $’M  $’M
As at January 1,   48.5    47.9 
Provision charged to operations   293.8    228.1 
Provision utilization   (286.6)   (229.8)
           
As at September 30,   55.7    46.2 

 

At September 30, 2015 accounts receivable included $71.4 million (December 31, 2014: $59.0 million) related to royalty income.

 

6. Inventories

 

Inventories are stated at the lower of cost or market. Inventories comprise:

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Finished goods   161.0    136.0 
Work-in-progress   334.9    305.3 
Raw materials   113.0    103.5 
    608.9    544.8 

 

7. Results of discontinued operations

 

Following the divestment of the Company’s DERMAGRAFT business in January 2014, the operating results associated with the DERMAGRAFT business have been classified as discontinued operations in the consolidated statements of income for all periods presented. In the three and nine months to September 30, 2015 the Company recorded a loss, net of tax of $24.3 million and $31.3 million respectively, primarily relating to a change in estimate in relation to reserves for onerous leases retained by the Company. In the three and nine months to September 30, 2014 the Company recorded a loss, net of tax of $36.1 million and $64.0 million, primarily relating to costs associated with the divestment including a loss on re-measuring to fair value the contingent consideration receivable from Organogenesis.

 

8. Prepaid expenses and other current assets

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Prepaid expenses   50.6    36.9 
Income tax receivable   96.5    121.5 
Value added taxes receivable   18.8    13.8 
Other current assets   49.1    49.3 
    215.0    221.5 

 

23 

 

 

9. Goodwill

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Goodwill arising on businesses acquired   4,289.6    2,474.9 

 

In the nine months to September 30, 2015 the Company completed the acquisitions of NPS Pharma, Meritage, Foresight and Solpharm which resulted in aggregate goodwill with a preliminary value of $1,837 million (see Note 2 for details).

 

   2015  2014
   $’M  $’M
As at January 1,   2,474.9    624.6 
Acquisitions   1,837.0    1,773.8 
Foreign currency translation   (22.3)   (24.7)

 

As at September 30,

   4,289.6    2,373.7 

 

10. Other intangible assets, net

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Amortized intangible assets      
Intellectual property rights acquired for currently marketed products   9,388.5    4,816.9 
Other intangible assets   375.0    30.0 
    9,763.5    4,846.9 
Unamortized intangible assets          
Intellectual property rights acquired for IPR&D   1,482.4    1,550.0 
    11,245.9    6,396.9 
           
Less: Accumulated amortization   (1,795.3)   (1,462.5)
    9,450.6    4,934.4 

 

1.Other intangible assets primarily comprises of royalty right assets acquired with NPS Pharma.

2.Comprising $1,734.9 million of accumulated amortization for intellectual property rights acquired for currently marketed products and $60.4 million for other intangible assets.

 

The change in the net book value of other intangible assets for the nine months to September 30, 2015 and 2014 is shown in the table below:

 

24 

 

 

   Other intangible assets
   2015  2014
   $’M  $’M
As at January 1,   4,934.4    2,312.6 
Acquisitions   5,473.7    3,332.8 
Divestment of non-core products   -    (17.3)
Amortization charged   (352.3)   (181.9)
Impairment charges   (523.3)   (188.0)
Foreign currency translation   (81.9)   (30.8)
           
As at September 30,   9,450.6    5,227.4 

 

In the nine months to September 30, 2015 the Company acquired intangible assets totaling $5,474 million, primarily relating to the fair value of intangible assets for currently marketed products and royalty right assets acquired with NPS Pharma of $4,993 million and IPR&D assets of $475 million acquired with Meritage and Foresight (see Note 2 for further details).

 

The Company reviews its intangible assets for impairment whenever events or circumstances suggest that their carrying value may not be recoverable. In the nine months to September 30, 2015 the Company identified indicators of impairment in respect of its SHP625 (for the treatment of cholestatic liver disease), and SHP608 (for the treatment of DEB) IPR&D assets.

 

The indicators of impairment related to SHP625 in the second quarter of 2015 included the results of three Phase 2 studies, comprising a 13-week study of 20 paediatric patients with Alagille syndrome (“ALGS”), a 13 week, double blind, placebo-controlled trial in combination with ursodeoxycholic acid (“UDCA”) for patients with Primary Biliary Cirrhosis (“PBC”), and preliminary results from a 72 week open label Phase 2 study in Progressive Familial Intrahepatic Cholestasis (“PFIC”). Although both the ALGS and PBC trials indicated a reduction in bile serum acids in the SHP625 treated group, neither of these trials met their primary or secondary endpoints. The interim analysis in the PFIC trial was based on the first 12 subjects who completed 13 weeks of treatment per protocol. There was no statistically significant reduction in mean serum bile acid levels from baseline. A change from baseline analysis was planned as there is no placebo treatment arm in this study. However, changes from baseline for pruritus did reach statistical significance.

 

Following these trial results, the Company reviewed the recoverability of its SHP625 IPR&D asset in the second quarter of 2015 and recorded an impairment charge of $346.6 million (within R&D expenses in the consolidated statement of income) to record the SHP625 IPR&D asset to its revised fair value of $120.4 million. This fair value was based on the revised discounted cash flow forecasts associated with SHP625, which included a reduced probability of achieving regulatory approval.

 

For SHP608, preclinical toxicity findings in the second quarter of 2015 have led to a significant reduction in the probability of achieving regulatory approval of this asset. As a result, the Company recorded an impairment charge of $176.7 million within R&D expenses in the consolidated statement of income to fully write off the SHP608 IPR&D asset.

 

The fair values of the related contingent consideration liabilities arising from the Lumena and Lotus Tissue Repair acquisitions (through which Shire acquired SHP625 and SHP608 respectively) have also been reduced, resulting in a credit of $203.4 million being recorded in Integration and acquisition costs for the nine months ended September 30, 2015.

 

In the nine months to September 30, 2014 the Company identified indicators of impairment in respect of its SHP602 (iron chelating agent for the treatment of iron overload secondary to chronic transfusion) and SHP613 (for the treatment of improvement in patency of arteriovenous access in hemodialysis patients) IPR&D assets. The Company therefore reviewed the recoverability of its SHP602 and SHP613 IPR&D assets and recorded an impairment charge of $166.0 million and $22.0 million, respectively, within R&D expenses in the consolidated statement of income to record the IPR&D assets to their revised fair value.

 

Management estimates that the annual amortization charge in respect of intangible assets held at September 30, 2015 will be approximately $470 million for each of the five years to September 30, 2020. Estimated amortization expense can be affected by various factors including future acquisitions, disposals of product rights, regulatory approval and

 

25 

 

 

subsequent amortization of acquired IPR&D projects, foreign exchange movements and the technological advancement and regulatory approval of competitor products.

 

11. Accounts payable and accrued expenses

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Trade accounts payable and accrued purchases   313.2    247.7 
Accrued rebates – Medicaid   636.4    563.9 
Accrued rebates – Managed care   336.5    318.2 
Sales return reserve   141.8    131.7 
Accrued bonuses   133.7    150.7 
Accrued employee compensation and benefits payable   118.9    109.1 
R&D accruals   71.5    88.3 
Other accrued expenses   249.8    299.8 
    2,001.8    1,909.4 

 

12. Other current liabilities

 

   September 30,  December 31,
   2015  2014
   $’M  $’M
Income taxes payable   76.0    16.2 
Value added taxes   21.6    16.6 
Contingent consideration payable   111.7    194.5 
Other current liabilities   47.7    35.2 
    257.0    262.5 

 

13. Borrowings

  

   September 30,  December 31,
   2015  2014
   $’M  $’M
           
Short term borrowings:          
Borrowings under the 2015 Facility Agreement   750.0    - 
Borrowings under the 2013 Facilities Agreement   -    850.0 
Borrowings under the RCF   1,245.0    - 
Secured non-recourse debts   10.7    - 
    2,005.7    850.0 
Long term borrowings:          
Secured non-recourse debts   70.7    - 
    2,076.4    850.0 

 

26 

 

 

Term Loan Agreements

 

2015 Facility Agreement

 

On January 11, 2015, Shire entered into an $850 million Facility Agreement with, among others, CitiGroup Global Markets Limited (acting as mandated lead arranger and bookrunner) (the “2015 Facility Agreement”).  On September 28, 2015 the Company reduced the 2015 Facility Agreement by $100 million. At September 30, 2015 the 2015 Facility Agreement, which matures on January 10, 2016, was fully utilized in the amount of $750 million. The maturity date may be extended twice, at Shire’s option, by six months on each occasion.

 

The 2015 Facility Agreement has been used to partially finance the purchase price payable in respect of Shire’s acquisition of NPS Pharma (including certain related costs). See the Company’s 2014 Annual Report on Form 10-K for details of the 2015 Facility Agreement. 

 

2013 Facilities Agreement

 

On November 11, 2013, Shire entered into a $2,600 million facilities agreement with, among others, Morgan Stanley Bank International Limited (acting as mandated lead arranger and bookrunner) (the “2013 Facilities Agreement”).  The 2013 Facilities Agreement comprised two credit facilities: (i) a $1,750 million term loan facility and (ii) an $850 million term loan facility.  

 

On December 13, 2013 and at various points thereafter, the Company cancelled parts of the 2013 Facilities Agreement. On September 28, 2015 the Company repaid in full the remaining balance of $350 million under the 2013 Facilities Agreement.

 

Revolving Credit Facility (“RCF”)

 

On December 12, 2014, Shire entered into a $2,100 million RCF with a number of financial institutions. See the Company’s 2014 Annual Report on Form 10-K for details. At September 30, 2015 the Company has utilized $1,245 million of the RCF.

 

The RCF, which terminates on December 12, 2019, may be applied towards financing the general corporate purposes of Shire. The RCF incorporates a $250 million US dollar and euro swingline facility operating as a sub-limit thereof.

 

Secured Non-recourse Debts

 

Prior to the acquisition by Shire, NPS Pharma had:

 

·partially monetized rights to receive future royalty payments from Amgen’s sales of SENSIPAR and MIMPARA through the issuance of $145 million of non-recourse debt that was both serviced and secured by SENSIPAR and MIMPARA royalty revenue;

 

·sold to DRI Capital Inc. (“DRI”) certain rights to receive up to $96 million of future royalty payments arising from Kyowa Hakko Kirin’s sales of REGPARA and granted DRI a security interest in the license agreement with Kyowa Hakko Kirin, certain patents and other intellectual property related to REGPARA which DRI would be entitled to enforce in the event of default by NPS Pharma; and

 

·partially monetized PTH-184 (now marketed as NATPARA) through an agreement with an affiliate of DRI pursuant to which NPS Pharma, its licensees and its predecessors in interest, are obligated to pay up to $125 million royalties on sales of PTH-184. Additionally, NPS Pharma granted DRI a security interest in certain patents and other intellectual property related to PTH 1-84 which DRI would be entitled to enforce in the event of default by NPS Pharma.

 

Following the acquisition of NPS Pharma the Company has assumed these secured non-recourse debt obligations.

 

In May 2015 the Company notified Amgen that it intended to repay in full the remaining non-recourse debt owed to Amgen. The repayment was effected on May 15, 2015 by Amgen withholding certain royalties that were due to the Company from SENSIPAR and MIMPARA sales in the first quarter of 2015.

 

As at September 30, 2015 $10.7 million has been included within Short-term borrowings, and $70.7 million has been included within Long-term borrowings in respect of the remaining obligations to DRI.

 

Short-term uncommitted lines of credit (“Credit lines”)

 

Shire has access to various Credit lines from a number of banks which provide flexibility to short-term cash management procedures. These Credit lines can be withdrawn by the banks at any time. The Credit lines are not relied upon for core liquidity. As at September 30, 2015 these Credit lines were not utilized.

 

27 

 

 

14. Other non-current liabilities

  

   September 30,  December 31,
   2015  2014
   $’M  $’M
Income taxes payable   190.4    199.2 
Contingent consideration payable   408.9    435.4 
Other non-current liabilities   140.5    102.1 
    739.8    736.7 

 

15. Commitments and contingencies

 

(a) Leases

 

Future minimum lease payments under operating leases at September 30, 2015 are presented below:

 

   Operating
   leases
   $’M
2015   13.5 
2016   44.7 
2017   31.6 
2018   25.3 
2019   20.9 
2020   20.0 
Thereafter   125.8 
    281.8 

 

The Company leases land, facilities, motor vehicles and certain equipment under operating leases expiring through 2032. Lease and rental expense amounted to $30.6 million and $29.3 million for the nine months to September 30, 2015 and 2014 respectively, which is predominately included in SG&A expenses in the Company’s consolidated income statement.

 

(b) Letters of credit and guarantees

 

At September 30, 2015 the Company had irrevocable standby letters of credit and guarantees with various banks and insurance companies totaling $49.0 million (being the contractual amounts), 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.

 

(c) Collaborative and other licensing arrangements

 

Details of significant updates in collaborative and other licensing arrangements are included below:

 

Out-licensing arrangements

 

On September 1, 2015 Shire and Sangamo BioSciences, Inc. (“Sangamo”) agreed to revise the collaboration and license agreement originally entered into in January 2012 to expedite the development of ZFP Therapeutics for haemophilia A and B and Huntington's disease. Under the revised terms, Shire has returned to Sangamo the exclusive world-wide rights to gene targets for the development, clinical testing and commercialization of ZFP Therapeutics for haemophilia A and B, and has retained rights and will continue to develop ZFP Therapeutic clinical leads for Huntington's disease and a ZFP Therapeutic for one additional gene target. Each company will be responsible for expenses associated with its own programs and will reimburse the other for any ongoing services provided. Sangamo has granted Shire a right of first negotiation to license the haemophilia A and B programs. No milestone payments will be made on any program and each company will pay certain royalties to the other on commercial sales up to a specified maximum cap.

 

28 

 

 

Shire has entered into various other collaborative and out-licensing 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 some 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. Under the terms of these collaborative and out-licensing arrangements, the Company may receive development milestone payments up to an aggregate amount of $39 million and sales milestones up to an aggregate amount of $46 million. The receipt of these substantive milestones is uncertain and contingent on the achievement of certain development milestones or the achievement of a specified level of annual net sales by the licensee. In the nine months to September 30, 2015 Shire received cash in respect of up-front and milestone payments totaling $12.6 million (2014: $1.0 million). In the nine months to September 30, 2015 Shire recognized milestone income of $1.5 million (2014: $3.6 million) in other revenues and $37.2 million (2014: $39.8 million) in product sales for shipment of product to the relevant licensee.

