2013 Annual Report – DTR 6.3.5 Disclosure

2013 Annual Report - DTR 6.3.5 Disclosure March 27, 2014 - Shire plc (LSE: SHP, NASDAQ: SHPG) (the "Company") announcesthat the following documents have today been posted or otherwise made availableto shareholders: * 2013 Annual Report * Notice of the 2014 Annual General Meeting * Form of Proxy In accordance with Listing Rule 9.6.1, a copy of each of these documents hasbeen uploaded to the National Storage Mechanism and will be available forviewing shortly. The 2013 Annual Report and Notice of the 2014 Annual General Meeting are alsoavailable on Shire's website www.shire.com. Disclosure & Transparency Rule ("DTR") 6.3.5 requires the Company to discloseto the media certain information from its Annual Report, if that information isof a type that would be required to be disseminated in a half-yearly report.Accordingly, the Appendix to this announcement contains a management report andthe Directors' responsibility statement. It should be read in conjunction withthe Company's unaudited full year results for the year ended December 31, 2013,issued on February 13, 2014, which comprises the Company's consolidatedfinancial statements prepared under US GAAP. The Appendix together with theunaudited full year results constitute the material required by DTR 6.3.5 to becommunicated to the media in unedited full text through a RegulatoryInformation Service. This material is not a substitute for reading the full2013 Annual Report. The information included in the Appendix is extracted from the 2013 AnnualReport which was approved by the Directors on February 24, 2014. Defined termsused in the Appendix refer to terms as defined in the 2013 Annual Report unlessthe context otherwise requires. Tony Guthrie Deputy Company Secretary For further information please contact: Investor Relations Laurie Stelzer [email protected] +1 781 482 0733 Eric Rojas [email protected] +1 781 482 0999 Sarah Elton-Farr [email protected] +44 1256 894157 Notes to editors Shire enables people with life-altering conditions to lead better lives. Our strategy is to focus on developing and marketing innovative specialtymedicines to meet significant unmet patient needs. We provide treatments in Neuroscience, Rare Diseases, Gastrointestinal andInternal Medicine and we are developing treatments for symptomatic conditionstreated by specialist physicians in other targeted therapeutic areas. www.shire.com FORWARD - LOOKING STATEMENTS - "SAFE HARBOR" STATEMENT UNDER THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995 Statements included in this release that are not historical facts areforward-looking statements. Forward-looking statements involve a number ofrisks and uncertainties and are subject to change at any time. In the eventsuch risks or uncertainties materialize, Shire's results could be materiallyadversely affected. The risks and uncertainties include, but are not limitedto, that: * Shire's products may not be a commercial success; * revenues from ADDERALL XR are subject to generic erosion and revenues from INTUNIV will become subject to generic competition starting in December 2014; * the failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payors in a timely manner for Shire's products may impact future revenues, financial condition and results of operations; * Shire conducts its own manufacturing operations for certain of its Rare Diseases products and is reliant on third party contractors 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 development, approval and manufacturing of Shire's products is subject to extensive oversight by various regulatory agencies and regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches; * 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 impact Shire's revenues, financial conditions 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 the distraction of senior management, 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, academic institutions, government entities and other organizations. Shire is undergoing a corporate reorganization and the consequent uncertainty could adversely impact 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 ViroPharma Incorporated may adversely affect Shire's financial condition and results of operations; and other risks and uncertainties detailed from time to time in Shire's filingswith the US Securities and Exchange Commission, including those risks outlinedon pages 27 to 34 of the Appendix to this announcement. APPENDIX Contents Page 1. Chairman's review 1 2. Chief Executive Officer's review 3 3. Financial Review - Overview 6 - Results of operations for the year to December 31, 102013 - Financial condition at December 31, 2013 14 - Liquidity and capital resources 15 - Treasury policies and organization 22 4. Principal risks and uncertainties - Mitigation of principal risks 26 - Risk factors related to the Company's business 27 - General risk factors related to the Company and to the 31health care industry 5. Directors' responsibility statement 35 If you look at the track record of Shire over the past 25 years you will see atheme of change as the Company has adapted to anticipate and meet patient needsand maximize growth opportunities. From acquiring new businesses, to expandingoverseas, from developing new treatments, to reorganizing our Company - changehas always been part of Shire, and 2013 was a standout year in this respect.But at the core of all this change is an enduring commitment to meet the needsof patients with a range of specialized conditions. This has always been atShire's heart and we are determined to continue making the most of thisstrength for all our stakeholders. Changing for the better For us, 2013 was a year of further success. Our new Chief Executive Dr.Flemming Ornskov led a major reorganization, re-focusing our Company on ourcore strengths and on where we need to be to continue to grow and succeed inthe future. Flemming has a rare combination of science, medical, business andcommercial acumen and his impact on Shire has been immediate and significant.We have reset Shire to create a simpler, more streamlined and effectiveorganization - One Shire - entirely focused on developing and marketinginnovative specialty medicines to meet significant unmet patient needs. Makingbig changes quickly is inevitably challenging, but the ones we have madethrough 2013 are making our Company stronger and better positioned to drive anew era of growth ahead as a result. We face the future fit and lean, more focused and flexible and we remain asmotivated as ever to make the most of a world where medical science is gettingmore sophisticated, treatments are becoming more specialized andbetter-informed patients are demanding access to new and better treatments. Continuing to specialize Specializing has served us well over the years, particularly so in apharmaceuticals industry which is not only more competitive but also moregeared towards highly differentiated and effective treatments, and often veryniche scientific developments. Going forward, Shire will continue to look forspecialist areas where there is high unmet medical need. Identifying and developing assets One of our greatest strengths has been our ability to identify assets thataddress very specific patient needs, and to develop and bring these assets tomarket. These products and product candidates are typically either alreadyapproved and marketed or we assess them as having a high probability of beingapproved. Our skill is finding those assets to deliver growth and knowing howto maximize their commercial potential. Over the years, we have established ourselves as an active dealmaker. Our mostrecent acquisition, of ViroPharma, Inc. ("ViroPharma"), is an excellentstrategic fit and we are confident in our ability to maximize value forshareholders and, of course, for patients. The acquisition is expected toenhance Shire's revenue and, earnings growth profile going forward. Expanding internationally We continue to focus on expanding our international presence. We have developeda robust international strategy through the commercialization of our RareDiseases treatments which are now sold in over 50 countries in addition to thecontinued launch of ELVANSE in Europe. We have succeeded in scaling up steadilywhile building valuable understanding along the way of how to gain approval andmarket the same products in many different countries. We continue to expand,particularly into Asia. In 2013, we announced the establishment of a subsidiaryoffice in Japan, the second largest pharmaceutical market in the world. We alsoestablished a presence in China and in South Korea. Doing the right things I am pleased with the composition of our Board. We have a good multi-nationalmix of skills and experience drawn from different areas including the worlds ofpharmaceuticals, science, finance and banking. The atmosphere is open,participative and constructively challenging. Together, we focus on ensuringthat Shire does the right things and does things right - strategically andresponsibly. We welcomed Dominic Blakemore to the Board of Directors on January 1, 2014.Dominic is a non-executive Director and member of the Audit, Compliance & RiskCommittee. He brings a wealth of experience and fresh perspective to the Board. Making the most of specialty Looking ahead, we see even more growth potential in and around focusing onspecialized unmet needs. With ever more finely-focused scientific developmentsand highly-targeted therapies for rare diseases, we aim to find newopportunities to lead the way in our core space. Specialized, high-value,targeted medicine is the future for Shire - we will continue to develop andmarket innovative treatments for distinct patient populations with specializedand often quite rare conditions around the world. I'd like to thank all Shire employees for their immense efforts and unwaveringcommitment to meeting the needs of our patients and creating value for ourshareholders during another successful year. After more than ten years at Shire, at the Annual General Meeting on April 29,2014, I will hand over the Chairmanship to Susan Kilsby. Having worked withSusan on the Board for a number of years I believe she is the ideal Chairmanfor the Company going forward; she has excellent commercial experience and willbe a great new leader for the next era of Shire's growth. I have thoroughlyenjoyed my time with Shire as it has developed and grown and I am confidentthat its track record of success will continue. Matthew Emmens Chairman Delivering strong results In 2013, we refined and strengthened our strategy and created a simpler, morestreamlined, integrated organization - One Shire. We also established ourIn-line and Pipeline committees to further reinforce our focus on commercialexcellence and innovation. This enabled us to significantly reset our cost baseand accelerate our growth. In my first year as Chief Executive I am pleased to say that Shire has madeconsiderable progress, achieving a great deal. Resetting our strategy The first accomplishment was to reset our strategy - honing in on certain highgrowth areas within specialty medicine. We are focusing even more than beforeon rare, specialized conditions, building on our strengths and on where thereis the greatest potential to grow and make a real difference to patients'lives. Our priorities are to drive optimum performance from our currentlymarketed In-line products for patients today, and to build our Pipeline ofpotential products for patients in the future through focused R&D and businessdevelopment. Reorganizing to form One Shire To better support this strategic focus, we reorganized the Company to form asimpler, more cohesive and streamlined organization - One Shire. Instead ofthree separate divisions, we now have four business units, focused exclusivelyon the commercial execution of our In-line products in our specialisttherapeutic areas: Rare Diseases, Neuroscience, Gastrointestinal (GI) andInternal Medicine. Our single R&D organization focuses on developing our pipeline of innovativetreatments to address unmet patient needs. And we have one global businessdevelopment team that searches for value-added therapeutics that fit ourstrategic focus. The reorganization of Shire is well advanced, with some final internal systemsand processes to be concluded over 2014. We will, however, always seek to adoptnew approaches and structures in the pursuit of continuous improvement anddelivery of growth. Changing the way we manage the Company We also changed the way we manage the business - reconstituting the ExecutiveCommittee (formerly known as the Leadership Team) as well as establishing twonew management committees - the In-line Committee and the Pipeline Committee.The Executive Committee manages the business of the Shire group. The In-lineCommittee is responsible for ensuring the optimal performance of our currentportfolio of marketed products. The Pipeline Committee is responsible foroverseeing and driving the development of our pipeline of future products. As aresult, we have been better able to enhance sales and address performance ofour In-line products and also consider our Pipeline investments and businessdevelopment strategy on a Shire-wide basis. Reducing costs Significant cost savings are coming from our much simpler, more streamlined,integrated organization. This has enabled us to direct our investment into theareas that we believe will provide growth for the Company in the future. Delivering efficient growth Additionally, we have been able to streamline decision making, so we can makefaster decisions with a more acute focus on customers. In our Neurosciencebusiness unit for example, we have restructured and reinvested in our salesforce in the US to help provide better service to physicians. As a result of strong product sales growth and reducing costs our bottom lineprofitability has improved, reflecting our focus on delivering efficientgrowth. Focusing our innovation We have restructured our R&D organization into one innovation-driven team. Inour early stage research we have committed to focus on rare diseases, wherethere is significant unmet need and where we have strong expertise. Our currentpipeline has a very promising range of late stage assets and we will seek toadd to these through business development. By aligning our efforts andinvestments on fewer areas with greater potential we aim to be more efficientand effective in developing our portfolio of distinctive and innovativeproducts in our chosen areas of specialization. Acquiring great new assets We announced four acquisitions in 2013 to further strengthen our Pipeline andIn-line portfolio. These all fit our growth strategy by adding to our strengthin specialized or Rare Diseases. With Lotus Tissue Repair, Premacure and SARcode Biosciences, we have excitingnew assets in areas of unmet patient need, with significant growthopportunities. Lotus Tissue Repair, Inc. ("Lotus Tissue Repair") is developing the first andcurrently only protein replacement therapy for the treatment of DEB, adevastating orphan disease for which there is no currently approved treatmentoption other than palliative care. The product is in late preclinicaldevelopment and has the potential to be a first-in-class systemic therapy forthe treatment of DEB. The Premacure AB ("Premacure") acquisition brought us a Phase 2 proteinreplacement therapy for the prevention of ROP. A rare and potentially blindingeye disorder that primarily affects premature babies, ROP is one of the mostcommon causes of visual loss in childhood and there are only symptomatictreatments available. Our move into ophthalmology was enhanced by the acquisition of SARcodeBioscience, Inc. ("SARcode"). SARcode brought us Lifitegrast (SHP606) in Phase3 development for the treatment of Dry Eye disease, a chronic and potentiallydebilitating ocular disease. The worldwide market for Dry Eye disease was worth$1.5 billion in 2012 and is growing. We announced top-line data from a Phase 3clinical trial and were pleased to meet the primary symptom endpoint, althoughthe primary sign endpoint was not met. This is the first drug to show astatistically significant improvement in the prespecified symptoms