2014 Annual Report – DTR 6.3.5 Disclosure

2014 Annual Report - DTR 6.3.5 Disclosure March 26, 2015 - Shire plc (LSE: SHP, NASDAQ: SHPG) (the "Company") announcesthat the following documents have today been posted or otherwise made availableto shareholders: * 2014 Annual Report * Notice of the 2015 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 2014 Annual Report and Notice of the 2015 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, 2014,issued on February 12, 2015, 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 full2014 Annual Report. The information included in the Appendix is extracted from the 2014 AnnualReport which was approved by the Directors on February 24, 2015. Defined termsused in the Appendix refer to terms as defined in the 2014 Annual Report unlessthe context otherwise requires. Tony GuthrieDeputy Company Secretary For further information please contact: Investor Relations 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 focus on providing treatments in Rare Diseases, Neuroscience,Gastrointestinal and Internal Medicine and we are developing treatments forsymptomatic conditions treated by specialist physicians in other targetedtherapeutic areas, such as Ophthalmics. www.shire.com THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACTOF 1995 Statements included herein that are not historical facts are forward-lookingstatements. Such forward-looking statements involve a number of risks anduncertainties and are subject to change at any time. In the event such risks oruncertainties materialize, Shire's results could be materially adverselyaffected. The risks and uncertainties include, but are not limited to, that: * Shire's products may not be a commercial success; * product sales from ADDERALL XR and INTUNIV are subject to generic competition; * the failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payers in a timely manner for Shire's products may affect future revenues, financial condition and results of operations; * Shire conducts its own manufacturing operations for certain of its products and is reliant on third party contract manufacturers to manufacture other products and to provide goods and services. Some of the Shire's products or ingredients are only available from a single approved source for manufacture. Any disruption to the supply chain for any of the Shire's products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis for some period of time; * the manufacture of Shire's products is subject to extensive oversight by various regulatory agencies. Regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, an increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches; * Shire has a portfolio of products in various stages of research and development. The successful development of these products is highly uncertain and requires significant expenditures and time, and there is no guarantee that these products will receive regulatory approval; * the actions of certain customers could affect Shire's ability to sell or market products profitably. Fluctuations in buying or distribution patterns by such customers can adversely affect Shire's revenues, financial 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 significant legal costs and the payment of substantial compensation or fines; * adverse outcomes in legal matters and other disputes, including Shire's ability to enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on Shire's revenues, financial condition or results of operations; * Shire faces intense competition for highly qualified personnel from other companies and organizations. Shire is undergoing a corporate reorganization and was the subject of an unsuccessful acquisition proposal and the consequent uncertainty could adversely affect Shire's ability to attract and/or retain the highly skilled personnel needed for Shire to meet its strategic objectives; * failure to achieve Shire's strategic objectives with respect to the acquisition of NPS Pharmaceuticals Inc. ("NPS Pharma") may adversely affect Shire's financial condition and results of operations; and other risks and uncertainties detailed from time to time in Shire's filingswith the Securities and Exchange Commission, including those risks outlined onpages 30 to 37 of the Appendix to this announcement. APPENDIX Contents Page 1. Chairman's review 1 2. Chief Executive Officer's review 2 3. Financial Review - Overview 5 - Results of operations for the year to December 31, 2014 9 and 2013 - Financial condition at December 31, 2014 and 2013 18 - Liquidity and capital resources 19 - Treasury policies and organization 25 4. Principal risks and uncertainties - Risk management framework 29 - Risk factors related to the Company's business 30 - General risk factors related to the Company and to the 35 healthcare industry 5. Directors' responsibility statement 38 1. Chairman's review At Shire we focus on people. Those that work for us, partner with us, invest inour strategy and, above all, those who depend on the medicines we make everyday. Our purpose is to help people with life-altering conditions lead betterlives. We ask the questions that are raised by rare and specialty diseases andpursue new possibilities through thoughtful and innovative science. Creating exceptional value When we do what is good, we believe good follows. Value is created not just forthe patients, but for physicians, caregivers, employees, communities, payers,policymakers, and shareholders-for anyone or any institution that our globalcompany can touch. And value, we were reminded this year, can be created-andrecognized-in so many ways. Extraordinary results We had an eventful year in 2014. We had unprecedented financial results asyou'll see in the pages to come. We completed our acquisition of ViroPharma andsuccessfully integrated this organization, serving new patients with theproduct CINRYZE®, a medicine for the inflammatory condition known as HereditaryAngioedema. At the same time, we acquired two rare diseases entities-Lumena andFibrotech. We fortified our presence in established therapies and opened doorsto new ones, including Ophthalmics. We moved into our new InternationalOperational Headquarters in Zug, Switzerland and reinvigorated our presence inEurope, Asia and Latin America. We continued to streamline operations and toput the right people into the right jobs to complement the immediate impact ofmergers and acquisitions with our focus on continuing organic growth. On behalfof adults with Binge Eating Disorder, we filed in the US for a supplemental newdrug application for VYVANSE® which the Food and Drug Administration ("FDA")approved on January 30, 2015 as the first and only medication for the treatmentfor this disorder. And, most recently, we acquired NPS Pharma bringing twoexciting rare disease therapies into our product portfolio. We were again recognized as a constituent of the FTSE4Good Index Series, aleading responsibility investment index, and also earned the distinction fromCorporate Knights in their ranking of the 2015 Global 100 Most SustainableCorporations in the World. We accomplished all this while responding to AbbVie as it considered the rolethat Shire might play within its own strategic framework. We never lost sightof the company that Shire is throughout the process. We have a strong, independent future. And we're passionate about building it. Executing our strategy Our plan moving forward is to emerge as a leading global biotech focused onrare diseases and other speciality conditions. To get there, we'll continue ourinvestment in our four key strategic drivers: growth, innovation, efficiency,and people. Under the leadership of our Chief Executive Officer, Dr. FlemmingOrnskov, we'll strengthen-and sustain-our platform through our focused approachto mergers and acquisitions, pipeline advancement, and cash management. We'llrely on the people who make Shire what it is-a diversified team representingmany skills and broad experiences. Outstanding contributions Our Board of Directors made significant contributions to Shire throughout2014-going far above and beyond expectations to render opinions and weighchoices. I have the distinct pleasure of working with Board members who bringthe full complement of scientific, medical, financial, organizational andcommercial insights to bear on complex opportunities. In closing, I would like to extend my gratitude to the people of Shire whoremained focused on what mattered most throughout the year-our patients. Theworld is a healthier place, thanks to Shire. Our people are the reason. Susan KilsbyChairman 2. Chief Executive Officer's review In 2014 we delivered record sales and profitability, and continued tostrengthen our pipeline of important medicines to enable people with lifealtering conditions to lead better lives. At the same time we embarked on our course with the aim of becoming a leadingglobal biotech building on the foundation laid by our One Shire reorganization.For us, it was a year of delivering outstanding results and superiorshareholder returns, setting a clear direction and gaining momentum. Moving forward One of the highlights of 2014 for me was the ongoing journey to transform Shireinto a high-growth, more efficient, more innovative organization with astreamlined structure. We made great progress in this regard and our success was the result of atremendous team effort to achieve a step change in growth, profitability, cashgeneration and to increase the value of our pipeline. We were also focused. A prime example was our rapid and effective integrationof ViroPharma following completion of the $4 billion acquisition early in theyear. We successfully accelerated the growth of CINRYZE which came to usthrough the ViroPharma acquisition while obtaining operational synergies andadvancing the acquired pipeline. A clear direction Our aspiration is to become a leading global biotech delivering innovativemedicines to patients with rare diseases and other specialty conditions. We areprioritizing those areas that enable us to realize our purpose and maintainleading positions in the therapeutic areas in which we compete. Our commercialexcellence is driving superior top-line results and our operational efficiencyis enabling us to reinvest for the future. We have highly effective businessdevelopment capabilities and a robust and innovative pipeline. Simply put, weare a high-growth, highly innovative company making a real difference inpeople's lives. The best of two worlds We are uniquely placed to make a difference in people's lives due to ourdistinctive mix of complementary business units and capabilities. I like tothink of it as a triangle with our Rare Diseases business unit at the center,where we are increasingly focusing our R&D dollars, supported by the strengthof the products in our specialty business units - Neuroscience,Gastrointestinal (GI) and Internal Medicine, and our recently added Ophthalmicsbusiness unit. Through this combination we get the best of two worlds - thefuture long-term growth and opportunities of Rare Diseases, which was ourfastest growing business (+46%) in 2014, and the continued foundation andgrowth of our cash-generating specialty products, which contributesignificantly to our Rare Disease R&D dollars. Moreover, there is an interplay between our business units that aids ourcurrent and future innovation and growth as we adapt our existing therapeuticarea expertise to a rare disease focus. We are leveraging our domain expertisein rare diseases in the development of an intrathecal delivery device forenzyme replacement therapies and this year we partnered with ArmaGen to conductresearch into therapies that can cross the blood-brain barrier for Huntersyndrome. We have added to our Ophthalmics pipeline with the acquisition of thespecialist biotech company BIKAM Pharmaceuticals with its preclinical asset,SHP630, in development for the potential treatment of autosomal dominantretinitis pigmentosa. In addition, through our acquisition of Lumena we haveadded late stage pipeline assets for rare GI/hepatic conditions, and throughour acquisition of Fibrotech we added an antifibrotic agent for focal segmentalglomerulosclerosis. Our most recent acquisition of NPS Pharma further buildsupon our rare disease expertise with therapies for Short Bowel Syndrome ("SBS")and Hyperparathyroidism ("HPT"). Our domain expertise in rare diseases is a key differentiator for Shire. Itenables us to make the most of our belief that those living with rareconditions are just as deserving of treatment as those living with more commonconditions. To build on our distinctive focus and strengths, we have four strategicdrivers: growth, innovation, efficiency and people. In 2014 we hit significantmilestones across all four. Driving strong growth across all our businesses Shire delivered growth through commercial excellence across all of our businessunits. In Rare Diseases, through our acquisition of ViroPharma, we added andaccelerated the sales growth of CINRYZE (+30%) on a pro forma basis, aninnovative product