21st Aug 2009 16:28
Half Yearly Report
August 21, 2009 - In order to meet its obligations under the Disclosure Rules and Transparency Rules of the United Kingdom Financial Services Authority, Shire plc ("Shire" or the "Group") is publishing today its Half Yearly Report for the six months ended June 30, 2009.
It should be noted that on August 5, 2009 Shire previously announced its results in respect of the same period.
For further information please contact:
Investor Relations Clea Rosenfeld (Rest of the World) +44 1256 894 160 Eric Rojas (North America) +1 617 551 9715 Media Jessica Mann (Rest of the World) +44 1256 894 280 Matthew Cabrey (North America) +1 484 595 8248 Jessica Cotrone (North America) +1 617 613 4640Notes to editorsSHIRE PLCShire's strategic goal is to become the leading specialty biopharmaceuticalcompany that focuses on meeting the needs of the specialist physician. Shirefocuses its business on attention deficit and hyperactivity disorder (ADHD),human genetic therapies (HGT) and gastrointestinal (GI) diseases as well asopportunities in other therapeutic areas to the extent they arise throughacquisitions. Shire's in-licensing, merger and acquisition efforts are focusedon products in specialist markets with strong intellectual property protectionand global rights. Shire believes that a carefully selected and balancedportfolio of products with strategically aligned and relatively small-scalesales forces will deliver strong results.
For further information on Shire or to view this Half Yearly Report, please visit Shire's website: www.shire.com
SHIRE PLC Half Yearly Report 2009 CONTENTS Page
The "safe harbor" statement under the Private Securities Litigation 4
Reform Act of 1995
Chief Executive Officer's review 5 Business overview for the six months to June 30, 2009 6 Results of operations for the six months to June 30, 2009 and 2008 11 Principal Risks and Uncertainties 18 Directors' Responsibility statement 19 Unaudited consolidated balance sheets at June 30, 2009 and December 20
31, 2008
Unaudited consolidated statements of income for the six months to 22 June 30, 2009 and June 30, 2008 Unaudited consolidated statement of changes in equity for the six 24
months to June 30, 2009
Unaudited consolidated statement of comprehensive income for the six 25 months to June 30, 2009 and June 30, 2008 Unaudited consolidated statement of cash flows for the six months to 26 June 30, 2009 and June 30, 2008 Notes to the unaudited consolidated financial statements 28 Independent review report to Shire plc 48
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 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, the Group's results could be materially adverselyaffected. The risks and uncertainties include, but are not limited to, risksassociated with: the inherent uncertainty of research, development, approval,reimbursement, manufacturing and commercialization of the Group's SpecialtyPharmaceutical and Human Genetic Therapies products, as well as the ability tosecure and integrate new products for commercialization and/or development;government regulation of the Group's products; the Group's ability tomanufacture its products in sufficient quantities to meet demand; the impact ofcompetitive therapies on the Group's products; the Group's ability to register,maintain and enforce patents and other intellectual property rights relating toits products; the Group's ability to obtain and maintain government and otherthird-party reimbursement for its products; and other risks and uncertaintiesdetailed from time to time in Shire plc's filings with the Securities andExchange Commission, including the Group's Annual Report on Form 10-K for theyear ended December 31, 2008.
The following are trademarks either owned or licensed by Shire plc or its subsidiaries which are the subject of trademark registrations in certain territories, or which are owned by third parties as indicated and referred to in this Half Yearly Report:
Shire Product Active ingredient ADDERALL(R) XR (mixed salts of a single-entity amphetamine) AMIGAL(TM) (migalastat hydrochloride) (trademark of Amicus Therapeutics, Inc. ("Amicus"))
CALCICHEW(R) range (calcium carbonate with or without vitamin D3)
CARBATROL(R) (carbamazepine - extended-release capsules) DAYTRANA(R) (methylphenidate transdermal system) ELAPRASE(R) (idursulfase) EQUASYM(R) IR (methylphenidate hydrochloride) (trademark of UCB S.A. ("UCB")) EQUASYM(R) XL (methylphenidate hydrochloride) (trademark of UCB) FIRAZYR(R) (icatibant) FOSRENOL(R) (lanthanum carbonate) INTUNIV(TM) (guanfacine - extended release) JUVISTA(R) (human TGFb3) (trademark of Renovo Limited ("Renovo")) LIALDA(R) (mesalamine) MEZAVANT(R) (mesalazine) PENTASA(R) (mesalamine) (trademark of Ferring A/S Corp) PLICERA(TM) (isofagomine tartrate) (trademark of Amicus) RAZADYNE(R) (galantamine) (trademark of Johnson & Johnson ("J&J")) RAZADYNE(R) ER (galantamine) (trademark of J&J) REMINYL(R) (galantamine hydrobromide) (UK and Republic of Ireland) REMINYL(R) (galantamine hydrobromide) (trademark of J&J, excluding UK and Republic of Ireland) REMINYL XL(TM) (galantamine) (UK and Republic of Ireland) REMINYL XL(TM) (galantamine) (trademark of J&J, excluding UK and Republic of Ireland) REPLAGAL(R) (agalsidase alfa) SEASONIQUE(R) (trademark of Barr Laboratories, Inc. ("Barr")) VYVANSE(R) (lisdexamfetamine dimesylate) XAGRID(TM) (anagrelide hydrochloride) ZEFFIX(R) (lamivudine) (trademark of GlaxoSmithKline ("GSK")) 3TC(R) (lamivudine) (trademark of GSK) CHIEF EXECUTIVE OFFICER'S REVIEW "We are pleased to enclose our financial results for the six-month period endedJune 30, 2009. This half yearly report includes consolidated financialstatements prepared in accordance with generally accepted accounting principlesin the United States of America (US GAAP).In the first half we delivered strong core product sales, excluding ADDERALLXR, of $951 million, representing growth of 22% compared to the same periodlast year. The strategic steps we have taken over the last few years are nowdelivering commercial benefits, as we enter a new phase of Shire's development.
We have diversified into a broader portfolio of young products with strong intellectual property and exciting growth prospects. We continue to increase the global reach of our business, and now have a presence in 26 countries worldwide compared to nine countries four years ago.
We have also developed a promising pipeline with encouraging recent news. Withthe receipt of a Complete Response Letter from the US Food and DrugAdministration ("FDA") for INTUNIV, we are confident that we will quickly cometo agreement on the final wording of the product label and will launch in thefourth quarter of 2009 as planned. We are also initiating Phase 2 pilotclinical trials to assess the efficacy and safety of VYVANSE in non ADHD("Attention Deficit Hyperactivity Disorder") indications. Our HGT pipeline hasbeen strengthened by positive results from our trial of velaglucerase in naiveGaucher patients. A treatment protocol for early access has been approved bythe FDA and the agency has approved Fast Track designation for the product.Rolling review of the New Drug Application ("NDA") has started.Our core portfolio has made good progress in the half year. We are pleased withthe performance of VYVANSE as it has retained market share during thehistorically quieter summer vacation season in contrast to other branded ADHDtreatments that have lost market share. We are anticipating the benefits of theback to school season for VYVANSE and are looking forward to increased salesmomentum from our co-promote agreement with GSK for adult ADHD. We are alsoexpecting further positive newsflow from our pipeline during the second half ofthis year.Supported by pro-active cost management, our business is well placed to deliveron our unchanged guidance framework for 2009 and looking ahead we reiterate ouraspiration of growing sales in the mid-teens range on average between 2009
and2015."Angus RussellChief Executive Officer
BUSINESS OVERVIEW FOR THE SIX MONTHS TO JUNE 30, 2009
The following discussion should be read in conjunction with Shire plc's and itssubsidiaries (collectively "Shire" or "the Group") unaudited consolidatedfinancial statements and related notes appearing elsewhere in this Half YearlyReport.Overview
Shire's strategic goal is to become the leading specialty biopharmaceuticalcompany that focuses on meeting the needs of the specialist physician. Shirefocuses its business on ADHD, human genetic therapies ("HGT") andgastrointestinal ("GI") diseases as well as opportunities in other therapeuticareas to the extent they arise through acquisitions. Shire's in-licensing,merger and acquisition efforts are focused on products in specialist marketswith strong intellectual property protection and global rights. Shire believesthat a carefully selected and balanced portfolio of products with strategicallyaligned and relatively small-scale sales forces will deliver strong results.
Recent developments
INTUNIV - for the treatment of ADHD in children and adolescents in the US
The Prescription Drug User Fee Act ("PDUFA") date for INTUNIV was July 27,2009. Shire has received a Complete Response Letter from the FDA for INTUNIV. Shire and the FDA were not able to reach agreement on final product labeling intime to meet the PDUFA date. The FDA did not identify safety concerns regardingINTUNIV, request new clinical data or additional analyses in the CompleteResponse Letter. Shire and the FDA will continue to work together to resolvethe remaining labeling language over the next four to eight weeks and weanticipate launch in the fourth quarter of 2009 as planned.
Velaglucerase alfa - for the treatment of Gaucher Disease
On July 16, 2009 Shire announced that it had received Fast Track designationfrom the FDA for velaglucerase alfa, its enzyme replacement therapy indevelopment for the treatment of Gaucher disease. On July 30, Shire began therolling submission of a NDA for velaglucerase alfa to treat patients with Type1 Gaucher disease. Fast Track is a process which expedites the review of drugsto treat serious diseases and fill an unmet medical need with the goal ofgetting important new treatments to patients earlier. Shire will fileadditional sections of the NDA as they become available. Results from the firstof the three Phase 3 trials were positive, and achieved statisticallysignificant improvements in the primary endpoint. Velaglucerase alfa was alsofound to be well tolerated with no drug related serious adverse events reportedin this trial.On August 3, 2009 Shire announced that it had received approval from the FDA onthe initiation of a treatment protocol for velaglucerase alfa. This protocolwas submitted at the request of the FDA, in view of a potential restriction onthe availability of the current approved and marketed treatment for Gaucherdisease patients. This will allow physicians to treat Gaucher disease patientswith velaglucerase alfa ahead of commercial availability in the US. Under theconditions of the treatment protocol, Shire will provide velaglucerase alfafree of charge initially, in order to provide access to patients as quickly aspossible.
Significant events in the six months to June 30, 2009
Products
VYVANSE
On March 31, 2009 Shire announced a co-promotion agreement with GlaxoSmithKlineplc ("GSK") for VYVANSE with the aim of improving recognition and treatment ofADHD in adults. The three year agreement covers the US and will more thandouble the reach and frequency of the current sales effort for VYVANSE. On May1, 2009 Shire and GSK commenced working together on the co-promotion ofVYVANSE.On June 1, 2009 Shire announced that the FDA had approved a change to theprescribing information for VYVANSE, to include supplemental data thatdemonstrated significant ADHD symptom control in children aged 6 to 12 from thefirst time point measured (1.5 hours) through 13 hours post-dose. VYVANSE isnow the first and only oral ADHD stimulant treatment to have 13-hour post-doseefficacy data for pediatric patients included in its product labeling.
By July 24, 2009 VYVANSE had achieved a US ADHD market share of 12.3% based on weekly prescription volumes.
Acquisition of EQUASYM IR and XL
On March 31, 2009 Shire completed the acquisition from UCB of the worldwiderights (excluding the US, Canada and Barbados) to the currently marketedproducts EQUASYM IR and XL used for the treatment of ADHD. Shire made a paymentof EUR55 million on completion of the acquisition and small milestone paymentsmay become due in 2009 and 2010 if certain targets are met. This acquisitionwill broaden the scope of Shire's ADHD portfolio and will facilitate immediateaccess to the European ADHD market as well as providing a platform to enteradditional world markets.