of Dry Eyedisease in a Phase 3 clinical trial. We will be discussing these findings withthe Food and Drug Administration ("FDA") and hope in due course to be able tomake Lifitegrast available to patients with this potentially debilitatingcondition. Towards the end of the year, we announced a significant strategic acquisitionof the high growth, rare disease biopharmaceutical company ViroPharma forapproximately $4.2billion. The acquisition brought us a new growth-driving product, CINRYZE, used for theprophylactic treatment for Hereditary Angiodema (HAE), complementing Shire'sFIRAZYR, which is used for the treatment of acute HAE attacks. The acquisitionalso brought us other In-line and Pipeline assets. In addition to enhancingboth Shire's immediate and long term growth prospects, the acquisition is alsoexpected to bring significant cost synergies. Making the most of existing assets As well as focusing on finding and acquiring great new assets and opportunitiesfor Shire, we also work hard to make the most of our existing assets, whetherby taking them into new countries or by exploring and developing new uses forthem. Take for example lisdexamfetamine dimesylate ("LDX"), as the activeingredient in VYVANSE, our treatment for ADHD in the US. We are exploring thevery real potential for LDX to form the basis of treatment for Binge EatingDisorder (BED). Estimates suggest there are around three million patients withBED in the US. This is a huge unmet need with no currently approvedpharmacologic treatment. Positive results in Phase 3 BED trials in 2013underline the great potential of this new use for LDX. We are currentlydiscussing the next steps with the FDA. In line with our strategy to prioritize investments that have the greateststrategic clinical and commercial value, in January 2014 we sold our DERMAGRAFTassets to Organogenesis, Inc. Despite great efforts, we could not generate thegrowth in sales that we expected from this product. As a result of thistransaction, we are now able to concentrate our investment and resources onproducts and pipeline programs that have better profitability and growthprospects. Continuing to change If you look at the history of Shire over the past 25 years, we have always beena fast growing, adaptive company. Shire continues to evolve, never stands stilland we strive to surprise, positively. This ability to embrace and incorporatechange is key to our success. It is in our DNA. Putting patients at the heart of our business A core aspect of Shire is our very real focus on patients. Like change, it hasalways been part of what makes us special. When we try to be great in aspecialized area, the first thing we look at is the patient. Are theresignificant unmet patient needs? Do we truly understand these patients? Do wehave the product or potential product to meet their needs? Putting patients atthe heart of our business has always been our guiding principle. It is whythere are pictures of patients around our offices everywhere and it isreinforced by our enduring culture of striving to be as brave as the patientswe serve. Our BRAVE culture is integral to the way we attract and retain greatpeople. It keeps the Company fresh and engaged. And it plays a major part inour people's remarkable ability to continue to deliver results while alsofocusing on changing for the future. Our people I would like to take this opportunity to thank everyone in Shire for theirtremendous contribution this year and for their amazing willingness to embracechange for the better. After almost six years at Shire, Graham Hetherington is stepping down as ChiefFinancial Officer (CFO) on March 1, 2014. We are grateful for Graham's manycontributions to the Company and wish him all the best. Shire's Senior VicePresident and Group Financial Controller James Bowling will be interim CFO andwe are undertaking the global search for Graham's successor. Evolving the business This year we have undergone another evolution in Shire. We have increased ourfocus on developing and marketing innovative specialty medicines to meetsignificant unmet patient needs and we have simplified and streamlined to resetour cost base and accelerate our growth. We now have a sharper, stronger Shire - a Shire that is well set for highgrowth both in the top and bottom line. In the years ahead we will focus oneven more specialty, even more rare diseases, even more targeted conditionswhere we can lead the way in developing and delivering treatments for patients. Investors have responded well to the changes and we were pleased with thesteady and significant increase in Shire's share price during 2013. We aregrateful to our shareholders for their continued support as we continue to doeverything we can to build the success and grow the value of Shire. Focusing on growth Where 2013 was essentially a year of evolution, we expect that 2014 will aboveall be a year of growth. We now have a sharper focus and a stronger morestreamlined organization together with our BRAVE culture and unswervingcommitment to patients with specialized conditions. Boosted by this firm foundation, we will focus on growth - through our existingIn-line products, through our Pipeline of potential products and throughidentifying and maximizing all the opportunities that lie ahead. I look forwardto another exciting year for Shire. Dr. Flemming Ornskov Chief Executive Officer Overview Shire is a leading specialty biopharmaceutical company that focuses ondeveloping and marketing innovative specialty medicines that addresssignificant unmet patient needs. The Company has grown through acquisition,completing a series of major transactions that have brought therapeutic,geographic and pipeline growth and diversification. The Company will continueto evaluate companies, products and pipeline opportunities that offer a goodstrategic fit and have the potential to deliver demonstrable value to all ofthe Company's stakeholders: patients, physicians, policy makers, payors,investors and employees. The Company's vision is to transform the lives of people around the world whosehealth is impacted by rare and other specialized conditions, through providinginnovative treatments. The Company will execute on its vision through itsstrategy and business model. For further details of Shire's strategy andbusiness model, refer to page 18 of Shire's 2013 Annual report. Through deep understanding of patients' needs, the Company is able to: * serve patients with high unmet needs in select, commercially attractive specialty therapeutic areas; * drive optimum performance of its marketed products - to serve patients today; * build its pipeline of innovative specialist treatments through both R&D and Business Development activities - to enable the Company to serve patients in the future. Shire's in-licensing and acquisition efforts are focused on products inspecialist markets with strong intellectual property protection or other formsof market exclusivity and global rights. Shire believes that a carefullyselected and balanced portfolio of products with strategically aligned andrelatively small-scale sales forces will deliver strong results. Substantially all of the Company's revenues, expenditures and net assets areattributable to the R&D, manufacture, sale and distribution of pharmaceuticalproducts within one reportable segment. The Company also earns royalties (whereShire has out-licensed products to third parties) which are recorded asrevenues. Revenues are derived primarily from two sources - sales of the Company's ownproducts and royalties: * 96% (2012: 94%) of total revenues are derived from product sales; and * 3% of total revenues are derived from royalties (2012: 5%). The markets in which the Company conducts its business are highly competitiveand highly regulated. There is increasing legislation both in the US and the rest of the world whichis placing downward pressure on the net pricing of pharmaceutical products andmedical devices. For example the US government passed healthcare reformlegislation in 2010 which included an increase in Medicaid rebate rates andextended Medicaid rebates to those products provided through Medicaid managedcare organizations. The legislation also imposed excise fees to be paid by bothpharmaceutical manufacturers (from 2011) and medical device companies (from2013). The CMS are also increasingly bundling drug reimbursement into procedurecosts, which can severely decrease the reimbursement rates to physicians forsome manufacturers' drugs, biologicals and medical devices. The impact of theserecent changes to US healthcare legislation, and other healthcare reforms inthe rest of the world, has not to date had a material impact on the Company'sresults of operations. The healthcare industry is also experiencing: * pressure from governments and health care providers to keep prices low while increasing access to drugs; * increasing challenges from third party payors for products to have demonstrable clinical benefit, with pricing and reimbursement approval becoming increasingly linked to a product's clinical effectiveness and impact on overall costs of patient care; * increased R&D costs, because development programs are typically larger and take longer to get approval from regulators; * challenges to existing patents from generic manufacturers; * governments and healthcare systems favoring earlier entry of low cost generic drugs; and * higher marketing costs, due to increased competition for market share. Shire's strategy has been developed to address these industry-wide competitivepressures. This strategy has resulted in a series of initiatives in thefollowing areas: Markets Shire's current portfolio of approved products focuses on the followingmarkets: Rare Diseases, Neuroscience and Gastrointestinal ("GI") diseases.Shire also has a number of marketed products for other therapeutic areas fromwhich it generates product revenues or royalties from third parties. In 2013Shire derived 41% of product sales from Neuroscience products, 33% from RareDiseases products, 17% from GI products and 9% from products addressing othertherapeutic areas. Shire's early stage research is focused on rare diseases. Shire has grown through acquisition which has brought therapeutic, geographicand pipeline growth and diversification. For example the recent acquisitions ofFerrokin Biosciences Inc ("Ferrokin") in 2012 and Lotus Tissue Repair,Premacure and SARcode in 2013 provide potential access to new markets such asophthalmology, neonatology and hematology/oncology. The acquisition ofViroPharma, which closed in January 2014, expands Shire's Rare Diseasesportfolio including adding CINRYZE, a leading currently marketed product forthe prophylactic treatment of HAE. In 2013 Shire derived 30% of product sales from outside of the US. Shire hasongoing commercialization and late-stage development activities, which areexpected to further supplement the diversification of revenues in the future,including the following: * filing in 2013 of an application in Japan for the approval of VPRIV for the treatment of Gaucher disease; * filing in 2013 of an application in Japan for the approval of XAGRID for the treatment of elevated platelet counts in at risk essential thrombocythemia patients; and * INTUNIV Phase 3 clinical program to support submission of an MAA in the EU. R&D The Company reorganized its R&D efforts in 2013, combining the R&Dorganizations of its former divisions into a single One Shire R&D organizationfocused around a prioritized portfolio of development and research programs.Shire has focused its R&D efforts on five therapeutic areas; Rare diseases,Neuroscience, GI, Hematology and Ophthalmology. Shire concentrates itsresources on obtaining regulatory approval for later-stage pipeline productswithin these therapeutic areas and focuses its early stage research activitiesprimarily in rare diseases. Evidence of the successful progression of the late stage pipeline can be seenin the granting of approval and associated launches of the Company's productsover the last five years. In this time several products have receivedregulatory approval including: in the US, INTUNIV in 2009, VPRIV in 2010, andFIRAZYR in 2011; in the EU, VPRIV in 2010 and ELVANSE/TYVENSE in 2012; inCanada, VYVANSE in 2010. Prior to the One Shire R&D reorganization, the Company's management reviewed R&D expenditure by operating segment. Following the One Shire R&D reorganization,Shire's management reviews direct costs for R&D projects by development phase. Shire's R&D costs in 2013 included expenditure on programs in all stages ofdevelopment. The following table provides an analysis of the Company's direct R&D spend categorized by development stage, based upon the development stage ofeach program as at December 31, 2013: Year to December 31,2013 $'M _____________ Early stage programs 102 Late stage programs 327 Currently marketed products 179 _____________ Total 608 _____________ In addition to the above, the Company recorded R&D employee costs of $282million in 2013 and other indirect R&D costs (comprising depreciation andimpairment charges) of $43 million. Patents and market exclusivity The loss or expiration of patent protection or regulatory exclusivity withrespect to any of the Company's major products could have a material adverseeffect on the Company's revenues, financial condition and results ofoperations, as generic or biosimilar products may enter the market. Companiesselling generic products often do not need to complete extensive clinicalstudies when they seek registration of a generic or biosimilar product andaccordingly, they are generally able to sell generic versions of the Company'sproducts at a much lower price. As expected, in 2009 Teva and Impax commenced commercial shipments of theirauthorized generic versions of ADDERALL XR, which led to lower sales of brandedADDERALL XR compared to the period prior to the authorized generic launch. In 2011, authorized generic and generic versions of the Company's CARBATROL andREMINYL products respectively were launched, which led to lower sales of thesebranded products compared to the period before loss of exclusivity. Shire is engaged in various legal proceedings with generic manufacturers withrespect to its VYVANSE, LIALDA and ADDERALL XR patents. For more detail ofcurrent patent litigation, see Note 19 to the consolidated financialstatements. Business Development Shire seeks to focus its business development activity on the acquisition andin-licensing of products and compounds which offer a good strategic fit andhave the potential to deliver demonstrable value to all of the Company'sstakeholders. Recent mergers or acquisitions On January 24, 2014 Shire completed the acquisition of ViroPharma which added amarketed product for the prophylactic treatment of HAE, CINRYZE, as well as anumber of other marketed products and a pipeline of product candidates in therare disease area. In 2013, Shire acquired: * SARcode which added SHP606 to the Shire portfolio (SHP606 is currently in Phase 3 development for the treatment of Dry Eye disease). * Premacure which added SHP607 to the Shire portfolio (SHP607 is currently in Phase 3 for the prevention of ROP). * Lotus Tissue Repair which added global rights to a protein replacement therapy in pre-clinical development, for the treatment of DEB. In 2012, Shire acquired: * FerroKin which added SHP602 to the Shire portfolio (SHP602 is in Phase 2 for the treatment of iron overload following numerous blood transfusions). * Substantially all the assets and certain liabilities of Pervasis Therapeutics Inc., which added VASCUGEL (now SHP613) to the Shire portfolio (SHP613 is in Phase 2 development for acute vascular repair). Collaboration and licensing activity Shire has also entered into a number of collaboration and license agreements inrecent years, including: * A collaboration and license agreement with Sangamo to develop therapeutics for hemophilia and other monogenic diseases based on Sangamo's ZFP technology in 2012; * A worldwide exclusive license from IGAN Biosciences, Inc. ("IGAN") to develop and commercialize protease-based therapeutics for the treatment of IgA nephropathy, a rare kidney disease in 2012; and * Shionogi co-development