for the prophylactic treatment of Hereditary Angiodema (HAE)attacks. FIRAZYR®, our treatment for acute HAE attacks, also grew strongly(+55%). In our GI business, LIALDA® has become the number one prescribed 5-ASAin the US in 2014 and gained an additional 5% of market share in 2014. InNeuroscience, VYVANSE sales grew 18% as more patients continued to use VYVANSEto treat their Attention Deficit Hyperactivity Disorder ("ADHD"). We grew around the world too - continuing to expand our footprint with productsavailable in 68 countries including the launch of two products, VPRIV® andAGRYLIN®, in Japan. Sales outside of the US were $1.75 billion, an increase of11% versus 2013. Much of our growth outside of the US was driven by our Rare Diseases businessunit, particularly in Europe and the Middle East and Africa, with these regionsaccounting for more than 50% of our revenues outside the US. Despite theclinical, regulatory, and commercial challenges with bringing a rare diseasetreatment to market, we reached eight new international markets in 2014. Inaddition, the launch of ELVANSE® (marketed at VYVANSE in the US) has been asuccess launching in four countries this year, making the product available in12 markets outside of the US. Our international GI business unit has also shownstrong growth this year, with MEZAVANT® (marketed as LIALDA in the US) netsales growing by 12% and RESOLOR® net sales increasing by 26%. Enhancing our innovation Through 2014 we continued to concentrate our R&D on rare diseases - themajority of our research dollars now goes into this area. Overall, we invested$840 million on a Non GAAP basis in R&D and we hosted our first R&D Dayshowcasing the innovation in our pipeline. In 2014, we have 27 programs inclinical development, 22 of them distinct, the balance relating to new marketsor new indications - the most in Shire's history. Mixing internal and external innovation, we have built a strong rare diseasesplatform in several areas, including enzyme replacement, plasma-derivedproducts, kidney and fibrotic related conditions, and now in raregastrointestinal/hepatic diseases, with the acquisition of Lumena. This enablesus to develop products that can be brought to market in new areas where thereis high medical need. Alongside our strong research capability in rare diseases, we made excellentprogress in enhancing our specialty pipeline. In Neuroscience for example, weexplored product candidates such as SHP465, a potential treatment for ADHD inadults. We are also entering new markets with VYVANSE, having received FDAapproval on January 30, 2015 for the treatment of Binge Eating Disorder ("BED")in adults. BED affects an estimated 2.8 million US patients and VYVANSE is theonly FDA approved treatment for this condition. Increasing efficiency throughout our organization Our ongoing drive to increase efficiency gained momentum through the year as wetook advantage of the significant reorganization undertaken in 2013 tostreamline and simplify Shire. This was a contributor to our achievements inthe year, notably our profitability, which is at an all-time high with a NonGAAP EBITDA margin of 44%4; our ability to generate cash, with cash generationof $2.4 billion4 in 2014; and our sales per employee, $1.2 million. We alsosimplified our global footprint by establishing our US Operational Headquartersin Lexington, Massachusetts and our International Operational Headquarters inZug, Switzerland. Attracting, rewarding and retaining great people Throughout 2014 we continued to hire and retain excellent talent at all levels.Our performance in a year which included the uncertainty and distractionresulting from the offer from AbbVie, is a testament to the great commitment,skills and resilience of our people, who continued to focus on their work anddelivered record revenue and Non GAAP earnings. This reflects not only thededication of our people but also the strength of our patient-focused culture.I'm proud that we are increasingly recognized as a company where great peopledo great work to help transform lives around the world. I am thankful for the leadership of our employees and their outstandingcontributions through such a successful and eventful year. Shire has become aplace that attracts people because it has the things they are looking for - lowhierarchy, quick decision making, interesting products, and collaborativecolleagues. As we continue to grow and pursue our goal to be a leader inbiotech, Shire is a place which offers increasing opportunities and rewards foreveryone involved. I would also like to thank our investors for their continued loyalty. I am verypleased and proud of the fact that we attract investors who continue to supportus on our journey. Aiming to lead in biotech Our four strategic drivers - growth, efficiency, innovation and people - arethe engines propelling us forward on our journey to become a leading globalbiotech with a focus on rare diseases and specialty conditions. We have madesignificant progress this year but we also recognize that we are still in theearly stages of our journey. We remain committed to being a lean, streamlined,innovation-driven and growth-focused company. A company that is big on ideasand value, rather than simply big. This is as much a mentality shift as anoperational shift - it's about thinking differently and acting differently toget where we want to go. 10 x 20: a journey and a goal To guide and encourage us, we have set the target of achieving $10 billion inproduct sales by 2020. Our 10 x 20 goal acts as our compass as we navigateexcellent commercial execution across our business units, and strong innovationin our pipeline. This is the direction we have set for ourselves. 10 x 20 is a new and galvanizing target for us, but in many ways it is verymuch in character - we are a high performance company setting another high barto meet and exceed. It is also as much about the journey as the goal. I likeboth the ambition of 10 x 20 and the adventure of getting there. Transforming lives Looking ahead, we will continue to build on our strong foundation andachievements. We have a clear growth strategy and a streamlined organization.We know where we are heading and, in great measure, how we are going to getthere. But we also know that the year ahead will feature new opportunities andchallenges that we are ready to make the most of so we continue to strive tostrengthen and improve. Through all of our change and progress one thing above all remains constant -our patients. We're on this journey for them and we are inspired to make adifference because we want to deliver innovative medicines that have thepotential to transform their lives. Flemming Ornskov, MD, MPHChief Executive Officer 3. Financial Review Overview The Company has grown both organically and through acquisition, completing aseries of major transactions that have brought therapeutic, geographic andpipeline growth and diversification. The Company will continue to conduct itsown research and development, focused on rare diseases, as well as evaluatecompanies, products and pipeline opportunities that offer a strategic fit andhave the potential to deliver value to all of the Company's stakeholders:patients, physicians, policy makers, payers, investors and employees. The Company's purpose is to enable people with life altering conditions to leadbetter lives. The Company will execute on its purpose through its strategy andbusiness model. For further details of Shire's strategy and business model,refer to pages 10 and 11 of Shire's 2014 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 Corporate 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 as royaltyrevenues. Revenues are derived primarily from two sources - sales of the Company's ownproducts and royalties: * 97% (2013: 96%) of total revenues are derived from product sales; and * 3% of total revenues are derived from royalties (2013: 3%). The markets in which the Company conducts its business are intenselycompetitive and highly regulated. The healthcare industry is also experiencing: * pressure from governments and healthcare providers to keep prices low while increasing access to drugs; * increased discount liability due to the population of "baby boomers" covered under Medicare, specifically those beneficiaries receiving drug cost offset through the Medicare Part D Coverage Gap (the "Donut Hole"); * increasing challenges from third party payers 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 GI and Internal Medicine. Shire alsohas a number of marketed products for other therapeutic areas from which itgenerates product revenues or royalties from third parties. In 2014 Shirederived 40% of product sales from Rare Diseases products, 31% from Neuroscienceproducts and 29% from GI and Internal Medicine products. Shire's early stageresearch is primarily focused on rare diseases. Shire has grown in part through acquisition which has brought therapeutic,geographic and pipeline growth and diversification. For example, the recentacquisitions of Lumena and Fibrotech in 2014, and Lotus Tissue Repair,Premacure and SARcode in 2013 provide potential access to new markets such asophthalmology and neonatology. The acquisition of ViroPharma, which closed inJanuary 2014, expanded Shire's Rare Diseases portfolio including addingCINRYZE, a leading currently marketed product for the prophylactic treatment ofHAE. In February 2015 Shire also completed the acquisition of NPS Pharma. Thisacquisition adds global rights to an innovative product portfolio with multiplegrowth catalysts, including, GATTEX/REVESTIVE with growing sales for thetreatment of adults with SBS, a rare GI condition; and NATPARA/NATPAR, the onlybioengineered hormone replacement therapy for use in the treatment of HPT, arare endocrine disease, which received FDA approval in January 2015. In 2014 Shire derived 30% (2013: 30%) of product sales from outside of the US.Shire has ongoing commercialization and late-stage development activities,which are expected to further supplement the diversification of revenues in thefuture, including the following: * submission of an MAA to the EMA for once-daily, non-stimulant guanfacine extended release of INTUNIV in the EU; * the approval of a marketing authorization by the MHLW in Japan for AGRYLIN (marketed as XAGRID in the EU) in adult essential thrombocythaemia patients; and * the launch of VPRIV in Japan, for the improvement of symptoms of Gaucher disease, following approval of a marketing authorization on July 4, 2014 by the MHLW in Japan. R&D In 2013 Shire combined the R&D organizations of its former divisions into asingle One Shire R&D organization, focused around a prioritized portfolio ofclinical development and research programs. Shire has focused its R&D effortson five therapeutic areas; Neuroscience, GI/Metabolic Diseases, Renal/FibroticDiseases, Ophthalmic Diseases, and Diseases of the Complement Cascade. Shireconcentrates its resources on obtaining regulatory approval for later-stagepipeline products within these therapeutic areas and focuses its early stageresearch activities 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, VPRIV in 2010, FIRAZYR in 2011, andVYVANSE for BED in 2015; in the EU, VPRIV in 2010 and ELVANSE/TYVENSE® in 2012;in Canada, 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 all R&D projects by developmentphase. Shire's R&D costs in 2014 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, 2014: 2014 2013 Year to December 31, $'M $'M Early stage programs 170 102 Late stage programs 253 327 Currently marketed products 143 179 Total 566 608 In addition to the above, the Company recorded R&D employee costs of $270million in 2014 (2013: $282 million) and other indirect R&D costs of $232million (2013: $43 million), comprising depreciation and impairment charges. 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, and are generally able to sell a generic version 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 periods prior to the authorized generic launches. 