 

(d) Commitments

 

(i) Clinical testing

 

At September 30, 2015 the Company had committed to pay approximately $454 million (December 31, 2014: $382 million) to contract vendors for administering and executing clinical trials. 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 September 30, 2015 the Company had committed to pay approximately $321 million (December 31, 2014: $384 million) in respect of contract manufacturing. The Company expects to pay $71 million of these commitments in 2015.

 

(iii) Other purchasing commitments

 

At September 30, 2015 the Company had committed to pay approximately $352 million (December 31, 2014: $265 million) for future purchases of goods and services, predominantly relating to active pharmaceutical ingredients sourcing. The Company expects to pay $331 million of these commitments in 2015.

 

(iv) Investment commitments

 

At September 30, 2015 the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totaling $49 million (December 31, 2014: $67 million) which may all be payable in 2015, depending on the timing of capital calls. The investment commitments include additional funding to certain VIEs of which Shire is not the primary beneficiary.

 

(v) Capital commitments

 

At September 30, 2015 the Company had committed to spend $21 million (December 31, 2014: $3 million) on capital projects.

 

(e) Legal and other proceedings

 

The Company expenses legal costs as they are incurred.

 

The Company recognizes loss contingency provisions for probable losses when management is able to reasonably estimate the loss. When the estimated loss lies within a range, the Company records a loss contingency provision based on its best estimate of the probable loss. If no particular amount within that range is a better estimate than any other amount, the minimum amount is recorded.  Estimates of losses may be developed substantially before the ultimate loss is known, and are therefore refined each accounting period as additional information becomes known. In instances where the Company is unable to develop a reasonable estimate of loss, no loss contingency provision is recorded at that time. As information becomes known a loss contingency provision is recorded when a reasonable estimate can be made. The estimates are reviewed quarterly and the estimates are changed when expectations are revised. An outcome that deviates from the Company’s estimate may result in an additional expense or release in a future accounting period. At September 30, 2015, provisions for litigation losses, insurance claims and other disputes totaled $9.5 million (December 31, 2014: $16.9 million).

 

29 

 

 

The Company’s principal pending legal and other proceedings are disclosed below. The outcomes of these proceedings are not always predictable and can be affected by various factors. For those legal and other proceedings for which it is considered at least reasonably possible that a loss has been incurred, the Company discloses the possible loss or range of possible loss in excess of the recorded loss contingency provision, if any, where such excess is both material and estimable.

 

VYVANSE

 

In May and June 2011, Shire was notified that six separate Abbreviated New Drug Applications ("ANDAs") were submitted under the Hatch-Waxman Act seeking permission to market generic versions of all approved strengths of VYVANSE. The notices were from Sandoz, Inc. ("Sandoz"); Amneal Pharmaceuticals LLC ("Amneal"); Watson Laboratories, Inc. (“Watson”); Roxane Laboratories, Inc. ("Roxane"); Mylan Pharmaceuticals, Inc. (“Mylan”); and Actavis Elizabeth LLC and Actavis Inc. (collectively, "Actavis"). Since filing suit against these ANDA filers, along with API suppliers Johnson Matthey Inc. and Johnson Matthey Pharmaceuticals Materials (collectively “Johnson Matthey”), Shire has been engaged in a consolidated patent infringement litigation in the US District Court for the District of New Jersey against the aforementioned parties (except Watson, who withdrew their ANDA).

 

On June 23, 2014, the US District Court for the District of New Jersey granted Shire’s summary judgment motion holding that 18 claims of the patents-in-suit were both infringed and valid. On September 24, 2015, the US Court of Appeals of the Federal Circuit (“CAFC“) affirmed that ruling against all of the ANDA filers and remanded the case to the trial court for further proceedings in which Shire expects the court to impose an injunction preventing all of the ANDA filers (Sandoz, Roxane, Amneal, Actavis and Mylan) from launching generic versions of VYVANSE until the expiration of these patents in 2023.

 

LIALDA

 

In May 2010, Shire was notified that Zydus Pharmaceuticals USA, Inc. (“Zydus”) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the District of Delaware against Zydus and Cadila Healthcare Limited, doing business as Zydus Cadila. A Markman hearing took place on January 29, 2015 and a Markman ruling was issued on July 28, 2015. A trial is scheduled to take place starting on March 28, 2016.

 

In February 2012, Shire was notified that Osmotica Pharmaceutical Corporation ("Osmotica") had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Northern District of Georgia against Osmotica. A Markman hearing took place on August 22, 2013 and a Markman ruling was issued on September 25, 2014. The Court issued an Order on February 27, 2015 in which all dates in the scheduling order have been stayed.

 

In March 2012, Shire was notified that Watson Laboratories Inc.-Florida had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Southern District of Florida against Watson Laboratories Inc.-Florida and Watson Pharmaceuticals, Inc. Watson Pharma, Inc. and Watson Laboratories, Inc. were subsequently added as defendants. A trial took place in April, 2013 and on May 9, 2013 the trial court issued a decision finding that the proposed generic product infringes the patent-in-suit and that the patent is not invalid. Watson appealed the trial court’s ruling to the CAFC and a hearing took place on December 2, 2013. The ruling of the CAFC was issued on March 28, 2014 overruling the trial court on the interpretation of two claim terms and remanding the case for further proceedings. Shire petitioned the Supreme Court for a writ of certiori, which was granted on January 26, 2015. The Supreme Court also vacated the CAFC decision and remanded the case to the CAFC for further consideration in light of the Supreme Court’s recent decision in Teva v Sandoz. On June 3, 2015, the CAFC reaffirmed its previous decision to reverse the district court’s claims construction. The case has been remanded to the district court and a trial is scheduled to take place starting on January 25, 2016.

 

In April 2012, Shire was notified that Mylan had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the Middle District of Florida against Mylan. A Markman hearing took place on December 22, 2014. A Markman ruling was issued on March 23, 2015. The previously scheduled trial date has been vacated and the case has been stayed until May 31, 2016.

 

In March 2015, Shire was notified that Amneal had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Within the requisite 45 day period, Shire filed a lawsuit in the US District Court for the District of New Jersey against Amneal, Amneal Pharmaceuticals of New York, LLC and Amneal Pharmaceuticals Co. India Pvt. Ltd. No trial date has been set.

 

In September 2015, Shire was notified that Lupin Ltd. had submitted an ANDA under the Hatch-Waxman Act seeking permission to market a generic version of LIALDA. Shire is reviewing the notice letter.

 

30 

 

 

On October 7, 2015 the Patent Trial and Appeals Board (“PTAB”) of the United States Patent Office instituted an inter parties review (“IPR”) of US Patent 6,773,720 which is the patent-in-suit in the litigations referred to above.  The IPR process is designed to re-assess the patentability of the claims of the patent.  A decision from the PTAB is expected in October 2016.

 

Investigation related to DERMAGRAFT

 

The Department of Justice, including the US Attorney’s Office for the Middle District of Florida, Tampa Division and the US Attorney’s Office for Washington, DC, is conducting civil and criminal investigations into the sales and marketing practices of Advanced BioHealing Inc. (“ABH”) relating to DERMAGRAFT.

 

Following the disposal of the DERMAGRAFT business in January 2014, Shire has retained certain legacy liabilities including any liability that may arise from this investigation. Shire is cooperating fully with these investigations. Shire is not in a position at this time to predict the scope, duration or outcome of these investigations.

 

Civil Investigative Demand relating to VANCOCIN

 

On April 6, 2012, ViroPharma received a notification that the United States Federal Trade Commission (“FTC”) is conducting an investigation into whether ViroPharma had engaged in unfair methods of competition with respect to VANCOCIN. On August 3, 2012, and September 8, 2014, ViroPharma and Shire respectively received Civil Investigative Demands from the FTC requesting additional information related to this matter. Shire intends to continue to cooperate fully with the FTC investigation. At this time, Shire is unable to predict the outcome or duration of this investigation.

 

Lawsuit related to supply of ELAPRASE to certain patients in Brazil

 

On September 24, 2014 Shire’s Brazilian affiliate, Shire Farmaceutica Brasil Ltda, was served with a lawsuit brought by the State of Sao Paulo and in which the Brazilian Public Attorney’s office has intervened alleging that Shire is obligated to provide certain medical care including ELAPRASE for an indefinite period at no cost to patients who participated in ELAPRASE clinical trials in Brazil, and seeking recoupment to the Brazilian government for amounts paid for these patients to date, and moral damages associated with these claims.  Shire intends to defend itself against these allegations but is not able to predict the outcome or duration of this case.

 

16. Accumulated Other Comprehensive loss

 

The changes in accumulated other comprehensive loss, net of their related tax effects, in the nine months to September 30, 2015 and 2014 are included below:

 

As at September 30, 2015  Foreign currency translation adjustment  Unrealized holding gain/(loss) on available-for-sale securities  Accumulated other comprehensive loss
   $M  $M  $M
          
As at January 1, 2015   (25.7)   (5.8)   (31.5)
Current period change:               
                
Net current period other comprehensive (loss)/income   (124.9)   1.3    (123.6)
                
As at September 30, 2015   (150.6)   (4.5)   (155.1)

 

31 

 

  

As at September 30, 2014  Foreign currency translation adjustment  Unrealized holding gain/(loss) on available-for-sale securities  Accumulated other comprehensive income
   $M  $M  $M
As at January 1, 2014   110.4    (0.2)   110.2 
Current period change:               
Other comprehensive (loss)/income before reclassification   (75.9)   5.6    (70.3)
Gain transferred to the income statement (within Other income, net) on disposal of available-for-sale securities   -    (9.1)   (9.1)
Net current period other comprehensive loss   (75.9)   (3.5)   (79.4)
                
As at September 30, 2014   34.5    (3.7)   30.8 

 

17. Financial 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. 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 principally exposed to interest rate risk on borrowings under the 2015 Facility Agreement, the RCF and the Credit lines, on which interest is set at floating rates, to the extent any of these facilities, are utilized. At September 30, 2015 the Company had fully utilized the 2015 Facility Agreement and utilized $1,245 million of the RCF. The Credit lines were not utilized. Shire’s exposure under the 2015 Facility Agreement, the RCF and the Credit lines is to US dollar interest rates.

 

The Company has evaluated the interest rate risk on the Credit lines, the RCF and the 2015 Facility Agreement and considers the risks associated with floating interest rates on borrowings under its facilities as appropriate. A hypothetical one percentage point increase or decrease in the interest rates applicable to drawings under the Credit lines, the 2015 Facility Agreement and RCF at September 30, 2015 would increase interest expense by approximately $20 million per annum or would decrease the interest expense by approximately $4 million per annum.

 

The Company is also exposed to interest rate risk on its restricted cash, cash and cash equivalents and on foreign exchange contracts on which interest is set at floating rates. This exposure is primarily limited to US dollar, Pounds sterling and Euro interest rates. As the Company maintains all of its cash, liquid investments and foreign exchange contracts on a short term basis for liquidity purposes, this risk is not actively managed. In the nine months to September 30, 2015 the average interest rate received on cash and liquid investments was less than 1% per annum. These cash and liquid investments were primarily invested in US dollar term deposits with banks and money market and liquidity funds.

 

No derivative instruments were entered into during the nine months to September 30, 2015 to manage interest rate exposure. The Company continues to review its interest rate risk and the policies in place to manage the risk.

 

Credit risk

 

Financial instruments that potentially expose Shire to concentrations of credit risk consist primarily of short-term cash investments, derivative contracts and trade accounts receivable (from product sales and from third parties from which the Company receives royalties). 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 and 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 bank term deposit arrangements and derivative instruments. The Company limits this exposure through a system of internal credit limits which vary according to ratings assigned to the counterparties by the major rating agencies. The internal credit limits are approved by

 

32 

 

 

the Board and exposure against these limits is monitored by the corporate treasury function. The counterparties to these derivatives contracts are major international financial institutions.

 

The Company’s revenues from product sales in the US are mainly governed by agreements with major pharmaceutical wholesalers and relationships with other pharmaceutical distributors and retail pharmacy chains. For the year to December 31, 2014 there were three customers in the US that accounted for 47% of the Company’s product sales. However, such customers typically have significant cash resources and as such the risk from concentration of credit is considered acceptable. The Company has taken positive steps to manage any credit risk associated with these transactions and operates clearly defined credit evaluation procedures. However, an inability of one or more of these wholesalers to honor their debts to the Company could have an adverse effect on the Company’s financial condition and results of operations. 

 

A substantial portion of the Company’s accounts receivable in countries outside of the United States is derived from product sales to government-owned or government-supported healthcare providers. The Company’s recovery of these accounts receivable is therefore dependent upon the financial stability and creditworthiness of the relevant governments. In recent years global and national economic conditions have negatively affected the growth, creditworthiness and general economic condition of certain markets in which the Company operates. As a result, in some countries outside of the US, specifically, Argentina, Greece, Italy, Portugal and Spain (collectively the “Relevant Countries”) the Company is experiencing delays in the remittance of receivables due from government-owned or government-supported healthcare providers. The Company continued to receive remittances in relation to government-owned or government-supported healthcare providers in the Relevant Countries in the nine months to September 30, 2015, including receipts of $80.6 million and $65.7 million in respect of Spanish and Italian receivables, respectively. The Company’s exposure to Greece, both in terms of gross accounts receivable and annual revenues, is not material.

 

To date the Company has not incurred material losses on accounts receivable in the Relevant Countries, and continues to consider that such accounts receivable are recoverable. The Company will continue to evaluate all its accounts receivable for potential collection risks and has made provision for amounts where collection is considered to be doubtful. If the financial condition of the Relevant Countries or other Eurozone countries suffer significant deterioration, such that their ability to make payments becomes uncertain, or if one or more Eurozone member countries withdraws from the Euro, additional allowances for doubtful accounts may be required, and losses may be incurred, in future periods. Any such loss could have an adverse effect on the Company’s financial condition and results of operations.

 

Foreign exchange risk

 

The Company trades in numerous countries and as a consequence has transactional and translational foreign exchange exposures.

 

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, Pounds Sterling, Swiss Franc, Canadian dollar 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 for 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 inter-company financing. The foreign exchange contracts have not been designated as hedging instruments. Cash flows from derivative instruments are presented within net cash provided by operating activities in the consolidated cash flow statement, unless the derivative instruments are economically hedging specific investing or financing activities.

 

Translational foreign exchange exposure arises on the translation into US dollars of the financial statements of non-US dollar functional subsidiaries.