and co-commercialization agreement in 2012 for VYVANSE and INTUNIV in Japan. Organization and Structure On May 2, 2013, the Company announced that there would be a reorganization ofthe Company's business to integrate its Specialty Pharmaceuticals ("SP"), HumanGenetic Therapies ("HGT") and Regenerative Medicine ("RM") business units andreportable segments into a simplified One Shire organization in order to drivefuture growth and innovation. Consequently the SP, HGT and RM segments nolonger exist. Shire now comprises a single operating and reportable segment.For further details see Note 25 "Segment reporting" to the consolidatedfinancial statements. On November 7, 2013, the Company announced that, as part of the One Shirereorganization, the Company had undertaken a review of all of Shire's pipelineprograms to identify those projects that fit with Shire's new strategicdirection and have an acceptable likelihood of success. Shire's pre-clinicalinvestments will now be primarily focused on rare diseases, meaning that themajority of other pre-clinical projects will not continue. Several clinicalprograms have also been discontinued. The impact of the prioritization and rationalization of the Company'sdevelopment portfolio means many of the R&D programs currently run fromBasingstoke, UK will cease. Taken together with the overall streamlining of theR&D organization, this has resulted in a significant number of R&D roles inBasingstoke being eliminated and some positions being re-located. A smallnumber of functional roles that support R&D in Basingstoke have also beenaffected. In addition the Company announced plans to re-locate its internationalcommercial hub from Nyon, Switzerland to Zug, Switzerland. All Nyon-basedemployees have been impacted by the One Shire transition and the move to Zug.Shire is planning for the new Zug office to be ready for occupancy in summer2014, and will phase out the Nyon office over a reasonable period of time toenable employees and their families to manage their re-locations. On October 22, 2013 Shire announced that it had decided to discontinue theconstruction of its new manufacturing facility in San Diego. On January 16,2014, the Company sold and transferred certain of the assets relating to themanufacturing, marketing, sale and distribution of DERMAGRAFT to OrganogenesisInc. For further information, see Note 9, "Results of discontinued operationsand assets held for sale" to the consolidated financial statements). On January 23, 2013 Shire announced that it had decided to proceed with acollective dismissal and business closure at its site in Turnhout, Belgium.This decision followed the conclusion of an information and consultationprocess. Shire continues to sell RESOLOR in Europe and the supply of RESOLORfor patients in Europe who rely on the medicine will not be affected. Theclosure of the Turnhout site was completed during 2013. Results of operations for the year to December 31, 2013 Financial highlights for the year to December 31, 2013 are as follows: Product sales from continuing operations in 2013 were up 12% to $4,757 million(2012: $4,253 million). The strong growth in product sales from continuing operations was driven byVYVANSE (up 19% to $1,228 million), LIALDA/MEZAVANT (up 32% to $529 million),VPRIV (up 12% to $343 million), INTUNIV (up 16% to $335 million) and FIRAZYR(up 102% to $235 million). Total revenues from continuing operations were up 9% to $4,934 million (2012:$4,527 million) as the growth in product sales was partially offset, asexpected, by lower royalties and other revenues (down 36%). Operating income from continuing operations in 2013 was up 66% to $1,734million (2012: $1,045 million), primarily due to the strong growth in productsales and an overall reduction in total operating expenses in 2013 compared to2012 as the Company focuses on delivering efficient growth. Operating expensesin 2013 include a net credit of $159 million due to change in the fair value ofcontingent consideration liabilities, in particular relating to the acquisitionof SARcode following the release of top-line Opus-2.Operating expenses in 2012include impairment charges of $197.9 million in 2012 related to RESOLORintangible assets. Research and Development expenditure decreased by 2%. SG&Aexpenditure decreased by 15%. Diluted earnings per Ordinary Share from continuing operations increased 74% to$2.45 (2012: $1.41) due to the higher operating income from continuingoperations and a lower effective tax rate of 16% (2012: 20%). Total revenues The following table provides an analysis of the Company's total revenues bysource: Year to December 31, 2013 2012 Change $'M $'M % __________________ __________________ __________________ Product sales 4,757.5 4,252.9 +12% Royalties 153.7 241.6 -36% Other revenues 23.1 32.9 -30% __________________ __________________ __________________ Total 4,934.3 4,527.4 +9% __________________ __________________ __________________ Product sales Year to Year to December December Product Non-GAAP US Exit 31, 31, sales CER prescription market 2013 2012 growth growth4 growth1 share1 $'M $'M % % % % Net productsales: VYVANSE 1,227.8 1,029.8 +19 +19 +6 16 ELAPRASE 545.6 497.6 +10 +11 n/a3 n/a3 LIALDA/ 528.9 399.9 +32 +32 +18 28MEZAVANT REPLAGAL 467.9 497.5 -6 -4 n/a3 n/a3 ADDERALL XR 375.4 429.0 -12 -12 -9 5 VPRIV 342.7 306.6 +12 +12 n/a2 n/a2 INTUNIV 334.9 287.8 +16 +16 +8 5 PENTASA 280.6 265.8 +6 +6 -1 14 FIRAZYR 234.8 116.3 +102 +101 n/a2 n/a2 FOSRENOL 183.4 172.0 +7 +6 -18 43 XAGRID 99.4 97.2 +2 +1 n/a2 Other product 136.1 153.4 +8 +11 n/a n/asales __________ __________ _________ Total product 4,757.5 4,252.9 +12sales __________ __________ _________ (1) Data provided by IMS Health National Prescription Audit ("IMS NPA"). Exitmarket share represents the average US market share in the month ended December31, 2013. (2) IMS NPA Data not available. (3) Not sold in the US in the year to December 31, 2013. (4) The Company's management analyzes product sales and revenue growth forcertain products sold in markets outside of the US on a constant exchange rate("CER") basis, so that product sales and revenue growth can be consideredexcluding movements in foreign exchange rates. Product sales and revenue growthon a CER basis is a Non GAAP financial measure ("Non GAAP CER"), computed bycomparing 2013 product sales and revenues restated using 2012 average foreignexchange rates to 2012 actual product sales and revenues. This Non GAAPfinancial measure is used by Shire's management, and is considered to provideuseful information to investors about the Company's results of operations,because it facilitates an evaluation of the Company's year-on-year performanceon a comparable basis. Average exchange rates for the year to December 31, 2013were $1.56:£1.00 and $1.33:€1.00 (2012: $1.59:£1.00 and $1.29:€1.00). VYVANSE - ADHD VYVANSE product sales grew strongly (+19%) in 2013 primarily as a result ofprice increases as well as higher prescription demand, primarily due to growthin the US ADHD market (+6%). Litigation proceedings regarding VYVANSE are ongoing. Further information aboutthis litigation can be found in Note 19 to the consolidated financialstatements. ELAPRASE - Hunter syndrome Reported ELAPRASE sales growth (+10%) was driven by an increase in the numberof patients on therapy. LIALDA/MEZAVANT - Ulcerative colitis The growth in product sales for LIALDA/MEZAVANT (+32%) in 2013 was primarilydriven by higher market share in the US, the effects of which were partiallyoffset by higher sales deductions in 2013 as compared to 2012. Litigation proceedings regarding LIALDA/MEZAVANT are ongoing. Furtherinformation about this litigation can be found in Note 19 to the consolidatedfinancial statementst. REPLAGAL - Fabry disease REPLAGAL sales were down 6% compared to 2012 (down 4% on a Non GAAP CER basis)as sales in 2013 were impacted by foreign exchange, pricing pressure (primarilyin Europe) and slightly lower volumes due to the return of competition to theFabry market. ADDERALL XR - ADHD ADDERALL XR product sales decreased 12% in 2013 as a result of higher salesdeductions, partially offset by the effect of higher stocking in 2013 comparedto 2012. Litigation proceedings regarding ADDERALL XR are ongoing. Further informationabout this litigation and the Impax settlement, can be found in Note 19 to theconsolidated financial statements. VPRIV - Gaucher disease Reported VPRIV sales growth of 12% was driven by an increase in the number ofpatients on therapy. INTUNIV - ADHD INTUNIV product sales were up 16% compared to 2012, driven by growth in USprescription demand (up 9% compared to 2012), together with price increases.These positive factors were partially offset by higher sales deductions in 2013compared to 2012. Further information about litigation proceedings regarding INTUNIV can be foundin see Note 19 to the consolidated financial statements. PENTASA - Ulcerative Colitis PENTASA product sales were up 6% as the benefit of price increases waspartially offset by higher sales deductions in 2013 as compared to 2012. FIRAZYR - Hereditary Angioedema FIRAZYR sales growth (+102% compared to 2012) was primarily driven by the USmarket, where we continue to see both good growth in new patients and increasedlevels of repeat usage by existing patients. Royalties Year to Year to December 31, December 31, 2013 2012 Change $'M $'M % ____________ ____________ _________ FOSRENOL 48.1 53.3 -10% 3TC and ZEFFIX 46.7 91.6 -49% ADDERALL XR 27.6 70.3 -61% Other 31.3 26.4 19% ____________ ____________ _________ Total 153.7 241.6 -36% ____________ ____________ _________ Royalties from ADDERALL XR in 2013 were significantly impacted by the lowerroyalty rate payable on sales of authorized generic ADDERALL XR by Impax,following the launch of a new generic version of ADDERALL XR late in the secondquarter of 2012 as well as by Impax's lower market share in 2013 versus 2012. Royalties from 3TC and ZEFFIX in 2013 were lower, as 2012 included one-timeroyalty income of $38 million in respect of prior periods due to resolution ofa disagreement with GlaxoSmithKline and ViiV Healthcare. Cost of product sales from continuing operations Cost of product sales increased to $670.8 million for the year to December 31,2013 (14% of product sales), up from $585.8 million in the corresponding periodin 2012 (14% of product sales). The costs of product sales as a percentage ofproduct sales remained broadly constant in 2013 as compared to 2012. For the year to December 31, 2013 cost of product sales included depreciationof $37.5 million (2012: $29.0 million). R&D from continuing operations R&D expenditure decreased to $933.4 million for the year to December 31, 2013(20% of product sales), compared to $953.0 million in the corresponding periodin 2012 (22% of product sales). In the year to December 31, 2012 R&D includedup-front payments of $13.0 million to Sangamo and $10.0 million to acquire theUS rights for prucalopride (marketed in certain countries in Europe as RESOLOR)and IPR&D impairment charges in respect of RESOLOR of $71.2 million (2013:$19.9 million). Excluding these costs R&D increased by $54.7 million or 6% inthe year to December 31, 2013 due to the Company's continuing investment in anumber of targeted R&D programs, particularly new uses for LDX and otherrecently acquired assets including SHP606 (Lifitegrast), SHP607 (for theprevention of ROP) and SHP608 (for the treatment of DEB). R&D in the year to December 31, 2013 included depreciation of $23.3 million(2012: $22.5 million). SG&A from continuing operations SG&A expenditure decreased to $1,651.3 million (35% of product sales) for theyear to December 31, 2013 from $1,948.0 million (46% of product sales) in thecorresponding period in 2012. In the year to December 31, 2012 SG&A includedimpairment charges of $126.7 million related to RESOLOR intangible assets andhigher legal and litigation costs, including a charge of $57.5 million inrelation to the agreement in principle with the US Government. Excluding thesecosts SG&A decreased by $43.1 million or 3% due to the Company's continuingfocus on simplifying its business and delivering efficient growth. For the year to December 31, 2013 SG&A included depreciation of $66.8 million(2012: $57.5 million) and amortization of $152.0 million (2012: $153.6million). Goodwill impairment charges from continuing operations In the first quarter of 2013 Shire recorded a goodwill impairment charge of$198.9 million (2012: $nil) in relation to the former RM business unit.Following a review of future forecasts for the RM business unit, managementdetermined in the first quarter of 2013 that future sales were expected to belower than anticipated at the time of acquisition and consequently inaccordance with US GAAP, it was determined that the goodwill attributable tothe RM business unit was impaired. Following the divestment of DERMAGRAFT onJanuary 16, 2014 the Company has reclassified $191.8 million of the impairmentcharge (being the portion of the RM reporting unit goodwill impairment chargethat related to the DERMAGRAFT business) to discontinued operations. Reorganization costs from continuing operations For the year to December 31, 2013 Shire recorded reorganization costs of $88.2million (2012: $nil) comprising costs relating to the "One Shire"reorganization ($64.6 million), which included involuntary termination benefitsand other reorganization costs (of which approximately $42 million was paid incash during 2013) as the Company transitions to a new operating structure, andthe cost of closing the Company's facility at Turnhout, Belgium ($23.6million). Integration and acquisition costs from continuing operations For the year to December 31, 2013 the Company recorded a net credit of $134.1million in integration and acquisition costs (2012: $13.5 million charge). Thiscomprised a credit of $159.1 million (2012: $9.2 million charge) relating tothe change in fair values of contingent consideration liabilities, inparticular relating to the acquisition of SARcode, partially offset by $25.0million of acquisition and integration costs, primarily for the acquisition ofViroPharma and integration of SARcode and Lotus Tissue Repair. In 2012integration and acquisition costs was primarily related to the acquisition ofFerroKin. Interest expense from continuing operations For the year to December 31, 2013 the Company incurred interest expense of$38.1 million (2012: $38.2 million). Interest expense principally related tothe coupon and amortization of issue costs on the Bonds which were fullyredeemed or converted in the year, and to a lesser extent costs incurred onfacilities related to the purchase of ViroPharma. Taxation from continuing operations The effective tax rate was 16% (2012: 20%). The effective tax rate is lower than 2012 primarily due to the impact ofchanges in the fair values of contingent consideration liabilities which haveno tax impact and impairment charges in 2012 which had no tax benefit and werenot repeated in 2013. Discontinued operations The loss from discontinued operations for the year to December 31, 2013 was$754.5 million net of tax (2012: $60.3 million), which included impairmentcharges in respect of the assets held for sale ($636.9 million), goodwillimpairment charges ($191.8 million), net losses on the discontinued DERMAGRAFTbusiness ($252.2 million including reorganization costs) and related taxes(credits) of $326.4 million. Financial condition at December 31, 2013 Cash & cash equivalents Cash and cash equivalents increased by $757.2 million to $2,239.4 million(December 31, 2012: $1,482.2 million). Cash generated by operating activitiesof $1,463.0 million was offset by the cost of acquiring SARcode, Premacure andLotus, the purchase of shares (both by the employee benefit trust ("EBT") andunder the share buy-back program), other capital expenditure and dividendpayments. Accounts receivable, net Accounts receivable, net increased by $137.0 million to $961.2 million(December 31, 2012: $824.2 million), primarily due to the increase in revenuein the year to December 31, 2013. Days sales outstanding decreased to 46 days(December 31, 2012: 50 days). Other intangible assets, net Other intangible assets increased by $75.5 million to $2,312.6 million(December 31, 2012: $2,388.1 million), due to the IPR&D assets acquired withSARcode, Premacure and Lotus, offset by the divestment of DERMAGRAFT intangibleassets, intangible asset amortization, IPR&D impairment and foreign exchangemovements. Convertible Bonds As of December 31, 2013, Bondholders had voluntarily converted $1,099,050,000aggregate principal amount of the Bonds into 33,806,464 fully paid OrdinaryShares. The remaining outstanding Bonds in an aggregate principle amount of$950,000 were redeemed pursuant to the Optional Redemption Notice issued onNovember 26, 2013. Non-current deferred tax liabilities Non-current deferred tax liabilities increased by $39.8 million to $560.6million (December 31, 2012: $520.8 million), primarily due to deferred taxliabilities arising on the IPR&D assets acquired with SARcode and Lotus offsetby a reduction in deferred tax liabilities arising from the impairment ofDERMAGRAFT intangible assets. Other non-current liabilities Other non-current liabilities increased by $346.9 million to $588.5 million(December 31, 2012: $241.6 million) primarily due to the recognition ofnon-current contingent consideration payable related to the SARcode, Premacureand Lotus business combinations. Liquidity and capital resources General The Company's funding requirements depend on a number of factors, including thetiming and extent of its development programs; corporate, business and productacquisitions; the level of resources required for the expansion of certainmanufacturing and marketing capabilities as the product base expands; increasesin accounts receivable and inventory which may arise with any increase inproduct sales; competitive and technological developments; the timing and costof obtaining required regulatory approvals for new products; the timing andquantum of milestone payments on collaborative projects; the timing and quantumof tax and dividend payments; the timing and quantum of purchases by the EBT ofShire shares in the market to satisfy awards granted under Shire's employeeshare plans; and the amount of cash generated from sales of Shire's productsand royalty receipts. An important part of Shire's business strategy is to protect its products andtechnologies through the use of patents, proprietary technologies andtrademarks, to the extent available. The Company intends to defend itsintellectual property and as a result may need cash for funding the cost oflitigation. The Company finances its activities through cash generated from operatingactivities; credit facilities; private and public offerings of equity and debtsecurities; and the proceeds of asset or investment disposals. Shire's balance sheet includes $2,239.4 million of cash and cash equivalents atDecember 31, 2013. Shire has a revolving credit facility of $1,200 millionwhich matures in 2015, of which $700 million was utilized on January 24, 2014to partially fund the ViroPharma acquisition (See section "Term Loan","Facilities Agreement" for further details). In addition in connection with itsacquisition of ViroPharma, Shire entered into a $2.60 billion FacilitiesAgreement which was subsequently reduced to $1.40 billion, and comprises of twocredit facilities: (i) a $0.55 billion term loan facility, of which $0.35billion was utilized on January 24, 2014 and (ii) a $0.85 billion term loanfacility, fully utilized on January 24, 2014 (See section "Term Loan Agreement"for further details). Further on January 24, 2014 ViroPharma commenced a tenderoffer to repurchase, at the option of each holder, any and all of ViroPharma'soutstanding 2.00% Convertible Senior Notes Due 2017 (the "Convertible Notes")and notified the holders of their separate right to convert the ConvertibleNotes. The repurchase and payment for conversion of the Convertible Notes formspart of the cash consideration payable to ViroPharma. Shire 2.75% Convertible Bonds due 2014 On May 9, 2007 Shire issued $1,100 million in principal amount of Bonds. As ofDecember 31, 2013 all of the Bonds had been converted or redeemed as describedbelow. On November 26, 2013, Shire issued an optional redemption notice under theTrust Deed to the holders of the Bonds. The aggregate outstanding principalamount of Bonds on November 25, 2013, the last practicable date prior to thedate of the optional redemption notice, was $1,075,070,000. The last day onwhich bondholders were able to exercise their conversion rights was December13, 2013. Those Bonds which were not voluntarily converted were redeemed by theCompany on December 27, 2013 at par together with interest accrued to thatdate. As of December 31, 2013, Bonds in an aggregate principal amount of the$1,099,050,000 had been voluntarily converted into 33,806,464 fully paidOrdinary Shares at a conversion price of US$32.51 per Ordinary Share, in thecapital of the Company, with par value of £0.05 each. The remaining outstandingBonds in an aggregate principle amount of $950,000 were redeemed pursuant tothe Optional Redemption Notice issued on November 26, 2013. Following theredemption of all the outstanding Bonds, the Company cancelled the listing ofthe Bonds on the Official List maintained by the UK Listing Authority and theadmission to trading of the Bonds on the Professional Securities Market of theLondon Stock Exchange. Revolving Credit Facilities Agreement On November 23, 2010, the Company entered into a committed multicurrencyrevolving and swingline facilities agreement with a number of financialinstitutions, for which Abbey National Treasury Services Plc (trading asSantander Global Banking and Markets), Bank of America Securities Limited,Barclays Capital, Citigroup Global Markets Limited, Lloyds TSB Bank plc and TheRoyal Bank of Scotland plc acted as mandated lead arrangers and bookrunners(the "RCF"). The RCF is for an aggregate amount of $1,200 million and cancelledthe Company's then existing committed revolving credit facility. The RCF, whichincludes a $250 million swingline facility, may be used for general corporatepurposes and matures on November 23, 2015. The interest rate on each loan drawn under the RCF for each interest period isthe percentage rate per annum which is the aggregate of the applicable margin(ranging from 0.90 to 2.25 per cent per annum) and LIBOR for the applicablecurrency and interest period. Shire also pays a commitment fee on undrawnamounts at 35 per cent per annum of the applicable margin. Under the RCF it is required that (i) Shire's ratio of Net Debt to EBITDA (asdefined within the RCF agreement) does not exceed 3.5 to 1 for either the 12month period ending December 31 or June 30 unless Shire has exercised itsoption (which is subject to certain conditions) to increase it to 4.0 to 1 fortwo consecutive testing dates; (ii) the ratio of EBITDA to Net Interest (asdefined in the RCF agreement) must not be less than 4.0 to 1, for either the 12month period ending December 31 or June 30, and (iii) additional limitations onthe creation of liens, disposal of assets, incurrence of indebtedness, makingof loans, giving of guarantees and granting security over assets. Thesefinancial and operating covenants have not had, and are not expected to have,an effect on the Company's financial position and liquidity. On entering into the RCF in November 2010 the Company paid arrangement costs of$8.0 million, which have been recorded as deferred charges, with amortizationof these costs to the Company's income statement over the contractual term ofthe RCF. The availability of loans under the new RCF is subject to customary conditions. Term Loan Agreement On November 11, 2013, Shire entered into a $2.60 billion Facilities Agreementwith, among others, Morgan Stanley Bank International Limited (acting as leadarranger and agent) (the "Facilities Agreement"). The Facilities Agreementcomprises two credit facilities: (i) a $1.75 billion term loan facility and(ii) a $0.85 billion term loan facility. On December 13, 2013 and on February 21, 2014, the Company cancelled part ofthe $2.60 billion term loan facility. The revised Facilities Agreement of $1.40billion now comprises two credit facilities: (i) a $0.55 billion term loanfacility and (ii) a $0.85 billion term loan facility. All other terms andconditions remain unchanged. The $0.55 billion term loan facility, which matures on November 10, 2014, maybe used only to finance the purchase price payable in respect of Shire'sacquisition of ViroPharma (including certain related costs) and for theredemption of Shire's Bonds. Shire has the option to extend the maturity ofthe $0.55 billion term loan facility once by a further 364 days. The $0.85 billion term loan facility, which matures on November 11, 2015, maybe used only to finance the purchase price payable in respect of Shire'sacquisition of ViroPharma (including certain related costs). Interest on any loans made under the facilities will be payable on the last dayof each interest period, which may be one week or one, two, three or six monthsat the election of Shire, or as otherwise agreed with the lenders. Theinterest rate applicable to the $0.55 billion term loan facility is LIBOR plus0.75% per annum and increases by 0.25% per annum on August 11, 2014 and onthree-month intervals thereafter. The interest rate applicable to the $0.85 billion term loan facility commencedat LIBOR plus 1.15% per annum until delivery of the compliance certificate forthe year ending December 31, 2013 and thereafter is subject to change dependingupon the prevailing ratio of Net Debt to EBITDA of the Group (each as definedin the Facilities Agreement), in respect of the most recently completedfinancial year or financial half year. Shire shall also pay a commitment fee on the available but unutilizedcommitments under the $0.55 billion term loan facility and the $0.85 billionterm loan facility for the availability period applicable to each facility.With effect from first utilization, the commitment fee rate will be 35% of theapplicable margin. Before first utilization, the commitment fee rate willincrease in stages from 0% to 35% of the applicable margin over a period of 3months. The Facilities Agreement includes customary representations and warranties,covenants and events of default, including requirements that the ratio of NetDebt to EBITDA of the Group (each as defined in the Facilities Agreement) mustnot, at any time, exceed 3.5:1 for the Relevant Period (as defined in theFacilities Agreement), except that following certain acquisitions, includingthe Viropharma acquisition, Shire may elect to increase the ratio to 4.0:1 inthe relevant period in which the acquisition was completed and the immediatelyfollowing relevant period. In addition, for each 12-month period endingDecember 31 or June 30, the ratio of EBITDA of the Group to Net Interest (eachas defined in the Facilities Agreement) must not be less than 4.0:1. The Facilities Agreement restricts (subject to certain covenants) Shire'sability to incur additional financial indebtedness, grant security over itsassets or provide or guarantee loans. Further, any lender may requiremandatory prepayment of its participation if there is a change of control ofShire. In addition, in certain circumstances, the net proceeds of certainshares, undertakings or business disposals by Shire must be applied towards themandatory prepayment of the facilities, subject to certain exceptions. Events of default under the facilities include: (i) non-payment of any amountsdue under the facilities, (ii) failure to satisfy any financial covenants,(iii) material misrepresentation in any of the finance documents, (iv) failureto pay, or certain other defaults, under other financial indebtedness, (v)certain insolvency events or proceedings, (vi) material adverse changes in thebusiness, operations, assets or financial condition of Shire and itssubsidiaries, (vii) if it becomes unlawful for Shire or any of its subsidiariesthat are parties to the Facilities Agreement to perform their obligations or(viii) if Shire or any subsidiary of Shire which is a party to the FacilitiesAgreement repudiates the Facilities Agreement or any other finance document,among others. The Facilities Agreement is governed by English law. Financing Shire anticipates that its operating cash flow together with available cash,cash equivalents and the RCF will be sufficient to meet its anticipated futureoperating expenses, capital expenditures, tax and interest payments, leaseobligations and milestone payments as they become due over the next twelvemonths. Shire's existing cash, the Facilities Agreement and the RCF are sufficient tofinance the acquisition of ViroPharma. If the Company decides to acquire other businesses in addition to ViroPharma,it expects to fund these acquisitions from cash resources, the RCF and possiblythrough new borrowings or the issuance of new equity if necessary. Share buy-back program Shire has a strong balance sheet and continued robust cash generation, andconsiders efficient use of capital on behalf of shareholders an importantobjective. Therefore, during the year to December 31, 2012 the Companycommenced a share buy-back program, for the purpose of returning funds toshareholders, of up to $500 million through both direct purchases of OrdinaryShares and through the purchase of Ordinary Shares underlying ADRs. During the year ended December 31, 2013, the Company made on-market repurchasestotaling 6,191,965 Ordinary Shares at a cost of $193 million (excludingtransaction costs). The program covers purchases of Ordinary Shares forcancellation or to be held as treasury shares, in accordance with the authorityrenewed by shareholders at the Company's AGM on April 30, 2013 when the Companywas authorized to make market purchases of up to 55,741,587 of its own OrdinaryShares. On November 11, 2013, contemporaneous with Shire's announcement of itsacquisition of ViroPharma, the Company's share buyback program was terminated.Since the inception of the share buyback program the Company had purchased $300million of Ordinary Shares and Ordinary Shares underlying ADRs. Sources and uses of cash The following table provides an analysis of the Company's gross and net cash(excluding restricted cash), as at December 31, 2013 and 2012: 2013 2012 December 31, $'M $'M __________ ___________ Cash and cash equivalents1 2,239.4 1,482.2 __________ ___________ Shire 2.75% Convertible bonds - (1,100.0) Other debt (8.9) (9.3) __________ ___________ Total debt (8.9) (1,109.3) __________ ___________ Net cash 2,230.5 372.9 __________ ___________ 1. Substantially all of the Company's cash and cash equivalents are held byforeign subsidiaries (i.e, those subsidiaries incorporated outside of Jersey,Channel Islands, the jurisdiction of incorporation of Shire plc, Shire'sholding company). The amount of cash and cash equivalents held by foreignsubsidiaries has not had, and is not expected to have, a material impact on theCompany's liquidity and capital resources. Net cash is a Non GAAP measure. The Company believes that Net cash is a usefulmeasure as it indicates the level of borrowings after taking account the cashand cash equivalents that could be utilized to pay down the outstandingborrowings. Cash flow activity Net cash provided by operating activities for the year to December 31, 2013increased by $80.1 million or 6% to $1,463.0 million (2012: $1,382.9 million)as higher cash receipts from gross product sales were more than offset bypayments made in relation to the One Shire reorganization (approximately $42million), costs incurred on the closure of Shire's facility at Turnhout inBelgium (approximately $24 million) and the payment to settle the litigationwith Impax ($48 million) (see Note 19 for details). Net cash provided by operating activities for the year to December 31, 2012increased by $309.3 million or 29% to $1,382.9 million (2011: $1,073.6 million)as higher cash receipts from gross product sales and improved cash collectionsfor aged European receivables more than offset higher operating expenses andsales deduction payments in the year. Net cash used in investing activities was $360.9 million in the year toDecember 31, 2013, principally relating to the cash paid (net of cash acquired)for the acquisitions of