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. In 2014 an authorized generic version of the Company's INTUNIV product waslaunched, which led to lower sales of Shire's INTUNIV product compared to theperiod before loss of exclusivity. Shire is engaged in various legal proceedings with generic manufacturers withrespect to its VYVANSE and LIALDA patents. For more detail of current patentlitigation, see Note 19, "Commitments and Contingencies, Legal and otherproceedings" to the consolidated financial statements. Corporate development Shire focuses its corporate development activity on the acquisition andin-licensing of businesses, products or compounds which offer a strategic fitand have the potential to deliver demonstrable value to all of the Company'sstakeholders. Recent mergers or acquisitions In February 2015 Shire completed the acquisition of NPS Pharma. Thisacquisition adds global rights to an innovative product portfolio with multiplegrowth catalysts, including, GATTEX/REVESTIVE with growing sales for thetreatment of adults with SBS, a rare GI condition; and NATPARA/NATPAR,following its US approval on January 23, 2015, the only bioengineered hormonereplacement therapy for use in the treatment of HPT, a rare endocrine disease. In February 2015 Shire also acquired Meritage Pharma, Inc ("Meritage"). Thisacquisition provides Shire with worldwide rights to Meritage's Phase 3-readycompound Oral Budesonide Suspension ("OBS") for the potential treatment ofadolescents and adults with eosinophilic esophagitis ("EoE"), a rare, chronicinflammatory GI disease. In 2014, Shire acquired: * ViroPharma which added a leading marketed product for the prophylactic treatment of HAE, CINRYZE, as well as a number of other marketed products and a pipeline of product candidates in the rare disease area; * Lumena which added global rights to two late stage pipeline assets, SHP625 (formerly LUM001), in Phase 2 clinical development with four potential orphan indications; and SHP626 (formerly LUM002), ready to enter a Phase 1b multiple dose trial in the first half of 2015; * Fibrotech which added global rights to SHP627 (formerly FT011) in Phase 1b, a new class of oral drug with a novel mechanism of action which has the potential to address both the inflammatory and fibrotic components of disease processes. In addition Shire has acquired Fibrotech's library of novel molecules including SHP628 (formerly FT061), which is in preclinical development; and * BIKAM which added global rights to SHP630 (formerly BIK-406) in preclinical development, for the potential treatment of autosomal dominant retinitis pigmentosa (adRP). In 2013, Shire acquired: * SARcode which added SHP606 to the Shire portfolio (SHP606 is currently in Phase 3 development for the treatment of DED). * 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 preclinical development, for the treatment of Dystrophic Epidermolysis Bullosa ("DEB"). Collaboration and licensing activity Shire has also entered into a number of collaboration and license agreements inrecent years, including: * A worldwide licensing and collaboration agreement with ArmaGen in 2014 to develop and commercialize AGT-182, an investigational enzyme replacement therapy for the potential treatment of both the central nervous system and somatic manifestations in patients with Hunter syndrome; * A collaboration and license agreement with Sangamo to develop therapeutics for hemophilia and other monogenic diseases based on Sangamo's ZFP technology in 2012; and * An agreement with Shionogi in 2012 to co-develop and co-commercialize VYVANSE and INTUNIV in Japan. Organization and structure In 2013 the Company integrated its operations into a simplified One Shireorganization in order to drive future growth and innovation. Shire nowcomprises a single operating and reportable segment. For further details seeNote 25 "Segment reporting" to the consolidated financial statements. As partof the One Shire reorganization, the Company undertook a review of all of itspipeline programs and identified those projects that fit with the Company's newstrategic direction and have an acceptable likelihood of success. Followingthat review and overall streamlining of the R&D organization, several clinicaland preclinical projects were discontinued which resulted in the elimination ofa significant number of R&D roles and functional roles that support R&D inBasingstoke, and some positions were re-located. In addition the Company also relocated its international commercial hub fromNyon, Switzerland to Zug, Switzerland in 2013. All Nyon-based employees wereaffected by the move to Zug. Shire is now operating from its new Zug office andis providing employees with a reasonable period of time to manage theirrelocations. Certain aspects of the One Shire program were temporarily put on hold due toAbbVie's offer for Shire, which was terminated in October 2014. Subsequent tothe termination of AbbVie's offer, Shire announced its plans to relocate over500 positions to Massachusetts from its Chesterbrook, Pennsylvania, site andestablish Lexington, Massachusetts, as the Company's US OperationalHeadquarters in continuation of the One Shire efficiency program. Thisrelocation will streamline business globally through two principal locations,Massachusetts and Switzerland, with support from regional and country-basedoffices around the world. For further details see Note 6 "Reorganization costs" to the consolidatedfinancial statements. On October 22, 2013 Shire discontinued the construction of its newmanufacturing facility in San Diego. Subsequently on January 16, 2014, theCompany sold and transferred certain of the assets relating to themanufacturing, marketing, sale and distribution of DERMAGRAFT to OrganogenesisInc. For further information, see Note 10 "Results of discontinued operationsand assets held for sale" to the consolidated financial statements. Results of operations for the years to December 31, 2014 and 2013 Financial highlights for the year to December 31, 2014 are as follows: * Product sales grew strongly in 2014, up 23% to $5,830 million (2013: $4,757 million). Product sales in 2014 included $538 million for products acquired with ViroPharma, primarily $503 million from CINRYZE. The inclusion of ViroPharma contributed 12 percentage points to reported product sales growth in the year. Excluding products acquired with ViroPharma, product sales were up 11%. This growth was driven by VYVANSE (up 18% to $1,449 million), LIALDA/ MEZAVANT (up 20% to $634 million), ELAPRASE (up 9% to $593 million), REPLAGAL (up 7% to $500 million), VPRIV (up 7% to $367 million), and FIRAZYR (up 55% to $364 million). The strengthening of the US dollar during the fourth quarter of 2014 negatively affected the growth in product sales for a number of the Company's products, notably ELAPRASE, REPLAGAL and VPRIV. The US dollar has remained strong during the early part of 2015 and exchange rates as at January 31, 2015 were $1.13:€1.00 and $1.51:£1.00 (average exchange rates for the year to December 31, 2014 were $1.33:€1.00 and $1.65:£1.00). If exchange rates remain at these levels throughout 2015, or if the US dollar strengthens further against the Euro and the Pound Sterling, the Company's product sales growth in 2015 will be adversely impacted, particularly for ELAPRASE, REPLAGAL and VPRIV. * Total revenues were up 22% to $6,022 million (2013: $4,934 million), due to the Company's strong product sales growth and higher royalties and other revenues (up 8%). The higher royalty income included $22 million of INTUNIV royalties following generic entry in December and other revenues included the receipt of a $13 million milestone relating to FOSRENOL. * Operating income from continuing operations in 2014 was down 2% to $1,698 million (2013: $1,734 million). Operating income from continuing operations includes $190 million of intangible asset impairment charges (2013: $20 million), integration and acquisition costs of $159 million (2013: a net credit of $134 million), One Shire reorganization costs of $181 million (2013: $88 million), and costs associated with AbbVie's terminated offer for Shire of $96 million (2013: $nil). Excluding these items, operating income grew strongly in 2014, up 36%, due to higher total revenues (up 22%) and only a 9% increase in combined R&D and SG&A, demonstrating the Company's focus on delivering efficient growth. * Diluted earnings per Ordinary Share from continuing operations increased 125% to $5.52 (2013: $2.45) primarily due to the receipt of a $1,635 million break fee in relation to AbbVie's terminated offer for Shire and a lower effective tax rate of 2% (2013: 16%), which was partially offset by the lower operating income. Total revenues The following table provides an analysis of the Company's total revenues bysource: Year to December 31, 2014 2013 Change $'M $'M % _________________ _________________ _________________ Product sales 5,830.4 4,757.5 +23% Royalties 160.8 153.7 +5% Other revenues 30.9 23.1 +34% _________________ _________________ _________________ Total 6,022.1 4,934.3 +22% Product sales1 Year to Year to December December Product Non-GAAP US Exit 31, 31, sales CER prescription market 2014 2013 growth growth5 growth2 share2 $'M $'M % % % % Net productsales: VYVANSE 1,449.0 1,227.8 +18 +18 +4 16 LIALDA/ 633.8 528.9 +20 +20 +25 33MEZAVANT ELAPRASE 592.8 545.6 +9 +11 n/a3 n/a3 CINRYZE 503.0 - n/a n/a n/a3 n/a3 REPLAGAL 500.4 467.9 +7 +10 n/a4 n/a4 ADDERALL XR 383.2 375.4 +2 +3 +7 5 VPRIV 366.7 342.7 +7 +8 n/a3 n/a3 FIRAZYR 364.2 234.8 +55 +55 n/a3 n/a3 INTUNIV 327.2 334.9 -2 -2 -3 2 PENTASA 289.7 280.6 +3 +3 -4 13 FOSRENOL 183.0 183.4 - -1 -8 4 XAGRID 108.5 99.4 +9 +6 n/a3 n/a3 Other product 128.9 136.1 -5 -4 n/a n/asales __________ __________ _________ _________ Total product 5,830.4 4,757.5 +23 +23sales __________ __________ _________ _________ (1) Product sales from continuing operations, including ViroPharma acquired onJanuary 24, 2014, and excluding DERMAGRAFT which has been treated asdiscontinued operations following divestment on January 17, 2014. (2) Data provided by IMS Health National Prescription Audit ("IMS NPA"). Exitmarket share represents the average US market share in the month ended December31, 2014. (3) IMS NPA Data not available. (4) Not sold in the US in the year to December 31, 2014. (5) 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 2014 product sales and revenues restated using 2013 average foreignexchange rates to 2013 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, 2014were $1.65:£1.00 and $1.33:€1.00 (2013: $1.56:£1.00 and $1.33:€1.00). VYVANSE - ADHD VYVANSE product sales grew strongly (up 18%) in 2014 primarily due to thebenefit of price increases and to a lesser extent higher US prescription demandand growth in ex-US product sales. This growth was partially offset by a lowerlevel of stocking in 2014 as compared to 2013. Litigation proceedings regarding VYVANSE are ongoing. Further information aboutthis litigation can be found in Note 19, "Commitments and Contingencies, Legaland other proceedings" to the consolidated financial statements. LIALDA/MEZAVANT - Ulcerative colitis The 20% growth in product sales for LIALDA/MEZAVANT in 2014 was primarilydriven by higher prescription demand (up 25%) and to a lesser extent a priceincrease taken at the beginning of 2014. The growth was partially offset by alower level of stocking and higher sales deductions as a percentage of sales in2014 as compared to 2013. Litigation proceedings regarding LIALDA are ongoing. Further information aboutthis litigation can be found in Note 19, "Commitments and Contingencies, Legaland other proceedings" to the consolidated financial statements. ELAPRASE - Hunter syndrome ELAPRASE sales growth was up 9% (up 11% on a Non GAAP CER basis), driven bycontinued growth in the number of treated patients, especially in emergingmarkets. Sales growth was negatively affected by foreign exchange. CINRYZE - for the prophylactic treatment of HAE Shire acquired CINRYZE through its acquisition of ViroPharma on January 24,2014. CINRYZE sales were $503 million in 2014, growing 30% on a pro forma basison 2013 primarily driven by more patients on therapy and to a lesser extent theimpact of a price increase in the US and an increase in channel inventory. REPLAGAL - Fabry disease REPLAGAL sales were up 7% compared to 2013 (up 10% on a Non GAAP CER basis),driven primarily by higher unit sales as the Company continues to see anincrease in the number of patients on therapy, with good growth in emergingmarkets and to a lesser extent in Europe. The benefit of the higher unit saleswas partially offset by foreign exchange. ADDERALL XR - ADHD ADDERALL XR product sales were up 2% in 2014, as a result of higherprescription demand, partially offset by lower stocking in 2014 compared to2013. Litigation proceedings regarding ADDERALL XR are ongoing. Further informationabout this litigation and the Impax settlement, can be found in Note 19,"Commitments and Contingencies, Legal and other proceedings" to theconsolidated financial statements. VPRIV - Gaucher disease VPRIV sales were up 7% (up 8% on a Non GAAP CER basis), driven by a strongperformance in the EU and US as we continue to add naïve patients and gainpatients switching from other therapies. Sales growth was also negativelyimpacted by foreign exchange. FIRAZYR - Hereditary Angioedema FIRAZYR sales growth was up 55% compared to 2013, driven by a higher number ofpatients on therapy and the effect of a price increase6 in the US market. INTUNIV - ADHD INTUNIV product sales were down 2% compared to 2013, reflecting the impact ofgeneric competition from December 2014, which resulted in lower prescriptiondemand, significantly higher sales deductions as a percentage of product salesand destocking as compared to a slight level of stocking in 2013. This waspartially offset by price increases taken in 2014. The impact of genericcompetition saw INTUNIV market share fall to 2.3% at the end of 2014 from 4.6%at the beginning of the year. Further information