FOSRENOL
On March 11, 2009 FOSRENOL was launched in Japan through Shire's partner BayerYakuhin Ltd ("Bayer"). Shire will receive a double digit royalty on Bayer's netsales of FOSRENOL, which will be recorded by Shire as royalty income withinrevenues.
LIALDA
On January 16, 2009 Shire announced that it had entered into a license agreement with Mochida Pharmaceutical Co., Ltd to develop and sell LIALDA in Japan.
As of March 31, 2009, Shire terminated the agreement with Takeda Pharmaceuticals North America, Inc., successor to TAP Pharmaceutical Products, Inc., for the co-promotion of LIALDA in the US.
ADDERALL XR
On April 2, 2009 Teva announced that it had commenced commercial shipment ofits authorized generic version of ADDERALL XR. In the three months to June 30,2009 sales of ADDERALL XR declined by 77% to $67.4 million. A decline inADDERALL XR sales subsequent to generic launch was anticipated.
Business highlights
Divestment of investment in Virochem
On March 12, 2009 Shire plc completed the disposal of its minority equityinvestment in Virochem Pharma Inc. ("Virochem") to Vertex Pharmaceuticals Inc.("Vertex") in a cash and stock transaction. Shire received total considerationof $19 million in cash and two million Vertex shares from the disposal,recognizing a gain of $55 million in Q1 2009. A further gain of up to $8million may be recognized in 2010 pending the release from escrow of cash andstock consideration held as collateral for warranties made on disposal.
Agreement to Terminate Development of Women's Health Products
As previously disclosed in Shire's Annual Report for the year ended December31, 2008, on February 24, 2009 Shire and Duramed Pharmaceuticals ("Duramed"), asubsidiary of Teva Pharmaceutical Industries Ltd ("Teva"), amended the licenseand development agreement for the Women's Health products, following whichShire returned its rights under the agreement effective February 24, 2009 andthe agreement will terminate on December 31, 2009. Shire has recorded a chargeof $65 million in Q1 2009 to reflect the cash payment made in Q1 2009 and othertermination related costs. At December 31, 2008 Shire's maximum futurereimbursement for Duramed incurred development expenses was $96 million, seeNote 3 to the unaudited consolidated financial statements for further details.
Owings Mills Manufacturing Facility
After a comprehensive evaluation of its operations and strategic focus, Shirehas decided to phase out operations at its Specialty Pharmaceuticalsmanufacturing facility at Owings Mills, Maryland. Over the next three years,all products currently manufactured by Shire at this site will transition toDSM Pharmaceutical Products, and operations and employee numbers at the sitewill wind down over this period. The cash costs that will be incurred as partof this re-organization are estimated to be $30 million, of which up to $15million will be accounted for in 2009, see Note 5 to the unaudited consolidatedfinancial statements for further details.
Research and development
Products in registration June 30, 2009
FOSRENOL for the treatment of pre-dialysis chronic kidney disease ("CKD")
Shire is continuing to explore the regulatory pathway required to secure a label extension for FOSRENOL to treat hyperphosphataemia in CKD.
INTUNIV for ADHD in children and adolescents in the US
On May 19, 2009 Shire announced that a randomized placebo controlled trial hadmet its primary objective, evaluating the effects of INTUNIV on oppositionalsymptoms in children aged 6 to 12 years with a diagnosis of ADHD and thepresence of oppositional symptoms.The PDUFA date for INTUNIV was July 27, 2009. Shire has received a CompleteResponse Letter from the FDA for INTUNIV. Shire and the FDA were not able toreach agreement on final product labeling in time to meet the PDUFA date. TheFDA did not identify safety concerns regarding INTUNIV, request new clinicaldata or additional analyses in the Complete Response Letter. Shire and the FDAwill continue to work together to resolve the remaining labeling language overthe next four to eight weeks and we anticipate launch in the fourth quarter
of2009 as planned.DAYTRANA for ADHD in Canada
Regulatory submissions were filed for approval of the product with Health Canada in November 2007. Review is ongoing.
On March 11, 2009 Shire withdrew the European Marketing AuthorizationApplication ("MAA") for DAYTRANA for the treatment of ADHD. The withdrawal ofthe European MAA does not impact Shire's commitment to DAYTRANA in the US wherethe product has been used as a pediatric treatment for ADHD since 2006.
Products in clinical development as at June 30, 2009
Phase 3
VYVANSE for ADHD in Europe
Shire plans to submit the regulatory filing for VYVANSE in Europe for the treatment of ADHD in children aged 6 to 17 in 2010.
INTUNIV for use in combination with other ADHD treatments
Phase 3 trials in the US are ongoing to support the efficacy and safety of INTUNIV when combined with other approved ADHD treatments.
LIALDA/MEZAVANT for the maintenance of remission in ulcerative colitis in the US
Phase 3 trials investigating the use of the product to maintain remission inpatients who have ulcerative colitis were initiated in 2006 and are continuing.The product was given this indication on approval in the EU.
LIALDA/MEZAVANT for the treatment of diverticulitis
Phase 3 worldwide clinical trials investigating the use of the product for the treatment of diverticulitis were initiated in 2007 and are continuing.
JUVISTA for the improvement of scar appearance
Renovo initiated its first pivotal European Phase 3 trial in scar revision inthe fourth quarter of 2008 to support the filing of a European regulatorydossier. If the outcome from Renovo's multi centre, EU Phase 3 study issuitably positive, the data will be used to inform the strategy and design ofShire's US development plan and to strengthen the chances of regulatory andcommercial success in the US.
FIRAZYR for hereditary angioedema ("HAE") in the US
Prior to Shire's acquisition, in April 2008 Jerini received a not approvableletter for FIRAZYR for use in the US from the FDA. In December 2008 Jerini metwith the FDA to discuss the development of FIRAZYR. It was agreed that anadditional clinical study would be required before approval could be consideredand that a complete response to the not approvable letter would be filed aftercompletion of this study.In June 2009, Shire initiated a Phase 3 study in patients with acute attacks ofHAE, known as the FAST-3 trial, which is designed to support filing of a NDAfor FIRAZYR in the US.
Velaglucerase alfa for the treatment of Gaucher Disease
Shire has completed all three Phase 3 clinical trials for the worldwide programfor velaglucerase alfa, an enzyme replacement therapy being developed for thetreatment of Gaucher Disease. This comprehensive development program includesthe evaluation of velaglucerase alfa in naive patients and patients previouslytreated with imiglucerase across three clinical studies. It is anticipated thatthis development program will support global filings in the second half of2009. The product has been granted orphan drug designation in the US.On July 30, Shire began the rolling submission of a NDA for velaglucerase alfato treat its enzyme replacement therapy in development for the treatment ofGaucher disease patients with Type 1 Gaucher disease. Fast Track is a processwhich expedites the review of drugs to treat serious diseases and fill an unmetmedical need with the goal of getting important new treatments to patientsearlier. Shire will file additional sections of the NDA as they becomeavailable. Results from the first of the three Phase 3 trials were positive,and achieved statistically significant improvements in the primary endpoint.Velaglucerase alfa was also found to be well tolerated with no drug relatedserious adverse events reported in this trial.On August 3, 2009 Shire announced that it had received approval from the FDA onthe initiation of a treatment protocol for velaglucerase alfa. This protocolwas submitted at the request of the FDA, in view of a potential restriction onthe availability of the current approved and marketed treatment for Gaucherdisease patients. This will allow physicians to treat Gaucher disease patientswith velaglucerase alfa ahead of commercial availability in the US. Under theconditions of the treatment protocol, Shire will provide velaglucerase alfafree of charge initially, in order to provide access to patients as quickly
aspossible.Phase 2
VYVANSE for the treatment of non ADHD indications in adults
Shire is conducting Phase 2 pilot clinical trials to assess the efficacy and safety of VYVANSE as adjunctive therapy in depression, for the treatment of negative symptoms and cognitive impairment in schizophrenia, and for the treatment of cognitive impairment in depression.
SPD550 for the treatment of celiac disease
In December 2007, Shire acquired the worldwide rights to SPD550 (LarazotideAcetate) (also known as AT-1001) in markets outside of the US and Japan fromAlba Therapeutics Corporation ("Alba"). Alba has initiated and is responsiblefor executing the ongoing Phase 2 program and certain non-clinical studies forthe treatment of celiac disease. In study 006, a Phase 2 study of larazotide acetate for treatment of celiacdisease, the primary endpoint was not met. An exploratory, predefined analysisof secondary endpoints showed differences of nominal significance favoringlarazotide acetate over placebo for anti-TTG antibodies at all three dosestested and for gastrointestinal symptom scales at the 1 mg dose only. The drugwas well tolerated. Alba has a further Phase 2 study ongoing.
HGT-1111 / METAZYM
Shire has an ongoing enzyme replacement therapy program for the treatment ofMLD, which is a lysosomal storage disorder that results from a deficiency inthe enzyme arylsulfatase-A ("ASA"). In June 2008 Shire completed itsacquisition from Zymenex of the global rights to a clinical candidate ASA,known as METAZYM (HGT-1111). METAZYM has completed a Phase 1b clinical trial intwelve MLD patients in Europe and an extension to this study is ongoing. Theproduct has been granted orphan drug designation in the US and in the EU. Thecurrent plan is to initiate a Phase 2/3 clinical trial in the second half of2009.
AMIGAL (HGT-3310) for the treatment Fabry disease
Amicus met with the FDA and the European Medicines Agency to discuss the AMIGAL development program during 2008 and 2009, and discussions are now complete. Shire is considering the impact of this feedback on the global development strategy. Shire has rights to AMIGAL in markets outside the US.
PLICERA (HGT-3410) for the treatment of Gaucher Disease
In March 2008 Amicus announced data from its Phase 2 extension trial. Resultsfrom the extension trial support the previously reported interim findings thatPLICERA was generally well tolerated and increased target enzyme activitylevels in some patients. There is currently an additional ongoing Phase 2 trialin naive patients. Shire has rights to PLICERA in markets outside the US.
HGT-3510 for the treatment of Pompe disease
In June 2008 Amicus initiated a Phase 2 clinical trial of HGT-3510, an orallyadministered, small molecule pharmacological chaperone being jointly developedfor the treatment of Pompe disease by Shire and Amicus. This trial was placedon clinical hold in February 2009 in response to reports of two serious adverseevents that were unexpected and probably related to treatment with HGT-3510.Shire has rights to HGT-3510 in markets outside the US.
Phase 1
HGT-2310 - Hunter syndrome with central nervous system symptoms, idursulfase-IT
Following the acceptance by the FDA in January 2008 of Shire's investigationalNDA for idursulfase-IT (HGT-2310 - formerly referred to as ELAPRASE for Huntersyndrome patients with significant central nervous system symptoms) Shire plansto initiate a Phase 1 clinical trial in the second half of 2009.
Products in pre-clinical development as at June 30, 2009
HGT-1410 for Sanfilippo Syndrome (Mucopolysaccharidosis IIIA)
HGT-1410 is in development as an enzyme replacement therapy for the treatmentof Sanfilippo Syndrome (Mucopolysaccharidosis IIIA), a lysosomal storagedisorder. The product has been granted orphan drug designation in the US and inthe EU. Pre-clinical development for this product is continuing.
HGT-2610 for the treatment of Krabbe Disease (Globoid Cell Leukodystrophy ("GLD"))
In November 2008 Shire announced that an enzyme replacement therapy was beingdeveloped for the treatment of Krabbe Disease, a lysosomal storage disorder.This program is in early development and preclinical studies.SPD 535 for the treatment of arteriovenous grafts in hemodialysis patients
SPD 535 is in development as a novel molecule with platelet lowering ability and without phosphodiesterase type III ("PDEIII") inhibition the initial proof-of-concept program will target prevention of thrombotic complications associated with arteriovenous grafts in hemodialysis patients. It is anticipated that Phase 1 trials will initiate in the third quarter of 2009.