SARcode, Premacure and Lotus Tissue Repair and forpurchases of PP&E. Net cash used in investing activities was $271.0 million in the year toDecember 31, 2012, principally relating to the expenditure on property, plantand equipment of $149.6 million and the cash paid (net of cash acquired) of$97.0 million for the acquisition of FerroKin ($94.5 million) and Pervasis($2.5 million). Capital expenditure on property, plant and equipment primarilyincludes expenditure of $65.0 million on computer software and hardware due toSAP upgrade and construction and leasehold improvements at different Companysites of $45.2 million. Net cash used in financing activities was $344.6 million for the year toDecember 31, 2013, principally due to the purchase of shares under the sharebuy-back program, purchase of shares by the EBT and the dividend payment. Net cash used in financing activities was $244.3 million for the year toDecember 31, 2012, principally due to the purchase of shares by the EBT, thepurchase of shares under the share buy-back program and dividend payments,offset by the tax benefit associated with the exercise of stock options. Outstanding letters of credit At December 31, 2013, the Company had irrevocable standby letters of credit andguarantees with various banks totaling $51.3 million, providing security forthe Company's performance of various obligations. These obligations areprimarily in respect of the recoverability of insurance claims, leaseobligations and supply commitments. Cash Requirements At December 31, 2013 the Company's cash requirements for long term liabilitiesreflected on the Balance Sheet and other contractual obligations were asfollows: Payments due by period Less than More than Total 1 year 1 - 3 3 - 5 5 years years years $'M $'M $'M $'M $'M _________ _________ _________ _________ _________ Operating leases obligation 215.9 44.9 57.5 30.1 83.4(i) Purchase obligations (ii) 609.8 500.1 96.2 11.9 1.6 Other long term liabilities 578.5 - 375.3 72.6 130.6reflected on the BalanceSheet (iii) _________ _________ _________ _________ _________ Total 1,404.2 545.0 529.0 114.6 215.6 _________ _________ _________ _________ _________ i. The Company leases certain land, facilities, motor vehicles and certain equipment under operating leases expiring through 2021. ii. Purchase obligations include agreements to purchase goods, investments or services (including clinical trials, contract manufacturing and capital equipment), including open purchase orders, that are enforceable and legally binding and that specify all significant terms. Shire expects to fund these commitments with cash flows from operating activities. iii. Unrecognized tax benefits and associated interest and penalties of $115.7 million are included within payments due in one to three years. The contractual obligations table above does not include certain milestones andother contractual commitments where payment is contingent upon the occurrenceof events which are yet to occur (and therefore payment is not yet due). AtDecember 31, 2013 the most significant of the Company's milestone andcontractual commitments which are contingent on the occurrence of future eventsare as follows: (i) Research Collaboration with Santaris Pharma A/S ("Santaris") on LockedNucleic Acid ("LNA") Drug Platform On August 24, 2009, Shire announced that it had entered into a researchcollaboration with Santaris, to develop its proprietary LNA technology in arange of rare diseases. LNA technology has the benefit of shortened targetvalidation and proof of concept, potentially increasing the speed and loweringthe cost of development. As part of the joint research project Santaris willdesign, develop and deliver pre-clinical LNA oligonucleotides forShire-selected orphan disease targets, and Shire will have the exclusive rightto further develop and commercialize these candidate compounds on a worldwidebasis. In the year to December 31, 2013, Shire paid success milestones and othersupport costs of $1.5 million (2012: $3.0 million;) and $4.5 million (2012:$8.1 million) to Santaris respectively, which were expensed to R&D. Shire hasremaining obligations to pay Santaris development and sales milestones up to amaximum of $71.0 million for current indication. Shire will also pay single ordouble digit tiered royalties on net sales of the product. Shire and Santaris have formed a joint research committee to monitor R&Dactivities through preclinical lead candidate selection at which point alldevelopment and commercialization costs will be the responsibility of Shire. (ii) Collaboration and license agreement with Sangamo to develop therapeuticsfor hemophilia On February 1, 2012 Shire and Sangamo announced that they had entered into acollaboration and license agreement to develop therapeutics for hemophilia andother monogenic diseases based on Sangamo's ZFP technology. Sangamo isresponsible for all activities through submission of Investigational NewDrug Applications and European Clinical Trial Applications for each product andShire will reimburse Sangamo for its internal and external researchprogram-related costs. Shire is responsible for clinical development andcommercialization of products arising from the collaboration. In the year to December 31, 2012 Shire made an upfront payment to Sangamo of$13.0 million, for technology access and R&D funding, which was expensed to R&D. In the year to December 31, 2013 Shire's share of R&D costs under thiscollaboration agreement was $15.2 million (2012: $8.9 million) which wereexpensed to R&D. Shire may be required to pay research, regulatory, developmentand commercial milestone payments up to a maximum of $213.5 million and to payroyalties on net sales of the product. (iii) Acquisition of FerroKin On April 2, 2012 Shire completed the acquisition of 100% of the outstandingshare capital of FerroKin. The acquisition-date fair value of considerationtotaled $159.3 million, comprising cash consideration paid on closing of $94.5million and the fair value of contingent consideration payable of $64.8million. The maximum amount of contingent cash consideration which may bepayable by Shire in future periods is $225.0 million. The amount of contingentcash consideration ultimately payable by Shire is dependent upon theachievement of certain clinical development, regulatory and net salesmilestones. For further details refer to Note 4 to the consolidated financialstatements. (iv) Acquisition of certain assets & liabilities of Pervasis On April 19, 2012, Shire acquired substantially all the assets and certainliabilities of Pervasis. The acquisition date fair value of the considerationtotaled $26.1 million, comprising cash consideration paid on closing of $2.5million and the fair value of contingent consideration payable of $23.6million. The maximum amount of contingent cash consideration which may bepayable by Shire in future periods is $169.5 million. The amount of contingentcash consideration ultimately payable by Shire is dependent upon achievement ofcertain clinical development, regulatory and net sales milestones. For furtherdetails refer to Note 4 to the consolidated financial statements. (v) Acquisition of Lotus Tissue Repair On February 12, 2013 Shire completed the acquisition of 100% of the outstandingshare capital of Lotus Tissue Repair. The acquisition date fair value ofconsideration totaled $174.2 million, comprising cash consideration paid onclosing of $49.4 million, and the fair value of contingent considerationpayable of $124.8 million. The maximum amount of contingent cash considerationwhich may be payable by Shire in future periods is $275 million. The amount ofcontingent cash consideration ultimately payable by Shire is dependent uponachievement of certain pre-clinical and clinical development milestones. Forfurther details refer to Note 4 to the consolidated financial statements. (vi) Acquisition of Premacure On March 8, 2013 Shire completed the acquisition of 100% of the outstandingshare capital of Premacure. The acquisition date fair value of theconsideration totaled $140.2 million, comprising cash consideration paid onclosing of $30.6 million, and the fair value of contingent considerationpayable of $109.6 million. The maximum amount of contingent cash considerationwhich may be payable by Shire in future periods, dependent upon the successfulcompletion of certain development and commercial milestones, is $169 million.Shire will also pay royalties on relevant net sales. For further details referto Note 4 to the consolidated financial statements. (vii) Acquisition of SARcode On April 17, 2013 Shire completed the acquisition of 100% of the outstandingshare capital of SARcode. The acquisition date fair value of the considerationtotaled $368 million, comprising cash consideration paid on closing of $151million and the fair value of contingent consideration payable of $217 million.The maximum amount of contingent cash consideration which may be payable byShire in future periods is $225 million dependent upon achievement of certainclinical, regulatory and net sales milestones. For further details refer toNote 4 to the consolidated financial statements. (viii) Acquisition of ViroPharma On November 11, 2013, Shire signed a definitive agreement to acquire all of theoutstanding share capital of ViroPharma for $50 per share in cash orapproximately $4.2 billion. The transaction was completed on January 24, 2014at which time ViroPharma became a wholly-owned subsidiary. Shire's consolidatedfinancial statements will reflect the fair values of assets acquired and theliabilities assumed at, and the results of ViroPharma will be included inShire's consolidated statement of income from, January 24, 2014. Further onJanuary 24, 2014 ViroPharma commenced a tender offer to repurchase, at theoption of each holder, any and all of ViroPharma's Convertible Notes andnotified the holders of their separate right to convert the Convertible Notes.The repurchase and payment for conversion of the Convertible Notes forms partof the cash consideration payable to ViroPharma. For further details refer toNote 4 to the consolidated financial statements. Off-balance sheet arrangements There are no off-balance sheet arrangements, aside from the collaborationscontaining contractual commitments and milestones which are contingent onfuture events as outlined above, that have, or are reasonably likely to have, acurrent or future material effect on the Company's financial condition,revenues or expenses, results of operations, liquidity, capital expenditures orcapital resources. Foreign currency fluctuations A number of the Company's subsidiaries have a functional currency other thanthe US Dollar. As such, the consolidated financial results are subject tofluctuations in exchange rates, particularly in the Euro, Swiss Franc and PoundSterling against the US Dollar. The accumulated foreign currency translation differences at December 31, 2013of $25.3 million are reported within accumulated other comprehensive income inthe consolidated balance sheet and foreign exchange losses for the year toDecember 31, 2013 of $8.7 million are reported in the consolidated statementsof income. At December 31, 2013, the Company had outstanding swap and forward foreignexchange contracts to manage the currency risk associated with intercompanytransactions. At December 31, 2013 the fair value of these contracts was a netasset of $1.2 million. Concentration of credit risk Financial instruments that potentially expose Shire to concentrations of creditrisk consist primarily of short term cash investments, derivative contracts andtrade accounts receivable (from product sales and from third parties from whichthe Company receives royalties). Cash is invested in short term money marketinstruments, including money market and liquidity funds and bank term deposits.The money market and liquidity funds in which Shire invests are all triple Arated 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 itenters into derivative instruments. The Company limits this exposure through asystem of internal credit limits which vary according to ratings assigned tothe counterparties by the major rating agencies. The internal credit limits areapproved by the Board and exposure against these limits is monitored by thecorporate treasury function. The counterparties to these derivatives contractsare major international financial institutions. The Company's revenues from product sales in the US are mainly governed byagreements with major pharmaceutical wholesalers and relationships with otherpharmaceutical distributors and retail pharmacy chains. For the year toDecember 31, 2013 there were three customers in the US that accounted for 52%of the Company's product sales. However, such customers typically havesignificant cash resources and as such the risk from concentration of credit isconsidered acceptable. The Company has taken positive steps to manage anycredit risk associated with these transactions and operates clearly definedcredit evaluation procedures. However, an inability of one or more of thesewholesalers to honor their debts to the Company could have an adverse effect onCompany's financial condition and results of operations. A substantial portion of the Company's accounts receivable in countries outsideof the United States is derived from product sales to government-owned orgovernment-supported healthcare providers. The Company's recovery of theseaccounts receivable is therefore dependent upon the financial stability andcreditworthiness of the relevant governments. In recent years thecreditworthiness and general economic condition of a number of Eurozonecountries (including Greece, Italy, Portugal and Spain (the "RelevantCountries")) has deteriorated. As a result, in some of these countries theCompany is experiencing delays in the remittance of receivables due fromgovernment-owned or government-supported healthcare providers. The Company continued to receive remittances in relation to government-owned orgovernment-supported healthcare providers in all the Relevant Countries in theyear to December 31, 2013, including receipts of $116.8 million and $144.7million in respect of Spanish and Italian receivables, respectively. To date the Company has not incurred significant losses on accounts receivablein the Relevant Countries, and continues to consider that such accountsreceivable are recoverable. The Company will continue to evaluate all itsaccounts receivable for potential collection risks and has made provision foramounts where collection is considered to be doubtful. If the financialcondition of the Relevant Countries or other Eurozone countries suffersignificant deterioration, such that their ability to make payments becomesuncertain, or if one or more Eurozone member countries withdraws from the Euro,additional allowances for doubtful accounts may be required, and losses may beincurred, in future periods. Any such loss could have an adverse effect on theCompany's financial condition and results of operations. Inflation Although at reduced levels in recent years, inflation continues to apply upwardpressure on the cost of goods and services which are used in the business.However, the Company believes that the net effect of inflation on its revenuesand operations has been minimal during the past three years. Treasury policies and organization The Company's principal treasury operations are coordinated by its corporatetreasury function. All treasury operations are conducted within a framework ofpolicies and procedures approved annually by the Board of Directors. As amatter of policy, the Company does not undertake speculative transactions thatwould increase its credit, currency or interest rate exposure. Interest rate risk The Company is exposed to interest rate risk on its $1,200 million RCF, its$0.55 billion term loan facility, its $0.85 billion term loan facility (the"Facilities"), to the extent the Facilities are utilized, restricted cash, cashand cash equivalents and on foreign exchange contracts on which interest is atfloating rates. This exposure is primarily to US dollar, Pounds sterling, Euroand Canadian dollar interest rates. The Company has evaluated the interest raterisk on its debt facilities and