about litigation proceedings regarding INTUNIV can be foundin Note 19, "Commitments and Contingencies, Legal and other proceedings" to theconsolidated financial statements. PENTASA - Ulcerative Colitis PENTASA product sales were up 3% as the benefit of price increases waspartially offset by higher sales deductions and a lower prescription demand in2014 compared to 2013. Royalties Year to Year to December 31, December 31, 2014 2013 Change $'M $'M % ____________ ____________ _________ FOSRENOL 51.4 48.1 7% 3TC and ZEFFIX 33.9 46.7 -27% ADDERALL XR 28.9 27.6 5% INTUNIV 22.0 - n/a Other 24.6 31.3 -21% ____________ ____________ _________ Total 160.8 153.7 5% ____________ ____________ _________ Shire has received royalty income from Actavis following INTUNIV genericcompetition from December 2014. Royalty income is based on 25% of Actavis'gross profits from INTUNIV sales. Cost of product sales from continuing operations Cost of product sales increased to $979.3 million for the year to December 31,2014 (17% of product sales), up from $670.8 million in the corresponding periodin 2013 (14% of product sales). Cost of product sales as a percentage ofproduct sales was three percentage points higher compared to the same period in2013. In the year to December 31, 2014 Cost of product sales was impacted byloss and expiry provisions, the inclusion of lower margin CINRYZE acquired withViroPharma and charges of $91.9 million on the unwind of the fair valueadjustment on acquired ViroPharma inventories. For the year to December 31, 2014 cost of product sales included depreciationof $57.1 million (2013: $37.5 million). R&D from continuing operations R&D expenditure increased to $1,067.5 million for the year to December 31, 2014(18% of product sales), compared to $933.4 million in the corresponding periodin 2013 (20% of product sales). R&D expenditure in 2014 includes impairmentcharges of $190.3 million, primarily relating to the SHP602 IPR&D intangibleasset of $166.0 million, following the current Phase 2 trial being placed onclinical hold and $22.0 million relating to the SHP613 IPR&D intangible asset,following the decision to discontinue further development based on portfolioprioritization as well as unexpected challenges and complexities with thedevelopment program. Also included in 2014 R&D expenditure is a payment of$12.5 million in respect of in-licensed and acquired products. In 2013 R&Dexpenditure included impairment charges of $19.9 million related to IPR&Dintangible assets acquired with Movetis N.V. Excluding these costs , R&Dexpenditure in the year to December 31, 2014 decreased by 5% or by $49 million,due to the completion/termination of several large Phase 3 programs which wereongoing during 2013, including new uses for LDX, the effect of portfolioprioritization decisions taken during 2013 and lower overheads due to the OneShire reorganization, partially offset by the inclusion of programs acquiredwith ViroPharma and Lumena, and increased spend on the SHP607 (prevention ofROP), SHP608 (DEB) and SHP606 (DED) programs. R&D in the year to December 31, 2014 included depreciation of $24.5 million(2013: $23.3 million). SG&A from continuing operations SG&A expenditure increased to $2,025.8 million for the year to December 31,2014 from $1,651.3 million, due to the inclusion of ViroPharma SG&A costs fromJanuary 24, 2014, higher intangible asset amortization, costs incurred inconnection with AbbVie's terminated offer for Shire and commercial spending inadvance of anticipated product launches for certain products, which offsetlower overheads following the One Shire reorganization. SG&A as a proportion ofproduct sales remained constant at 35% of product sales for the year toDecember 31, 2014 compared with 35% of product sales in the correspondingperiod in 2013, as the Company continues to see benefits from the One Shirereorganization and the focus on operational discipline in the year to December31, 2014. For the year to December 31, 2014 SG&A included depreciation of $81.9 million(2013: $66.8 million) and amortization of $243.8 million (2013: $152.0million). Gain on sale of product rights from continuing operations For the year to December 31, 2014 Shire recorded a net gain on sale of productrights of $88.2 million (2013: $15.9 million) following the divestment ofCALCICHEW, VANCOCIN, ESTRACE® rights also included the loss on re-measurementof the contingent consideration receivable relating to the divestment ofDAYTRANA®. Reorganization costs from continuing operations For the year to December 31, 2014 Shire recorded reorganization costs of $180.9million (2013: $88.2 million) comprising costs relating to the One Shirereorganization, which included involuntary termination benefits and othertermination costs. Amounts recorded in 2014 also include certain costsassociated with moving more than 500 positions from Chesterbrook to Lexington,which will be effected over 2015 and 2016. Integration and acquisition costs from continuing operations For the year to December 31, 2014 Shire recorded integration and acquisitioncosts of $158.8 million, comprising acquisition and integration costs of $144.1million, primarily related to ViroPharma, and a $14.7 million charge relatingto the change in fair value of contingent consideration liabilities. In 2013 Shire recorded a net credit of $134.1 million in integration andacquisition costs primarily related to the change in fair values of contingentconsideration liabilities offset by the costs of integrating SARcode, and LotusTissue Repair Inc.. Interest expense from continuing operations For the year to December 31, 2014 Shire incurred interest expense of $30.8million (2013: $38.1 million). Interest expense in 2014 principally relates tointerest and financing costs incurred on facilities drawn down in respect ofthe acquisition of ViroPharma. Receipt of Break Fee On July 18, 2014, the Boards of AbbVie and Shire announced that they had agreedthe terms of a recommended combination of Shire with AbbVie, subject to anumber of conditions including approval by shareholders and regulators. On thesame date Shire and AbbVie entered into a co- operation agreement in connectionwith the recommended combination. On October 16, 2014, the Board of AbbVieconfirmed that it had withdrawn its recommendation of its offer for Shire as aresult of the anticipated impact of a US Treasury Notice on the benefits thatAbbVie expected from its offer. As AbbVie's offer was conditional on theapproval of its stockholders, and given their Board's decision to change itsrecommendation and to advise AbbVie's stockholders to vote against the offer,there was no realistic prospect of satisfying this condition. Accordingly,Shire's Board agreed with AbbVie to terminate the cooperation agreement onOctober 20, 2014. The Company entered into a termination agreement with AbbVie,pursuant to which AbbVie paid the break fee due under the cooperation agreementof approximately $1,635.4 million. The Company has obtained advice that thebreak fee should not be taxable in Ireland. The Company has therefore concludedthat no tax liability should arise and has not recognized a tax charge in theincome statement in the current accounting period. However, this has not beenagreed with the tax authorities. Taxation from continuing operations The effective tax rate on income from continuing operations was 2% (2013: 16%).The effective rate of tax on income from continuing operations is lower than2013 primarily due to the receipt of the break fee from AbbVie and recognitionof a net credit to income taxes of $235 million, following the settlement ofcertain tax positions with the Canadian revenue authorities in 2014. Theaccounting treatment for tax purposes of the Break Fee is outlined in theimmediately preceding paragraph. Excluding the effect of these two items the effective tax rate in 2014 wouldhave been 17%. Discontinued operations The gain from discontinued operations for the year to December 31, 2014 was$122.7 million net of tax (2013: loss of $754.5 million). The gain fromdiscontinued operations includes a tax credit of $211.3 million primarilydriven by a tax benefit arising following a reorganization of the former RMbusiness undertaken in the fourth quarter of 2014, associated with thedivestment of the DERMAGRAFT business in the first quarter of 2014. This gainwas partially offset by costs associated with the divestment of the DERMAGRAFTbusiness, including a loss on re-measurement of contingent considerationreceivable from Organogenesis to its fair value. Results of operations for the year to December 31, 2013 and 2012 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 by VYVANSE (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, as expected, by lower royalties and other revenues (down 36%). * Operating income from continuing operations in 2013 was up 66% to $1,734 million (2012: $1,045 million), primarily due to the strong growth in product sales and an overall reduction in total operating expenses in 2013 compared to 2012 as the Company focuses on delivering efficient growth. Operating expenses in 2013 include a net credit of $159 million due to change in the fair value of contingent consideration liabilities, in particular relating to the acquisition of SARcode following the release of top-line Opus-2 data. Operating expenses in 2012 included impairment charges of $197.9 million related to RESOLOR intangible assets. Research and Development expenditure decreased by 2%. SG&A expenditure 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 continuing operations 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/a2 n/a2 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 4 3 XAGRID 99.4 97.2 +2 +1 n/a2 n/a2 Other product 136.1 153.4 -11 -11 n/a n/asales __________ __________ _________ _________ Total product 4,757.5 4,252.9 +12 +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) Average exchange rates for the year to December 31, 2013 were $1.56:£1.00and $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 increases9 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 statements. 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 increases9 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, 2014 and 2013 Cash & cash equivalents Cash and cash equivalents increased by $743.0 million to $2,982.4 million atDecember 31, 2014 (December 31, 2013: $2,239.4 million). Cash provided byoperating activities was up by 189% to $4,229 million, due to the receipt ofthe $1,635 million break fee in relation to AbbVie's terminated offer forShire, the benefit of the $417 million repayment received from the Canadianrevenue authorities and the Company's continued strong cash receipts from grossproduct sales. In addition cash provided by financing activities in 2014 of$554.5 million primarily reflected the net proceeds from Shire's line of creditand other borrowings. These inflows were offset by the cost of acquiringViroPharma, Lumena and Fibrotech. Accounts receivable, net Accounts receivable, net increased by $73.9 million to $1,035.1 million atDecember 31, 2014 (December 31, 2013: $961.2 million), primarily due to theincrease in revenue. Days sales outstanding decreased to 43 days (December 31,2013: 46 days). Inventories Inventories increased by $89.5 million to $544.8 million at December 31, 2014(December 31, 2013: $455.3 million), primarily due to the inclusion of CINRYZEinventories following the acquisition of ViroPharma. Goodwill Goodwill increased by $1,850.3 million to $2,474.9 million at December 31, 2014(December 31, 2013: $624.6 million), principally due to the acquisitions ofViroPharma, Fibrotech and Lumena. Other intangible assets, net Other intangible assets increased by $2,621.8 million to $4,934.4 million atDecember 31, 2014 (December 31, 2013: $2,312.6 million), principally due to theintangible assets acquired with ViroPharma, Lumena and Fibrotech, offset by theimpairments of the SHP602 and SHP613 IPR&D assets, intangible assetamortization and the divestments of VANCOCIN, EXPUTEX and ESTRACE. Short term borrowing Short term borrowings increased from $nil at December 31, 2013 to $850.0million at December 31, 2014 reflecting the utilization of a short term debtfacility to part fund the acquisition of ViroPharma. Other current liabilities Other current liabilities increased by $143.0 million to $262.5 million atDecember 31, 2014 (December 31, 2013: $119.5 million) principally due to therecognition of contingent consideration liabilities in respect of the Lumenaacquisition. Non-current deferred tax liabilities Non-current deferred tax liabilities increased by $650.0 million to $1,210.6million at December 31, 2014 (December 31, 2013: $560.6 million), primarily dueto deferred tax liabilities arising on the intangible assets acquired withViroPharma and Lumena. Other non-current liabilities Other non-current liabilities increased by $148.2 million to $736.7 million atDecember 31, 2014 (December 31, 2013: $558.5 million) principally due to therecognition of contingent consideration payable in respect of the Lumena andFibrotech acquisitions and changes in the fair value of contingentconsideration payable in respect of prior acquisitions. 