 

At September 30, 2015 the Company had 33 swap and forward foreign exchange contracts outstanding to manage currency risk. The swap and forward contracts mature within 90 days. The Company did not have credit risk related contingent features or collateral linked to the derivatives. The Company has master netting agreements with a number of counterparties to these foreign exchange contracts and on the occurrence of specified events, the Company has the ability to terminate contracts and settle them with a net payment by one party to the other. The Company has elected to present derivative assets and derivative liabilities on a gross basis in the consolidated balance sheet. As at September 30, 2015 the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities of $1.4 million, resulting in net derivative assets and derivative liabilities of $0.4 million and $7.7 million, respectively. Further details are included below:

 

33 

 

 

   Fair value  Fair value
      September 30,  December 31,
      2015  2014
      $’M  $’M
Assets  Prepaid expenses and other current assets   1.8    12.6 
Liabilities  Other current liabilities   9.1    7.8 

 

Net gains (both realized and unrealized) arising on foreign exchange contracts have been classified in the consolidated statements of income as follows:

 

   Location of net gains recognized in income  Amount of net gains recognized in income
In the nine months to      September 30,    September 30, 
       2015    2014 
       $’M    $’M 
Foreign exchange contracts  Other income, net   12.0    15.9 

 

These net foreign exchange gains are offset within Other income, net by net foreign exchange (losses)/gains arising on the balance sheet items that these contracts were put in place to manage.

 

34 

 

 

18. Fair value measurement  

 

Assets and liabilities that are measured at fair value on a recurring basis

 

As at September 30, 2015 and December 31, 2014 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).

 

   Carrying value and Fair value
             
   Total  Level 1  Level 2  Level 3
At September 30, 2015  $'M  $'M  $'M  $'M
             
Financial assets:            
Available-for-sale securities(1)   14.4    14.4    -    - 
                     
Contingent consideration receivable (2)   14.9    -    -    14.9 
Foreign exchange contracts   1.8    -    1.8    - 
                      
Financial liabilities:                    
Foreign exchange contracts   9.1    -    9.1    - 
Contingent consideration payable(3)   520.6    -    -    520.6 
                      
    Total    Level 1    Level 2    Level 3 
At December 31, 2014   $'M    $'M    $'M    $'M 
                     
Financial assets:                    
Available-for-sale securities(1)   13.1    13.1    -    - 
Contingent consideration receivable (2)   15.9    -    -    15.9 
Foreign exchange contracts   12.6    -    12.6    - 
                      
Financial liabilities:                    
Foreign exchange contracts   7.8    -    7.8    - 
Contingent consideration payable(3)   629.9    -    -    629.9 

 

(1)Available-for-sale securities are included within Investments in the consolidated balance sheet.

(2)Contingent consideration receivable is included within Prepaid expenses and other current assets and Other non-current assets in the consolidated balance sheet.

(3)Contingent consideration payable is included within Other current liabilities and Other non-current liabilities 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.

·Contingent consideration receivable – the fair value of the contingent consideration receivable has been estimated using the income approach (using a probability weighted discounted cash flow method).

·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.

·Contingent consideration payable – the fair value of the contingent consideration payable has been estimated using the income approach (using a probability weighted discounted cash flow method).

 

35 

 

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

 

The change in the fair value of the Company’s contingent consideration receivable and payables, which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3), are as follows:

 

Contingent consideration receivable     
   2015  2014
   $'M  $'M
            
Balance at January 1,   15.9    36.1 
Initial recognition of contingent consideration receivable   -    33.6 
Loss recognized in the income statement (within discontinued operations) due to change in fair value during the period   -    (33.6)
Gain/(loss) recognized in the income statement (within Gain on sale of product rights) due to change in fair value during the period   9.8    (4.1)
Reclassification of amounts to Other receivables within Other current assets    (12.1)   (14.9)
Amounts recorded to other comprehensive income (within foreign currency translation adjustments)     1.3    2.0 
            
Balance at September 30,    14.9    19.1 
            
Contingent consideration payable            
    2015    2014 
     $'M    $'M 
            
Balance at January 1,    629.9    405.9 
Initial recognition of contingent consideration payable    92.8    226.7 
Change in fair value during the period with the corresponding adjustment recognized (within Integration and acquisition costs) in the income statement    (196.5)   26.3 
Reclassification of amounts to Other current liabilities    (8.5)   (12.4)
Change in fair value during the period with corresponding adjustment to the associated intangible asset    0.2    1.8 
Amounts recorded to other comprehensive income (within foreign currency translation adjustments)     2.7    (6.3)
            
Balance at September 30,    520.6    642.0 

 

Of the $520.6 million of contingent consideration payable as at September 30, 2015, $111.7 million is recorded within other current liabilities and $408.9 million is recorded within other non-current liabilities in the Company’s balance sheet.

 

36 

 

 

Quantitative Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

 

Quantitative information about the Company’s recurring Level 3 fair value measurements is included below:

 

Financial assets: Fair Value at the Measurement Date
                
At September 30, 2015

Fair value

 

Valuation

Technique

 

  Significant unobservable Inputs   Range
   $'M            
Contingent consideration receivable ("CCR") 14.9    Income approach (probability weighted discounted cash flow)  

• Probability weightings applied to different sales scenarios

 

• 10 to 70%

 

               
          • Future forecast consideration receivable based on contractual terms with purchaser   • $26 million to $31 million
               
          • Assumed market participant discount rate   • 8.7%
               

 

Financial liabilities: Fair Value at the Measurement Date
               
At September 30, 2015

Fair value

 

 

Valuation Technique

 

  Significant unobservable Inputs   Range
   $'M            
Contingent consideration payable 520.6    Income approach (probability weighted discounted cash flow)  

• Cumulative probability of milestones being achieved

 

• 4 to 85%

 

 

               
         

• Assumed market participant discount rate

  • 1.2 to 12.4%
               
          • Periods in which milestones are expected to be achieved   • 2015 to 2029
               
         

• Forecast quarterly royalties payable on net sales of

relevant products

  • $0.2 to $6.6 million
               

 

The Company re-measures the CCR (relating to contingent consideration due to the Company following divestment of certain of the Company’s products) at fair value at each balance sheet date, with the fair value measurement based on forecast cash flows, over a number of scenarios which vary depending on the expected performance outcome of the products following divestment. The forecast cash flows under each of these differing outcomes have been included in probability weighted estimates used by the Company in determining the fair value of the CCR.

 

37 

 

 

Contingent consideration payable represents future milestones the Company may be required to pay in conjunction with various business combinations and future royalties payable as a result of certain business combinations and licenses. The amount ultimately payable by Shire in relation to business combinations is dependent upon the achievement of specified future milestones, such as the achievement of certain future development, regulatory and sales milestones. The Company assesses the probability, and estimated timing, of these milestones being achieved and re-measures the related contingent consideration to fair value each balance sheet date. The amount of contingent consideration which may ultimately be payable by Shire in relation to future royalties is dependent upon future net sales of the relevant products over the life of the royalty term. The Company assesses the present value of forecast future net sales of the relevant products and re-measures the related contingent consideration to fair value each balance sheet date.

 

The fair value of the Company’s contingent consideration receivable and payable could significantly increase or decrease due to changes in certain assumptions which underpin the fair value measurements. Each set of assumptions and milestones is specific to the individual contingent consideration receivable or payable. The assumptions include, among other things, the probability and expected timing of certain milestones being achieved, the forecast future net sales of the relevant products and related future royalties payable, the probability weightings applied to different sales scenarios of the Company’s divested products and forecast future royalties receivable under scenarios developed by the Company, and the discount rates used to determine the present value of contingent future cash flows. The Company regularly reviews these assumptions, and makes adjustments to the fair value measurements as required by facts and circumstances.

 

Assets Measured at Fair Value on a Non-Recurring Basis using Significant Unobservable Inputs (Level 3)

 

In the nine months to September 30, 2015 the Company reviewed its SHP625 and SHP608 IPR&D intangible assets for impairment and recognized an impairment charge of $523.3 million, recorded within R&D in the consolidated income statement, to write-down these IPR&D assets to their fair value. The fair value of these IPR&D assets was determined using the income approach, which used significant unobservable (Level 3) inputs. These unobservable inputs included, among other things, the probabilities of these IPR&D assets receiving regulatory approval, the timeframe for such approval, risk-adjusted forecast future cash flows to be generated by these IPR&D assets and the determination of an appropriate discount rate to be applied in calculating the present value of forecast future cash flows. The fair value of these IPR&D assets, determined at the time of the impairment review, was $120.4 million.

 

  Fair Value at the Measurement Date
                
At September 30, 2015

Fair value

 

 

Valuation

Technique

 

  Significant unobservable Inputs   Range
   $'M            
IPR&D intangible assets (SHP625 and SHP608) $120.4   Income approach (discounted cash flow)  

• Probability of regulatory approval being obtained

 

• 5 to 33%

               
          • Expected commercial launch date   • 2018 to 2021
               
         

• Assumed market

participant discount rate

  • 9.7 to 10.7%
               

 

The carrying amounts of other financial assets and liabilities materially approximate to their fair value either because of the short-term maturity of these amounts or because there have been no significant changes since the asset or liability was last re-measured to fair value on a non-recurring basis.

 

38 

 

 

19. Earnings per share

 

The following table reconciles net income and the weighted average ordinary shares outstanding for basic and diluted earnings per share for the periods presented:

 

   3 months to  3 months to  9 months to  9 months to
   September 30,  September 30,  September 30,  September 30,
   2015  2014  2015  2014
   $’M  $’M  $’M  $’M
Income from continuing operations, net of taxes   477.1    515.8    1,054.1    1,297.2 
Loss from discontinued operations   (24.3)   (36.1)   (31.3)   (64.0)
                     
Numerator for basic and diluted earnings per share   452.8    479.7    1,022.8    1,233.2 
                      
Weighted average number of shares:                    
     Millions    Millions    Millions    Millions 
Basic    590.9    587.6    590.2    586.1 
Effect of dilutive shares:                    
Share-based awards to employees    2.5    5.0    3.0    6.0 
                     
Diluted   593.4    592.6    593.2    592.1 

 

1. Excludes shares purchased by the EBT and presented by Shire as treasury stock. 

2. Calculated using the treasury stock method.

 

The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:

 

   3 months to  3 months to  9 months to  9 months to
   September 30,  September 30,  September 30,  September 30,
   2015  2014  2015  2014
   No. of shares  No. of shares  No. of shares  No. of shares
   Millions  Millions  Millions  Millions
Share-based awards to employees   3.9    0.3    3.3    0.3 

 

1.Certain stock options have been excluded from the calculation of diluted EPS because (a) their exercise prices exceeded Shire plc’s average share price during the calculation period or (b) the required performance conditions were not satisfied as at the balance sheet date.

 

39 

 

 

20. Segmental reporting

 

Shire comprises a single operating and reportable segment engaged in the research, development, licensing, manufacturing, marketing, distribution and sale of innovative specialist medicines to meet significant unmet patient needs.

 

This segment is supported by several key functions: a Pipeline group, consisting of R&D and Corporate Development, which prioritizes its activities towards late-stage development programs across a variety of therapeutic areas, while focusing its pre-clinical development activities primarily in Rare Diseases; a Technical Operations group responsible for the Company’s global supply chain; and an In-line marketed products group which focuses on commercialized products. The In-Line marketed products group has commercial units that focus exclusively on the commercial execution of its marketed products including in the areas of Rare Diseases, Neuroscience, and Gastrointestinal (“GI”) and Internal Medicine, and to support the development of our pipeline candidates, in Ophthalmics. This ensures that the Company provides innovative treatments, and services the needs of its customers and patients, as efficiently as possible. The business is also supported by a simplified, centralized corporate function group. None of these functional groups meets all of the criteria to be an operating segment.

 

This single operating and reportable segment is consistent with the financial information regularly reviewed by the Executive Committee (which is Shire’s chief operating decision maker) for the purposes of evaluating performance, allocating resources, and planning and forecasting future periods.

 

In the periods set out below, revenues by major product were as follows:

 

9 months to  September 30,  September 30,
   2015  2014
   $’M  $’M
           
VYVANSE   1,268.9    1,065.6 
CINRYZE   474.4    360.6 
LIALDA/MEZAVANT   483.0    449.1 
ELAPRASE   405.5    449.5 
FIRAZYR   319.8    262.3 
REPLAGAL   325.5    380.7 
PENTASA   232.7    213.8 
VPRIV   256.2    273.0 
ADDERALL XR   259.7    280.2 
FOSRENOL   132.9    136.2 
GATTEX/REVESTIVE   95.2    - 
XAGRID   75.0    82.1 
INTUNIV   45.0    279.0 
NATPARA   12.8    - 
Other product sales   89.6    97.6 
           
Total product sales   4,476.2    4,329.7 

 

21. Taxation

 

The effective rate of tax in the nine months to September 30, 2015 was -1% (2014: -5%).

 

The effective rate of tax in the nine months to September 30, 2015 on income from continuing operations is negative primarily due to the release of certain valuation allowances and the impact of the finalization of various tax returns in the period.

 

The effective rate of tax in the nine months to September 30, 2014 on income from continuing operations was negative primarily due to the recognition of a net tax credit in relation to the settlement of tax positions with the Canadian revenue authorities.

 

40 

 

 

22. Related parties

 

Shire considers that ArmaGen, Inc. (“ArmaGen”) is a related party by virtue of a combination of Shire’s equity stake in ArmaGen and the worldwide licensing and collaboration agreement between the two parties to develop and commercialize AGT-182. In the nine months to September 30, 2015 Shire paid $2.5 million in cash to ArmaGen in exchange for an additional equity stake in ArmaGen, following which Shire holds approximately 21% of ArmaGen’s issued equity. In addition, Shire recorded R&D costs arising from the licensing and collaboration arrangement of $7.2 million in the nine months to September 30, of 2015, of which $0.7 million was accrued and unpaid as at September 30, 2015.

 

41 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with Shire’s unaudited consolidated financial statements and related notes appearing elsewhere in this report.

 

Significant events in the three months to September 30, 2015 and recent developments

 

Products

 

INTUNIV – for the treatment of attention deficit hyperactivity disorder (“ADHD”) in the European Union

 

·On September 21, 2015 Shire announced that the European Commission granted Marketing Authorization for once-daily, non-stimulant INTUNIV (guanfacine hydrochloride prolonged release tablets) for the treatment of ADHD in children and adolescents 6 to 17 years old for whom stimulants are not suitable, not tolerated or have been shown to be ineffective. INTUNIV must be used as a part of a comprehensive ADHD treatment program, typically including psychological, educational and social measures.

 

Pipeline

 

SHP606 (lifitegrast) – for the treatment of dry eye disease (“DED”)

 

·On October 16, 2015 the US Food and Drug Administration (“FDA”) requested an additional clinical study as part of a complete response letter (“CRL”) to the Company’s new drug application (“NDA”) for lifitegrast for the signs and symptoms of DED in adults. The FDA also requested more information related to product quality, which Shire will address in the CRL response. On October 27, 2015, Shire announced positive topline results from the OPUS-3 trial. These data showed OPUS-3 met the primary endpoint of significantly improving patient-reported symptoms of DED from baseline to day 84 (p=0.0007).  Additionally, OPUS-3 met the secondary endpoints of symptom improvement from baseline to days 14 and 42 (p<0.0001 for both endpoints). Shire plans to use these data as part of the resubmission of the NDA for lifitegrast for the treatment of signs and symptoms for DED in the first quarter of 2016.