Other pre-clinical development projects
A number of additional projects are underway in the early stages of development(pre-clinical) for the Specialty Pharmaceutical and HGT businesses. Includedare potential programs leveraging CarrierWave technology and primarily focusedin the areas of pain and ADHD. More data on these latter programs is expectedin the first six months of 2010. SHIRE PLC RESULTS OF OPERATIONS FOR THE SIX MONTHS TO JUNE 30, 2009 AND 2008
The financial information contained within the Half Yearly Report has beenprepared under accounting principles generally accepted in the United States ofAmerica ("US GAAP"), being the accounting policies under which Shire plcprepared or will prepare its annual financial statements for the years endedDecember 31, 2008 and 2009.Total revenuesThe following table provides an analysis of Shire's total revenues by source: 6 months to 6 months to change June 30, June 30, 2009 2008 $M $M % _____________ _____________ _____________ Product sales 1,314.3 1,337.4 -2 Royalties 117.5 129.9 -10 Other 15.6 10.5 49 _____________ _____________ _____________ Total 1,447.4 1,477.8 -2 _____________ _____________ _____________Product sales
The following table provides an analysis of Shire's key product sales:
6 months to 6 months to Product sales US growth prescription June 30, June 30, growth % 2009 2008 % $M $M _____________ _____________ _____________ _____________ Specialty Pharmaceuticals ADHD VYVANSE 230.7 119.6 93 90 ADDERALL XR 363.3 557.9 -35 -26 DAYTRANA 34.8 42.9 -19 -14 EQUASYM 4.9 - n/a n/a GI PENTASA 105.2 89.0 18 -2 LIALDA / MEZAVANT 104.0 59.2 76 59 General Products FOSRENOL 89.5 78.6 14 -2 CALCICHEW 20.4 27.5 -26 n/a CARBATROL 38.9 34.1 14 -4 REMINYL/REMINYL XL 18.3 17.0 8 n/a XAGRID 40.8 39.3 4 n/a Other product sales 8.9 32.8 -73 n/a _____________ _____________ _____________ 1,059.7 1,097.9 -3 _____________ _____________ _____________ Human Genetic Therapies ELAPRASE 168.0 152.3 10 n/a REPLAGAL 84.6 87.2 -3 n/a FIRAZYR 2.0 - n/a n/a _____________ _____________ _____________ 254.6 239.5 6 _____________ _____________ _____________ Total product sales 1,314.3 1,337.4 -2 _____________ _____________ _____________ The following discussion includes references to prescription and market sharedata for Shire's key products. The source of this data is IMS Health, June2009. IMS Health is a leading global provider of business intelligence for thepharmaceutical and healthcare industries.
VYVANSE - ADHD
Product sales of VYVANSE for the six months to June 30, 2009 increased by 93%to $230.7 million (2008: $119.6 million), with VYVANSE's average share of theUS ADHD market to June 30, 2009 increasing to 11.8% (2008: 6.7%). Product salesgrowth was driven by a 90% increase in US prescriptions of VYVANSE in the sixmonths to June 30, 2009 over the same period in 2008, as a result of increasedUS ADHD average market share and 9% growth in the US ADHD market.On February 24, 2009 Actavis Elizabeth LLC ("Actavis") brought a lawsuitagainst the FDA seeking to overturn the FDA's decision granting new chemicalentity exclusivity to VYVANSE. Shire believes the FDA's decision was correct.VYVANSE has new chemical entity exclusivity through February 23, 2012 andpatents listed in the Orange Book which expire on June 29, 2023. The suitbrought by Actavis has been stayed and the FDA has opened a public docket toenable the public to register comments on the legal and regulatory issuesraised by Actavis.
ADDERALL XR - ADHD
Product sales of ADDERALL XR for the six months to June 30, 2009 were $363.3million, a decrease of 35% compared to the same period in 2008 (2008: $557.9million), resulting from the launch by Teva in April 2009 of its authorizedgeneric version of ADDERALL XR. The launch of the generic version led to a 26%decline in ADDERALL XR US prescription demand, higher US sales deductions andsignificant de-stocking (equivalent to gross sales of $84 million) bywholesalers and retail pharmacies in the six months to June 30, 2009 comparedto the same period in 2008. These factors more than offset the positive impactsof price increases taken since June 30, 2008, and the inclusion within productsales of shipments of authorized generic ADDERALL XR to Teva in the secondquarter of 2009.Sales deduction expense amounted to $303.4 million (2008: $163.1 million) andrepresented 47% of branded ADDERALL XR gross sales in the six months to June30, 2009 (2008: 23%). The increase primarily resulted from higher salesdeductions for Managed Care and Medicaid rebates.The Managed Care rebate percentage increased due to higher rebates offered toMCOs from April 1, 2009. The Medicaid rebate percentage was higher in 2009 thanthe same period last year due to a higher Medicaid utilization and an increasedunit rebate amount ("URA"). The rise in URA is a direct result of priceincreases and the inclusion of shipments of authorized generic ADDERALL XR toTeva in the URA calculation.
Litigation proceedings concerning Shire's ADDERALL XR patents are ongoing. Further information on this litigation can be found in Note 16 to the unaudited consolidated financial statements in this Half Yearly Report.
DAYTRANA - ADHD
Product sales of DAYTRANA for the six months to June 30, 2009 decreased by 19%to $34.8 million (2008: $42.9 million). US prescription demand reduced by 14%compared to 2008 due to a reduction in DAYTRANA's average share of the US ADHDmarket from 1.9% in the six months to June 30, 2008 to 1.5% in the six monthsto June 30, 2009. The decline in product sales was higher than the decrease inUS prescriptions due to higher sales deductions in 2009 over 2008, and theimpact of de-stocking.
EQUASYM - ADHD
Following the acquisition of EQUASYM from UCB on March 31, 2009, Shire has recorded product sales of EQUASYM for the six months to June 30, 2009 of $4.9 million (2008: $nil).
PENTASA - Ulcerative colitisProduct sales of PENTASA for the six months to June 30, 2009 were $105.2million, an increase of 18% compared to the same period in 2008 (2008: $89.0million). Sales grew despite a 2% decrease in prescriptions primarily due tothe impact of price increases.
LIALDA/MEZAVANT - Ulcerative colitis
Product sales of LIALDA/MEZAVANT for the six months to June 30, 2009 increasedby 76% to $104.0 million (2008: $59.2 million). US prescriptions increased by59%, due to an increase in LIALDA's average share of the US oral mesalaminemarket to 15.4% (2008: 10%) and underlying growth in the US oral mesalaminemarket of 3%.As of June 30, 2009 MEZAVANT was available in eight countries outside the US,and further launches are planned in other countries throughout 2009 and 2010,subject to the successful conclusion of pricing and reimbursement negotiations.
FOSRENOL - Hyperphosphatemia
Product sales of FOSRENOL for the six months to June 30, 2009 were up 14% to$89.5 million (2008: $78.6 million). As expressed in transaction currencies,sales were up 25%. In markets outside the US FOSRENOL sales increased as theproduct entered new countries, and continued to grow in countries entered inthe last two years. FOSRENOL's average share of the US phosphate binder marketdeclined to 7.8% (2008: 8.2%) due to a 2% decrease in prescriptions. However,US product sales grew 15% as price increases offset the prescription decline.
Litigation proceedings regarding Shire's FOSRENOL patents are ongoing. Further information on these proceedings can be found in Note 16 to the unaudited consolidated financial statements in this Half Yearly Report.
XAGRID - Thrombocythemia
Product sales for the six months to June 30, 2009 were $40.8 million, an increase of 4% compared to the same period in 2008 (2008: $39.3 million). As expressed in transaction currencies (XAGRID is primarily sold in Euros and Pounds Sterling) sales increased by 22%.
Human Genetic Therapies
ELAPRASE - Hunter syndrome
Product sales for the six months to June 30, 2009 were $168.0 million, an increase of 10% compared to the same period in 2008 (2008: $152.3 million). As expressed in transaction currencies sales increased by 18% (ELAPRASE is primarily sold in US dollars and Euros). The sales growth was driven by increased volumes across all regions where ELAPRASE is sold.
REPLAGAL - Fabry disease
Product sales for the six months to June 30, 2009 were $84.6 million, adecrease of 3% compared to the same period in 2008 (2008: $87.2 million). Asexpressed in transaction currencies sales increased by 9% (REPLAGAL isprimarily sold in Euros and Pounds Sterling). The sales growth was primarilydriven by increased volumes in Europe and Asia Pacific.
FIRAZYR - HAE
Product sales for the six months to June 30, 2009 were $2.0 million (2008:$nil). With second quarter launches in France and Portugal, FIRAZYR is nowlaunched in nine countries, including four of the five largest Europeancountries. FIRAZYR also received final price publication in Italy during June,which will enable the launch in Italy during the third quarter of 2009. FIRAZYRis the first new product for HAE in Europe in 30 years and has orphanexclusivity in the EU until 2018.
Foreign exchange effect
As many of Shire's sales revenues are earned in currencies other than USdollars (primarily Euros and Pounds Sterling), revenue growth reported in USdollars includes the impact of translating the sales made in a local currency,into US dollars. The table below shows the effect of foreign exchangetranslations on the revenue growth of the key affected products as well as theunderlying performance of key products in their local currency: 6 months to 6 months to 6 months to Impact of June 30, 2009 June 30, 2009 June 30, 2009 translation sales sales growth sales growth to US dollars in local in US dollars $'M currency _____________ _____________ _____________ _____________ XAGRID - sales in Euros 31.3 +41% +23% -18% - sales in Pounds 8.7 -17% -37% -20%Sterling REPLAGAL - sales in Euros 44.2 +30% +13% -17% - sales in Pounds 9.7 -2% -25% -23%Sterling ELAPRASE - sales in Euros 61.2 +46% +28% -18% - sales in Pounds 12.1 +11% -16% -27%Sterling CALCICHEW sales in 18.3 -4% -27% -23%Pounds Sterling
REMINYL and REMINYL XL 17.2 +43% +9%
-34%sales in Pounds Sterling _____________ _____________ _____________ _____________RoyaltiesRoyalty revenue decreased by 10% to $117.5 million for the six months to June30, 2009 (2008: $129.9 million). The following table provides an analysis ofShire's royalty income: 6 months to 6 months to Change June 30, June 30, 2009 2008 $'M $'M % _____________ _____________ _____________ 3TC 59.1 72.9 -19 ZEFFIX 19.2 21.2 -9 ADDERALL XR 13.6 - n/a Others 25.6 35.8 -28 _____________ _____________ _____________ Total 117.5 129.9 -10 _____________ _____________ _____________3TC - HIV infection and AIDS
Royalties from sales of 3TC for the six months to June 30, 2009 were $59.1 million, a decrease of 19% compared to the same period in 2008 (2008: $72.9 million). Shire receives royalties from GSK on worldwide 3TC sales, and GSK's sales, as expressed in transaction currencies, of 3TC inclusive products declined by 16% mainly due to competition from other HIV treatments. The balance of the decline in Shire's royalty revenue is predominantly due to unfavorable exchange rate movements.
ZEFFIX - Chronic hepatitis B infection
Royalties from sales of ZEFFIX for the six months to June 30, 2009 were $19.2million, a decrease of 9% compared to the same period in 2008 (2008: $21.2million). Shire receives royalties from GSK on worldwide ZEFFIX sales, andGSK's sales, as expressed in transaction currencies, of ZEFFIX declined 1%, dueto increased competition from other hepatitis B treatments. The balance of thedecline in Shire's royalty revenue is predominantly due to unfavorable exchangerates movements.ADDERALL XR - ADHD
Royalties from Teva's sales of authorized generic ADDERALL XR for the six months to June 30, 2009 were $13.6 million (2008: $nil). Receipt of this royalty began with Teva's sale of authorized generic ADDERALL XR in April 2009.