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 theEmployee Benefit Trust ("EBT") of Shire shares in the market to satisfy awardsgranted under Shire's employee share plans; and the amount of cash generatedfrom sales of Shire's products and 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 $2,982.4 million of cash and cash equivalents atDecember 31, 2014. Shire also has a revolving credit facility of $2,100 million which matures in2019, which was undrawn at December 31, 2014. In connection with its acquisition of ViroPharma, on November 11, 2013 theCompany also entered into a $2,600 million term loan facilities agreement with,among others, Morgan Stanley Bank International Limited (acting as leadarranger and agent) (the "2013 Facilities Agreement"). Amounts drawn under the2013 Facilities Agreement were subsequently reduced to $850 million. AtDecember 31, 2014 the 2013 Facilities Agreement comprises an $850 million termloan facility which matures on November 11, 2015, which was fully utilized andrecorded within short term borrowings. On January 24, 2014 ViroPharma commenced a tender offer to repurchase, at theoption of each holder, any and all of ViroPharma's outstanding 2.00%Convertible Senior Notes Due 2017 (the "Convertible Notes") and notified theholders of their separate right to convert the Convertible Notes. As ofDecember 31, 2014, Convertible Note holders had voluntarily convertedapproximately $205 million aggregate principal amount of the Convertible Notesfor a total consideration of $551.5 million. The remaining outstandingConvertible Notes total an aggregate principal amount of $26,000. Following the Company's announcement to acquire NPS Pharma, on January 11, 2015the Company entered into an $850 million term loan facilities agreement whichmatures on January 10, 2016. Revolving Credit Facilities Agreement On December 12, 2014, Shire entered into a $2,100 million revolving creditfacilities agreement (the "RCF") with a number of financial institutions, forwhich Abbey National Treasury Services PLC (trading as Santander Global Bankingand Markets), Bank of America Merrill Lynch International Limited, BarclaysBank PLC, Citigroup Global Markets Limited, Lloyds Bank PLC, The Royal Bank ofScotland PLC and Sumitomo Mitsui Banking Corporation acted as mandated leadarrangers and bookrunners and DNB Bank ASA, The Bank of Tokyo-Mitsubishi UFJ,Ltd., Credit Suisse AG, London Branch, Deutsche Bank Luxembourg S.A., GoldmanSachs Bank USA, Mizuho Bank, Ltd. and Morgan Stanley Bank International Limitedacted as arrangers. Shire is an original borrower under the RCF and has agreedto act as guarantor for its subsidiaries, which are also original borrowers andfor any other of its subsidiaries that become additional borrowers thereunder.At December 31, 2014 the RCF was undrawn. On February 21, 2015 Shire requestedthe utilization of $1,300 million under the RCF to partially finance thepurchase price payable in respect of Shire's acquisition of NPS Pharma(including certain related costs). The RCF, which terminates on December 12, 2019, may be applied towardsfinancing the general corporate purposes of Shire. The RCF incorporates a $250million US dollar and Euro swingline facility operating as a sub-limit thereof. The RCF became immediately available for general corporate purposes as outlinedabove, on satisfaction of certain customary conditions precedent including thecancellation of Shire's multicurrency term and revolving facilities agreementdated November 23, 2010 (the "2010 RCF") with a number of financialinstitutions, for which Abbey National Treasury Services PLC, Bank of AmericaMerrill Lynch International Limited (formerly Banc of America SecuritiesLimited), Barclays Bank PLC (formerly Barclays Capital), Citigroup GlobalMarkets Limited, Lloyds Bank PLC (formerly Lloyds TSB Bank PLC) and The RoyalBank of Scotland PLC acted as lead arrangers (the facilities under which atsuch time were undrawn). Interest on any loans made under the RCF will be payable on the last day ofeach interest period, which may be one week or one, two, three or six months atthe election of Shire, or as otherwise agreed with the lenders. The interestrate for the RCF will be: LIBOR (or, in relation to any revolving loan in Euro,EURIBOR); plus 0.30% per year until delivery of the first compliancecertificate required to be delivered after the date of the RCF, subject tochange thereafter depending upon (i) the prevailing ratio of Net Debt to EBITDA(each as defined in the RCF) in respect of the most recently completedfinancial year or financial half year and (ii) the occurrence and continuationof an event of default in respect of the financial covenants or the failure toprovide a compliance certificate. Shire shall also pay (i) a commitment fee equal to 35% per year of theapplicable margin on available commitments under the RCF for the availabilityperiod applicable thereto and (ii) a utilization fee equal to (a) 0.10% peryear of the aggregate of the amount requested by the borrower in a utilizationrequest (the "Base Currency Amount") of all outstanding loans up to anaggregate Base Currency Amount equal to $700 million, (b) 0.15% per year of theamount by which the aggregate Base Currency Amount of all outstanding loansexceeds $700 million but is equal to or less than $1,400 million and (c) 0.30%per year of the amount by which the aggregate Base Currency Amount of alloutstanding loans exceeds $1,400 million. The RCF includes customary representations and warranties, covenants and eventsof default, including requirements that Shire's (i) ratio of Net Debt to EBITDAin respect of the most recently-ended 12-month Relevant Period (each as definedin the RCF) must not, at any time, exceed 3.5:1 (except that, following anacquisition fulfilling certain criteria, Shire may on a once only basis electto increase this ratio to 4.0:1 for the Relevant Period in which theacquisition was completed and for that immediately following) and (ii) ratio ofEBITDA to Net Interest for the most recently-ended 12-month Relevant Period(each as defined in the RCF) must not be less than 4.0:1. The RCF restricts (subject to certain exceptions) Shire's ability to incuradditional financial indebtedness, grant security over its assets or provideloans/grant credit. Further, any lender may require mandatory prepayment of itsparticipation if there is a change of control of Shire, subject to certainexceptions for schemes of arrangement and analogous schemes. Events of default under the facilities include, among others: (i) non-payment of any amounts due under the Finance Documents (as defined inthe RCF), (ii) failure to satisfy any financial covenants, (iii) materialmisrepresentation in any of the Finance Documents, (iv) failure to pay, orcertain other defaults, under other financial indebtedness, (v) certaininsolvency events or proceedings, (vi) material adverse changes in thebusiness, operations, assets or financial condition of Shire as a whole, (vii)if it becomes unlawful for Shire (or any successor parent company) or any oftheir respective subsidiaries that are parties to the RCF to perform theirobligations thereunder or (viii) if Shire (or any successor parent company) orany subsidiary thereof which is a party to the RCF repudiates such agreement orother Finance Document. Term Loan Facilities Agreement 2015 Facilities Agreement On January 11, 2015, Shire entered into an $850 million Facility Agreementwith, among others, Citi Global Markets Limited (acting as mandated leadarranger and bookrunner) (the "2015 Facility Agreement"). The 2015 FacilityAgreement comprises a $850 million term loan facility. Shire has agreed to actas guarantor for any of its subsidiaries that are or become additionalborrowers under the 2015 Facility Agreement. The 2015 Facility agreement, which matures on January 10, 2016, may be usedonly to finance the purchase price payable in respect of Shire's acquisition ofNPS Pharma (including certain related costs). The maturity date may be extendedtwice, at Shire's option, by six months on each occasion. On February 23, 2015Shire requested the utilization of $850 million under the 2015 FacilitiesAgreement to partially finance the purchase price payable in respect of Shire'sproposed acquisition of NPS Pharma (including certain related costs). Interest on any loans made under the 2015 Facility Agreement will be payable onthe last day of each interest period, which may be one week or one, two, threeor six months at the election of Shire, or as otherwise agreed with thelenders. The interest rate applicable to the 2015 Facility Agreement is LIBORplus 0.50% per annum and increases by 0.25% per annum on six months after thedate of the agreement and on each subsequent date falling at three-monthintervals thereafter. Shire shall also pay a commitment fee on the available but unutilizedcommitments under the 2015 Facility Agreement for the availability periodapplicable to each facility. With effect from first utilization, the commitmentfee rate will be 35% of the applicable margin. Before first utilization, thecommitment fee rate will increase in stages from 0% to 35% of the applicablemargin over a period of three months. The 2015 Facility 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 2015 Facility Agreement)must not, at any time, exceed 3.5:1 for the Relevant Period (as defined in the2015 Facility Agreement), except that following certain acquisitions, includingthe merger with NPS Pharma, 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 2015 Facility Agreement) must not be less than 4.0:1. The 2015 Facility Agreement restricts (subject to certain exceptions) Shire'sability to incur additional financial indebtedness, grant security over itsassets or provide or guarantee loans. Further, any lender may require mandatoryprepayment of its participation if there is a change of control of Shire. Inaddition, in certain circumstances, the net proceeds of certain shares,undertakings or business disposals by Shire must be applied towards themandatory prepayment of the facility, subject to certain exceptions. Events of default under the facility include: (i) non-payment of any amountsdue under the facility, (ii) failure to satisfy any financial covenants, (iii)material misrepresentation in any of the finance documents, (iv) failure topay, or certain other defaults, under other financial indebtedness, (v) certaininsolvency 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 2015 Facility Agreement to perform their obligations or(viii) if Shire or any subsidiary of Shire which is a party to the 2015Facility Agreement repudiates the 2015 Facility Agreement or any other financedocument, among others. The 2015 Facility Agreement is governed by English law. 2013 Facilities Agreement On November 11, 2013, Shire entered into a $2,600 million facilities agreementwith, among others, Morgan Stanley Bank International Limited (acting as leadarranger and agent) (the "2013 Facilities Agreement"). The 2013 FacilitiesAgreement comprised two credit facilities: (i) a $1,750 million term loanfacility and (ii) a $850 million term loan facility. On December 13, 2013 and at various points during the year to December 31,2014, the Company cancelled part of the $2,600 million term loan facility. AtDecember 31, 2014 the 2013 Facilities Agreement comprised an $850 million termloan facility which matures on November 11, 2015 and was fully utilized. Allother terms and conditions remain unchanged. The $850 million term loan facility has been used to finance the purchase pricepayable in respect of Shire's acquisition of ViroPharma (including certainrelated 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. The interest rate applicable to the $850 million term loan facility commencedat LIBOR plus 1.15% per annum until delivery of the compliance certificate forthe year ending December 31, 2013 and is subject to change depending upon theprevailing ratio of Net Debt to EBITDA of the Group (each as defined in the2013 Facilities Agreement), in respect of the most recently completed financialyear or financial half year. The 2013 Facilities Agreement includes customary representations andwarranties, covenants and events of default, including requirements that theratio of Net Debt to EBITDA of Shire (each as defined in the 2013 FacilitiesAgreement) must not, at any time, exceed 3.5:1 for the Relevant Period (asdefined in the 2013 Facilities Agreement), except that following certainacquisitions, including the ViroPharma acquisition, Shire may elect to increasethe ratio to 4.0:1 in the relevant period in which the acquisition wascompleted and the immediately following relevant period. In addition, for each12-month period ending December 31 or June 30, the ratio of EBITDA of the Groupto Net Interest (each as defined in the 2013 Facilities Agreement) must not beless than 4.0:1. The 2013 