 

CINRYZE – for the treatment of subcutaneous administration in HAE

 

·On October 16, 2015 Shire submitted an Investigational New Drug application (“IND”) for CINRYZE subcutaneous administration in HAE to the FDA. If accepted, Shire plans to initiate a Phase 3 program in the fourth quarter of 2015.

 

FIRAZYR – for the treatment of ACE inhibitor-induced Angioedema (“ACE-I AE”)

 

·In September 2015, the CAMEO study which compared FIRAZYR versus placebo in patients with moderate-severe ACE-I AE did not meet its primary or key secondary endpoints.  The primary efficacy endpoint, Time to Meeting Discharge Criteria (“TMDC”), was not statistically different between treatment groups.  The key secondary efficacy endpoint, Time to Onset of Symptom Relief (“TOSR”), was not statistically different between treatment groups. Subgroup analysis demonstrated no significant treatment differences by age, race, attack severity, weight, body mass index, and geographic region.  Based upon this data, Shire does not plan on pursuing further development of FIRAZYR in this indication.

 

Other Third Quarter 2015 Developments

 

Acquisition of Foresight

 

·On August 3, 2015 Shire announced that it acquired New York-based, privately held Foresight for $300 million cash consideration, subject to customary closing adjustments. With the acquisition, Shire acquired the global rights to FST-100 (now known as SHP640), a therapy in late-stage development for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. If approved, SHP640 has the potential to become the first agent to treat both viral and bacterial conjunctivitis. This acquisition further strengthens Shire’s late-stage pipeline and further demonstrates Shire’s commitment to building a leadership position in ophthalmics.

 

Agreement with Sanquin Blood Supply

 

·On August 25, 2015 Shire announced it had entered into an agreement with Sanquin Blood Supply, the manufacturer of CINRYZE (C1 esterase inhibitor [human]), providing Shire access to its manufacturing technology and allowing Shire to source additional manufacturers to meet the growing demand for CINRYZE.

 

42 

 

 

Agreement with Lumena

 

·On September 25, 2015 Shire reached agreement with the former shareholders of Lumena to terminate all future contingent milestone payments or obligations contemplated by the original share purchase agreement in exchange for $90 million. Shire is currently analyzing the results of Phase 2 trials for SHP625 in PBC, PFIC and ALGS as well as a Phase 1b multiple dose study in SHP626 for the treatment of nonalcoholic steatohepatitis and continues to assess a path forward for these programs.

 

Agreement with Sangamo

 

·On September 1, 2015 Shire and Sangamo agreed to revise the collaboration and license agreement originally entered into in January 2012 to expedite the development of ZFP Therapeutics for haemophilia A and B and Huntington's disease. Under the revised terms, Shire has returned to Sangamo the exclusive world-wide rights to gene targets for the development, clinical testing and commercialization of ZFP Therapeutics for haemophilia A and B, and has retained rights and will continue to develop ZFP Therapeutic clinical leads for Huntington's disease and a ZFP Therapeutic for one additional gene target. Each company will be responsible for expenses associated with its own programs and will reimburse the other for any ongoing services provided. Sangamo has granted Shire a right of first negotiation to license the haemophilia A and B programs. No milestone payments will be made on any program and each company will pay certain royalties to the other on commercial sales up to a specified maximum cap.

 

Proposed combination with Baxalta Incorporated

 

·On August 4, 2015 Shire announced that on July 10, 2015 it made a proposal to Baxalta Incorporated (NYSE:BXLT) to combine the companies that was rejected by the board of Baxalta. Shire continues to support this highly strategic combination to create a global rare disease leader delivering an expected $20 billion in sales by 2020, with an opportunity to create significant shareholder value.

 

Legal Proceedings

 

Appeals Court Affirms Shire’s VYVANSE (lisdexamfetamine dimesylate) Patents Are Valid Until 2023

 

·On September 24, 2015 Shire announced that the CAFC had upheld the summary judgment ruling of the US District Court for the District of New Jersey that certain claims of the patents protecting VYVANSE (lisdexamfetamine dimesylate) are valid. Shire’s lawsuit included all of the known pharmaceutical manufacturers that filed ANDAs with the FDA seeking to market generic versions of VYVANSE, along with their Active Pharmaceutical Ingredient (“API”) manufacturer of lisdexamfetamine dimesylate API. The ANDA defendants are Actavis LLC/Actavis Elizabeth LLC; Amneal Pharmaceuticals, LLC; Mylan Pharmaceuticals Inc./Mylan Inc.; Roxane Laboratories Inc.; and Sandoz Inc. The API manufacturer and supplier to each of the ANDA defendants is Johnson Matthey Inc./Johnson Matthey Pharmaceutical Materials. The ruling prevents the ANDA defendants from launching generic versions of VYVANSE until the expiration of these patents in 2023. The defendants may move for rehearing at the Federal Circuit, or may file a petition at the US Supreme Court.

 

Board and Committee Changes

 

·On September 1, 2015 Shire announced the appointment of Sara Mathew to its Board of Directors as a Non-Executive Director. Sara will also be a member of the Audit, Compliance & Risk Committee of the Shire Board. Both appointments were effective as of September 1, 2015.

 

43 

 

 

Products in registration as of September 30, 2015

 

SHP606 (lifitegrast) for the treatment of DED

 

On April 9, 2015 Shire announced that the FDA had accepted for filing and had granted a Priority Review designation for Shire’s NDA for lifitegrast for the treatment of signs and symptoms of DED in adults. In parallel to the NDA submission, Shire had initiated a Phase 3 safety and efficacy study (OPUS-3) in support of potential regulatory submissions. OPUS-3 is a multicenter, randomized, double-masked, placebo-controlled, parallel arm study with a 14 day open-label placebo screening run-in period followed by a 12 week randomized, masked treatment period with a primary efficacy endpoint in subjective patient reported symptoms of DED, as measured by the eye dryness score. On October 16, 2015 the FDA requested an additional clinical study as part of a CRL to Shire’s NDA. On October 27, 2015, Shire announced positive topline results from OPUS-3. These data showed OPUS-3 met the primary endpoint of significantly improving patient-reported symptoms of DED from baseline to day 84 (p=0.0007).  Additionally, OPUS-3 met the secondary endpoints of symptom improvement from baseline to days 14 and 42 (p<0.0001 for both endpoints). Shire plans to use these data as part of the resubmission of the NDA for lifitegrast for the treatment of signs and symptoms for DED in the first quarter of 2016.  OPUS-3 compared lifitegrast to placebo administered twice daily for 84 days (12 weeks) in patients with dry eye, a recent history of artificial tear use within 30 days of study entry and an eye dryness score (“EDS”) = 40. Lifitegrast met the single primary endpoint for patient-reported symptoms of eye dryness (mean change in EDS from baseline to week 12) (treatment difference of 7.16 [95% CI], 3.04, 11.28; p=0.0007). In OPUS-3, lifitegrast met the secondary endpoints of symptom improvement at Days 14 and 42 (treatment difference (95% CI) 7.85 (4.33, 11.37) and 9.32 (5.44, 13.20) respectively, (p<0.0001)).  OPUS-3 also evaluated the safety and tolerability of lifitegrast based on occurrence of treatment-emergent adverse events. The safety and tolerability profile of lifitegrast in OPUS-3 was consistent with previous studies involving lifitegrast. Shire plans to use these data as part of the resubmission of the NDA for lifitegrast for the treatment of signs and symptoms for DED in the first quarter of 2016.

 

NATPAR for the treatment of HPT

 

NATPAR (NATPARA in the US) is currently under review in Europe as an adjunct to calcium and vitamin D to control hypocalcemia in patients with HPT.

 

Products in clinical development as of September 30, 2015

 

Phase 3 and Phase 3-ready

 

SHP465 for the treatment of ADHD in adults

 

Shire’s NDA for SHP465 was previously submitted in 2006 to support the use of SHP465 as a longer-acting, once-daily treatment for ADHD in adults. With the growing adult ADHD population there is now a larger patient population and Shire expects a greater commercial need for this type of product than in 2006. SHP465 (mixed salts of a single entity amphetamine) capsules provide an extended-release of amphetamines to provide coverage of ADHD symptoms for adults.  On April 7, 2015 Shire announced that it had reached an agreement with the FDA on a clear regulatory path for SHP465. Shire has begun dosing patients in a Phase 3 study designed to evaluate the efficacy of SHP465 administered as a daily morning dose compared to a placebo in the treatment of children and adolescents (6-17 years of age inclusive) diagnosed with ADHD.

 

SHP609 for the treatment of Hunter syndrome with CNS symptoms

 

SHP609 is in development as an enzyme replacement therapy (“ERT”) delivered intrathecally for the treatment of Hunter syndrome patients with early cognitive impairment. Hunter syndrome is a Lysosomal Storage Disorder.  In December 2014 the FDA granted SHP609 Fast Track designation. In addition, this product has been granted orphan designation in the US. The Company initiated a pivotal Phase 2/3 clinical trial in the fourth quarter of 2013 which is enrolling and an extension study is ongoing.

 

FIRAZYR for the treatment of ACE-I AE

 

A Phase 3 clinical trial comparing FIRAZYR to placebo to assess the efficacy of FIRAZYR for the treatment of ACE-I AE was initiated in the fourth quarter of 2013 and was fully enrolled as of Q3 2015. In September, the CAMEO study which compared FIRAZYR versus placebo in patients with moderate-severe ACE-I induced angioedema did not meet its primary or key secondary endpoints. The primary efficacy endpoint, TMDC, was not statistically different between treatment

 

44 

 

 

groups. The key secondary efficacy endpoint, TOSR, was not statistically different between treatment groups. Subgroup analysis determined that no treatment differences were observed when analyzed by age, race, attack severity, weight, BMI, and geographic region. Based upon this data, Shire does not plan on pursuing further development of FIRAZYR in this indication.

 

FIRAZYR for the treatment of Hereditary Angioedema (“HAE”) in Japan

 

Shire plans to initiate a Phase 3 trial to evaluate the efficacy and safety of FIRAZYR for the treatment of HAE in Japanese patients in 2015. Patient enrollment is currently ongoing.

 

SHP555 (prucalopride; marketed as RESOLOR in the EU) for the treatment of chronic constipation in the US

 

On January 10, 2012 Shire announced that it had acquired the rights to develop and market prucalopride in the US in an agreement with Janssen Pharmaceutica N.V. Shire has discussed with the FDA the requirements for filing an NDA for prucalopride and is currently working towards fulfilling those requirements in anticipation of an NDA submission. 

 

INTUNIV for the treatment of ADHD in Japan

 

Under a collaboration agreement, Shionogi and Shire will co-develop and sell treatments for ADHD in Japan, including INTUNIV. A Phase 3 clinical program to evaluate the efficacy and safety of INTUNIV in Japanese patients aged 6 to 17 has been completed and filing is expected in 2016.

 

SHP616 (CINRYZE) for the treatment of Acute Antibody Mediated Rejection (“AMR”)

 

A Phase 2 study for the treatment of AMR with SHP616 was completed in 18 patients. Shire has received FDA and EMA feedback and submitted an IND in the second quarter of 2015. Shire plans to initiate a Phase 2/3 study in the fourth quarter of 2015. FDA granted Fast Track designation for SHP616 in October 2015.

 

SHP616 (CINRYZE) for routine prophylaxis against HAE attacks in adolescent and adult patients in Japan

 

CINRYZE is indicated in the US for prophylaxis and in the EU for both prophylaxis and acute treatment of angioedema attacks in adolescent and adult patients with HAE. Based on feedback from the Pharmaceutical and Medical Devices Agency (“PMDA”), a Clinical Trial Notification (“CTN”) was resubmitted and approved on October 2, 2014.

 

SHP620 (maribavir) for the treatment of cytomegalovirus (“CMV”) infection in transplant patients

 

SHP620 was acquired as part of the acquisition of ViroPharma. Shire has completed two Phase 2 studies in transplant recipients. The first trial was in first-line treatment of asymptomatic CMV viremia in transplant recipients and the results of this study showed that maribavir, at all doses, was at least as effective as valganciclovir in the reduction of circulating CMV to below the limits of assay detection (undetectable plasma CMV). The second study recently completed was for the treatment of resistant/refractory CMV infection/disease in transplant recipients. The purpose of this study was to determine whether maribavir is efficacious and safe in patients with disease which is resistant or refractory to the standard of care CMV therapy (e.g., valganciclovir, foscarnet). This study also showed that maribavir, at all doses, was effective at lowering CMV to below the limits of assay detection. Approximately two-thirds of patients across the maribavir treatment groups achieved undetectable plasma CMV DNA (viral load) within 6 weeks. This product has been granted orphan drug designation in both the US and EU. In late June 2015 Shire conducted an end of Phase 2 meeting with the FDA and received further clarity on the path forward.  Based upon this feedback, Shire plans to progress the program into Phase 3 in 2016.

 

SHP621 OBS, for the treatment of adolescents and adults with Eosinophilic Esophagitis (“EoE”)

 

With the Meritage acquisition, Shire has acquired the global rights to Meritage’s Phase 3-ready compound, OBS, for the treatment of adolescents and adults with EoE, a rare, chronic inflammatory GI disease. EoE is a chronic disease that is increasingly being diagnosed in children and adults, with an estimated prevalence in the U.S. of ~181,000. It is characterized by inflammation and accumulation of a specific type of immune cell, called an eosinophil, in the esophagus. EoE patients may have persistent or relapsing symptoms related to esophageal dysfunction, which include dysphagia (difficulty swallowing) and food impaction.

 

OBS is a proprietary viscous oral formulation of budesonide that is designed to coat the esophagus where the drug can act locally. Budesonide is the active pharmaceutical ingredient in several products approved by the FDA, including products for the treatment of asthma, allergic rhinitis, ulcerative colitis and Crohn’s disease. Budesonide is a corticosteroid

 

45 

 

 

and has an established safety profile in those diseases. The FDA has granted orphan drug designation to OBS for the treatment of patients with EoE.