considers the floating rate as appropriate. Asthe Company maintains all of its cash, liquid investments and foreign exchangecontracts on a short term basis for liquidity purposes, this risk is notactively managed. In the year to December 31, 2013 the average interest ratereceived on cash and liquid investments was less than 1% per annum. The largestproportion of these cash and liquid investments was in US dollar money marketand liquidity funds. At December 31, 2013 the Facilities were not utilized. No derivative instruments were entered into during the year to December 31,2013 to manage interest rate exposure. The Company continues to review itsinterest rate risk and the policies in place to manage the risk. Foreign exchange risk The Company trades in numerous countries and as a consequence has transactionaland translational foreign exchange exposures. Transactional exposure arises where transactions occur in currencies differentto the functional currency of the relevant subsidiary. The main tradingcurrencies of the Company are the US dollar, Pounds Sterling, Swiss Franc andthe Euro. It is the Company's policy that these exposures are minimized to theextent practicable by denominating transactions in the subsidiary's functionalcurrency. Where significant exposures remain, the Company uses foreign exchange contracts(being spot, forward and swap contracts) to manage the exposure for balancesheet assets and liabilities that are denominated in currencies different tothe functional currency of the relevant subsidiary. These assets andliabilities relate predominantly to intercompany financing. The foreignexchange contracts have not been designated as hedging instruments. Cash flowsfrom derivative instruments are presented within net cash provided by operatingactivities in the consolidated cash flow statement, unless the derivativeinstruments are economically hedging specific investing or financingactivities. Translational foreign exchange exposure arises on the translation into USdollars of the financial statements of non-US dollar functional subsidiaries. At December 31, 2013 the Company had 29 swap and forward foreign exchangecontracts outstanding to manage currency risk. The swap and forward contractsmature within 90 days. The Company did not have credit risk related contingentfeatures or collateral linked to the derivatives. The Company has masternetting agreements with a number of counterparties to these foreign exchangecontracts and on the occurrence of specified events, the Company has theability to terminate contracts and settle them with a net payment by one partyto the other. The Company has elected to present derivative assets andderivative liabilities on a gross basis in the consolidated balance sheet. Asat December 31, 2013 the potential effect of rights of set off associated withthe foreign exchange contracts would be an offset to both assets andliabilities of $0.7 million, resulting in net derivative assets and derivativeliabilities of $3.3 million and $2.1 million, respectively. Further details are included below. Foreign exchange risk sensitivity The following exchange rate sensitivity analysis summarises the sensitivity ofthe Company's reported revenues and net income to hypothetical changes in theaverage annual exchange rates of the Euro, Pound Sterling and Swiss Francagainst the US Dollar, (assuming a hypothetical 10% strengthening of the USDollar against each of the aforementioned currencies in the year to December31, 2013): Increase/(reduction) in Increase/(reduction) in revenues net income $M $M Euro (78) (36) Pound Sterling (19) (7) Swiss Franc - 9 A 10% weakening of the US Dollar against the aforementioned currencies wouldhave an equal and opposite effect. The table below provides information about the Company's swap and forwardforeign exchange contracts by currency pair. The table presents the netprincipal amounts and weighted average exchange rates of all outstandingcontracts. All contracts have a maturity date of less than three months. December 31, 2013 Principal Value of Weighted Amount Average Fair Receivable Exchange Rate Value $'M $'M ___________ ______________ ___________ Swap foreign exchange contracts Receive USD/Pay EUR 256.0 1.36 (2.2) Receive GBP/Pay USD 158.0 1.62 2.8 Receive USD/Pay JPY 1.6 0.01 - Receive SEK/Pay USD 24.3 0.15 0.6 Receive USD/Pay MXN 10.4 0.08 - Concentration of credit risk Financial instruments that potentially expose Shire to concentrations of creditrisk consist primarily of short-term cash investments, derivative contracts andtrade accounts receivable (from product sales and from third parties from whichthe Company receives royalties). Cash is invested in short-term money marketinstruments, including money market and liquidity funds and bank term deposits.The money market and liquidity funds in which Shire invests are all triple Arated 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 itenters into derivative instruments. The Company limits this exposure through asystem of internal credit limits which vary according to ratings assigned tothe counterparties by the major rating agencies. The internal credit limits areapproved by the Board and exposure against these limits is monitored by thecorporate treasury function. The counterparties to these derivatives contractsare major international financial institutions. The Company's revenues from product sales in the US are mainly governed byagreements with major pharmaceutical wholesalers and relationships with otherpharmaceutical distributors and retail pharmacy chains. For the year toDecember 31, 2013 there were three customers in the US that accounted for 52%of the Company's product sales. However, such customers typically havesignificant cash resources and as such the risk from concentration of credit isconsidered acceptable. The Company has taken positive steps to manage anycredit risk associated with these transactions and operates clearly definedcredit evaluation procedures. However, an inability of one or more of thesewholesalers to honor their debts to the Company could have an adverse effect onthe Company's financial condition and results of operations. A substantial portion of the Company's accounts receivable in countries outsideof the United States is derived from product sales to government-owned orgovernment-supported healthcare providers. The Company's recovery of theseaccounts receivable is therefore dependent upon the financial stability andcreditworthiness of the relevant governments. In recent years thecreditworthiness and general economic condition of the Relevant Countries hasdeteriorated. As a result, in some of these countries the Company isexperiencing delays in the remittance of receivables due from government-ownedor government-supported healthcare providers. The Company's aggregate accounts receivable, net of the allowance for doubtfulaccounts, in total from government-owned or government-supported healthcareproviders in the Relevant Countries are as follows: December 31, December 31, 2013 2012 $'M $'M Total accounts receivable, net in the 127 136Relevant Countries Total accounts receivable, net in the 13% 17%Relevant Countries as a percentage of totaloutstanding accounts receivable, net Accounts receivable, net due from 116 129government-owned or government-supportedhealthcare providers for the RelevantCountries Accounts receivable due from government-owned or government-supportedhealthcare providers in the Relevant Countries of $116 million (2012: $130million) are split by country as follows: Greece $4 million (2012: $6 million);Italy $59 million (2012: $62 million); Portugal $14 million (2012: $13 million)and Spain $39 million (2012: $48 million). The Company continues to receive remittances in relation to government-owned orgovernment-supported healthcare providers in the Relevant Countries and in theyear to December 31, 2013 received $284.9 million in settlement of accountsreceivable in the Relevant Countries - $9.5 million was from Greece; $145.0million from Italy; $13.4 million from Portugal and $117.0 million from Spain. To date the Company has not incurred significant losses on the accountsreceivable in the Relevant Countries, and continues to consider that suchaccounts receivable are recoverable. Other than the accounts receivable from government-owned or supportedhealthcare providers outlined above, the Company does not hold any othergovernment debt from the Relevant Countries. Additionally the Company does notconsider it is currently exposed to significant sovereign credit risk outsideof the Relevant Countries. The Company continues to evaluate all its accounts receivable for potentialcollection risks and has made provision for amounts where collection isconsidered to be doubtful. If the financial condition of the Relevant Countriesor other Eurozone countries suffer significant deterioration, such that theirability to make payments becomes uncertain, or if one or more Eurozone membercountries withdraws from the Euro, additional allowances for doubtful accountsmay be required, and losses may be incurred, in future periods. Any such losscould have an adverse effect on the Company's financial condition and resultsof operations. The Company has adopted a risk management strategy designed to identify, assessand manage the significant risks that it faces. While the Company aims toidentify and manage such risks, no risk management strategy can provideabsolute assurance against loss. Mitigation of principal risks The management and mitigation of risks are a key focus of the Board which,together with the Audit, Compliance & Risk ("ACR") Committee, reviews risksimpacting the Company on a timely basis as they arise, as well as periodically.In addition, the Company has established a Risk Council, which is supported bythe Global Compliance and Risk Management ("GCRM") Department, to oversee themanagement and mitigation of the principal risks faced by the Company, as setout below. The Risk Council and the GCRM Department are respectively chairedand managed by the Chief Compliance and Risk Officer. Risk Council The Risk Council's membership includes senior members of the Company's businessunits and corporate functions, in addition to the Head of Internal Audit. It ischarged with overseeing the Company's risk management process and activities,and as such, ensures that each business unit and corporate functionperiodically reviews the significant risks they face in accordance with anapproved framework. This review, which occurs biannually, includes identifyingoperational risks, compliance risks and risks to the achievement of goals andobjectives. The Risk Council ensures that there is an owner who is responsiblefor the management or mitigation of each identified risk. Material risks andassociated mitigation plans are recorded on a corporate risk schedule forongoing review and assessment by the Risk Council, which is also reviewed andvalidated by the Executive Committee. In addition, the risk schedule isreviewed biannually by the ACR Committee, and annually by the Board. GCRM The GCRM Department is responsible for supporting the development andimplementation of practices that facilitate employees' compliance with laws andCompany policy. The principal focus of the Department's compliance effort is toprevent and detect misconduct or non-compliance with laws or regulationsthrough the promotion of ethical behavior, policy development, appropriatetraining, monitoring and audit. The GCRM Department provides assistance to helpemployees meet high ethical standards and comply with applicable laws andregulations; encouraging them to seek help and to report suspected cases ofmisconduct without fear of retaliation (further details are available on page61 of Shire's 2013 Annual Report). Chief Compliance and Risk Officer The Chief Compliance and Risk Officer, who reports directly to the ChiefExecutive, has access at all times to the Chairman of the ACR Committee whichprovides a mechanism for bypassing executive management should the need arise.In addition, the ACR Committee is regularly provided with summary reports onthe Risk Council and general compliance activities. Risk Factors Set out below are the Company's key risk factors that have been identifiedthrough the implementation of the Company's risk management strategy. Some ofthese risk factors are specific to the Company, and others are more generallyapplicable to the pharmaceutical industry or specific markets within which theCompany operates. The Company considers that these risk factors apply equallyand therefore all should be carefully considered before any investment is madein Shire. RISK FACTORS RELATED TO THE COMPANY'S BUSINESS The Company's products may not be a commercial success The commercial success of the Company's marketed products and other newproducts that the Company may launch in the future, will depend on theirapproval and acceptance by physicians, patients and other key decision-makers,as well as the receipt of marketing approvals in different countries, the timetaken to obtain such approvals, the scope of marketing approvals as reflectedin the product labels, approval of reimbursement at commercially sustainableprices in those countries where price and reimbursement is negotiated, andsafety, efficacy, convenience and cost-effectiveness of the product as comparedto competitive products. The Company's revenues, financial condition or results of operations may beadversely affected if any or all of the following occur: * if the Company's products, or competitive products, are genericized; * if the prices of the Company's products suffer forced reductions or if prices of competitor products are reduced significantly; * if there are unanticipated adverse events experienced with the Company's products or those of a competitor's product not seen in clinical trials that impact physicians' willingness to prescribe the Company's products; * if issues arise from clinical trials being conducted for post-marketing purposes or for registration in another country which raise questions or concerns about a product; * if the regulatory agencies in one country act in a way that raises concerns for regulatory agencies or for prescribers or patients in another country; * if patients, payors or physicians favor other treatments over the Company's products; * if the Company's products are subject to more stringent government regulation than competitor products; * if patent protection or other forms of exclusivity are lost or curtailed, or if competitors are able to challenge or circumvent the Company's patents or other forms of exclusivity (See Note 19 to the consolidated financial statements set forth in Shire's 2013 Annual Report for details of current litigation); * if launch of the Company's products in new markets is not successful; * if the sizes of the patient populations for the Company's products are less than expected; or * if there are lawsuits filed against Shire, including but not limited to, product liability claims, consumer law claims, and payor or reimbursement litigation. If the Company is unable to commercialize its products successfully, there maybe a material adverse effect on the Company's revenues, financial condition orresults of operations. Revenues from ADDERALL XR are subject to generic competition and revenues fromINTUNIV will become subject to generic erosion starting in December 2014 During 2012 the FDA clarified the regulatory pathway required for approval ofgeneric versions of ADDERALL XR. Consequently in June 2012 and February 2013,Actavis and Teva, respectively, received approval to launch their own genericversions of ADDERALL XR. Shire currently sells authorized generic versions ofADDERALL XR to Teva and Impax and also continues to sell the branded version ofADDERALL XR. In 2013, Shire settled a number of patent lawsuits in the United States againstcertain companies that had filed for approval of their generic versions ofINTUNIV. Under the terms of the settlements, Actavis was granted a license tomake and market Actavis's generic versions of INTUNIV in the United States onDecember 1, 2014. All other parties with whom Shire has settled will be ableto enter the market with their