Other
Other royalties includes royalties for REMINYL and REMINYL XL (known asRAZADYNE and RAZADYNE ER in the US), for the symptomatic treatment of mild tomoderately severe dementia of the Alzheimer's type. The range of REMINYLproducts is marketed worldwide (excluding the UK and the Republic of Irelandwhere Shire has exclusive marketing rights) by Janssen Pharmaceutical N.V., anaffiliate of Johnson & Johnson. Sales of the REMINYL/RAZADYNE range continue togrow in most countries, however the entry of generic versions of RAZADYNE andRAZADYNE ER into the US market in the third quarter of 2008 has significantlydecreased sales in that region. Information on the RAZADYNE and RAZADYNE ERpatent litigation (which is ongoing) can be found in our Annual Report for
theyear to December 31, 2008.Cost of product salesCost of product sales decreased to $180.0 million for the six months to June30, 2009 (14% of product sales), down from $233.2 million in the correspondingperiod in 2008 (2008: 17% of product sales). Cost of product sales in 2008included charges of $53.4 million (4% of product sales) related to the writedown of inventory and other exit costs following the decision to cease thecommercialization of DYNEPO. Excluding these charges, cost of product sales asa percentage of product sales increased by one percentage point in 2009 over2008, principally due to changes in product mix following the launch of anauthorized generic version of ADDERALL XR, higher sales deductions on Shire'ssales of branded ADDERALL XR and lower margin sales of the authorized genericversion of ADDERALL XR to Teva.For the six months to June 30, 2009 cost of product sales included depreciationof $11.5 million (2008: $5.6 million) and amortization of $0.9 million (2008:$0.9 million). Depreciation increased due to the inclusion in 2009 of $3.0million of the accelerated depreciation on transfer of manufacturing from OwingMills (2008: $nil).
Research and development ("R&D")
R&D expenditure increased to $344.6 million for the six months to June 30, 2009(26% of product sales), up from $248.2 million in the corresponding period in2008 (19% of product sales). R&D costs in the six months to June 30, 2009included a charge of $36.9 million (3% of product sales) related to the paymentto amend an INTUNIV in-license agreement and $65.0 million (5% of productsales) following the agreement with Duramed to terminate development of theWomen's Health products. R&D in 2008 included $6.5 million costs of exitingpost-approval marketing commitments for DYNEPO. Excluding these charges, R&Dincreased by $1.0 million in 2009 over 2008 as an increase in investment incore R&D programs has been partially offset by the benefits of foreign exchangerates in 2009 over 2008 and the cessation of certain non-core programs sincethe second quarter of 2008. For the six months to June 30, 2009 R&D includeddepreciation of $7.8 million (2008: $6.0 million).
Selling, general and administrative ("SG&A")
SG&A expenses decreased to $653.3 million (50% of product sales) for the sixmonths to June 30, 2009 from $782.4 million (59% of product sales) in thecorresponding period in 2008. SG&A in 2008 included impairment charges of $90.4million in respect of Shire's DYNEPO intangible asset and costs of $12.2million in respect of the introduction of the new holding company. SG&A hasdecreased as a result of the increased focus on cost management and favorableexchange rates in 2009 over 2008. For the six months to June 30, 2009 SG&Aincluded depreciation of $30.7 million (2008: $22.0 million) and amortizationof $66.8 million (2008: $61.9 million).
Reorganization costs
For the six months to June 30, 2009 Shire recorded reorganization costs of $5.1 million (2008: $nil) relating to costs associated with the transfer of manufacturing from its Owing Mills facility.
Integration and acquisition costs
For the six months to June 30, 2009 Shire recorded integration and acquisitioncosts of $3.8 million (2008: $nil) relating to the integration of Jerini andcharges associated with the acquisition of EQUASYM.
Interest income
For the six months to June 30, 2009 Shire received interest income of $1.3million (2008: $19.2 million). Interest income primarily relates to interestreceived on cash and cash equivalents. Interest income for the six months toJune 30, 2009 is lower than the same period in 2008 due to significantly lowerinterest rates in 2009 compared to 2008 and lower average cash and cashequivalent balances.
Interest expense
For the six months to June 30, 2009 Shire incurred interest expense of $21.2million (2008: $34.1 million). The higher expense in 2008 was primarily due tothe accrual of interest in respect of the Transkaryotic Therapies, Inc.appraisal rights litigation. This litigation was settled in November 2008.
Other income, net
For the six months to June 30, 2009 Shire recognized other income, net of $54.9million (2008: $13.4 million). Other income in 2009 primarily includes a gainof $55.2 million arising on the disposal of Shire's cost investment in Virochem(2008: gain of $9.4 million arising on the disposal of a minority equityinvestment in Questor Pharmaceuticals, Inc).
Taxation
Shire accounts for income taxes during interim periods in accordance with SFASNo. 109, "Accounting for Income Taxes," Accounting Principles Board, ("APB")No. 28, "Interim Financial Reporting," and FIN 18, "Accounting for Income Taxesin Interim Periods," an interpretation of APB Opinion No. 28. For interimreporting purposes, these rules require that a company determine the bestestimate of its annual effective tax rate and then apply that rate in providingfor income taxes on a year-to-date basis. Accordingly, Shire has calculated anexpected annual effective tax rate, excluding significant, unusual orextraordinary items, for ordinary income associated with operations for whichShire currently expects to have annual taxable income.During the six months to June 30, 2009 the effective tax rate was 9% (2008:47%). The low effective tax rate for the six months to June 30, 2009 hasresulted from the favorable rate impact of two discrete items that arose duringthe second quarter: (i) the recognition of tax attributes amounting to $27million following Massachusetts state tax law changes enacted during the secondquarter which enabled Shire to reduce valuation allowances in respect of Statetax credits and loss carry-forwards, together with the effect of the change inthe effective State tax rate on the net State deferred tax balance, and (ii)recognition of a tax deduction of $13 million at a rate higher than Shire'seffective rate on the payment made during the second quarter to amend a licenseagreement for INTUNIV. Excluding both of these discrete items would haveresulted in a tax charge at an effective tax rate of 20%.The effective rate of tax for the six months to June 30, 2008 was 47%. Duringthe six month period to June 30, 2008 the effective rate of tax was adverselyaffected by IPR&D charges of $135.0 million for which no tax benefit wasrecorded. Excluding the impact of the IPR&D charges, the effective rate of taxfor the six months to June 30, 2008 was 19%. The effective rate of tax for thesix months to June 30, 2008 (excluding the effect of the IPR&D charge) wasreduced due to a permanent tax benefit arising on the debtor substitution ofShire's convertible bond on the Scheme of Arrangement in May 2008. In additionthe rate benefited from the release of deferred tax liabilities, at a ratehigher than the effective rate of tax, following the impairment of the DYNEPOintangible asset.
Equity in earnings/(losses) of equity method investees
Earnings of equity method investees of $0.4 million were recorded for the sixmonths to June 30, 2009 (2008: $0.3 million loss). This comprised earnings of$1.1 million from the 50% share of the anti-viral commercialization partnershipwith GSK in Canada (2008: $2.8 million earnings) and losses of $0.7 million,being Shire's share of losses in the GeneChem, AgeChem and EGS Funds (2008:$3.1 million loss).
Discontinued operations
Losses from discontinued operations for the six months to June 30, 2009 were$12.4 million (2008: $nil) related to net losses on discontinued Jerinibusinesses which were either divested or closed during the second quarter of2009, the loss on disposal of Jerini's Peptides business of $0.5 million, andthe write-off of the fair value less costs to sell of assets previouslyclassified as held for sale of $5.9 million.
Dividend
In respect of the six months ended June 30, 2009, the Board resolved to pay aninterim dividend of 2.147 US cents per ordinary share (2008: 2.147 US cents pershare).Dividend payments will be made in Pounds Sterling to Ordinary shareholders andin US Dollars to holders of American Depository Shares ("ADSs"). A dividend of1.302 pence per ordinary share (2008: 1.085 pence) and 6.441 US cents per ADS(2008: 6.441 US cents) will be paid on October 8, 2009 to persons whose namesappear on the register of members of Shire at the close of business onSeptember 11, 2009.As previously disclosed, Shire has put in place Income Access Sharearrangements enabling shareholders to choose whether they receive theirdividends from a company resident for tax purposes in the Republic of Irelandor from a company resident for tax purposes in the UK. In accordance withShire's ADS Deposit Agreement, the ADS Depository has made an election onbehalf of all holders of ADSs to receive UK sourced dividends. Details ofIncome Access Share arrangements can be found in the Annual Report and Accountsof Shire plc for the year ended December 31, 2008, which are available onGroup's website, www.shire.com.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has adopted a risk management strategy designed to identify, assessand manage the significant risks it faces. Whilst the Group aims to identifyand manage such risks, no risk management strategy can provide absoluteassurance against loss.
A summary of the principal risks and uncertainties facing the Group for the remaining six months of 2009 are outlined below. The Group's process for managing these risks is consistent with those processes as outlined in the Annual Report and Accounts of Shire plc for the year ended December 31, 2008. Some of these risks are specific to the Group and others are more generally applicable to the pharmaceutical industry in which the Group operates. The Annual Report and Accounts are available on the Group's website, www.shire.com.
In summary, these risks and uncertainties were as follows:
* The Group's new products may not be a commercial success
* A decrease in the sales of ADDERALL XR in the six months to June 30, 2009
has reduced the Group's revenues and earnings. A continuation or further
decrease in ADDERALL XR net sales could significantly reduce the Group's
future revenues and earnings * Any decrease in the sales of 3TC could significantly reduce earnings
* The failure to obtain and maintain reimbursement, or an adequate level of
reimbursement, by third-party payers in a timely manner for certain of the
Group's products and parallel importation may impact future revenues and
earnings
* A disruption to the product supply chain may result in the Group being
unable to continue marketing or developing a product or may result in the
Group being unable to do so on a commercially viable basis * There is no assurance that suppliers will continue to supply on commercially viable terms, or be able to supply components that meet regulatory requirements. The Group is also subject to the risk that suppliers will not be able to meet the quantities needed to meet market requirements
* The actions of certain customers can affect the Group's ability to sell or
market products profitably, as well as impact net sales and growth
comparisons
* The outsourcing of services can create a significant dependency on third
parties, the failure of whom can affect the ability to operate the Group's
business and to develop and market products
* In the event of breakdown, failure or breach of security on any of Group's
IT systems, the Group may be unable to maintain its business operations * The Group may incur unexpected expenditure in order to comply with US environmental laws * Contracts are used in all areas of operation of the business. They may
contain provisions that do not protect the Group's position or with which
it cannot comply
* The actions of governments, industry regulators and the economic
environments in which the Group operates may adversely affect its ability
to develop and market its products profitably
* The introduction of new products by competitors may impact future revenues
* If the Group's projects or clinical trials for the development of products
are unsuccessful, its products will not receive authorization for
manufacture and sale
* If the Group is unable to meet the requirements of regulators in relation
to a particular product, it may be unable to develop the product or obtain
or retain the necessary marketing approvals
* The failure of a strategic partner to develop and commercialize products
could result in delays in approval or loss of revenue * The failure to secure new products or compounds for development, either through in-licensing, acquisition or internal research and development efforts, may have an adverse impact on the Group's future results
* The Group may fail to obtain, maintain, enforce or defend the intellectual
property rights required to conduct its business * If a marketed product fails to work effectively or causes adverse side effects, this could result in damage to the Group's reputation, the withdrawal of the product and legal action against the Group. * Investigations or enforcement action by regulatory authorities or law enforcement agencies relating to the Group's activities in the highly regulated markets in which it operates may result in the distraction of
senior management, significant legal costs and the payment of substantial
compensation or fines
* Loss of highly qualified management and scientific personnel could cause
the Group subsequent financial loss
There has been no significant change in the principal risks and uncertaintiessince these risks were set out in the Annual Report and Accounts (pages 29-34)for the year ended December 31, 2008.