 

SHP640 (formerly FST-100) for the treatment of infectious conjunctivitis

 

With the acquisition of Foresight, Shire acquired global rights to SHP640, a therapy in late-stage development for the treatment of infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye. Foresight had completed a phase 2 proof-of-concept efficacy and safety clinical trial program for SHP640 which involved two studies in adenoviral conjunctivitis – one three-arm study and another two-arm pilot study. While the two-arm study showed a trend toward efficacy, there were too few subjects testing positive for a viral presence for the study to deliver meaningful results, and it was not statistically significant. In the three-arm study, patients treated with SHP640 showed a statistically significant improvement in rates of clinical cure and viral eradication vs. vehicle at Day 6. The phase 2 clinical data formed the basis of a meeting with the FDA, in which Foresight discussed the path forward to conduct a phase 3 clinical development program for SHP640. If approved by regulatory agencies, SHP640 has the potential to become the first agent to treat both viral and bacterial conjunctivitis.

 

Phase 2

 

LDX1 for the treatment of ADHD in Japan

 

Under a collaboration agreement, Shionogi and Shire will co-develop and sell ADHD products in Japan, including LDX. A Phase 2/3 clinical program to evaluate the efficacy and safety of LDX in Japanese patients aged 6 to 17 was initiated in the second quarter of 2013 and is ongoing.

 

  1. Currently marketed as VYVANSE in the US and ELVANSE in certain countries in the EU for the treatment of ADHD

 

SHP607 for the prevention of Retinopathy of Prematurity (“ROP”)

 

SHP607 is in development as a protein replacement therapy for the prevention of ROP, a rare and potentially blinding eye disorder associated with premature birth. In December 2014 Shire received notification that SHP607 was granted Fast Track designation by the FDA.  In addition, this product has been granted orphan drug designation in both the US and EU. A Phase 2 clinical trial is currently ongoing.

 

SHP610 for Sanfilippo A syndrome (Mucopolysaccharidosis IIIA)

 

SHP610 is in development as an ERT delivered intrathecally for the treatment of Sanfilippo A syndrome, a Lysosomal Storage Disorder. The Company initiated a Phase 1/2 clinical trial in August 2010 which has now completed. Shire initiated a Phase 2b clinical trial for SHP610 which is now fully enrolled, which is designed to establish clinical proof of concept. An extension study is ongoing. The product has been granted orphan drug designation in the US and in the EU.

 

SHP625 for the treatment of cholestatic liver disease

 

SHP625 was acquired as part of the recent acquisition of Lumena. Shire is currently conducting Phase 2 studies in the following indications: Alagille Syndrome (“ALGS”), Progressive Familial Intrahepatic Cholestasis (“PFIC”), Primary Biliary Cirrhosis (“PBC”), and Primary Sclerosing Cholangitis (“PSC”). This product has been granted orphan drug designation both in the US and EU.

 

On April 9, 2015 Shire announced that the 13-week Phase 2 IMAGO trial of SHP625 did not meet the primary or secondary endpoints in the study of 20 pediatric patients with ALGS. Mean serum bile acid levels and pruritus at the end of the study were lower in both SHP625 and placebo treated groups as compared to baseline. However, in a post-hoc analysis, a positive correlation between percent changes from baseline in serum bile acid levels and pruritis was observed in the SHP625 treated group.

 

In late May 2015, Shire also received results from the CLARITY study, a 13 week, doubled blind, placebo-controlled Phase 2 study in combination with UDCA in PBC. SHP625 did not meet the primary endpoint as measured by change in pruritus or the secondary endpoint in level of liver disease as measured by the Alkaline Phosphatase (“ALP”). However, there was a significant reduction in mean serum bile acid levels versus placebo.

 

In June 2015, Shire received preliminary results from an interim analysis of the INDIGO study, a 72 week open label Phase 2 study in PFIC. The interim analysis was based on the first 12 subjects who completed 13 weeks of treatment per protocol. SHP625 was well tolerated but there was no statistically significant reduction in mean serum bile levels from

 

46 

 

 

baseline. A change from baseline analysis was planned as there is no placebo treatment arm in this study. The changes from baseline for pruritus did reach statistical significance. 5 of the 20 patients who received the drug experienced sustained decreases from baseline in serum bile acids ranging from 86 to 99% and also experienced marked reductions in pruritus as evidenced by absence of or only mild scratching at their last evaluation in this ongoing study.  In this subset of patients where biomarkers of liver damage were elevated at baseline, as assessed by ALT and Total Bilirubin, these values were normalized during the study. Shire continues to analyze the totality of the data to determine an appropriate path forward.

 

Phase 1

 

SHP611 for the treatment of Metachromatic Leukodystrophy (“MLD”)

 

SHP611 is in development as recombinant human arylsulfatase A (“rASA”) delivered intrathecally every other week for the treatment of the late infantile form of MLD. This product has been granted orphan drug designation in the US and the EU. The Company initiated a 24 patient Phase 1/2 clinical trial in August 2012. The primary endpoint of this trial is to determine the safety of ascending doses of rASA over 40 weeks.  The secondary endpoint focuses on decline in motor function as defined by change in baseline Gross Motor Function Measure (“GMFM-88”). Exploratory endpoints include change from baseline in cerebrospinal fluid sulfatide levels and change from baseline in the total MLD severity score based on brain Magnetic Resonance Imaging (“MRI”). The trial is currently ongoing, but top line interim results were available in late April.  Based upon interim data for the first 18 patients, SHP611 appeared to be well tolerated at all doses.  In addition, while not statistically significant and despite a decline in GMFM-88 score across all doses, the highest dose caused a slower decline over the 40 week study period compared to the lower dose treatment groups. The higher dose group also showed encouraging data in reduced MLD MRI score and reductions of CSF sulfatide. Shire will continue to analyze these interim results and determine an optimal path forward in this development program.

 

SHP616 (CINRYZE) life cycle management and new uses

 

Shire is pursuing a subcutaneous formulation of CINRYZE for routine prophylaxis against HAE attacks in adolescent and adult patients.  In addition to initiating a Phase 2/3 study (discussed above), Shire is considering pursuing development in Neuromyelitis Optica (“NMO”).  Shire received feedback from the FDA in the second quarter of 2015 on NMO and is in the process of determining an optimal path forward.

 

SHP622 for the treatment of Friedreich’s Ataxia (“FA”)

 

SHP622 is in development for the treatment of Friedreich’s Ataxia and was acquired as part of the acquisition of ViroPharma.  This product is a naturally occurring small molecular weight compound (indole-3-propionic acid) that prevents oxidative stress OX1 by a combination of hydroxyl radical scavenging activity and metal chelation. Phase 1 studies in healthy adults were completed in 2010. The drug was found to be generally well tolerated, and the pharmacokinetics revealed that the drug was rapidly absorbed and distributed in the body after oral administration. A Phase 1b trial of SHP622 in adults with FA is ongoing.

 

SHP626 for the treatment of nonalcoholic steatohepatitis (“NASH”)

 

SHP626 was acquired as part of the acquisition of Lumena and is in development for the treatment of NASH, a common and often “silent” liver disease characterized by fat deposits in the liver and inflammation which can progress to significant fibrosis.  A US IND was approved by the FDA in the fourth quarter of 2014, and a Phase 1b multiple dose trial has been completed. The design of a potential Phase 2/3 study is currently under consideration.

 

SHP627 for the treatment of focal segmental glomerulosclerosis (“FSGS”)

 

On July 4, 2014 Shire completed its acquisition of Fibrotech, an Australian biopharmaceutical company developing a new class of orally available drugs with a novel mechanism of action which has the potential to address both the inflammatory and fibrotic components of disease processes. SHP627 has completed a Phase 1 study in healthy subjects and subjects with diabetic nephropathy. Additional IND enabling studies are being conducted. Phase 1 studies to determine optimal formulation and dose are expected to be initiated in 2016 followed by a Phase 2 study in FSGS patients in 2017.

  

SHP631 for the treatment of both the CNS and somatic manifestations in patients with MPS II

 

On July 23, 2014, Shire announced a worldwide licensing and collaboration agreement with ArmaGen for SHP631 (also known as AGT-182). SHP631 is an investigational enzyme replacement therapy for the potential treatment of both the central nervous system and somatic manifestations in patients with MPS II.  SHP631 is designed to take advantage of the

 

47 

 

 

 

 

body’s natural system for transporting products across the blood brain barrier by using the same receptor that delivers insulin to the brain. SHP631 has received orphan drug designation from both the FDA and the EMA. In the second quarter of 2015, ArmaGen initiated a Phase 1 sequential, open-label, dose escalation, multi-dose study in adults with Hunter syndrome.  At least two dose levels, assuming tolerability, are planned sequentially, and the trial is expected to deliver information on the possible effect of SHP631 on CSF levels of glycosaminogycan substrate, which will be important in determining the next steps in clinical development.

 

Other development projects

 

A number of additional early development projects, focused on Rare Diseases, are underway in various stages of pre-clinical development.

 

Results of operations for the three months to September 30, 2015 and 2014

 

Financial highlights for the three months to September 30, 2015 are as follows:

 

·Product sales excluding INTUNIV were up 7% (up 12% on a Non GAAP CER2 basis), with strong growth from VYVANSE(1) (up 20% to $427 million), CINRYZE (up 29% to $188 million), and FIRAZYR (up 25% to $123 million). Products acquired with NPS Pharma continued to gain positive momentum with $43 million of GATTEX/REVESTIVE sales and $7 million of NATPARA sales.

 

As anticipated, product sales growth in the third quarter of 2015 was also held back by approximately 4 percentage points due to foreign exchange headwinds from the strong US dollar, primarily affecting sales of ELAPRASE, REPLAGAL and VPRIV. Sales of ELAPRASE and REPLAGAL were further negatively impacted by the timing of large shipments to markets which order less frequently.

 

·Total product sales including INTUNIV were up 2% on the third quarter of 2014 (up 6% on a Non GAAP CER basis) at $1,577 million (2014: $1,552 million), as total product sales in the third quarter of 2015 were held back by significantly lower INTUNIV sales (down 81% to $18 million) following the introduction of generic competition from December 2014.

 

·Total revenues were up 4% to $1,655 million (2014: $1,597 million), as the third quarter of 2015 benefited from higher royalties, primarily due to the inclusion of SENSIPAR royalties acquired with NPS Pharma.

 

·Operating income was down 20% to $456 million (2014: $572 million), as a result of higher net charges of approximately $60 million on the re-measurement of contingent consideration liabilities primarily in relation to the acquisition of Lumena and higher intangible asset amortization charges relating to assets acquired with NPS Pharma.

 

·Diluted earnings per ordinary share decreased 6% to $0.77 (2014: $0.81) primarily due to lower operating income.

 

 

 

 

(1) Lisadexamfetamine dimesylate (“LDX”) currently marketed as VYVANSE in the US & Canada, VENVANSE in Latin America and ELVANSE in certain territories in the EU for the treatment of ADHD and in the US for the treatment of moderate-to-severe Binge Eating Disorder (“BED“) in adults.

(2) The Company’s management analyzes product sales and revenue growth for certain products sold in markets outside of the US on a constant exchange rate (“CER”) basis, so that product sales and revenue growth can be considered excluding moveents in foreign exchange rates. Product sales and revenue growth on a CER basis is a Non GAAP financial measure (“Non GAAP CER”), computed by comparing 2015 product sales and revenues restated using 2014 average foreign exchange rates to 2014 actual product sales and revenues. Average exchange rates for the three months to September 30, 2015 were $1.56:£1.00 and $1.11:€1.00 (2014: $1.69:£1.00 and $1.34:€1.00). Average exchange rates for the nine months to September 30, 2015 were $1.54:£1.00 and $1.12:€1.00 (2014: $1.67:£1.00 and $1.36:€1.00).

 

48 

 

Results of operations for the three months to September 30, 2015 and 2014

 

Total revenues

 

The following table provides an analysis of the Company’s total revenues by source:

 

    3 months to    3 months to      
    September 30,    September 30,      
    2015    2014    change 
    $'M    $'M    % 
Product sales   1,576.8    1,552.0    +2 
Royalties   76.3    39.9    +91 
Other revenues   1.9    5.2    -63 
                
Total   1,655.0    1,597.1    +4 

49 

 

Product sales

 

The following table provides an analysis of the Company’s key product sales:

 

    3 months to    3 months to                     
    September 30,    September 30,    Product sales    Non-GAAP CER     US prescription     Exit market   
    2015    2014    growth    growth     growth    share 
Net product sales:   $'M    $'M    %    %     %     %  
                               
                               
VYVANSE   427.3    354.9    +20    +22    +9    17 
                               
CINRYZE   187.5    145.1    +29    +30    n/a2    n/a2 
                               
LIALDA/MEZAVANT   176.6    176.6    -    +2    +10    35 
                               
ELAPRASE   134.0    168.8    -21    -10    n/a2    n/a2 
                               
FIRAZYR   123.2    98.4    +25    +28    n/a2    n/a2 
                               
REPLAGAL   111.1    135.9    -18    -6    n/a3    n/a3 
                               
PENTASA   87.7    78.3    +12    +12    -7    12 
                               
VPRIV   85.1    96.4    -12    -4    n/a2    n/a2 
                               
ADDERALLXR   78.0    95.3    -18    -17    +9    5 
                               
FOSRENOL   43.7    48.1    -9    -2    -7    3 
                               
GATTEX/REVESTIVE   43.0    -    n/a    n/a    n/a2    n/a2 
                               
XAGRID   26.9    27.1    -1    +15    n/a2    n/a2 
                               
INTUNIV   18.1    96.7    -81    -81    -73    1 
                               
NATPARA   6.9    -    n/a    n/a    n/a2    n/a2 
                               
Other product sales   27.7    30.4    -9    +1    n/a    n/a 
                               
Total product sales   1,576.8    1,552.0    +2                
                               

 

(1)Data provided by IMS Health National Prescription Audit (“IMS NPA”) relates solely to US-based prescriptions. Exit market share represents the average monthly US market share in the month ended September 30, 2015.

(2)IMS NPA Data not available.

(3)Not sold in the US in the third quarter of 2015.

 

VYVANSE – ADHD and BED

 

VYVANSE product sales grew strongly (up 20%) in the third quarter of 2015 compared to the third quarter of 2014. Growth was driven by year over year script growth in the US (up 9%) and the benefit of price increases1 taken since the third quarter of 2014. The third quarter of 2015 also benefited from approximately $30 million of additional stocking compared to the prior year. These factors were partially offset by higher sales deductions in the third quarter of 2015 compared to the third quarter of 2014.

 

50 

 

Litigation proceedings regarding VYVANSE are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

 

CINRYZE – for the prophylactic treatment of HAE

 

CINRYZE sales were up 29% on the third quarter of 2014, primarily driven by strong growth in patients on therapy and the benefit of higher stocking in the third quarter of 2015 compared to the third quarter of 2014. To a lesser extent sales also benefited from a price increase1 taken since the third quarter of 2014.