respective ANDA-approved products afterActavis's 180 day exclusivity period has expired. Revenues from ADDERALL XR declined following the launch of Actavis' genericversion of ADDERALL XR. Revenues from INTUNIV are expected to decline as aresult of the launch of Actavis' generic versions of INTUNIV and to declinefurther following the expected launch of generic versions of INTUNIV by othercompanies after Actavis's 180 day exclusivity period expires. Factors which could cause further or more rapid revenue decline include: * generic or authorized generic versions of the Company's products capture more of Shire's branded market share than expected; * the FDA approves additional ANDAs for generic versions of the Company's products which, if launched, further reduce branded market share or impact the amount of authorized generic sales and related royalties; * the production of ADDERALL XR is disrupted by difficulties in obtaining a sufficient supply of amphetamine salts including, but not limited to, an inability to obtain sufficient quota from the DEA; * there are changes in reimbursement policies of third-party payors; or * there are changes to the level of sales deductions for ADDERALL XR and INTUNIV for private or public payors. The failure to obtain and maintain reimbursement, or an adequate level ofreimbursement, by third-party payors in a timely manner for the Company'sproducts may impact future revenues, financial condition and results ofoperations. The Company's revenues are partly dependent on the level of reimbursementprovided to the Company by governmental reimbursement schemes for its products.Changes to governmental policy or practices could adversely affect theCompany's revenues, financial condition and results of operations. In addition,the reimbursement of treatments by health care providers, private healthinsurers and other organizations, such as health maintenance organizations andmanaged care organizations is under downward pressure and this, in turn, couldadversely impact the prices at which the Company can sell its products. Factorsaffecting the Company's ability to obtain and maintain adequate reimbursementfor its products include: * higher levels of controls on the use of the Company's products and/or requirements for additional price concessions by managed health care organizations or government authorities; * legislative proposals to reform health care and government insurance programs in many of the Company's markets; and * price controls, unsuccessful government tenders, or non-reimbursement of new medicines or new indications. The cost of treatment for some of the Company's products is high, particularlythose which are used for the treatment of rare genetic diseases. The Companymay encounter difficulty in obtaining or maintaining satisfactory pricing andreimbursement for such products. The failure to obtain and maintain pricing andreimbursement at satisfactory levels for its products may adversely affect theCompany's revenues, financial condition or results of operations. The Company conducts its own manufacturing operations for certain of its RareDiseases products and is reliant on third party contract manufacturers tomanufacture other products and to provide goods and services. Some of theCompany's products or ingredients are only available from a single approvedsource for manufacture. Any disruption to the supply chain for any of theCompany's products may result in the Company being unable to continue marketingor developing a product or may result in the Company being unable to do so on acommercially viable basis for some period of time. The Company sources some products from third party contract manufacturers, andfor certain products has its own manufacturing capability. Although the Companydual-sources certain key products and/or active ingredients, the Companycurrently relies on a single source for production of the final drug productfor each of ADDERALL XR, CINRYZE, FIRAZYR, FOSRENOL, INTUNIV, LIALDA, PENTASA,and RESOLOR, relies on a single active ingredient source for each of ELAPRASE,FIRAZYR, FOSRENOL, INTUNIV, REPLAGAL, RESOLOR and VPRIV (in the US) and relieson limited third party sources to provide the donated human plasma necessaryfor the manufacture of CINRYZE. The Company may experience supply failures or delays beyond its control if itdoes not, or if any of its third party manufacturers do not supply the Companyon time with the required volumes, or supply products that do not meetregulatory requirements. Any such supply failures could lead to significantdelays, increase in operating costs, lost product sales, an interruption ofresearch activities, or the delay of new product launches, all of which couldhave a material adverse effect on the Company's revenues, financial conditionor results of operations. The Company has also entered into many agreements with third parties for theprovision of goods and services to enable it to manufacture its products. Ifthese third parties are unable to manufacture products, or provide these goodsand services, in each case in accordance with its respective contractualobligations, the Company's ability to manage its manufacturing processes or tooperate its business, including to continue the development orcommercialization of its products as planned or on a commercial basis, may beadversely impacted. The development, approval and manufacturing of the Company's products issubject to extensive oversight by various regulatory agencies and regulatoryapprovals or interventions associated with changes to manufacturing sites,ingredients or manufacturing processes could lead to significant delays,increase in operating costs, lost product sales, an interruption of researchactivities or the delay of new product launches. Pharmaceutical and device manufacturing sites must be inspected and approved byregulatory agencies such as the FDA, and similar agencies in other countries.Active ingredients, excipients and packaging materials used in themanufacturing process must be obtained from sources approved by regulatoryagencies. The development, approval and manufacturing of the Company's products depend onthe ability to procure ingredients and packaging materials from approvedsources and for the manufacturing process to be conducted at approved sites.Changes of manufacturer or changes of source of ingredients or packagingmaterials must generally be approved by the regulatory agencies, which willinvolve testing and additional inspections to ensure compliance with theapplicable regulatory agency's regulations and standards. The need to qualify anew manufacturer or source of ingredients or packaging materials can take asignificant amount of time. Should it become necessary to change a manufactureror supplier of ingredients or packaging materials, or to qualify an additionalsupplier, the Company may not be able do so quickly, or at all, which coulddelay or disrupt the manufacturing process. US-based manufacturers must be registered with the DEA and similar regulatoryauthorities in other countries if they handle controlled substances. Certain ofthe Company's products, including ADDERALL XR and VYVANSE, contain ingredientswhich are controlled substances subject to quotas managed by the DEA. As aresult, the Company's procurement and production quotas may not be sufficientto meet commercial demand. CINRYZE, ELAPRASE, REPLAGAL and VPRIV are manufactured using highly complexbiological processes. The complexity of the manufacturing results in a numberof risks, including the risk of viral or other contamination. Additionally,CINRYZE is derived from human plasma, and is therefore subject to the risk ofbiological contamination inherent in plasma-derived products. The solemanufacturer of CINRYZE has received observations on Form 483 and a warningletter from the FDA identifying issues with respect to the manufacturingprocess for CINRYZE which must be addressed to the satisfaction of the FDA. Anyregulatory interventions, in relation to these, or any other issues, if theyoccur, may delay or disrupt the manufacture of the Company's products. The Company has made significant investments in a new biologics manufacturingplant at its site in Lexington, Massachusetts. The Company's ability tomanufacture certain of its Rare Diseases products or constituents in this newfacility remains subject to the approval of the facility by the FDA and otherinternational agencies. The failure to obtain regulatory approvals promptly or at all and/or regulatoryinterventions associated with changes to manufacturing sites, ingredients ormanufacturing processes could lead to significant delays, an increase inoperating costs, lost product sales, an interruption of research activities,the delay of new product launches or constraints on manufacturing output, allof which could have a material adverse effect on the Company's revenues,financial condition and results of operations. The actions of certain customers could affect the Company's ability to sell ormarket products profitably. Fluctuations in buying or distribution patterns bysuch customers can adversely impact the Company's revenues, financialconditions or results of operations A considerable portion of the Company's product sales are made to majorpharmaceutical wholesale distributors, as well as to large pharmacies, in boththe US and Europe. In 2013, for example, 52% of the Company's product saleswere attributable to three customers in the US: McKesson Corp., CardinalHealth, Inc and AmerisourceBergen Corp. In the event of financial failure ofany of these customers there could be a material adverse effect on theCompany's revenues, financial condition or results of operations. The Company'srevenues, financial condition or results of operations may also be affected byfluctuations in customer buying or distribution patterns. These fluctuationsmay result from seasonality, pricing, wholesaler inventory objectives, or otherfactors. A significant portion of the Company's revenues for certain productsfor treatment of rare genetic diseases are concentrated within a small numberof customers. Changes in the buying patterns of those customers may have anadverse effect on the Company's revenues, financial condition or results ofoperations. Investigations or enforcement action by regulatory authorities or lawenforcement agencies relating to the Company's activities in the highlyregulated markets in which it operates may result in significant legal costsand the payment of substantial compensation or fines The Company engages in various marketing, promotional and educationalactivities pertaining to, as well as the sale of, pharmaceutical products andmedical devices in a number of jurisdictions around the world. The promotion,marketing and sale of pharmaceutical products and medical devices is highlyregulated and the operations of market participants, such as the Company, areclosely supervised by regulatory authorities and law enforcement agencies,including the US Department of HHS, the FDA, the US Department of Justice, theSEC and the DEA. These authorities and agencies and their equivalents incountries outside the US have broad authority to investigate marketparticipants for potential violations of laws relating to the sales, marketingand promotion of pharmaceutical products and medical devices, including theFalse Claims Act, the Anti-Kickback Statute and the Foreign Corrupt PracticesAct, among others, for alleged improper conduct, including corrupt payments togovernment officials, improper payments to medical professionals, off-labelmarketing of pharmaceutical products and medical devices, and the submission offalse claims for reimbursement by the federal government. Healthcare companiesmay also be subject to enforcement actions or prosecution for such improperconduct. Any inquiries or investigations into the operations of, or enforcementor other regulatory action against, the Company by such authorities couldresult in significant defense costs, fines, penalties and injunctive oradministrative remedies, distract management to the detriment of the business,result in the exclusion of certain products, or the Company, from governmentreimbursement programs or subject the Company to regulatory controls orgovernment monitoring of its activities in the future. The Company is subjectto certain ongoing investigations by governmental agencies. For furtherinformation, see Note 19 to the consolidated financial statements). Adverse outcomes in legal matters and other disputes, including Shire's abilityto enforce and defend patents and other intellectual property rights requiredfor its business, could have a material adverse effect on the Company'srevenues, financial condition or results of operations During the ordinary course of its business the Company may be involved inclaims, disputes and litigation with third parties, employees, regulatoryagencies, governmental authorities and other parties. The range of matters ofa legal nature that might arise is extremely broad but could include, withoutlimitation, employment claims and disputes, intellectual property claims anddisputes, contract claims and disputes, product liability claims and disputes,regulatory litigation and tax audits and disputes. Any unfavorable outcome in such matters could adversely impact the Company'sability to develop or commercialize its products, adversely affect theprofitability of existing products, subject the Company to significant defencecosts, fines, penalties, audit findings and injunctive or administrativeremedies, distract management to the detriment of the business, result in theexclusion of certain products, or the Company, from government reimbursementprograms or subject the Company to regulatory controls or government monitoringof its activities in the future. Any such outcomes could have a materialadverse effect on the Company's revenue, financial condition or results ofoperations. (For further information see Note 19 to the consolidated financialstatements). The Company faces intense competition for highly qualified personnel from othercompanies, academic institutions, government entities and other organizations.The Company is undergoing a corporate reorganization and the consequentuncertainty could adversely impact the Company's ability to attract and/orretain the highly skilled personnel needed for the Company to meet itsstrategic objectives The Company relies on recruiting and retaining highly skilled employees to meetits strategic objectives. The Company faces intense competition for highlyqualified personnel and the supply of people with the requisite skills may belimited, generally or geographically. The range of skills required and thegeographies in which they are required by the Company may also change over timeas Shire's business evolves. The Company's ongoing One Shire reorganization,which aims to simplify the Company's organizational structure, involves changesto, and geographic relocation of, certain skilled roles. If the Company isunable to retain key personnel or attract new personnel with the requisiteskills and experience, it could adversely affect the implementation of theCompany's strategic objectives and ultimately adversely impact the Company'srevenues, financial condition or results of operations. Failure to achieve the Company's strategic objectives with respect to theacquisition of ViroPharma may adversely affect the Company's financial condition and results of operations On January 24, 2014, Shire completed the acquisition of ViroPharma for a totalcash consideration of approximately $4.2 billion. Acquisitions of this sizetypically entail various risks, which, if they materialize, may adverselyimpact the Company's revenues, financial condition or results of operations. These risks include but are not limited to: * failure to achieve the targeted growth and expected benefits of the acquisition if sales of ViroPharma products, including CINRYZE, are lower than anticipated; * difficulties in integrating ViroPharma into Shire may lead to the combined company not being able to realize the expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits in the timeframe anticipated, or at all; * undiscovered or unanticipated risks and