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 require mandatoryprepayment of its participation if there is a change of control of Shire. Inaddition, in certain circumstances, the net proceeds of certain shares,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 2013 Facilities Agreement to perform their obligationsor (viii) if Shire or any subsidiary of Shire which is a party to the 2013Facilities Agreement repudiates the 2013 Facilities Agreement or any otherfinance document, among others. The 2013 Facilities Agreement is governed byEnglish 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, repayment of the term loans and milestone payments as they becomedue over the next twelve months. Shire's existing cash, the 2015 Facilities Agreement and the RCF are sufficientto finance the acquisition of NPS Pharma. If the Company decides to acquire other businesses, it expects to fund theseacquisitions from cash resources, the RCF, term loan facilities and through newborrowings or the issuance of new equity if necessary. Sources and uses of cash The following table provides an analysis of the Company's gross and net cash(excluding restricted cash), as at December 31, 2014 and 2013: 2014 2013December 31, $'M $'M __________ ___________ Cash and cash equivalents1 2,982.4 2,239.4 __________ __________ Short term borrowings (850.0) - Other debt (13.7) (8.9) __________ __________ Total debt (863.7) (8.9) __________ __________ Net cash2 2,118.7 2,230.5 __________ ___________ * Substantially all of the Company's cash and cash equivalents are held by foreign subsidiaries (i.e, those subsidiaries incorporated outside of Jersey, Channel Islands, the jurisdiction of incorporation of Shire plc, Shire's holding company). The amount of cash and cash equivalents held by foreign subsidiaries has not had, and is not expected to have, a material impact on the Company's liquidity and capital resources. * Net cash is a Non-GAAP measure. The Company believes that Net (debt)/cash is a useful measure as it indicates the level of net cash/borrowings after taking account the cash and cash equivalents that could be utilized to pay down the outstanding borrowings. Cash flow activity Net cash provided by operating activities for the year to December 31, 2014increased by $2,765.4 million or 189% to $4,228.4 million (2013: $1,463.0million) primarily due to the receipt of the $1,635.4 million break fee inrelation to AbbVie's terminated offer for Shire, the benefit of the $417million repayment received from the Canadian revenue authorities and highercash receipts from gross product sales, offset by payments for salesdeductions, payments of acquisition and integration costs in respect of theacquisitions of ViroPharma, Lumena and Fibrotech, costs in connection withAbbVie's terminated offer for Shire and cash payments in respect of the OneShire reorganization. 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). Net cash used in investing activities was $4,030.6 million in the year toDecember 31, 2014, principally relating to the cash paid for the acquisition ofViroPharma of $3,997 million (excluding cash acquired with ViroPharma of $233million) and for the acquisition of Lumena of $300 million (excluding cashacquired with Lumena of $46 million), offset by the proceeds received on thesale of non-core product rights. 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 provided by financing activities was $554.5 million for the year toDecember 31, 2014, principally due to the drawings, net of subsequentrepayments, made under the facilities to partially fund the ViroPharmaacquisition. In addition the Company paid cash of $551.4 million to settle theconvertible debt assumed with ViroPharma, received cash of $346.7 million uponsettlement of a purchased call option acquired with ViroPharma and madedividend payments of $121.2 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. Outstanding letters of credit At December 31, 2014, the Company had irrevocable standby letters of credit andguarantees with various banks totaling $46 million, providing security for theCompany's performance of various obligations. These obligations are primarilyin respect of the recoverability of insurance claims, lease obligations andsupply commitments. Cash requirements At December 31, 2014 the Company's cash requirements for short and long termliabilities reflected on the Balance Sheet and other contractual obligationswere as follows: Payments due by period Less than More than Total 1 year 1 - 3 3 - 5 5 years years years $'M $'M $'M $'M $'M _________ _________ _________ _________ _________ Short-term debt obligation 850.0 850.0 - - - Operating leases obligation 221.1 49.3 51.1 28.2 92.5(i) Purchase obligations (ii) 1,110.1 729.5 217.7 153.9 - Other long term liabilities 675.1 - 283.6 290.1 101.4reflected on the BalanceSheet (iii) _________ _________ _________ _________ _________ Total 2,847.3 1,628.8 552.4 472.2 193.9 _________ _________ _________ _________ _________ 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 $199.2 million are included within payments due in one to three years. In addition to the above contractual obligations, the Company is committed tomake milestone payments (principally arising from the in-licensing oracquisition of products, assets and businesses), contingent upon the occurrenceof future events (and therefore payment is not yet due). At December 31, 2014,the Company is contingently committed to pay up to approximately $1.4 billion(aggregate contractual amount) in respect of potential future research anddevelopment milestone payments and up to approximately $1.2 billion (aggregatecontractual amount) in respect of commercial milestones as a result of priorbusiness combinations and in-licensing agreements. Payments under theseagreements are generally due and payable only upon achievement of certaindevelopment, regulatory and commercial milestones. From a business perspective, these payments signify that the product issuccessfully moving through development and is now generating or is more likelyto generate cash flows from product sales. However, it is not possible topredict with reasonable certainty whether these milestones will be achieved orthe timing of their achievement. As a result, these potential payments are notincluded in the table of contractual obligations. On January 11, 2015 Shire also signed a definitive agreement to acquire all ofthe outstanding share capital of NPS Pharma for $46 per share in cash orapproximately $5.2 billion. This acquisition was completed on February 21,2015. This cash requirement did not exist as at December 31, 2014 and thereforeis not reflected in the table above. Off-balance sheet arrangements There are no off-balance sheet arrangements, aside from those outlined above,that have, or are reasonably likely to have, a current or future materialeffect on the Company's financial condition, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital 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, 2014of $136.1 million are reported within accumulated other comprehensive (loss)/income in the consolidated balance sheet and foreign exchange losses for theyear to December 31, 2014 of $15.6 million are reported in the consolidatedstatements of income. At December 31, 2014, the Company had outstanding swap and forward foreignexchange contracts to manage the currency risk associated with intercompanytransactions. At December 31, 2014 the fair value of these contracts was a netasset of $4.8 million. 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 $2,100 million RCF, its$850 million 2013 Facilities Agreement and its $850 million 2015 FacilitiesAgreement, on which interest is at floating rates, to the extent any of thesefacilities are utilized. At December 31, 2014 the RCF was undrawn, and theCompany had fully utilized $850 million of the 2013 Facilities Agreement.Shire's exposure under its $850 million 2013 Facilities Agreement is to USDollar interest rates. The Company has evaluated the interest rate risk on the RCF, the 2013Facilities Agreement and the 2015 Facilities Agreement and considers the risksassociated with floating interest rates on the instruments as appropriate. Ahypothetical one percentage point increase or decrease in the interest ratesapplicable to drawings under the 2013 Facilities Agreement at December 31, 2014would increase or decrease interest expense by approximately $8.5 million perannum. The Company is also exposed to interest rate risk on its 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. As the Company maintains all of its cash,liquid investments and foreign exchange contracts on a short term basis forliquidity purposes, this risk is not actively managed. In the year to December31, 2014 the average interest rate received on cash and liquid investments wasless than 1% per annum. The largest proportion of these cash and liquidinvestments was in US dollar money market and liquidity funds. No derivative instruments were entered into during the year to December 31,2014 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, 2014 the Company had 56 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, 2014 the potential effect of rights of set off associated withthe foreign exchange contracts would be an offset to both assets andliabilities of $4.2 million, resulting in net derivative assets and derivativeliabilities of $8.4 million and $3.6 million, respectively. Further details areincluded 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, 2014): Increase/(reduction) in Increase/(reduction) in revenues net income $M $M Euro (73) (46) Pound Sterling (16) (5) Swiss Franc - 6 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. Principal Value of Weighted Amount Average Fair Receivable Exchange Rate Value December 31, 2014 $'M $'M Swap foreign exchange contracts Receive USD/Pay EUR 364.7 1.24 10.5 Receive GBP/Pay USD 252.8 1.57 (2.1) Receive USD/Pay JPY 5.5 0.01 - Receive SEK/Pay USD 26.6 0.13 (1.3) Receive USD/Pay MXN 11.4 0.07 0.9 Receive CAD/Pay USD1 407.3 0.87 (3.4) Receive USD/Pay AUD 6.7 0.83 0.2 1 Relates to the repayments received from the Canadian revenue authorities in2014. 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 & 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, 2014 there were three customers in the US that accounted for 47%of the Company's global 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 a material adverseeffect on 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 global andnational economic conditions have negatively affected the growth,creditworthiness and general economic condition of certain markets in which theCompany operates. As a result, in some countries outside of US the Company isexperiencing delays in the remittance of receivables due from government-ownedor government-supported healthcare providers. In the year to December 31, 2014the Company continued to receive remittances in relation to government-owned orgovernment-supported healthcare providers, from all countries in which itoperates, including receipts of $98 million and $143 million in respect ofSpanish and Italian receivables, respectively. The Company's aggregate accounts receivable, net of the allowance for doubtfulaccounts, in total from government-owned or government-supported healthcareproviders in those territories in which the Company is experiencing the mostsignificant delays, being Argentina, Greece, Italy, Portugal and Spain(collectively the "Relevant Countries") are as follows: December 31, December 31, 2014 2013 $'M $'M Total accounts receivable, net in the 118 138Relevant Countries Total accounts receivable, net in the 11% 14%Relevant Countries as a percentage of totaloutstanding accounts receivable, net Accounts receivable, net due from 77 128government-owned or government-supportedhealthcare providers for the RelevantCountries Accounts receivable due from government-owned or government-supportedhealthcare providers in the Relevant Countries of $77 million (2013: $128million) are split by country as follows: Greece $4 million (2013: $4 million);Italy $30 million (2013: $59 million); Portugal $11 million (2013: $14million), Spain $15 million (2013: $39 million) and Argentina $17 million(2013: $12 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, 2014 received $311 million in settlement of accountsreceivable in the Relevant Countries - $7 million was from Greece; $143 millionfrom Italy; $14 million from Portugal, $98 million from Spain and $49 millionfrom Argentina. 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 credit risk outside of theRelevant 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 countries suffer significant deterioration, such that their ability tomake payments becomes uncertain, 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. 