 

LIALDA/MEZAVANT – Ulcerative Colitis

 

Product sales for LIALDA/MEZAVANT in the third quarter of 2015 were flat compared to the third quarter of 2014. The benefit of higher prescription demand and a price increase1 taken since the third quarter of 2014 was offset by higher sales deductions as a percentage of product sales and lower stocking in the third quarter of 2015 compared to the third quarter of 2014.

 

Litigation proceedings regarding LIALDA are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

 

ELAPRASE – Hunter syndrome

 

ELAPRASE product sales in the third quarter of 2015 were down 21% compared to the third quarter of 2014, reflecting the negative impact of foreign exchange movements and strong comparatives in the third quarter of 2014 due to the timing of large shipments to markets which order less frequently. On a Non GAAP CER basis ELAPRASE sales were down 10% compared to the third quarter of 2014.

 

Litigation proceedings regarding ELAPRASE are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

 

FIRAZYR – for the treatment of acute HAE attacks

 

FIRAZYR product sales were up 25% (up 28% on a Non GAAP CER basis), primarily due to growth in patients on therapy and price increases1 taken since the third quarter of 2014.

 

REPLAGAL – Fabry disease

 

REPLAGAL sales were down 18% compared to the third quarter of 2014, reflecting the negative impact of foreign exchange movements and strong comparatives in the third quarter of 2014 due to the timing of large shipments to markets which order less frequently. On a Non GAAP CER basis REPLAGAL sales were down 6% compared to the third quarter of 2014.

 

PENTASA – Ulcerative Colitis

 

PENTASA product sales increased in the third quarter of 2015 (up 12%) driven by price increases1 taken since the third quarter of 2014 and higher stocking in the third quarter of 2015 compared to the third quarter of 2014.

 

VPRIV – Gaucher disease

 

VPRIV product sales in the third quarter of 2015 were down 12% (down 4% on a Non GAAP CER basis).

 

ADDERALL XR – ADHD

 

ADDERALL XR product sales were down 18% in the third quarter of 2015, as increased prescription demand and slightly higher stocking in the quarter was more than offset by the effect of higher sales deductions as a percentage of product sales in the third quarter of 2015 compared to the third quarter of 2014.

 

GATTEX/REVESTIVE – Short Bowel Syndrome (“SBS”)

 

Shire acquired GATTEX/REVESTIVE through its acquisition of NPS Pharma on February 21, 2015, and recorded sales of $43 million in the third quarter of 2015 (up 54% on a pro-forma basis(2)).

 

51 

 

INTUNIV – ADHD

 

INTUNIV product sales were down 81% in the third quarter of 2015 reflecting the impact of generic competitors since December 2014, which resulted in lower prescription demand and significantly higher sales deductions as a percentage of product sales.

 

NATPARA – Hypoparathyroidism

 

Shire made NATPARA available on April 1, 2015, after acquiring the product through its acquisition of NPS Pharma and following a strong US launch sales of $7 million were recorded in the third quarter of 2015.

 

1 The actual net effect of price increases on current period net sales compared to the comparative period is difficult to quantify due to the various managed care rebates, Medicaid discounts, other discount programs in which the Company participates and fee for service agreements with wholesalers customers.

 

2 Sales prior to February 21, 2015 were recorded by NPS Pharma, prior to the acquisition by Shire.

 

Royalties

 

The following table provides an analysis of Shire’s royalty income:

 

    3 months to    3 months to      
    September 30,    September 30,      
    2015    2014    Change 
    $'M    $'M    % 
SENSIPAR   34.8    -    n/a 
FOSRENOL   13.2    14.6    -10 
3TC and ZEFFIX   11.9    8.8    +35 
ADDERALL XR   7.1    9.5    -25 
Other   9.3    7.0    +33 
                
Total royalties   76.3    39.9    +91 

 

Royalty income increased by 91% in the third quarter of 2015 due primarily to the inclusion of royalty income receivable from Amgen for SENSIPAR (following the acquisition of NPS Pharma by Shire).

 

Cost of product sales

 

Cost of product sales increased to $262.7 million for the three months to September 30, 2015 (17% of product sales), from $254.3 million in the corresponding period in 2014 (16% of product sales). Cost of product sales as a percentage of product sales increased by 1 percentage point in the third quarter of 2015 compared to the same period in 2014 due to the mix of sales (with a higher proportion of 2015 sales coming from lower margin products, particularly CINRYZE).

 

For the three months to September 30, 2015 cost of product sales included depreciation of $9.6 million (2014: $16.9 million).

 

R&D

 

R&D expenditure increased by 6% to $241.2 million for the three months to September 30, 2015 (15% of product sales), compared to $228.6 million in the corresponding period in 2014 (15% of product sales). The third quarter of 2014 included a payment of $12.5 million in respect of the licensing and collaboration agreement with ArmaGen to develop and commercialize AGT-182. Excluding this payment, R&D expenditure in the three months to September 30, 2015 was $25.1 million higher than the corresponding period in 2014, due to the inclusion of NPS Pharma’s R&D costs and continued investment in existing pipeline programs including lifitegrast.

 

R&D in the three months to September 30, 2015 included depreciation of $5.5 million (2014: $6.1 million).

 

52 

 

SG&A

 

SG&A expenditure increased by 10% to $575.0 million (36% of product sales) from $522.9 million (34% of product sales), primarily as a result of higher amortization charges on intangible assets acquired with NPS Pharma.

 

For the three months to September 30, 2015 SG&A included depreciation of $23.6 million (2014: $20.7 million) and amortization of $132.7 million (2014: $62.9 million).

 

Gain on sale of product rights

 

For the three months to September 30, 2015 Shire recorded a net gain on sale of non-core product rights of $0.7 million due primarily to the re-measurement of the contingent consideration receivable relating to the divestment of DAYTRANA.

 

In the third quarter of 2014 Shire recorded a net gain on sale of non-core products rights of $46.0 million, following the divestment of VANCOCIN, ESTRACE and EXPUTEX. The gain on sale of product rights also included the gain on re-measurement of the contingent consideration receivable relating to the divestment of DAYTRANA.

 

Reorganization costs

 

For the three months to September 30, 2015 Shire recorded reorganization costs of $31.1 million, primarily related to the relocation of roles from Chesterbrook to Lexington.

 

In the third quarter of 2014 Shire recorded reorganization costs of $28.2 million related to the One Shire reorganization.

 

Integration and acquisition costs

 

For the three months to September 30, 2015 Shire recorded integration and acquisition costs of $89.9 million, which comprised integration and acquisition costs of $30.7 million primarily related to NPS Pharma and costs associated with the proposed combination with Baxalta. Additionally there was a net charge of $59.2 million for the change in fair value of contingent consideration liabilities, primarily relating to SHP625 (acquired with Lumena).

 

In the third quarter of 2014 Shire recorded integration and acquisition costs of $37.1 million. This net charge included costs of $32.2 million related to the acquisition and integration of ViroPharma and $4.9 million relating to the change in fair values of contingent consideration liabilities.

 

Interest expense

 

For the three months to September 30, 2015 Shire incurred interest expense of $10.7 million (2014: $6.8 million). Interest expense in the third quarter of 2015 primarily related to interest and the amortization of financing fees incurred on borrowings to fund the NPS Pharma acquisition. Interest expense in the third quarter of 2014 principally related to interest and amortization of issue costs incurred on borrowings to fund the ViroPharma acquisition.

 

Taxation

 

The effective rate of tax in the third quarter of 2015 was -5% (2014: 11%).

 

The effective rate of tax in the third quarter of 2015 on income from continuing operations is negative, and lower than the same period in 2014, primarily due to the release of certain valuation allowances and the effect from the finalization of various tax returns all recognized during the quarter.

 

Discontinued operations

 

The loss from discontinued operations for the three months to September 30, 2015 was $24.3 million net of tax (2014: $36.1 million) primarily relating to a change in estimate in relation to the onerous lease provisions.

 

53 

 

Results of operations for the nine months to September 30, 2015 and 2014

 

Total revenues

 

The following table provides an analysis of the Company’s total revenues by source:

 

    9 months to    9 months to      
    September 30,    September 30,      
    2015    2014    change 
    $'M    $'M    % 
Product sales   4,476.2    4,329.7    +3 
Royalties   218.2    101.4    +115 
Other revenues   6.6    14.9    -56 
                
Total   4,701.0    4,446.0    +6 

54 

 

Product sales

 

The following table provides an analysis of the Company’s key product sales:

 

    9 months to    9 months to                     
    September 30,    September 30,    Product sales    Non-GAAP CER    US prescription     Exit market   
    2015    2014    growth    growth    growth    share 
    $'M    $'M    %    %    %     %  
Net product sales:                              
                               
                               
VYVANSE   1,268.9    1,065.6    +19    +21    +8    17 
                               
LIALDA/MEZAVANT   483.0    449.1    +8    +10    +10     35 
                               
CINRYZE   474.4    360.6    +32    +33    n/a    n/a2 
                               
ELAPRASE   405.5    449.5    -10    +2    n/a2    n/a2 
                               
REPLAGAL   325.5    380.7    -14    -2    n/a3    n/a3 
                               
FIRAZYR   319.8    262.3    +22    +25    n/a2    n/a2 
                               
ADDERALL XR   259.7    280.2    -7    -6    +12     5 
                               
VPRIV   256.2    273.0    -6    +2    n/a    n/a2 
                               
PENTASA   232.7    213.8    +9    +9    -7    12 
                               
FOSRENOL   132.9    136.2    -2    +5    -10    3 
                               
GATTEX/REVESTIVE   95.2    -    n/a    n/a    n/a2    n/a2 
                               
XAGRID   75.0    82.1    -9    +7    n/a2    n/a2 
                               
INTUNIV   45.0    279.0    -84    -83    -673    1 
                               
NATPARA   12.8    -    n/a    n/a    n/a2    n/a2 
                               
Other product sales   89.6    97.6    -8    +2    n/a     n/a  
                               
Total product sales   4,476.2    4,329.7    +3                
                               

 

(1)Data provided by IMS Health National Prescription Audit (“IMS NPA”) relates solely to US-based prescriptions. Exit market share represents the average monthly US market share in the month ended September 30, 2015.

(2)IMS NPA Data not available.

(3)Not sold in the US in the nine months to September 30, 2015.

 

VYVANSE – ADHD

 

VYVANSE product sales grew strongly in the nine months to September 30, 2015 (up 19% compared to the same period in 2014) primarily due to higher prescription demand, price increases1 taken since 2014 and stocking in 2015 compared to destocking in 2014, offset by higher sales deductions as a percentage of product sales compared to the same period in 2014.

 

55 

 

Litigation proceedings regarding VYVANSE are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

 

LIALDA/MEZAVANT – Ulcerative Colitis

 

Product sales for LIALDA/MEZAVANT in the nine months to September 30, 2015 were up 8% (up 10% on a Non GAAP CER basis), primarily due to higher US prescription demand and the effect of a price increase1 taken since 2014. These factors were partially offset by higher sales deductions as a percentage of product sales and the negative impact of foreign exchange movements.

 

Litigation proceedings regarding LIALDA are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

 

CINRYZE –prophylactic treatment of HAE

 

Shire acquired CINRYZE through its acquisition of ViroPharma in the first quarter of 2014. CINRYZE product sales in the nine months to September 30, 2015 were up 32% compared to the same period in 2014 (22% on a proforma basis2) primarily due to continued growth in the number of patients on therapy and to a lesser extent the benefit of a price increase1 taken since 2014.

 

ELAPRASE – Hunter syndrome

 

ELAPRASE product sales in the nine months to September 30, 2015 were down 10% compared to the same period in 2014 (up 2% on a Non GAAP CER basis). Continued growth in the number of treated patients and the benefit of a price increase1 taken since 2014 was more than offset by the negative impact of foreign exchange movements and the timing of large orders to certain markets which order less frequently.

 

Litigation proceedings regarding ELAPRASE are ongoing. Further information about this litigation can be found in PART I: ITEM 1 of this Form 10-Q.

 

REPLAGAL – Fabry disease

 

REPLAGAL sales were down 14% (down 2% on a Non GAAP CER basis) in the nine months to September 30, 2015 compared to the same period in 2014 driven primarily by the negative impact of foreign exchange movements.

 

FIRAZYR – acute treatment of HAE

 

FIRAZYR product sales grew strongly up 22% (up 25% on a Non GAAP CER basis) compared to the same period in 2014. This was primarily due to growth in patients on therapy and to a lesser extent the effect of a price increase1 taken since 2014. These factors were partially offset by the negative impact of foreign exchange movements.

 

ADDERALL XR – ADHD

 

ADDERALL XR product sales decreased (down 7%) in the nine months to September 30, 2015, as increased prescription demand (up 12%) was more than offset by the effect of higher sales deductions as a percentage of product sales.

 

VPRIV – Gaucher disease

 

VPRIV product sales in the nine months to September 30, 2015 were down 6% (up 2% on a Non GAAP CER basis), reflecting the negative impact of foreign exchange movements offset by higher unit sales from an increase in the number of patients on therapy.

 

PENTASA – Ulcerative Colitis

 

PENTASA product sales increased in the nine months to September 30, 2015 (up 9%) driven by price increases1 taken since 2014, partially offset by a decrease in US prescription demand and higher sales deductions as a percentage of product sales.

 

GATTEX/REVESTIVE – Short Bowel Syndrome (“SBS”)

 

Shire acquired GATTEX/REVESTIVE through its acquisition of NPS Pharma on February 21, 2015, and has recorded sales of $95 million (up 40% on a proforma basis3) for the period subsequent to acquisition.

 

56 

 

INTUNIV – ADHD

 

INTUNIV product sales were down 84% in the nine months to September 30, 2015 reflecting the impact of generic competitors from December 2014 and June 2015, which resulted in lower prescription demand and significantly higher sales deductions as a percentage of product sales.

 

NATPARA – Hypoparathyroidism

 

Shire made NATPARA available on April 1, 2015, after acquiring the product through its acquisition of NPS Pharma. In the nine months to September 30, 2015 sales of $13 million were recorded.

 

1 The actual net effect of price increases on current period net sales compared to the comparative period is difficult to quantify due to the various managed care rebates, Medicaid discounts, other discount programs in which the Company participates and fee for service agreements with wholesalers customers.

 

2 2014 Proforma revenues include revenues recorded by ViroPharma, prior to the acquisition of ViroPharma by Shire on January 24, 2014.

 

3 Proforma revenues include revenues recorded by NPS Pharma, prior to the acquisition of NPS Pharma by Shire on February 21, 2015.