liabilities, including legal and compliance related liabilities, may emerge after closing the acquisition or may be higher than anticipated; and * the Company may not be able to retain the existing customers of ViroPharma or attract new customers. Any failure to achieve the Company's strategic objectives with respect to theViroPharma acquisition could result in slower growth, higher than expectedcosts, the recording of asset impairment charges and other actions which couldadversely affect the Company's business, financial condition and results ofoperations. GENERAL RISK FACTORS RELATED TO THE COMPANY AND TO THE HEALTHCARE INDUSTRY The actions of governments, industry regulators and the economic environmentsin which the Company operates may adversely affect its ability to develop andprofitably market its products The healthcare industry is heavily regulated. Changes to laws or regulationsimpacting the healthcare industry, in any country in which the Company conductsits business, may adversely impact the Company's revenues, financial conditionor results of operations. For example, changes to the regulations relating tothe exclusivity periods available for the Company's products may allow for theearlier entry of generic or biosimilar competitor products. A slowdown of global economic growth, or continued instability of the Eurozone,could have negative consequences for the Company's business and increase therisk of non-payment by the Company's customers Growth of the global pharmaceutical market has become increasingly tied toglobal economic growth. Accordingly a substantial and lasting slowdown of theglobal economy or major national economies could negatively affect growth inthe markets in which the Company operates. Such a slowdown, or any resultantausterity measures adopted by governments in response to a slowdown, could alsoreduce the level of reimbursement that governments are willing and able toprovide to the Company for its products and, as a result, adversely affect theCompany's revenues, financial condition or results of operations. Any slowing economic environment may also lead to financial difficulties forsome of the Company's significant customers. In such situations, the Companycould experience delays in payment or non-payment of amounts owed which mayresult in a rising level of contractual defaults by its contractualcounterparties. The Company does business, both directly (with government hospitals, clinics,pharmacies and other agencies) and indirectly (through wholesalers anddistributors), with a number of Eurozone governments, including the governmentsof Greece, Ireland, Italy, Portugal and Spain. These and other countries haveexperienced, and may continue to experience, declines in theircreditworthiness. These events could in turn result in these countries makingsignificant cuts to their public spending, including national healthcarebudgets, in an attempt to manage their budget deficits, or could result in agreater risk of default or non-payment of outstanding payment obligations, anyof which could adversely affect the Company's revenues, financial condition orresults of operations. In addition, concerns have been expressed for the overall stability andsuitability of the Euro as a single currency, given the economic and politicalchallenges facing individual Eurozone countries. Continuing deterioration inthe creditworthiness of Eurozone countries, the withdrawal of one or moremember countries from the EU, or the failure of the Euro as a common Europeancurrency could adversely affect the Company's revenues, financial condition orresults of operations. The introduction of new products by competitors may impact future revenues The pharmaceutical, biotechnology and device industries are highly competitiveand are characterized by substantial investment in continuous productdevelopment and technological change. The Company's products could, therefore,be rendered obsolete or uneconomic, through the development of new products,new methods of treatment, or technological advances in manufacturing orproduction by its competitors which may impact future revenues. The successful development of products is highly uncertain and requiressignificant expenditures and time Products that initially appear promising in research or development may bedelayed or fail to reach later stages of development as: * preclinical or clinical tests may show the product to lack safety or efficacy; * delays may be caused by slow enrolment in clinical studies; regulatory requirements for clinical trial drug supplies; extended length of time to achieve study endpoints; additional time requirements for data analysis or dossier preparation; time required for discussions with regulatory agencies, including regulatory agency requests for additional preclinical or clinical data; delays at regulatory agencies due to staffing or resource limitations; analysis of or changes to study design; unexpected safety, efficacy, or manufacturing issues; delays may arise from shared control with collaborative partners in the planning and execution of the product development, scaling of the manufacturing process, or getting approval for manufacturing; * manufacturing issues, pricing or reimbursement issues, or other factors may render the product economically unviable; * the proprietary rights of others and their competing products and technologies may prevent the product from being developed or commercialized; or * the product may fail to receive necessary regulatory approvals. Success in preclinical and early clinical trials does not ensure that latestage clinical trials will be successful. Clinical results are frequentlysusceptible to varying interpretations that may delay, limit, or preventregulatory approvals. The length of time necessary to complete clinical trialsand to submit an application for marketing approval for a final decision by aregulatory authority varies significantly and may be difficult to predict. Ifthe Company's large-scale or late-stage clinical trials for a product are notsuccessful, the Company will not recover its substantial investments in thatproduct. In addition, even if the products receive regulatory approval, they remainsubject to ongoing regulatory requirements, including, for example, obligationsto conduct additional clinical trials or other non-clinical testing, changes tothe product label (which could impact its marketability and prospects forcommercial success), new or revised requirements for manufacturing, writtennotifications to physicians, or product recalls or withdrawals. The failure of a strategic partner to develop and commercialize products couldresult in delays in development, approval or loss of revenue The Company enters into strategic partnerships with other companies in areassuch as product development, manufacturing, sales and marketing. In thesepartnerships, the Company is sometimes dependent on its partner to deliverresults. While these partnerships are governed by contracts, the Company maynot exercise direct control. If a partner fails to perform or experiencesfinancial difficulties, the Company may suffer a delay in the development, adelay in the approval or a reduction in sales, or royalties of a product. The failure to secure new products or compounds for development either throughin-licensing, acquisition or internal research and development efforts, or thefailure to realize expected benefits from acquisitions of businesses orproducts, may have an adverse impact on the Company's future results The Company's future results will depend, to a significant extent, upon itsability to develop, in-license or acquire new products or compounds, or toacquire other businesses. The expected benefits from acquired products,compounds or businesses may not be realized or may require significantlygreater resources and expenditure than originally anticipated. The failure torealize expected benefits from acquisitions of businesses or products includingthose resulting from integration into the Group, or the failure to develop,in-license or acquire new products or compounds on a commercially viable basis,could have a material adverse effect on the Company's revenues, financialcondition or results of operations. The Company may fail to obtain, maintain, enforce or defend the intellectualproperty rights required to conduct its business The Company's success depends upon its ability and the ability of its partnersand licensors to protect their intellectual property rights. Where possible,the Company's strategy is to register intellectual property rights, such aspatents and trademarks. The Company also relies on various trade secrets,unpatented know-how and technological innovations and contractual arrangementswith third parties to maintain its competitive position. The failure to obtain,maintain, enforce or defend such intellectual property rights, for any reason,could allow third parties to make competing products or impact the Company'sability to develop, manufacture and market its own products on a commerciallyviable basis, or at all, which could have a material adverse effect on theCompany's revenues, financial condition or results of operations. The Company intends to enforce its patent rights vigorously and believes thatits commercial partners, licensors and third party manufacturers intend toenforce vigorously those patent rights they have licensed to the Company.However, the Company's patent rights, and patent rights that the Company haslicensed, may not provide valid patent protection sufficiently broad to preventany third party from developing, using or commercializing products that aresimilar or functionally equivalent to the Company's products or technologies.These patent rights may be challenged, revoked, invalidated, infringed orcircumvented by third parties. Laws relating to such rights may in future alsobe changed or withdrawn. Additionally, the Company's products, or the technologies or processes used toformulate or manufacture those products may now, or in the future, infringe thepatent rights of third parties. It is also possible that third parties willobtain patent or other proprietary rights that might be necessary or useful forthe development, manufacture or sale of the Company's products. The Company mayneed to obtain licenses for intellectual property rights from others and maynot be able to obtain these licenses on commercially reasonable terms, if atall. The Company also relies on trade secrets and other un-patented proprietaryinformation, which it generally seeks to protect by confidentiality andnondisclosure agreements with its employees, consultants, advisors andpartners. These agreements may not effectively prevent disclosure ofconfidential information and may not provide the Company with an adequateremedy in the event of unauthorized disclosure. In addition, if the Company'semployees, scientific consultants or partners develop inventions or processesthat may be applicable to the Company's products under development, suchinventions and processes will not necessarily become the Company's property,but may remain the property of those persons or their employers. The Company has filed applications to register various trademarks for use inconnection with its products in various countries and also, with respect tocertain products, relies on the trademarks of third parties. These trademarksmay not afford adequate protection or the Company or the third parties may nothave the financial resources to enforce their rights under these trademarkswhich may enable others to use the trademarks and dilute their value. In the regular course of business, the Company is party to litigation or otherproceedings relating to intellectual property rights. (See Note 19 to theconsolidated financial statements for details of current patent litigation). If a marketed product fails to work effectively or causes adverse side effects,this could result in damage to the Company's reputation, the withdrawal of theproduct and legal action against the Company Unanticipated side effects or unfavorable publicity from complaints concerningany of the Company's products, or those of its competitors, could have anadverse effect on the Company's ability to obtain or maintain regulatoryapprovals or successfully market its products. The testing, manufacturing, marketing and sales of pharmaceutical products andmedical devices entails a risk of product liability claims, product recalls,litigation and associated adverse publicity. The cost of defending against suchclaims is expensive even when the claims are not merited. A successful productliability claim against the Company could require the Company to pay asubstantial monetary award. If, in the absence of adequate insurance coverage,the Company does not have sufficient financial resources to satisfy a liabilityresulting from such a claim or to fund the legal defense of such a claim, itcould become insolvent. Product liability insurance coverage is expensive,difficult to obtain and may not be available in the future on acceptable terms. Although the Company carries product liability insurance when available, thiscoverage may not be adequate. In addition, it cannot be certain that insurancecoverage for present or future products will be available. Moreover, an adversejudgment in a product liability suit, even if insured or eventually overturnedon appeal, could generate substantial negative publicity about the Company'sproducts and business and inhibit or prevent commercialization of otherproducts. The following responsibility statement is repeated here solely for the purposeof complying with DTR 6.3.5. This statement relates to and is extracted frompage 94 of the 2013 Annual Report. These responsibilities are for the full 2013 Annual Report and not theextracted information presented in this announcement or otherwise. The Directors confirm that to the best of their knowledge: * the Financial Statements, prepared in accordance with accounting principles generally accepted in the United States of America, present fairly, in all material respects, the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and * the Strategic report, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and * the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. On behalf of the Board Chief Executive Officer Flemming Ornskov February 24, 2014 Chief Financial OfficerGraham HetheringtonFebruary 24, 2014 The following are trademarks either owned or licensed by Shire plc or itssubsidiaries, which are the subject of trademark registrations in certainterritories, or which are owned by third parties as indicated and referred toin this document: ADDERALL XR® (mixed salts of a single entity amphetamine) CARBATROL® (carbamazepine extended-release capsules) CINRYZE® (C1 esterase inhibitor [human]) DAYTRANA® (trademark of Noven Pharmaceutical Inc.) DERMAGRAFT® (trademark of Organogenesis, Inc.) ELAPRASE® (idursulfase) ELVANSE® (lisdexamfetamine dimesylate) FIRAZYR® (icatibant) FOSRENOL® (lanthanum carbonate) INTUNIV® (guanfacine extended release) LIALDA® (trademark of Nogra International Limited) MEZAVANT® (trademark of Giuliani International Limited) PENTASA® (trademark of Ferring B.V. Corp) REMINYL® (galantamine hydrobromide) (UK and Republic of Ireland) (trademark ofJohnson & Johnson, excluding UK and Republic of Ireland) REPLAGAL® (agalsidase alfa) RESOLOR® (prucalopride) TYVENSE® (lisdexamfetamine dimesylate) VASCUGEL® (allogeneic aortic endothelial cells cultured in a porcine gelatinmatrix [Gelfoam®] with cytokines, implanted) VPRIV® (velaglucerase alfa) VYVANSE® (lisdexamfetamine dimesylate) XAGRID® (anagrelide hydrochloride) ZEFFIX® (trademark of GSK) 3TC® (trademark of GSK) SOURCE: Team analysis; evaluate pharma The actual net effect of price increases on current period net sales comparedto the comparative period is difficult to quantify due to the various managedcare rebates, Medicaid discounts, other discount programs in which the Companyparticipates and fee for service agreements with wholesalers customers. 1. Chairman's review 2. Chief Executive Officer's review 3. Financial Review 4. Principal risks and uncertainties 5. Directors' responsibility statement Press Release www.shire.com