DIRECTORS' RESPONSIBILITY STATEMENT
The directors confirm that this condensed set of financial statements has been prepared in accordance with US GAAP and that the half yearly report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.
The directors of Shire plc are listed in the Company's Annual Report and Accounts for the year ended December 31, 2008.
A list of the current directors is maintained and is available for inspectionat the Company's registered office located at 22 Grenville Street, St Helier,Jersey JE4 8PX.
________________________ ________________________
Angus Russell Graham Hetherington
Chief Executive Officer Chief Financial Officer
August 21, 2009 August 21, 2009
SHIRE PLC UNAUDITED CONSOLIDATED BALANCE SHEETS Notes June 30, December 31, 2008 2009 $'M $'M _____________ _____________ _____________ ASSETS Current assets: Cash and cash equivalents 263.3 218.2 Restricted cash 35.8 29.2 Accounts receivable, net 7 424.7 395.0 Inventories 8 166.6 154.5 Assets held for sale 9 1.7 16.6 Deferred tax asset 84.6 89.5 Prepaid expenses and other current 10 174.3 141.4assets _____________ _____________ Total current assets 1,151.0 1,044.4 Non-current assets: Investments 11 90.2 42.9 Property, plant and equipment, net 598.1 534.2 Goodwill 377.6 350.8 Other intangible assets, net 12 1,846.2 1,824.9 Deferred tax asset 145.0 118.1 Other non-current assets 13.2 18.4 _____________ _____________ Total assets 4,221.3 3,933.7 _____________ _____________ LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued 13 807.6 708.6expenses Deferred tax liability 10.9 10.9 Other current liabilities 14 62.4 104.3 _____________ _____________ Total current liabilities 880.9 823.8 Non-current liabilities Convertible bonds 1,100.0 1,100.0 Other long-term debt 49.4 43.1 Deferred tax liability 346.9 377.0 Other non-current liabilities 15 275.0 291.3 _____________ _____________ Total liabilities 2,652.2 2,635.2 _____________ _____________
Commitments and contingencies 16 SHIRE PLC UNAUDITED CONSOLIDATED BALANCE SHEETS (continued) June 30, December 31, 2009 2008 $'M $'M _____________ _____________ Shareholders' equity:
Common stock of 5p par value; 1,000 million 55.5
55.5
shares authorized; and 560.3 million shares issued and outstanding (2008: 1,000 million shares authorized; and 560.2 million shares
issued and outstanding) Additional paid-in capital 2,628.0 2,594.6 Treasury stock: 20.2 million shares (2008 : (390.6) (397.2)20.7 million shares)
Accumulated other comprehensive income 119.7
97.0 Accumulated deficit (843.8) (1,051.7) _____________ _____________ Total Shire plc shareholders' equity 1,568.8
1,298.2
Noncontrolling interest in subsidiaries 0.3
0.3 _____________ _____________ Total equity 1,569.1 1,298.5 _____________ _____________ Total liabilities and equity 4,221.3 3,933.7 _____________ _____________
The accompanying notes are an integral part of these unaudited consolidated financial statements.
SHIRE PLC UNAUDITED CONSOLIDATED STATEMENTS OF INCOME Notes 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________ _____________ Revenues: Product sales 1,314.3 1,337.4 Royalties 117.5 129.9 Other revenues 15.6 10.5 _____________ _____________ Total revenues 1,447.4 1,477.8 _____________ _____________ Costs and expenses: Cost of product sales (1) 180.0 233.2 Research and development (2) 3 344.6 248.2 Selling, general and administrative 653.3 782.4(1) (2) In-process R&D charge 4 - 135.0 Gain on sale of product rights - (16.7) Reorganization costs 5 5.1 -
Integration and acquisition costs 6 3.8
- _____________ _____________ Total operating expenses 1,186.8 1,382.1 _____________ _____________ Operating income 260.6 95.7 Interest income 1.3 19.2 Interest expense (21.2) (34.1) Other income, net 54.9 13.4 _____________ _____________ Total other income/(expenses), net 35.0 (1.5) _____________ _____________
Income from continuing operations 295.6
94.2
before income taxes and equity in earnings /(losses) of equity method
investees Income taxes (26.1) (44.3) Equity in earnings/(losses) of 0.4
(0.3)
equity method investees, net of
taxes _____________ _____________
Income from continuing operations, 269.9
49.6net of taxes
Loss from discontinued operations 9 (12.4)
-
(net of income tax expense of $nil
in all periods) _____________ _____________ Net income 257.5 49.6
Add: Net loss attributable to the 0.2
-noncontrolling interest in subsidiaries _____________ _____________
Net income attributable to Shire plc 257.7
49.6 _____________ _____________
1. Cost of product sales includes amortization of intangible assets relating
to favorable manufacturing contracts of $0.9 million for the six months to
June 30, 2009 (2008: $0.9 million). Selling, general and administrative
costs include amortization and impairment charges of intangible assets
relating to intellectual property rights acquired of $66.8 million for the
six months to June 30, 2009 (2008: $152.3 million).
2. Costs of $19.1 million, predominantly relating to certain Medical Affairs
costs related to promotional & marketing activities, have been reclassified
from Research and development costs to Selling, general and administrative
costs for the six months to June 30, 2008. SHIRE PLC UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (continued) Notes 6 months to 6 months to June 30, June 30, 2009 2008 _____________ _____________ _____________ Earnings per ordinary share - basic Earnings from continuing operations 50.0c
9.1cattributable to Shire plc shareholders
Loss from discontinued operations (2.3c)
-attributable to Shire plc shareholders _____________ _____________ Earnings per ordinary share 47.7c 9.1cattributable to Shire plc shareholders - basic _____________ _____________ Earnings per ordinary share - diluted
Earnings from continuing operations 49.6c
8.2cattributable to Shire plc shareholders
Loss from discontinued operations (2.3c)
-attributable to Shire plc shareholders _____________ _____________ Earnings per ordinary share 47.3c 8.2cattributable to Shire plc shareholders - diluted _____________ _____________
Weighted average number of shares
(millions): Basic 19 539.7 543.7 Diluted 19 545.0 579.6 _____________ _____________ 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________
Amounts attributable to Shire plc
shareholders
Income from continuing operations, net 270.1
49.6of taxes
Loss from discontinued operations, net (12.4)
-of taxes _____________ _____________
Net income attributable to Shire plc 257.7
49.6 _____________ _____________
The accompanying notes are an integral part of these unaudited consolidated financial statements.
SHIRE PLC
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In millions of US dollars except share data) Shire plc shareholders equity Common Common Additional Treasury Accumulated
Accumulated Noncontrolling Total
stock stock paid-in stock other deficit interest in Number of capital comprehensive subsidiaries equity $'M shares $'M income $'M $'M $'M $'M M's $'M ______ _______ _______ _________ ________ ________ ________ ______
As at January 1, 55.5 560.2 2,594.6 (397.2) 97.0 (1,051.7) 0.3 1,298.52009 Net income/(loss) - - - - - 257.7 (0.2) 257.5for the period Foreign currency - - - - 11.4 - - 11.4translation Options exercised - 0.1 0.2 - - - - 0.2 Share-based - - 33.2 - - - - 33.2compensation Shares purchased by - - - (1.0) - - - (1.0)the Employee Share Ownership Trust (" ESOT") Shares released by - - - 7.6 - (6.8) - 0.8ESOT to satisfy exercise of stock options Unrealized holding - - - - 11.3 - - 11.3gain on available-for-sale securities, net of taxes Capital - - - - - - 0.2 0.2contribution attributable to noncontrolling interest in Jerini AG ("Jerini") Dividends - - - - - (43.0) - (43.0) _______ ________ ________ _________ _________ _________ _________ _______ As at June 30, 2009 55.5 560.3 2,628.0 (390.6) 119.7
(843.8) 0.3 1,569.1 _______ ________ ________ ________ _________ _________ _________ _______
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Dividends per share
During the six months to June 30, 2009 Shire plc declared and paid dividends of 7.76 US cents per ordinary share (equivalent to 23.28 US cents per American Depositary Share) totaling $43.0 million.
SHIRE PLC UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________ Net income 257.5 49.6
Other comprehensive income/(loss): Foreign currency translation adjustments 11.4
(7.4)
Unrealized holding gain/(loss) on 11.3
(28.7)
available-for-sale securities, (net of taxes of
$nil and $nil) Realized gain on available-for-sale securities, -
(5.4)
(net of taxes of $nil and $4.0 million)
_____________ _____________ Comprehensive income 280.2 8.1
Add: Comprehensive loss attributable to the 0.2
-
noncontrolling interest in subsidiaries
_____________ _____________
Comprehensive income attributable to Shire plc 280.4
8.1 _____________ _____________
The components of accumulated other comprehensive income as at June 30, 2009 and December 31, 2008 are as follows:
June 30, December 31, 2009 2008 $'M $'M _____________ _____________ Foreign currency translation adjustments 112.9
101.5
Unrealized holding gain/(loss) on 6.8
(4.5)
available-for-sale securities, net of taxes
_____________ _____________
Accumulated other comprehensive income 119.7
97.0 _____________ _____________The accompanying notes are an integral part of these unaudited consolidatedfinancial statements. SHIRE PLC UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES: Net income attributable to Shire plc 257.7
49.6
Adjustments to reconcile net income attributable to Shire plc to net cash provided by operating
activities:
Loss from discontinued operations 12.4
- Depreciation and amortization 117.7 96.3
Amortization of deferred financing charges 2.5
2.5
Interest on building financing obligation 1.3
1.9 Share-based compensation 33.2 35.7
Impairment of intangible assets -
90.4
Impairment of property, plant and equipment 2.7
-
Gain on sale of long-lived assets (0.2)
(0.4)
Gain on sale of non-current investments (55.2)
(9.4)
Gain on sale of product rights - (16.7) Movement in deferred taxes (45.7) 17.4
Equity in (earnings)/losses of equity method (0.4)
0.3investees
Noncontrolling interest in subsidiaries (0.2)
-
Change in operating assets and liabilities: Increase in accounts receivable (42.9)
(28.4)
Increase in sales deduction accrual 117.5
35.5
(Increase)/decrease in inventory (12.8)
10.4
(Increase)/decrease in prepayments and other (33.8)
24.3current assets Decrease/(increase) in other assets 4.4
(2.4)
Decrease in accounts and notes payable and other (98.5) (66.4)liabilities
(Decrease)/increase in deferred revenue (2.7)
5.5
Returns on investment from joint venture 4.9
-
Cash flows used in discontinued operations (5.9)
- _____________ _____________ Net cash provided by operating activities (A) 256.0 246.1 _____________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES
Movement in restricted cash (6.6) 5.2
Purchases of subsidiary undertakings and (75.5)
-
businesses, net of cash acquired Purchase of non-current investments -
(1.1)
Purchase of property, plant and equipment (101.8) (89.4) Purchase of intangible assets (6.0) -
Proceeds from disposal of non-current investments 19.2
10.3
Proceeds from disposal of property, plant and 0.4
0.9equipment
Proceeds/deposit received from sale of products -
5.0rights
Proceeds received from disposal of subsidiary 6.7
-undertaking Returns of equity investments 0.2 0.4 _____________ _____________ Net cash used in investing activities (B) (163.4) (68.7) _____________ _____________ SHIRE PLC UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________
CASH FLOWS FROM FINANCING ACTIVITIES: Payment under building financing obligation (3.0)
(0.4)
Proceeds from exercise of options 1.0
1.0
Costs from issue of common stock - (2.9) Payment of dividend (43.0) (36.4) Payments to acquire shares by ESOT (1.0) (104.1) _____________ _____________ Net cash used in financing activities (C) (46.0) (142.8) _____________ _____________
Effect of foreign exchange rate changes on cash (1.5)
4.1 and cash equivalents (D) _____________ _____________
Net increase in cash and cash equivalents 45.1
38.7(A+B+C+D) Cash and cash equivalents at beginning of period 218.2 762.5 _____________ _____________ Cash and cash equivalents at end of period 263.3 801.2 _____________ _____________The accompanying notes are an integral part of these unaudited consolidatedfinancial statements.Supplemental information: Notes 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________ _____________ Interest paid 17.6 18.9 Income taxes paid 119.2 62.6 Non cash activities:
Equity in Vertex Pharmaceuticals, 11 50.8
- Inc. ("Vertex") received as consideration for disposal of non-current investment Building financing obligation 7.1 - _____________ _____________ SHIRE PLC NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
2.
a. Basis of Presentation
These interim financial statements of Shire and other financial informationincluded in this Half Yearly Report, are unaudited. They have been prepared inaccordance with generally accepted accounting principles in the United Statesof America ("US GAAP") and US Securities and Exchange Commission ("SEC")regulations for interim reporting.