4. Principal risks and uncertainties Risk management framework As a highly regulated biopharmaceutical company with a keen patient focus,Shire has implemented policies and procedures intended to reduce risk and toensure appropriate and lawful conduct, including with respect to productdevelopment, manufacturing, marketing and distribution operations within theincreasing number of countries in which the Company operates. Success in theseareas is of benefit to shareholders and other stakeholders alike. Shire's riskmanagement strategy is to identify, assess and mitigate any significant risksthat it faces. Despite this, it should be noted that no risk managementstrategy can provide absolute assurance against loss. Board of Directors: The Board is responsible for determining the Group's risktolerance and for ensuring the maintenance of a sound system of internalcontrol and risk management. In fulfilling this responsibility, the Board setsShire's corporate risk culture; ensuring its dissemination throughout theorganisation. This is achieved through interaction with key stakeholders which,in turn, enables the Board to monitor the Group's risks as well as its riskmanagement and internal control systems; contributing to its annual review oftheir effectiveness. Stakeholders to the risk framework, which is overseen bythe Board and designed to manage and mitigate the Group's risks, include: > Audit, Compliance & Risk Committee: The Committee supports the Board by, on abiannual basis, reviewing and reporting on the principal risks faced by theCompany. These risks are assessed on their likelihood of materialisation andpotential impact and include those that would threaten the Company's businessmodel, future performance, solvency or liquidity. Moreover, alongside the Boardthe Committee monitors and reviews the risk management and internal controlsystems; ensuring oversight through its interaction with functionalstakeholders, through its review and challenge of key risk and controlprocesses and through its evaluation of key strategy updates from management. > Executive Committee: The Committee is responsible for ensuring theimplementation of the risk management and internal control infrastructure;overseeing its operation and ensuring it remains effective. Committee membersreceive regular updates from functional stakeholders and, along with the ChiefCompliance and Risk Officer and the Head of Internal Audit, are responsible forelevating matters to the Board and Audit, Compliance & Risk Committee asrequired. In addition, on a biannual basis the Committee validates anysignificant risks put forward by the Risk Council; identifying and puttingforward for review by the Audit, Compliance & Risk Committee those that havethe capacity to materially impact the Group's strategy. > Risk Council: The Risk Council comprises senior members of the Company'sbusiness units and corporate functions, including the Head of Internal Audit,and is chaired by the Chief Compliance and Risk Officer. The Council is chargedwith overseeing risk management at an operational level; ensuring that eachidentified risk is allocated an "owner" within the business who is responsiblefor related management and mitigation activities. As part of the biannual riskreview process the Council appraises risk schedules produced by individualbusiness units and corporate functions; validating and revising assessmentsmade and evaluating mitigation practices. A report is prepared for review bythe Executive Committee detailing all risks meeting a prescribed thresholdalong with recommendations on their mitigation. The Chief Compliance and RiskOfficer then presents these matters to the Audit, Compliance & Risk Committee;highlighting those risks of strategic importance to the Company. > Global Compliance and Risk Management Department: The Department, led by theChief Compliance and Risk Officer, is made up of compliance, privacy, corporatesecurity and risk management, and Health, Safety & Environment sub-teams. It isresponsible for supporting the development, implementation and maintenance ofeffective compliance and risk management systems. This is achieved throughpolicy development, the delivery of training programs and communications, andthrough ongoing monitoring of compliance and risk-assessed activity, withfollow-up investigation undertaken where necessary. Such activity provides forthe timely undertaking of mitigation and/or remediation actions, as well forthe escalation of matters to the Audit, Compliance & Risk ("ACR") Committee andto the Board as appropriate. In addition, the Chief Compliance and Risk Officerprovides regular updates to the ACR Committee on all matters falling with theDepartment's remit. > Chief Compliance and Risk Officer: The Chief Compliance and Risk Officer isresponsible for the global compliance program and for coordinating oversight ofrisk mitigation activity through the Enterprise Risk Management process. Inaddition to maintaining relationships with assurance functions outside of theGlobal Compliance and Risk Management Department, the Chief Compliance and RiskOfficer has direct access to the Board and the Audit, Compliance & Risk ("ACR")Committee; providing an independent mechanism of escalation, should the needarise. The Chief Compliance and Risk Officer provides twice-yearly updates tothe ACR Committee in respect of risk and risk mitigation review, as well asongoing compliance monitoring and investigation. > Internal Audit: The Internal Audit function provides independent assurance tothe Audit, Compliance & Risk Committee with respect to the operation of theinternal control and risk management systems. > Business units and corporate Functions: Business units and corporatefunctions are responsible for implementing risk management processes andestablishing internal controls within their respective organizations inaccordance with a centrally approved framework. In addition, each produces aschedule of material risks and associated mitigation plans as part of theGroup's biannual review process for submission to the Risk Council. Risk factors Set out below are the key risk factors associated with the business that havebeen identified through the Company's approach to risk management. Some ofthese risk factors are specific to the Company and others are more generallyapplicable to the pharmaceutical industry or specific markets in which theCompany operates. The Company believes 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 pricesof competitor products are reduced significantly; > if there are unanticipated adverse events experienced with the Company'sproducts or those of a competitor's product not seen in clinical trials thatimpact physicians' willingness to prescribe the Company's products; > if issues arise from clinical trials being conducted for post- marketingpurposes or for registration in another country which raise questions orconcerns about a product; > if the regulatory agencies in one country act in a way that raises concernsfor regulatory agencies or for prescribers or patients in another country; > if patients, payers or physicians favor other treatments over the Company'sproducts; > if the Company's products are subject to more stringent government regulationthan competitor products; > if patent protection or other forms of exclusivity are lost or curtailed, orif competitors are able to successfully challenge or circumvent the Company'spatents or other forms of exclusivity (see Note 19, "Commitments andContingencies, Legal and other proceedings" to the consolidated financialstatements); > if launches of the Company's products in new markets are not successful; > if the sizes of the patient populations for the Company's products are lessthan expected; > if there are lawsuits filed against Shire, including but not limited to,product liability claims, consumer law claims, and payer or reimbursementlitigation; or > if the Company is unable to commercialize its products successfully, theremay be a material adverse effect on the Company's revenues, financial conditionor results of operations. Product sales from ADDERALL XR and INTUNIV are subject to generic competition. 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 also continues to sell the branded version of ADDERALLXR. Actavis makes and markets its own generic versions of ADDERALL 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' generic versions of INTUNIV in the United States onDecember 1, 2014. All other parties with whom Shire has settled will be able toenter the market with their respective ANDA-approved products after Actavis'180 day exclusivity period has expired. Product sales from INTUNIV have declined as a result of the December 2014launch of Actavis' generic versions of INTUNIV and are expected to declinefurther following the anticipated launches of generic versions of INTUNIV byother companies after Actavis' 180 day exclusivity period expires. Factors which could cause further or more rapid decline in ADDERALL XR andINTUNIV product sales include: > generic or authorized generic versions of these products capture more ofShire's branded market share than expected; > the FDA approves additional ANDAs for generic versions of these productswhich, if launched, further reduce branded market share or impact the amount ofShire's authorized generic product sales; > the production of branded ADDERALL XR is disrupted by difficulties inobtaining a sufficient supply of amphetamine salts including, but not limitedto, an inability to obtain sufficient quota from the DEA; > there are changes in reimbursement policies of third-party payers; or > there are changes to the level of sales deductions for branded ADDERALL XR orbranded INTUNIV for private or public payers. The failure to obtain and maintain reimbursement, or an adequate level ofreimbursement, by third-party payers in a timely manner for the Company'sproducts may affect 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/orrequirements for additional price concessions mandated or negotiated by managedhealth care organizations or government authorities; > legislative proposals to reform health care and government insurance programsin many of the Company's markets; and > price controls, unsuccessful government tenders, or non-reimbursement of newmedicines 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 diseases. The Company mayencounter 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 itsproducts and is reliant on third party contract manufacturers to manufactureother products and to provide goods and services. Some of the Company'sproducts or ingredients are only available from a single approved source formanufacture. Any disruption to the supply chain for any of the Company'sproducts may result in the Company being unable to continue marketing ordeveloping a product or may result in the Company being unable to do so on acommercially viable basis for some period of time. Although the Company dual-sources certain key products and/ or activeingredients, the Company currently relies on a single source for production ofthe final drug product for each of ADDERALL XR, CINRYZE, FIRAZYR, FOSRENOL®,INTUNIV, LIALDA and PENTASA, the Company currently relies on a single activeingredient source for each of ELAPRASE, FIRAZYR, FOSRENOL, INTUNIV and REPLAGALand also relies on limited third party sources to provide the donated humanplasma necessary for the manufacture of CINRYZE. Following the completion ofthe acquisition of NPS Pharma in the first quarter of 2015, Shire has acquiredGATTEX®/REVESTIVE®, which currently relies on a single active ingredient sourceand NATPARA®/NATPAR®, which currently relies on a single source for bothproduction of the final drug product and supply of the active ingredient. 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 manufacture of the Company's products is subject to extensive oversight byvarious regulatory agencies. Regulatory approvals or interventions associatedwith changes to manufacturing sites, ingredients or manufacturing processescould lead to significant delays, an increase in operating costs, lost productsales, an interruption of research activities or the delay of new productlaunches. 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 microbial contamination. Additionally, CINRYZEis 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 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 Company has a portfolio of products in various stages of research anddevelopment. The successful development of these products is highly uncertainand requires significant expenditures and time, and there is no guarantee thatthese products will receive regulatory approval. 