 

Royalties

 

The following table provides an analysis of Shire’s royalty income:

 

    9 months to    9 months to      
    September 30,    September 30,      
    2015    2014    Change 
    $'M    $'M    % 
SENSIPAR   80.0    -    n/a 
INTUNIV   27.8    -    n/a 
FOSRENOL   32.4    36.8    -12 
3TC and ZEFFIX   29.9    24.6    +22 
ADDERALL XR   22.2    23.0    -3 
Other   25.9    17.0    +52 
                
Total royalties   218.2    101.4    +115 

 

Royalties in the nine months to September 30, 2015 are higher than the nine months to September 30, 2014 due to the inclusion of royalty income receivable from Amgen for SENSIPAR following the acquisition of NPS Pharma by Shire, and the inclusion of royalties receivable from Actavis on its generic sales of INTUNIV.

 

Cost of product sales

 

Cost of product sales was $718.5 million for the nine months to September 30, 2015 (16% of product sales), down from $760.8 million in the corresponding period in 2014 (18% of product sales). Cost of product sales as a percentage of product sales was two percentage points lower compared to the same period in 2014 due to lower charges in relation to the unwind of the fair value adjustment on inventories acquired in business combinations.

 

For the nine months to September 30, 2015 cost of product sales included depreciation of $34.4 million (2014: $44.9 million).

 

R&D

 

R&D expenditure increased to $1,210.8 million for the nine months to September 30, 2015 (27% of product sales), compared to $826.0 million in the corresponding period in 2014 (19% of product sales). R&D expenditure in 2015 includes impairment charges of $346.6 million relating to the SHP625 IPR&D intangible asset, due to a lower probability of regulatory approval following trial results, and $176.7 million relating to the SHP608 IPR&D intangible asset, following preclinical toxicity findings. In 2014 R&D expenditure included impairment charges of $166.0 million related to the SHP602 IPR&D intangible asset, following the decision to place the program on clinical hold and $22.0 million related to the SHP613 IPR&D intangible asset, following the decision to discontinue further development of the asset. Excluding

 

57 

 

these impairment charges, R&D expenditure in the nine months to September 30, 2015 increased by 8% or by $49.5 million, due to the first time inclusion of NPS Pharma’s R&D costs and continued investment in existing pipeline programs including lifitegrast.

 

R&D in the nine months to September 30, 2015 included depreciation of $17.2 million (2014: $17.7 million).

 

SG&A

 

SG&A expenditure increased to $1,708.9 million (38% of product sales) for the nine months to September 30, 2015 from $1,449.4 million (33% of product sales) in the corresponding period in 2014 due to increased investment behind launches, including the successful launch of VYVANSE for the treatment of moderate to severe BED in adults, the first time inclusion of NPS Pharma’s SG&A costs from February 21, 2015, and higher intangible asset amortization.

 

For the nine months to September 30, 2015 SG&A included depreciation of $53.5 million (2014: $62.6 million) and amortization of $352.3 million (2014: $181.9 million).

 

Gain on sale of product rights

 

For the nine months to September 30, 2015 Shire recorded a net gain on sale of product rights of $13.0 million (2014: $86.2 million). The gain in 2015 primarily relates to the re-measurement of contingent consideration receivable from the divestment of DAYTRANA. The gain in 2014 related to the sale of CALCICHEW trademarks to Takeda, the re-measurement of contingent consideration receivable from the divestment of DAYTRANA and the sale of non-core products.

 

Reorganization costs

 

For the nine months to September 30, 2015 Shire recorded reorganization costs of $59.6 million (2014: $123.4 million), related to the One Shire reorganization and in 2015 the relocation of roles from Chesterbrook to Lexington.

 

Integration and acquisition costs

 

For the nine months to September 30, 2015 Shire recorded a net credit for integration and acquisition costs of $46.8 million (2014: a charge of $155.8 million). The net credit principally comprises costs related to the acquisition and integration of NPS Pharma, Viropharma and the proposed combination with Baxalta ($149.7 million), offset by a net credit relating to the change in the fair value of contingent consideration liabilities ($196.5 million). The net credit relating to the change in fair value of contingent consideration liabilities principally relates to the acquisition of Lumena, reflecting (i) a lower probability of success for the SHP625 asset following the receipt of data from certain Phase 2 studies and (ii) the agreement in the third quarter of 2015 to settle all future contingent milestones payable to former Lumena shareholders and the acquisition of Lotus Tissue Repair, Inc., reflecting a lower probability of success for the SHP608 asset (for the treatment of DEB) as a result of certain preclinical toxicity findings.

 

In the nine months to September 30, 2014 the charge comprised costs of $129.5 million relating to the acquisition and integration of ViroPharma and a net charge of $26.3 million relating to the change in fair values of contingent consideration liabilities.

 

Interest expense

 

For the nine months to September 30, 2015 Shire incurred interest expense of $31.6 million (2014: $25.7 million), primarily related to interest and amortization of financing fees incurred on borrowings to fund the NPS Pharma acquisition. Interest expense in 2014 principally related to interest and amortization of issue costs incurred on borrowings to fund the ViroPharma acquisition.

 

Taxation

 

The effective rate of tax for the nine months to September 30, 2015 was -1% (2014: -5%).

 

The effective rate of tax in the nine months to September 30, 2015 on income from continuing operations is negative primarily due to the release of certain valuation allowances and the effect of the finalization of various tax returns in the period.

 

The effective rate of tax the nine months to September 30, 2014 on income from continuing operations was negative primarily due to the recognition of a net tax credit in relation to the settlement of tax positions with the Canadian revenue authorities.

 

Discontinued operations

 

The loss from discontinued operations for the nine months to September 30, 2015 was $31.3 million net of tax (2014: $64.0 million) primarily relating to a change in estimate in relation to onerous lease provisions.

 

58 

 

Financial condition at September 30, 2015 and December 31, 2014

 

Cash & cash equivalents

 

Cash and cash equivalents decreased by $2,937.5 million to $44.9 million at September 30, 2015 (December 31, 2014: $2,982.4 million), primarily due to the use of existing cash and cash equivalents to partially fund the acquisitions of NPS Pharma, Foresight and Meritage.

 

Accounts receivable, net

 

Accounts receivable, net increased by $260.9 million to $1,296.0 million at September 30, 2015 (December 31, 2014: $1,035.1 million), primarily due to the inclusion of NPS Pharma’s accounts receivable and an increase in revenue. Days sales outstanding slightly increased to 45 days (December 31, 2014: 43 days).

 

Inventories

 

Inventories increased by $64.1 million to $608.9 million at September 30, 2015 (December 31, 2014: $544.8 million), primarily due to the inventories acquired as part of the acquisition of NPS Pharma.

 

Goodwill

 

Goodwill increased by $1,814.7 million to $4,289.6 million at September 30, 2015 (December 31, 2014: $2,474.9 million), principally due to the acquisitions of NPS Pharma, Meritage and Foresight.

 

Other intangible assets, net

 

Other intangible assets increased by $4,516.2 million to $9,450.6 million at September 30, 2015 (December 31, 2014: $4,934.4 million), principally due to the intangible assets acquired with NPS Pharma, Meritage and Foresight, offset by IPR&D intangible asset impairment charges and intangible asset amortization.

 

Short term borrowings

 

Short term borrowings increased by $1,155.7 million to $2,005.7 million at September 30, 2015 (December 31, 2014: $850.0 million), reflecting the utilization of short term debt facilities to partially fund the acquisition of NPS Pharma and the recognition of secured non-recourse debt liabilities assumed as part of the NPS Pharma acquisition.

 

Other current liabilities

 

Other current liabilities decreased by $5.5 million to $257.0 million at September 30, 2015 (December 31, 2014: $262.5 million) principally due to the reduction in the fair value of contingent consideration payable associated with the SHP625 IPR&D intangible asset.

 

Non-current deferred tax liabilities

 

Non-current deferred tax liabilities increased by $1,614.2 million to $2,824.8 million at September 30, 2015 (December 31, 2014: $1,210.6 million) primarily due to deferred tax liabilities arising on intangible assets partially offset by deferred tax assets arising on tax attributes both acquired with NPS Pharma, Meritage and Foresight.

 

Other non-current liabilities

 

Other non-current liabilities increased by $3.1 million to $739.8 million at September 30, 2015 (December 31, 2014: $736.7 million) principally due to a change in estimate in respect of onerous lease liabilities and recognition of contingent consideration payable in respect of the Meritage acquisition, offset by a reduction in the fair value of contingent consideration payable associated with the SHP608 and SHP625 IPR&D intangible assets.

 

59 

 

Liquidity and capital resources

 

General

 

The Company’s funding requirements depend on a number of factors, including the timing and extent of its development programs; corporate, business and product acquisitions; the level of resources required for the expansion of certain 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 business combinations, in-licenses and collaborative projects; the timing and quantum of tax and dividend payments; the timing and quantum of purchases by the Employee Benefit Trust of Shire shares in the market to satisfy awards granted under Shire’s employee share plans; and the amount of 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 $44.9 million of cash and cash equivalents at September 30, 2015.

 

Shire has a revolving credit facility of $2,100 million which matures in 2019, $1,245 million of which was utilized as September 30, 2015.

 

In connection with its acquisition of NPS Pharma, on January 11, 2015 the Company also entered into a $850 million term loan facility agreement, which matures on January 10, 2016, with, among others, Citi Global Markets Limited (acting as mandated lead arranger and bookrunner) (the “2015 Facility Agreement”).  On September 28, 2015 the Company repaid and cancelled $100 million of the 2015 Facility Agreement and also repaid in full the remaining balance of $350 million under the 2013 Facilities Agreement. At September 30, 2015 the 2015 Facility Agreement was fully utilized at its reduced level of $750 million and recorded within short term borrowings. The Company also assumed non-recourse secured debt obligations as part of the NPS Pharma acquisition with a carrying value of $81.4 million as at September 30, 2015. See Note 13 in Part 1 of this Form 10-Q for details.

 

Shire has access to certain short-term uncommitted lines of credit which it utilizes from time to time to provide short-term flexibility in cash management. At September 30, 2015, these facilities were not utilized.

 

Financing

 

Shire anticipates that its operating cash flow together with available cash, cash equivalents and the RCF will be sufficient to meet its anticipated future operating expenses, capital expenditures, tax and interest payments, lease obligations, repayment of the term loan and milestone payments as they become due over the next twelve months.

 

If the Company decides to acquire other businesses, it expects to fund these acquisitions from cash resources, the RCF and through new borrowings or the issuance of new equity if necessary.

 

Sources and uses of cash

 

The following table provides an analysis of the Company’s gross and net (debt)/cash position (excluding restricted cash), as at September 30, 2015 and December 31, 2014:

     September 30,    December 31, 
     2015    2014 
     $’M    $’M 
Cash and cash equivalents   44.9    2,982.4 
            
Long term borrowings   (70.7)   - 
Short term borrowings   (2,005.7)   (850.0)
Other debt   (13.4)   (13.7)
           
Total debt   (2,089.8)   (863.7)
           
Net (debt)/cash   (2,044.9)   2,118.7 

 

60 

 

(1)Substantially all of the Company’s cash and cash equivalents are held by foreign subsidiaries (i.e, those subsidiaries incorporated outside of Jersey, Channel Islands, the jurisdiction of incorporation of Shire plc, Shire’s holding company). The amount of cash and cash equivalents held by foreign subsidiaries has not had, and is not expected to have, a material impact on the Company’s liquidity and capital resources.

 

(2)Net(debt)/ cash is a Non-GAAP measure. The Company believes that Net (debt)/cash is a useful measure as it indicates the level of borrowings after taking account the cash and cash equivalents that could be utilized to pay down the outstanding borrowings.

 

Cash flow activity

 

Net cash provided by operating activities in the nine months to September 30, 2015 decreased by $98.3 million or 6% to $1,575.2 million (2014: $1,673.5 million), due to the impact of payments for employee retention awards relating to AbbVie’s terminated offer for Shire, the integration of NPS Pharma and the One Shire reorganization. Net cash provided by operating activities in the nine months to September 30, 2014 also benefited from a $248 million repayment received from the Canadian revenue authorities.

 

Net cash used in investing activities was $5,566.0 million in the nine months to September 30, 2015, principally relating to the cash paid for the acquisitions of NPS Pharma ($5,220 million, less cash acquired with NPS Pharma of $42 million) and for the acquisitions of Foresight ($299 million) and Meritage ($75 million).

 

Net cash used in investing activities was $4,006.2 million in the nine months to September 30, 2014, principally relating to the cash paid for the acquisition of ViroPharma of $3,997 million (less cash acquired with ViroPharma of $233 million) and for the acquisition of Lumena of $300 million (less cash acquired with Lumena of $46 million).

 

Net cash provided by financing activities was $1,054.9 million for the nine months to September 30, 2015, principally due to the drawings, net of subsequent repayments, made under Shire’s RCF and 2015 Facility Agreement to partially fund the NPS Pharma acquisition, to fully repay the 2013 Facilities Agreement and to fund the dividend payment.

 

Net cash provided by financing activities was $567.2 million for the nine months to September 30, 2014, principally due to the drawings, net of subsequent repayments, made under the 2013 Facilities Agreement to partially fund the ViroPharma acquisition. In addition the Company paid cash of $551.5 million to settle the convertible debt assumed with ViroPharma, received cash of $346.7 million upon settlement of a purchased call option acquired with ViroPharma and made a dividend payment of $99.6 million.

 

Obligations and commitments

 

Other than the borrowings incurred to finance, or assumed following, the acquisition of NPS, as outlined above, during the nine months to September 30, 2015 there have been no material changes to the Company’s contractual obligations previously disclosed in PART II: ITEM 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

61 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

Note 17 to the unaudited consolidated financial statements included in PART I: ITEM 1 of this Form 10-Q and PART II: ITEM 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 contains a discussion of the Company’s exposure to market and other risks.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that the Company files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

 

As at September 30, 2015 the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, 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 to ensure that information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

 

In February 2015 the Company acquired NPS Pharma which represents a change in the Company’s internal control over financial reporting. Management is continuing to integrate the NPS Pharma internal controls over financial reporting with those of the Company. Excluding the NPS Pharma acquisition, 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.

 

62 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The information required by this Item is incorporated herein by reference to Note 15 to the unaudited consolidated financial statements included in PART I: ITEM 1 of this Form 10-Q.

 

ITEM 1A. RISK FACTORS

 

Set out below is an additional risk factor associated with the Company’s business that should be considered together with the risk factors set out in “ITEM 1A: Risk Factors“ in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

Shire's strategy to acquire Baxalta may not be successful: Baxalta may refuse to cooperate with Shire; if the proposed combination is consummated, the businesses may not be integrated successfully, including that expected synergies and other benefits of the combination may not be realized and unforeseen costs may arise; and disruption caused by the proposed transaction may adversely affect Shire.