The December 31, 2008 balance sheet was derived from audited financial statements but does not include all disclosures required by US GAAP. However, Shire believes that the disclosures are adequate to make the information presented not misleading.
These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in Shire's Annual Report for the year to December 31, 2008.
Certain information and footnote disclosures normally included in financialstatements prepared in accordance with US GAAP have been condensed or omittedfrom these interim financial statements. However, these interim financialstatements include all adjustments, which are, in the opinion of management,necessary to fairly state the results of the interim period. Interim resultsare not necessarily indicative of results to be expected for the full year.
b. Use of estimates in interim financial statements
The preparation of interim financial statements, in conformity with US GAAP andSEC regulations for interim reporting, requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates. Estimatesand assumptions are primarily made in relation to the valuation of intangibleassets, sales deductions, the valuation of equity investments, income taxes andprovisions for litigation.
c. Accounting pronouncements adopted during the period
Statement of Financial Accounting Standards ("SFAS") No. 165
In June 2009 Shire adopted SFAS No. 165, "Subsequent Events" ("SFAS No. 165").SFAS No. 165 establishes general standards of accounting for and disclosure ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. Specifically, SFAS No 165 provides:the period after the balance sheet date during which management should evaluateevents or transactions that may occur for potential recognition or disclosurein the financial statements; the circumstances under which an entity shouldrecognize events or transactions occurring after the balance sheet date in itsfinancial statements; and the disclosures that an entity should make aboutevents or transactions that occurred after the balance sheet date. SFAS No. 165is effective prospectively for the interim and annual periods ending after June15, 2009. The adoption of SFAS No. 165 did not have an impact on Shire'sconsolidated financial position, results of operations or cash flows. Shire hasevaluated the subsequent events from July 1, 2009 to August 6, 2009, which isthe date when the financial statements were issued.
SFAS No. 161
On January 1, 2009 Shire adopted SFAS No. 161, "Disclosures about DerivativeInstruments and Hedging Activities - an amendment of FASB No. 133" ("SFAS No.161"). SFAS No. 161 requires enhanced disclosures about an entity's derivativeinstruments and hedging activities, and these disclosures are included withinNote 17.SFAS No. 160
On January 1, 2009 Shire adopted SFAS No. 160, "Noncontrolling Interests inConsolidated Financial Statements - An Amendment of ARB No. 51" ("SFAS No.160"). SFAS No. 160 establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. Specifically, this statement requires the recognition of anoncontrolling interest (formally known as a minority interest) as equity inthe consolidated financial statements, separate from the parent's equity. Inaddition, the amount of net income attributable to noncontrolling interests isrequired to be included in consolidated net income on the face of the incomestatement. SFAS No. 160 also includes expanded disclosure requirementsregarding the interests of the parent and its noncontrolling interest. As aconsequence of the adoption of SFAS No. 160, the balance of noncontrollinginterests hasbeen reclassified within shareholders' equity and net income attributable toShire plc shareholders has been shown separately from that attributable tononcontrolling interests in the unaudited consolidated statements of income andthe unaudited consolidated statement of changes in equity. The adoption of SFASNo. 160 has not had an impact on Shire's consolidated cash flows.
SFAS No. 141(R)
On January 1, 2009 Shire adopted SFAS No. 141 (Revised 2007), "BusinessCombinations" ("SFAS No. 141(R)"). SFAS No. 141(R) significantly changed theaccounting for business combinations. Under SFAS No. 141(R), an acquiringentity is required to recognize all the assets acquired, liabilities assumedand noncontrolling interests in a transaction at the acquisition date fairvalue with limited exceptions. SFAS No. 141(R) also amended the accountingtreatment for certain specific items including: the expensing of acquisitioncosts; the capitalization of in-process research and development; recording ofcontingent consideration at fair value with subsequent changes in fair valuebeing generally reflected in earnings; and the introduction of a substantialnumber of new disclosure requirements. The provisions of SFAS No. 141(R) havebeen applied to those business combinations completed in the six months to June30, 2009.
Emerging Issues Task Force ("EITF") 07-5
On January 1, 2009 Shire adopted EITF 07-5 "Determining whether an Instrument(or Embedded Feature) is indexed to an Entity's Own Stock" ("EITF 07-5").Paragraph 11(a) of SFAS No. 133 "Accounting for Derivatives and HedgingActivities" ("SFAS No. 133") specified that a contract that would otherwisemeet the definition of a derivative but is both (a) indexed to Shire's ownstock and (b) classified in stockholders' equity in the statement of financialposition would not be considered a derivative financial instrument. EITF 07-5provides a new two-step model to be applied in determining whether a financialinstrument or an embedded feature is indexed to an issuer's own stock and thusable to qualify for the SFAS No. 133 paragraph 11(a) scope exception. Theadoption of EITF 07-5 did not have an impact on Shire's consolidated financialposition, results of operations or cash flow statements.
EITF 07-1
On January 1, 2009 Shire adopted EITF 07-1, "Accounting for CollaborativeArrangements" ("EITF 07-1"). EITF 07-1 defines collaborative arrangements andestablishes reporting requirements for transactions between participants in acollaborative arrangement and between participants in the arrangement and thirdparties. The adoption of EITF 07-1 did not have an impact on Shire'sconsolidated financial position, results of operations or cash flow statements.The disclosures required by EITF 07-1 have been included in Note 16.
Financial Accounting Standards Board ("FASB") Staff Position ("FSP") No. APB 14-1
On January 1, 2009 Shire adopted FSP No. APB 14-1, "Accounting for ConvertibleDebt Instruments That May Be Settled in Cash upon Conversion (Including PartialCash Settlement)" ("FSP No. APB 14-1"). This FSP clarified that convertibledebt instruments that may be settled in cash upon conversion (including partialcash settlement) do not fall within the scope of paragraph 12 of AccountingPrinciples Board ("APB") Opinion No. 14, "Accounting for Convertible Debt andDebt Issued with Stock Purchase Warrants". It requires issuers of suchinstruments to separately account for the liability and equity components ofthose instruments by allocating the proceeds from issuance of the instrumentbetween the liability component and the embedded conversion option (i.e., theequity component). The adoption of FSP No. APB 14-1 did not have an impact onShire's consolidated financial position, results of operations or cash flowstatements.
FSP No. FAS 157-2
On January 1, 2009 Shire adopted FSP No. FAS 157-2, "Effective Date of FASBStatement No. 157". This FSP delayed the effective date of SFAS No. 157 "FairValue Measurements" ("SFAS No. 157") for non-financial assets and non-financialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually). Theprovisions of SFAS No. 157 have been applied to the fair value measurement ofnon-financial assets and non-financial liabilities in the six months to June30, 2009.FSP No. FAS 142-3On January 1, 2009 Shire adopted FSP No. FAS 142-3, "Determination of theUseful Life of Intangible Assets" ("FSP No. FAS 142-3"). This FSP amended thefactors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, "Goodwill and Other Intangible Assets". Theadoption of FSP No. FAS 142-3 did not have an impact on Shire's consolidatedfinancial position, results of operations or cash flow statements.
FSP No. FAS 141(R)-1
In April 2009 the FASB issued FSP No. FAS 141(R)-1, "Accounting for AssetsAcquired and Liabilities Assumed in a Business Combination That Arise fromContingencies" ("FSP No. FAS 141(R)-1"). This FSP provides additional guidanceon initial recognition and measurement, subsequent measurement and accounting,and disclosure of assets and liabilities arising from contingencies in abusiness combination. FSP No. FAS 141(R)-1 is effective from January 1, 2009.The effect of FSP No. FAS 141(R)-1 on the consolidated financial position,results of operations and cash flow statements will depend on the nature andterms of any business combinations that occur after its effective date.
FSP No. FAS 157-4
On June 15, 2009 Shire adopted FSP No. FAS 157-4, "Determining Fair Value Whenthe Volume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly" ("FSP No. FAS157-4"). This FSP provides additional guidance for estimating fair value inaccordance with SFAS No. 157, when the volume and level of activity for theasset or liability have significantly decreased. The adoption of FSP No. FAS157-4 did not have an impact on Shire's consolidated financial position,results of operations or cash flow statements.
FSP No. FAS 115-2 and FAS 124-2
On June 15, 2009 Shire adopted FSP No. FAS 115-2 and FAS 124-2, "Recognitionand Presentation of Other-Than-Temporary Impairments" ("FSP No. FAS 115-2 andFAS 124-2"). This FSP amends the other-than-temporary guidance for debtsecurities in existing US GAAP to make the guidance more operational and toimprove the presentation and disclosure of other-than-temporary impairments ondebt and equity securities in the financial statements. The adoption of FSP No.FAS 115-2 and FAS 124-2 did not have an impact on Shire's consolidatedfinancial position, results of operations or cash flow statements.
FSP No. FAS 107-1 and APB 28-1
On June 15, 2009 Shire adopted FSP No. FAS 107-1 and APB 28-1, "InterimDisclosures about Fair Value of Financial Instruments" ("FSP No. 107-1 and APB28-1"). This FSP amends SFAS No. 107, "Disclosures about Fair Value ofFinancial Instruments", to require disclosures about fair value of financialinstruments for interim reporting periods. The disclosures required by FSP No.FAS 107-1 and APB 28-1 have been included in Note 18.
d. Accounting pronouncements to be adopted in future periods
SFAS No. 168
In June 2009 the FASB issued SFAS No. 168, "The "FASB Accounting StandardsCodificationTM" and the Hierarchy of Generally Accepted Accounting Principles"("SFAS No. 168"). SFAS No. 168 establishes the FASB Accounting StandardsCodificationTM ("Codification") as the single source of authoritative US GAAPrecognized by the FASB to be applied by nongovernmental entities.
When effective, the Codification will supersede all existing non-SEC accounting and reporting standards. Following SFAS No. 168, the FASB will issue new guidance in the form of Accounting Standards Updates. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009.