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 orefficacy; > delays may be caused by slow enrolment in clinical studies; regulatoryrequirements for clinical trial drug supplies; extended length of time toachieve study endpoints; additional time requirements for data analysis ordossier preparation; time required for discussions with regulatory agencies,including regulatory agency requests for additional preclinical or clinicaldata; delays at regulatory agencies due to staffing or resource limitations;analysis of or changes to study design; unexpected safety, efficacy, ormanufacturing issues; delays may arise from shared control with collaborativepartners in the planning and execution of the product development, scaling ofthe manufacturing process, or getting approval for manufacturing; > manufacturing issues, pricing or reimbursement issues, or other factors mayrender the product economically unviable; > the proprietary rights of others and their competing products andtechnologies may prevent the product from being developed or commercialized; or > submission of an application for regulatory approval of any of the Company'sproduct candidates may be subjected to lengthy review and ultimately rejected. 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.Moreover, once an application is submitted, additional data may be sought byregulators or an application may be rejected. If the Company's large-scale orlate-stage clinical trials for a product are not successful, the Company willnot recover its substantial investments in that product. The Company has arange of programs in late stage clinical development. For example, in Phase 3,SHP606 is being developed for the treatment of DED and SHP465 is beingdeveloped for the treatment of ADHD in adults. 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 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 affect 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 2014, for example, 47% of the Company's product saleswere attributable to three customers in the US: McKesson Corp., CardinalHealth, Inc and AmerisourceBergen Drug Corp. In the event of financial failureof any 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 diseases are concentrated within a small number ofcustomers. 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 sale, 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, "Commitments and Contingencies, Legal and otherproceedings" 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 of alegal nature that might arise is extremely broad but could include, withoutlimitation, intellectual property claims and disputes, product liability claimsand disputes, regulatory litigation, contract claims and disputes, employmentclaims and disputes, and tax or other governmental agency 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 defensecosts, 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, "Commitments andContingencies, Legal and other proceedings" to the consolidated financialstatements. The Company faces intense competition for highly qualified personnel from othercompanies and organizations. The Company is undergoing a corporatereorganization and was the subject of an unsuccessful acquisition proposal andthe consequent uncertainty could adversely affect the Company's ability toattract and/or retain the highly skilled personnel needed for the Company tomeet its strategic 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 and streamlineoperations through two principal locations, Massachusetts and Switzerland,involves changes to, and geographic relocation of, certain skilled roles. Theunsuccessful proposed acquisition of the Company by AbbVie in 2014 createduncertainty in the employee population which could lead to further loss ofcertain skilled employees. If the Company is unable to retain key personnel orattract new personnel with the requisite skills and experience, it couldadversely affect the implementation of the Company's strategic objectives andultimately adversely impact the Company's revenues, financial condition orresults of operations. Failure to achieve the Company's strategic objectives with respect to theacquisition of NPS Pharma may adversely affect the Company's financialcondition and results of operations. On February 21, 2015, Shire completed the acquisition of NPS Pharma for a totalcash consideration of approximately $5.2 billion. The acquisition entails various risks, which, if they materialize, mayadversely impact Shire's revenues, financial condition or results ofoperations. These risks include but are not limited to: > failure to achieve the targeted growth and expected benefits of theacquisition if sales of NPS Pharma products, including GATTEX/REVESTIVE, arelower than anticipated; > failure to successfully commercialize NPS Pharma's compound NATPARA/NATPAR inthe US or to obtain regulatory approval in the EU; > difficulties in integrating NPS Pharma into Shire may lead to the combinedcompany not being able to realize the expected operating efficiencies, costsavings, revenue enhancements, synergies or other benefits in the timeframeanticipated, or at all; > undiscovered or unanticipated risks and liabilities, including legal andcompliance related liabilities, may emerge after closing the acquisition or maybe higher than anticipated; > the Company may be unable to retain key NPS Pharma personnel; > the Company may not be able to retain the existing customers, suppliers andother business partners of NPS Pharma or attract new customers; and > the business of NPS Pharma may be otherwise disrupted by the acquisition,including increased costs and diversion of management time and resources. Any failure to achieve the Company's strategic objectives with respect to theNPS Pharma 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 economic instability of countries inwhich the Company does business, could have negative consequences for theCompany's business and increase the risk of non-payment by the Company'scustomers. 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, couldresult in national governments making significant cuts to their publicspending, including national healthcare budgets, or reducing the level ofreimbursement they are willing and able to provide to the Company for itsproducts and, as a result, adversely affect the Company's revenues, financialcondition or results of operations. A slowdown of a nation's economy could also lead to financial difficulties forsome of the Company's significant customers, including national governments,and result in a greater risk of delayed payments, defaults or non-payments ofoutstanding payment obligations by the Company's customers in that country,which could adversely affect the Company's revenues, financial condition orresults of operations. The Company is subject to evolving and complex tax laws, which may result inadditional liabilities that may adversely affect the Company's financialcondition or results of operations. The Company is subject to evolving and complex tax laws in the jurisdictions inwhich it operates, and routinely obtains advice on matters, including the taxtreatment of the break fee received in connection with AbbVie's terminatedoffer for Shire in the current accounting period. Significant judgment isrequired in determining the Company's tax liabilities, and the Company's taxreturns are periodically examined by various tax authorities. The Companyregularly assesses the likelihood of outcomes resulting from these examinationsto determine the adequacy of its accrual for tax contingencies; however, due tothe complexity of tax contingencies, the ultimate resolution of any tax mattersmay result in payments greater or less than amounts accrued. In addition, theCompany may be affected by changes in tax laws, including tax rate changes, newtax laws, and revised tax law interpretations in domestic and foreignjurisdictions. 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 Company, 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. For details of currentintellectual property litigation, see Note 19, "Commitments and Contingencies,Legal and other proceedings" to the consolidated financial statements. 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 faces significant competitionfrom large pharmaceutical and biotechnology companies, many of whom havesubstantially greater resources than the Company. In addition, many of theCompany's competitors have more products and have operated longer in the fieldsin which the Company competes. A number of companies are pursuing thedevelopment of technologies which compete with the Company's existing productsor research programs. These competitors include specialized pharmaceuticalfirms and large pharmaceutical companies acting either independently ortogether with other pharmaceutical companies. Furthermore, academicinstitutions, government agencies and other public and private organizationsconducting research may seek patent protection and may establish collaborativearrangements for competitive products or programs. As a result of thiscompetition the Company's products could be rendered obsolete or uneconomic orlose market share following the development of new products, new methods oftreatment, or technological advances in manufacturing or production bycompetitors which could adversely affect the Company's revenues, financialcondition, and results of operations. 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 and medical devices entails arisk of product liability claims, product recalls, litigation and associatedadverse publicity. The cost of defending against such claims is expensive evenwhen the claims are not merited. A successful product liability claim againstthe Company could require the Company to pay a substantial monetary award. If,in the absence of adequate insurance coverage, the Company does not havesufficient financial resources to satisfy a liability resulting from such aclaim or to fund the legal defense of such a claim, it could become insolvent.Product liability insurance coverage is expensive, difficult to obtain and maynot be available in the future on acceptable terms. Although the Companycarries product liability insurance when available, this coverage may not beadequate. In addition, it cannot be certain that insurance coverage for presentor future products will be available. Moreover, an adverse judgment in aproduct liability suit, even if insured or eventually overturned on appeal,could generate substantial negative publicity about the Company's products andbusiness and inhibit or prevent commercialization of other products. 5. Directors' responsibility statement 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 106 of the 2014 Annual Report. These responsibilities are for the full 2014 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 the accounting principles generally accepted in the United States of America, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; * 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 Group's performance, business model and strategy. Approved by the Board and signed on its behalf by: Dr. Flemming OrnskovChief Executive OfficerFebruary 24, 2015 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) AGRYLIN® (anagrelide hydrochloride) BUCCOLAM® (midazolam hydrochloride oromucosal solution) CALCICHEW® (trademark of Takeda Nycomed AS) CARBATROL® (carbamazepine extended-release capsules) CINRYZE® (C1 esterase inhibitor [human]) CONCERTA® (trademark of Alza Corporation) DAYTRANA® (trademark of Noven Pharmaceutical Inc.) DERMAGRAFT® (trademark of Organogenesis Inc.) ELAPRASE® (idursulfase) ELVANSE® (lisdexamfetamine dimesylate) ESTRACE® (trademark of Trimel Pharmaceuticals Inc.) EXPUTEX® (trademark of Phoenix Labs) FIRAZYR® (icatibant) FOSRENOL® (lanthanum carbonate) GATTEX® (teduglutide recombinant) INTUNIV® (guanfacine extended release) LIALDA® (trademark of Nogra International Limited) MEZAVANT® (trademark of Giuliani International Limited) NATPAR® (parathyroid hormone (rDNA)) NATPARA® (parathyroid hormone) PENTASA® (trademark of Ferring B.V. Corp) PLENADREN® (hydrocortisone, modified release tablet) PREMIPLEX® (IGF-I/IGFBP-3) REMINYL® (galantamine hydrobromide) (United Kingdom ("UK") and Republic ofIreland) (trademark of Johnson & Johnson ("J&J")), excluding UK and Republic ofIreland) REPLAGAL® (agalsidase alfa) RESOLOR® (prucalopride) REVESTIVE® (teduglutide) TYVENSE® (lisdexamfetamine dimesylate) VASCUGEL® (allogeneic aortic endothelial cells cultured in a porcine gelatinmatrix [Gelfoam®] with cytokines, implanted) VANCOCIN® (trademark of ANI Pharmaceuticals Inc.) VPRIV® (velaglucerase alfa) VYVANSE® (lisdexamfetamine dimesylate) XAGRID® (anagrelide hydrochloride) ZEFFIX® (trademark of GlaxoSmithKline ("GSK")) 3TC® (trademark of GSK) Product sales growth including CINRYZE product sales acquired in January 2014with ViroPharma. 2013 CINRYZE product sales reported by ViroPharma. IMS SFSS Attribute Ranking Table Study. This is a Non GAAP financial measure. For reconciliation to US GAAP please seepage 166 to the 2014 Annual Report. Hudson JI, Hiripi E, Pope HG, Kessler RC. The prevalence and correlates ofeating disorder in the National Comorbidity Survey Replication. BiolPsychiatry. 2007;61(3):348-358. Erratum in Biol Psychiatry. 2012;72(2):164 andHowden LM, et al. Age and sex composition: 2010. US Census Bureau; 2011. 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. 2013 CINRYZE sales were recorded by ViroPharma prior to acquisition ofViroPharma by Shire. 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. 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.