 

On August 4, 2015, Shire announced that it made a combination proposal to Baxalta Incorporated on July 10, 2015 and Baxalta’s board had rejected the proposal on July 31, 2015. If Baxalta’s board continues to reject Shire’s proposals or fails to cooperate with Shire, it may be difficult or impossible for Shire to pursue its acquisition proposal successfully. In addition, even if Baxalta's board were to cooperate or agree a combination proposal with Shire, such a combination may be subject to regulatory, shareholder or other approvals, and there is no certainty that such a combination would be consummated on any announced time frame or at all.

 

If a combination between Shire and Baxalta were to be consummated, the proposed combination (which would represent Shire’s largest combination transaction to date) may fail to achieve its anticipated benefits. Any integration would be complex and time-consuming, and the companies may not be able to integrate effectively or efficiently. Expected synergies may not be realized and unexpected costs or liabilities could emerge. An inability to realize the full extent of the anticipated benefits of Shire’s proposed combination with Baxalta, could have a material adverse effect upon Shire’s results of operations.

 

Moreover, a lengthy, uncertain process to pursue a combination with Baxalta could disrupt relationships between Shire and its customers, suppliers and employees, distract Shire’s management from operating its business, and lead to additional costs. Together, such effects may have a material adverse impact on Shire’s results of operations.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

63 

 

ITEM 6. EXHIBITS

 

EXHIBITS

 

2.01Agreement 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)

 

2.02Agreement of Merger dated as of February 20, 2007 among Shire plc, Shuttle Corporation and New River Pharmaceuticals, Inc.(2)

 

2.03Business Combination Agreement dated as of July 3, 2008 between Maia Elfte Vermögensverwaltungs GmbH and Jerini AG. (3)

 

2.04Heads of Agreement by and among Shire plc and Movetis NV relating to a friendly tender offer, dated August 3, 2010. (4)

 

2.05Agreement and Plan of Merger, dated as of May 17, 2011, by and among Shire Pharmaceuticals Inc., ABH Merger Sub Inc., Advanced Biohealing, Inc., and solely for the limited purposes set forth therein, Canaan VII L.P. and Shire plc. (5)

 

2.06Agreement and Plan of Merger, dated as of March 14, 2012, by and among Shire Pharmaceuticals LLC, Pelegrina Corporation, FerroKin BioSciences, Inc. and Shareholder Representative Services LLC, solely for the limited purposes set forth therein. (6)

 

2.07Agreement and Plan of Merger dated as of November 11, 2013 among Shire Pharmaceutical Holdings Ireland Limited, Venus Newco, Inc., ViroPharma Incorporated and Shire plc. (7)

 

2.08Asset Purchase Agreement dated as of January 16, 2014 among Shire US Holdings, Inc., Shire Regenerative Medicine, Inc. and Organogenesis Inc. (8)

 

2.09Cooperation Agreement dated July 18, 2014 between AbbVie Inc. and Shire plc. (9)

 

2.10Termination Agreement dated October 20, 2014 between AbbVie Inc. and Shire plc. (10)

 

2.11Agreement and Plan of Merger dated as of January 11, 2015 among Shire Pharmaceuticals Holdings Ireland Limited, Knight NewCo 2, Inc., NPS Pharmaceuticals Inc., and Shire plc. (11)

 

3.01Form 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. (12)

 

3.02Form of Article of Association of Shire plc as amended by a special resolution passed on April 26, 2011 and adopted by a special resolution passed on April 26, 2011. (13)

 

4.01Form 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.(14)

 

4.02Form 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. (15)

 

4.03Form of Ordinary Share Certificate of Shire Limited. (16)

 

4.04Form of American Depositary Receipt Certificate of Shire Limited. (17)

 

4.05Trust Deed for the New Shire Income Access Trust, dated August 29, 2008. (18)

 

4.06Form of Amended and Restated Deposit Agreement among Shire plc, Citibank, N.A. as successor depositary, and all holders from time to time of ADRs thereunder dated May 23, 2011. (19)

 

10.01Tender and Support Agreement dated as of February 20, 2007 among Shire plc, Mr. Randal J. Kirk and the other parties named therein. (20)

 

10.02Multicurrency 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. (21)

 

10.03Accession 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). (22)

 

10.04Subscription 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

 

64 

 

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. (23)

 

10.05Amending 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. (24)

 

10.06Trust Deed dated May 9, 2007 relating to the 2.75% Convertible Bonds due 2014 between Shire plc and BNY Corporate Trustee Services Limited. (25)

 

10.07Supplemental 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. (26)

 

10.08Accession 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. (27)

 

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. (28)

 

10.10*Settlement Agreement, dated August 14, 2006 by and between Shire Laboratories Inc. and Barr. (29)

 

10.11*Product Development and License Agreement, dated August 14, 2006 by and between Shire LLC and Duramed Pharmaceuticals, Inc. (30)

 

10.12*Product Acquisition and License Agreement, dated August 14, 2006 by and among Shire LLC, Shire plc and Duramed Pharmaceuticals, Inc. (31)

 

10.13Novation Agreement dated November 21, 2005 relating to the Employment Agreement of Angus Russell dated March 10, 2004. (32)

 

10.14Novation Agreement dated April 11, 2008 relating to the Employment Agreement of Angus Russell dated March 10, 2004, as previously novated on November 21, 2005. (33)

 

10.15Form of Amended and Restated Employment Agreement between Shire plc and Mr Matthew Emmens, dated March 12, 2004. (34)

 

10.16Amendment Agreement dated November 21, 2005 relating to the Amended and Restated Employment Agreement of Matthew Emmens dated March 12, 2004. (35)

 

10.17Ratification and Guaranty dated November 21, 2005 relating to the Amended and Restated Employment Agreement of Matthew Emmens dated March 12, 2004. (36)

 

10.18Amendment 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. (37)

 

10.19Ratification and Guaranty dated May 20, 2008 relating to the Amended and Restated Employment Agreement of Matthew Emmens dated March 12, 2004. (38)

 

10.20Form of Indemnity Agreement for Directors of Shire Limited. (39)

 

10.21Service Agreement between Shire Limited and Mr Graham Hetherington, dated July 2, 2008. (40)

 

10.22Form 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. (41)

 

10.23Amended Agreement dated February 24, 2009 relating to the Product Development and License Agreement dated August 14, 2006. (42)

 

10.24Amendment to the Shire Portfolio Share Plan as approved by the Annual General meeting held on April 27, 2010. (43)

 

10.25Multicurrency revolving and swingline facilities agreement as at November 23, 2010 by and among Shire plc & with a number of financial institutions, for which Abbey National Treasury Services Plc (trading as Santander Global Banking and Markets), Bank of America Securities Limited, Barclays Capital, Citigroup Global Markets Limited, Lloyds TSB Bank plc and The Royal Bank of Scotland plc acted as mandated lead arrangers and

 

65 

 

bookrunners and Credit Suisse AG, London Branch, Deutsche Bank AG, London Branch, Goldman Sachs International, Morgan Stanley Bank, N.A. and Sumitomo Mitsui Banking Corporation, Brussels Branch acted as arrangers. (44)

 

10.26Service Agreement between Shire Pharmaceutical, LLC and Mr. Flemming Ornskov, dated October 24, 2012. (45)

 

10.27Facilities Agreement dated November 11, 2013 among Shire plc, Morgan Stanley Bank International Limited, as mandated lead arranger, bookrunner and agent, and the other parties thereto. (46)

 

10.28Letter agreement dated December 13, 2013 among Shire plc, Morgan Stanley Bank International Limited, as agent, and the other parties thereto. (47)

 

10.29Letter agreement dated February 18, 2014 between Shire plc and Barclays Bank plc, as agent. (48)

 

10.30Letter agreement dated April 8, 2014 between Shire plc and Barclays Bank plc, as agent. (49)

 

10.31US $ 2,100,000,000 Multicurrency Revolving and Swingline Facilities Agreement dated 12 December 2014. (50)

 

10.32Facilities Agreement dated January 11, 2015 among Shire Plc, Citigroup Global Markets Limited, as mandated lead arranger and bookrunner, and the other parties thereto. (51)

 

10.33Executive Employment Agreement between Shire Human Genetic Therapies, Inc. and Jeffrey V. Poulton, dated April 29, 2015.(52)

 

31.1Certification of Flemming Ornskov pursuant to Rule 13a - 14 under The Exchange Act.

 

31.2Certification of Jeffrey Poulton pursuant to Rule 13a - 14 under The Exchange Act.

 

32.1Certification of Flemming Ornskov and Jeffrey Poulton pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

 

101.INS XBRL Instance Document

 

101.SCH XBRL Taxonomy Extension Schema Document

 

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF XBRL Taxonomy Definition Linkbase Document

 

101.LAB XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

*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 2.04 to Shire's Form 10-Q filed on November 5, 2010.

 

(5)Incorporated by reference to Exhibit 2.1 to Shire's Form 8-K filed on June 30, 2011.

 

(6)Incorporated by reference to Exhibit 2.06 to Shire's Form 10-Q filed on May 23, 2012.

 

(7)Incorporated by reference to Exhibit 2.1 to Shire’s Form 8-K filed on November 12, 2013.

 

(8)Incorporated by reference to Exhibit 2.1 to Shire’s Form 8-K filed on January 22, 2014.

 

(9)Incorporated by reference to Exhibit 2.2 to Shire's Form 8-K filed on July 24, 2014.

 

(10)Incorporated by reference to Exhibit 2.1 to Shire's Form 8-K filed on October 22, 2014.

 

(11)Incorporated by reference to Exhibit 2.1 to Shire's Form 8-K filed on January 12, 2015.

 

(12)Incorporated by reference to Exhibit 99.02 to Shire's Form 8-K filed on October 1, 2008.

 

(13)Incorporated by reference to Exhibit 3.1 to Shire's Form 8-K filed on May 1, 2014.

 

(14)Incorporated by reference to Exhibit 4.01 to Shire's Form 8-K filed on May 23, 2008.

 

(15)Incorporated by reference to Exhibit 4.02 to Shire's Form 8-K filed on May 23, 2008.

 

(16)Incorporated by reference to Exhibit 4.03 to Shire's Form 8-K filed on May 23, 2008.

 

66 

 

(17)Incorporated by reference to Exhibit 4.04 to Shire's Form 8-K filed on May 23, 2008.

 

(18)Incorporated by reference to Exhibit 4.05 to Shire's Form 10-K filed on February 27, 2009.

 

(19)Incorporated by reference to Exhibit (a) to Shire's Form F-6 filed on April 27, 2011.

 

(20)Incorporated by reference to Exhibit 99.1 to Shire's Form 8-K filed on February 23, 2007.

 

(21)Incorporated by reference to Exhibit 10.2 to Shire's Form 10-Q filed on May 1, 2007.

 

(22)Incorporated by reference to Exhibit 10.01 to Shire's Form 8-K filed on May 23, 2008.

 

(23)Incorporated by reference to Exhibit 10.1 to Shire's Form 10-Q filed on August 2, 2007.

 

(24)Incorporated by reference to Exhibit 10.2 to Shire's Form 10-Q filed on August 2, 2007.

 

(25)Incorporated by reference to Exhibit 10.3 to Shire's Form 10-Q filed on August 2, 2007.

 

(26)Incorporated by reference to Exhibit 10.02 to Shire's Form 8-K filed on May 23, 2008.

 

(27)Incorporated by reference to Exhibit 10.03 to Shire's Form 8-K filed on May 23, 2008.

 

(28)Incorporated by reference to Exhibit 10.09 to Shire's Form 10-K/A filed on May 30, 2008.

 

(29)Incorporated by reference to Exhibit 10.1 to Shire's Form 10-Q filed on November 7, 2006.

 

(30)Incorporated by reference to Exhibit 10.2 to Shire's Form 10-Q filed on November 7, 2006.

 

(31)Incorporated by reference to Exhibit 10.3 to Shire's Form 10-Q filed on November 7, 2006.

 

(32)Incorporated by reference to Exhibit 10.03 to Shire's Form 8-K filed on November 25, 2005.

 

(33)Incorporated by reference to Exhibit 10.06 to Shire's Form 8-K filed on May 23, 2008.

 

(34)Incorporated by reference to Exhibit 10.13 to Shire's Form 10-K filed on March 12, 2004.

 

(35)Incorporated by reference to Exhibit 10.01 to Shire's Form 8-K filed on November 25, 2005.

 

(36)Incorporated by reference to Exhibit 10.02 to Shire's Form 8-K filed on November 25, 2005.

 

(37)Incorporated by reference to Exhibit 10.04 to Shire's Form 8-K filed on May 23, 2008.

 

(38)Incorporated by reference to Exhibit 10.05 to Shire's Form 8-K filed on May 23, 2008.

 

(39)Incorporated by reference to Exhibit 10.07 to Shire's Form 8-K filed on May 23, 2008.

 

(40)Incorporated by reference to Exhibit 10.23 to Shire's Form 10-Q filed on November 10, 2008.

 

(41)Incorporated by reference to Exhibit 10.24 to Shire's Form 10-Q filed on November 10, 2008.

 

(42)Incorporated by reference to Exhibit 10.25 to Shire's Form 10-Q filed on May 7, 2009.

 

(43)Incorporated by reference to Exhibit 10.27 to Shire's Form 10-Q filed on May 6, 2010.

 

(44)Incorporated by reference to Exhibit 10.28 to Shire's Form 10-K filed on February 23, 2011.

 

(45)Incorporated by reference to Exhibit 10.29 to Shire's Form 10-K filed on February 25, 2013.

 

(46)Incorporated by reference to Exhibit 10.1 to Shire’s Form 8-K filed on November 12, 2013.

 

(47)Incorporated by reference to Exhibit 10.1 to Shire’s Form 8-K filed on December 16, 2013.

 

(48)Incorporated by reference to Exhibit 10.1 to Shire’s Form 8-K filed on February 21, 2014.

 

(49)Incorporated by reference to Exhibit 10.1 to Shire’s Form 8-K filed on April 11, 2014.

 

(50)Incorporated by reference to Exhibit 10.1 to Shire’s Form 8-K filed on December 17, 2014.

 

(51)Incorporated by reference to Exhibit 10.1 to Shire’s Form 8-K filed on January 12, 2015.

 

(52)Incorporated by reference to Exhibit 10.33 to Shire’s Form 10-Q filed on July 30, 2015.

 

 

67 

 

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: October 30, 2015 /s/ Flemming Ornskov  
 

Flemming Ornskov

Chief Executive Officer

 
     
     
     

Date: October 30, 2015

/s/ Jeffrey Poulton
 

Jeffrey Poulton

Chief Financial Officer

 

  

68