SFAS No. 167
In June 2009 the FASB issued SFAS No. 167, "Amendments to FASB InterpretationNo. 46(R)" ("SFAS No. 167"). SFAS No. 167 is a revision of FASB InterpretationNo. 46 (Revised December 2003), "Consolidation of Variable Interest Entities",and changes how a reporting entity determines when an entity that isinsufficiently capitalized or is not controlled through voting (or similarrights) should be consolidated. The determination of whether a reporting entityis required to consolidate another entity is based on, among other things, theother entity's purpose and design and the reporting entity's ability to directthe activities of the other entity that most significantly impact the otherentity's economic performance. SFAS No. 167 will also require a reportingentity to provide additional disclosures about its involvement with variableinterest entities and any significant changes in risk exposure due to thatinvolvement. SFAS No. 167 is effective for financial statements issued forfiscal years and interim periods within those fiscal years beginning afterNovember 15, 2009. Early adoption is not permitted. Shire is currentlyevaluating the impact of the adoption of SFAS No. 167.
SFAS No. 166
In June 2009 the FASB issued SFAS No. 166, "Accounting for Transfers ofFinancial Assets" ("SFAS No. 166"). SFAS No. 166 is a revision of SFAS No. 140,"Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities" and will require more information about transfers of financialassets, including securitization transactions, and where entities havecontinuing exposure to the risks related to transferred financial assets. Iteliminates the concept of a "qualifying special-purpose entity," changes therequirements for derecognizing financial assets, and requires additionaldisclosures. SFAS No. 166 is effective for financial statements issued forfiscal years and interim periods within those fiscal years beginning afterNovember 15, 2009. Early adoption is not permitted. Shire is currentlyevaluating the impact of the adoption of SFAS No. 166.
FASB Accounting Standards Update 2009-01
FASB Accounting Standards Update 2009-01, "Topic 105-Generally Accepted Accounting Principles amendments based on SFAS No. 168", amends the Codification for the issuance of SFAS No. 168.
FASB Accounting Standards Update 2009-02
FASB Accounting Standards Update 2009-02, "Omnibus Update-Amendments to VariousTopics for Technical Corrections" makes a number of technical corrections tovarious topics in the Codification.
2. Business combinations
EQUASYM IR and XL
On March 31, 2009 Shire acquired the worldwide rights (excluding the US, Canadaand Barbados) to EQUASYM IR and XL for the treatment of attention deficit andhyperactivity disorder ("ADHD") from UCB for cash consideration of $72.8million. Included within the recognized purchase price for the acquisition isfurther consideration of $18.2 million, which may become payable in 2009 and2010 if certain targets are met. This acquisition will broaden the scope ofShire's ADHD portfolio and will facilitate immediate access to the EuropeanADHD market as well as provide Shire the opportunity to enter additionalmarkets around the world.The acquisition of EQUASYM IR and XL has been accounted for as a businesscombination in accordance with SFAS No. 141(R). The purchase price has beenallocated on a preliminary basis to the currently marketed products acquired($73.0 million), in-process research and development ("IPR&D") ($5.5 million),other liabilities ($0.7 million) and goodwill ($13.2 million). The goodwill hasbeen assigned to the Specialty Pharmaceuticals segment.
Jerini acquisition
During the third quarter of 2008, Shire launched a voluntary public takeoveroffer for all outstanding shares in Jerini, a German corporation, at a price ofEUR6.25 per share. By December 31, 2008 Shire had acquired rights to 98.6% of thevoting interests in Jerini for a cash consideration of $556.5 million, by (i)subscribing for new Jerini shares; (ii) acquiring voting interests through thecompletion of sale and purchase agreements entered into with institutionalshareholders and certain members of Jerini's Management and Supervisory Boards;and (iii) acquiring voting interests through market purchases. The acquisitionadded Jerini's hereditary angioedema ("HAE") product FIRAZYR to Shire'sportfolio.During the six months to June 30, 2009 through on-market purchases Shireacquired additional voting interests totaling 0.2% of Jerini's issued sharecapital, for a cash consideration including direct acquisition costs of $2.7million. These additional voting interests have been accounted for asstep-acquisitions using the purchase method of accounting. In respect of thestep acquisitions made in 2009, Shire has recognized additional goodwill of$1.7 million, intangible assets in respect of the currently marketed product of$0.7 million, and IPR&D of $0.3 million. By June 30, 2009 Shire had acquiredrights to a 98.8% voting interest in Jerini for a total consideration of $559.2million.Shire and Jerini continue to follow procedures under German law to effect theacquisition of the remaining shares. On April 24, 2009 Shire (through itswholly owned subsidiary, Shire Deutschland Investments GmbH) informed theSupervisory Board and Management Board of Jerini that it would offer EUR7.53 pershare for the remaining shares. On June 16, 2009 the annual general meeting("AGM") of Jerini resolved upon the transfer of the remaining Jerini shares toShire Deutschland Investments GmbH against an adequate cash settlement of EUR7.53per share. Minority shareholders may challenge this 'squeeze out' resolutionby filing legal complaints within one month of the AGM. One complaint has beenserved on Jerini, who are considering the complaint and will respond in duetime.During the second quarter of 2009, the Management and Supervisory Board ofJerini announced the closure of both Jerini Ophthalmic, Inc. ("JOI") andcertain other pre-clinical operations. Following this announcement Shireadjusted its preliminary purchase price allocation to recognize assumedliabilities for onerous contract costs and employee involuntary terminationcosts to be incurred on closure of these operations totaling $9.1 million. Thisadjustment to the preliminary purchase price allocation and additional goodwillrecognized on the acquisition of additional voting interests during 2009 hasincreased the goodwill arising on the acquisition of Jerini to $158.8 million.
3. Termination costs
In August 2006, Shire and Duramed Pharmaceuticals, Inc., a subsidiary of Teva,("Duramed") entered into an agreement related to SEASONIQUE, a number ofproducts using Duramed's transvaginal ring technology and other oral products(the "Collaboration Products"). Under this agreement, Shire was required toreimburse Duramed for US development expenses incurred on CollaborationProducts up to a maximum of $140 million over eight years from September 2006,and Shire had the right to commercialize these products in a number of marketsoutside of North America, including the larger European markets.On February 24, 2009 Shire and Duramed amended this agreement so that it willnow terminate on December 31, 2009. Pursuant to this amendment, Shire agreed toreturn to Duramed its rights under the agreement effective February 24, 2009.Shire also agreed to reimburse Duramed for incurred US development expendituresin 2009 up to a maximum of $30.0 million. Shire has no rights with respect tothe products on which such development expenditures are incurred. In addition,Shire agreed to a one-time payment to Duramed of $10.0 million, (which was paidduring the first quarter of 2009), and to forego royalties receivable from Barr(a subsidiary of Teva) and cost of goods otherwise payable by Barr to Shire in2009 under the License Agreement between the parties for the supply ofauthorized generic ADDERALL XR, up to a maximum of $25.0 million. During thesix months to June 30, 2009 Shire recorded a charge of $65.0 million toresearch and development to reflect the cash payment made in Q1 2009 and othertermination related costs. At December 31, 2008 Shire's maximum futurereimbursement for Duramed incurred development expenditure was $95.6 million.A reconciliation of the contract termination liability is presented below: Six months to June Amount charged Amount paid Utilization Closing 30, 2009 to R&D of reserve liability $'M $'M $'M $'M _____________ _____________ _____________ _____________ Contract termination 65.0 (16.2) (22.6) 26.2costs _____________ _____________ _____________ _____________
The charge of $65.0 million has been included within the Specialty Pharmaceuticals segment in Shire's segmental analysis, see Note 20.
4. In-process R&D charge
On June 4, 2008 Shire completed the acquisition of the global rights toMETAZYM, a clinical candidate arylsulfatase-A, from Zymenex for $135.0 millionin cash. Upon completion in 2008, Shire recognized an IPR&D charge of $135.0million in respect of the acquired development project.
5. Reorganization costs
Owings Mills
In March 2009 Shire's management approved and initiated plans to phase outoperations and close Shire's Specialty Pharmaceuticals manufacturing facilityat Owings Mills, Maryland. Over the next three years, all products currentlymanufactured by Shire at this site will transition to DSM PharmaceuticalProducts, and operations and employee numbers at the site will wind down overthis period. During the six months to June 30, 2009 Shire incurredreorganization costs totaling $5.1 million which relate to employee involuntarytermination benefits of $1.9 million, impairment charges for property, plantand equipment of $2.6 million and other costs of $0.6 million. At June 30, 2009a liability for reorganization costs of $1.1 million was included in accountspayable and accrued expenses.As a result of the decision to transfer manufacturing from the Owings Millssite Shire has revised the life of property, plant and equipment in thefacility, and has incurred accelerated depreciation of $3.0 million, which hasbeen charged to cost of product sales in the six months to June 30, 2009. Thesereorganization costs and accelerated depreciation have been recorded within theSpecialty Pharmaceuticals operating segment.
Jerini non-core operations
In the second quarter of 2009 as outlined in Note 2, the operations of JOI andcertain other non-core pre-clinical operations acquired with Jerini were closeddown. At June 30, 2009 a liability for costs associated with these closures,totaling $9.1 million, relating to employee involuntary termination benefitsand other closure costs, has been included within accounts payable and accruedexpenses with a corresponding increase to goodwill arising on the acquisition.
The aggregate liability for re-organization costs arising on the Owing Mills and Jerini closures at June 30, 2009 is as follows:
Six months to June Amount charged Assumed Paid Closing30, 2009 to liability Liability at re-organization through $'M business $'M $'M combinations $'M _____________ _____________ _____________ _____________ Involuntary 1.9 5.5 (0.8) 6.6termination benefits Contract termination - 3.6 - 3.6costs Other termination 0.6 - (0.6) -costs _____________ _____________ _____________ _____________ 2.5 9.1 (1.4) 10.2 Impairment charges 2.6 _____________ _____________ _____________ _____________ 5.1 _____________
6. Integration and acquisition costs
Integration costs of $2.3 million (2008: $nil), primarily relating to the integration of Jerini into Shire, were incurred in the six months to June 30, 2009.
Acquisition costs of $1.5 million (2008: $nil), primarily relating to directacquisition costs and changes in the fair value of contingent considerationrecognized on the acquisition of EQUASYM, were incurred in the six months toJune 30, 2009.
7. Accounts receivable, net
Accounts receivable at June 30, 2009 of $424.7 million (December 31, 2008: $395.0 million), are stated net of a provision for discounts and doubtful accounts of $12.9 million (December 31, 2008: $20.2 million).
Provision for discounts and doubtful accounts:
2009 2008 $'M $'M _____________ _____________ As at January 1 20.2 9.8
Provision charged to operations 54.1
41.6 Provision utilization (61.4) (38.6) _____________ _____________ As at June 30 12.9 12.8 _____________ _____________ 8. Inventories Inventories at June 30, 2009 of $166.6 million (December 31, 2008: $154.5million) are stated at the lower of cost or market and are analyzed as follows: June 30, December 31, 2008 2009 $'M $'M _____________ _____________ Finished goods 52.0 41.4 Work-in-process 81.9 78.7 Raw materials 32.7 34.4 _____________ _____________ 166.6 154.5 _____________ _____________At June 30, 2009 inventories included $18.0 million (December 31, 2008: $11.5million) of costs capitalized prior to the regulatory approval of the relevantproduct.
9. Assets held for sale and discontinued operations
At June 30, 2009 assets held for sale had a carrying value of $1.7 million(December 31, 2008: $16.6 million). At December 31, 2008 assets held for saleincluded $14.9 million for the operations of JOI and Jerini PeptideTechnologies GmbH, ("JPT"), which were acquired through the Jerini acquisitionbut were deemed non-strategic to the combined business. Since the acquisitionof Jerini, Shire has classified JOI and JPT as disposal groups, held for saleand as discontinued operations. In May 2009, JPT was divested for cashconsideration of $6.7 million, and a loss on disposal of $0.5 million has beenrecognized within discontinued operations for the six months to June 30, 2009.During the second quarter of 2009 it was determined that JOI was no longergoing to be divested, and its assets were reclassified as held-and-used,resulting in a re-measurement adjustment of $5.9 million being recognized torecord these assets at the lower of their fair value and carrying value.However Shire subsequently closed JOI during the second quarter of 2009 and JOIwas reclassified as a discontinued operation. The re-measurement adjustment hasaccordingly been presented within discontinued operations.Shire has presented JOI and JPT as discontinued operations, recording a netloss from these operations of $12.4 million in the six months to June 30, 2009(2008: $nil). Revenues and the pre-tax loss from discontinued operations forthe six months to June 30, 2009 were $2.3 million (2008: $nil) and $12.4million (2008: $nil) respectively.The remaining held for sale assets are represented by intangible assets andattributed goodwill for certain products divested to Laboratories Almirall S.A.("Almirall") in 2007. The recognition of the gains arising on the disposal ofthese products and the de-recognition of the related assets have been deferredpending the completion of the transfer of the relevant regulatory and otherconsents to the acquirer. These assets divested to Almirall form part of theSpecialty Pharmaceuticals operating segment.
10. Prepaid expenses and other current assets
11. June 30, December 31, 2008 2009 $'M $'M _____________ _____________ Prepaid expenses 37.9 47.6 Income tax receivable 33.2 33.2 Value added taxes receivable 59.5 19.3
Supplemental Executive Retirement Plan ("SERP") 7.0
7.2investment Other current assets 36.7 34.1 _____________ _____________ 174.3 141.4 _____________ _____________ 11. Investments 12. June 30, December 31, 2008 2009 $'M $'M _____________ _____________
Investments in private companies 3.9
19.3 Available-for-sale securities 72.8 6.1 Equity method investments 13.5 17.5 _____________ _____________ 90.2 42.9 _____________ _____________ On March 12, 2009 Shire completed the disposal of its minority equityinvestment in Virochem to Vertex in a cash and stock transaction. The disposalwas part of a transaction entered into by all the shareholders of Virochem withVertex. The carrying amount of this minority equity investment on March 12,2009 was $14.8 million. Shire received total consideration of $19.2 million incash and two million Vertex shares (valued at $50.8 million) from the disposal,recognizing a gain on disposal of $55.2 million which has been recorded toOther income, net during the six months to June 30, 2009.Additional consideration of $2.0 million in cash and 0.2 million Vertex sharesis being held in escrow until March 11, 2010 pending any warranty claims andbreaches of representations made by Virochem and by all selling shareholders,including Shire. The escrow conditions are considered substantive and hence again has not been recognized relating to these amounts in the six months toJune 30, 2009. The Vertex stock received has been accounted for as anavailable-for-sale investment and included within non-current investments.
12. Other intangible assets, net
13. June 30, December 31, 2008 2009 $'M $'M _____________ _____________
Intellectual property rights acquired
Currently marketed products 2,336.6 2,253.2 IPR&D 5.5 -
Favorable manufacturing contracts 8.7
8.7 _____________ _____________ 2,350.8 2,261.9 Less: Accumulated amortization (504.6) (437.0) _____________ _____________ 1,846.2 1,824.9 _____________ _____________Intellectual property rights relate to currently marketed products and IPR&Dfor those acquired products which have not yet obtained regulatory approval;following the introduction of SFAS No. 141(R) IPR&D acquired in a businesscombination is capitalized as an indefinite lived intangible asset. At June 30,2009 the net book value of these intellectual property rights allocated to theSpecialty Pharmaceuticals operating segment was $1,282.8 million (December 31,2008: $1,244.9 million) and in the Human Genetic Therapies operating segmentwas $562.6 million (December 31, 2008: $579.3 million).
The increase in the net book value of other intangible assets for the six months to June 30, 2009 is shown in the table below:
Other intangible assets $'M As at January 1, 2009 1,824.9 Acquisitions 79.2 Amortization charged (67.4)
Foreign currency translation
9.5 _____________ As at June 30, 2009 1,846.2 _____________During the six months to June 30, 2009 Shire acquired intangible assetstotaling $79.2 million being $78.5 million for EQUASYM IR and XL for thetreatment of ADHD ($73.0 million for currently marketed products and $5.5million for IPR&D) and $0.7 million for FIRAZYR for the treatment of acute HAEin the European Union ("EU") (acquired through the Jerini businesscombination). The weighted average amortization period for acquired currentlymarketed products is 13 years.Following the introduction of SFAS No. 141(R) intellectual property rightsrelating to IPR&D acquired in a business combination are considered indefinitelived until the completion or abandonment of the associated research anddevelopment ("R&D") efforts. Once the R&D efforts are completed the useful lifeof the relevant assets will be determined. Management estimates that the annualamortization charge in respect of intangible assets held at June 30, 2009 willbe approximately $142 million for each of the five years to June 30, 2014.Estimated amortization expense can be affected by various factors includingfuture acquisitions, disposals of product rights, regulatory approval andsubsequent amortization of the acquired IPR&D projects, foreign exchangemovements and the technological advancement and regulatory approval ofcompetitor products.
13. Accounts payable and accrued expenses
14. June 30, December 31, 2008 2009 $'M $'M _____________ _____________ Trade accounts payable 76.5 102.4 Accrued rebates - Medicaid 201.0 162.6 Accrued rebates - Managed care 136.3 59.9 Sales return reserve 49.7 47.1 Accrued bonuses 39.5 62.0 Accrued employee compensation and benefits 41.8 36.7payable Accrued coupons 6.2 4.0 Research and development accruals 37.3 29.3 Marketing accruals 32.6 22.1 Deferred revenue 15.2 9.6 Other accrued expenses 171.5 172.9 _____________ _____________ 807.6 708.6 _____________ _____________
Accrued Medicaid rebates have increased by $38.4 million to $201.0 million atJune 30, 2009 (2008: $162.6 million). The higher rebate liability hasprincipally resulted from the impact of price increases for certain products onthe unit rebate amount ("URA"), together with increased accrued rebates onADDERALL XR as a consequence of the shipment of authorized generic ADDERALL XRto Teva from April 2009 and the impact of including these sales in the Medicaidrebate calculation pursuant to the Deficit Reduction Act of 2005 (the "DRA").Accrued Managed Care rebates have increased by $76.4 million to $136.3 million(2008: $59.9 million), principally due to higher rebates on ADDERALL XR offeredto Managed Care Organizations ("MCOs") from April 1, 2009.
14. Other current liabilities
15. June 30, December 31, 2008 2009 $'M $'M _____________ _____________ Income taxes payable 7.1 25.8 Value added taxes 7.9 4.4 Derivative financial instruments 9.3 46.9 Other accrued liabilities 38.1 27.2 _____________ _____________ 62.4 104.3 _____________ _____________
15. Other non-current liabilities
16. June 30, December 31, 2008 2009 $'M $'M _____________ _____________ Income taxes payable 202.5 220.4 Deferred revenue 21.2 29.5 Deferred rent 15.3 16.1 Insurance provisions 20.8 18.1 Other accrued liabilities 15.2 7.2 _____________ _____________ 275.0 291.3 _____________ _____________
16. Commitments and contingencies
a. Leases
Future minimum lease payments presented below include operating lease payments under lease arrangements as at June 30, 2009:
Operating leases $'M _____________ 2009 16.9 2010 32.0 2011 26.6 2012 18.7 2013 16.9 2014 16.7 Thereafter 59.4 _____________ 187.2 _____________ i. Operating leases Shire leases land, facilities, motor vehicles and certain equipment underoperating leases expiring through 2025. Lease and rental expense amounted to$16.4 million for the six months to June 30, 2009, which is predominatelyincluded in Selling, general and administrative expenses in the accompanyingstatements of income (2008: $15.6 million).
b. Letters of credit and guarantees
At June 30, 2009 Shire had irrevocable standby letters of credit with variousbanks, in the amount of $8.2 million, providing security on the recoverabilityof insurance claims. Shire has restricted cash of $8.2 million, as required bythese letters of credit.
c. Collaborative arrangements
Shire enters into collaborative arrangements to develop and commercialize drugcandidates. These collaborative arrangements often require either up-front,milestone, royalty or profit share payments, or a combination of the foregoing,with payments often contingent upon the success of the related development andcommercialization efforts. Collaboration agreements entered into by Shire mayalso include expense reimbursements or other such payments to the collaborativepartner.Shire reports costs incurred and revenue generated from transactions with thirdparties as well as payments between parties to collaborative arrangementspursuant to the guidance in EITF 99-19 "Reporting Revenue Gross as a principalversus net as an agent", or, where appropriate, by analogy to otherauthoritative accounting literature.
Further details of significant collaborative arrangements are included below.
In-licensing arrangements
i. Alba Therapeutics Corporation ("Alba")
On December 14, 2007 Shire acquired worldwide rights to SPD550 (also known asAT-1001), in markets outside of the US and Japan, from Alba. SPD550 is Alba'slead inhibitor of barrier dysfunction in various gastrointestinal disordersthat is currently in Phase 2 development for the treatment of Celiac disease.Shire has remaining obligations to pay development and sales milestones up to amaximum of $300 million. Shire will also pay single or double digit tieredroyalties on net sales of the product.
Alba and Shire have formed a joint development committee to monitor R&D activities of SPD550. Alba will fund all development until SPD550 has completed Proof of Concept, which is expected to be in the second half of 2009, after which Shire and Alba will share equally development costs under a joint development plan.
ii. Amicus
On November 7, 2007 Shire licensed from Amicus the rights to threepharmacological chaperone compounds in markets outside of the US: AMIGAL(HGT-3310) for Fabry disease, PLICERA (HGT-3410) for Gaucher Disease andHGT-3510 (formerly referred to as AT2220) for Pompe disease which are currentlyin Phase 2 development. Under the terms of the collaboration Shire will paydevelopment and sales milestones up to a maximum of $390 million, and will alsopay tiered, double digit, royalties on net sales of the products. Shire andAmicus will pursue a joint development program toward market approval in the USand Europe; expenses for this program will be shared equally. R&Dreimbursements from Amicus to Shire will be credited by Shire to R&D, andreimbursements from Shire to Amicus charged by Shire to R&D. In the six monthsto June 30, 2009 Shire recorded R&D expenses of $7.2 million for reimbursementof shared development costs (2008: $3.2 million).
iii. JUVISTA
On June 19, 2007 Shire signed an agreement with Renovo to develop andcommercialize JUVISTA, Renovo's novel drug candidate being investigated for thereduction of scarring in connection with surgery. Renovo has commenced itsfirst pivotal Phase 3 clinical trial in Europe. Under the terms of theagreement, Shire has the exclusive right to commercialize JUVISTA worldwide,with the exception of the EU member states.Shire has remaining obligations to pay Renovo $25 million on the filing ofJUVISTA with the US Food and Drug Administration ("FDA"); up to $150 million onFDA approval; royalties on net sales of JUVISTA; and up to $525 million on theachievement of very significant sales targets.Shire will bear the cost of clinical trials designed specifically for obtainingUS regulatory approval. Renovo will bear the costs of clinical trials designedspecifically for obtaining EU regulatory approval. Shire and Renovo will shareequally the costs of conducting global clinical trials that are designed forobtaining both US and EU regulatory approvals. In the six months to June 30,2009, Shire made payments to Renovo of $0.5 million (2008: $2.1 million) whichhas been charged by Shire to R&D.
iv. Women's Health Products
In August 2006, Shire and Duramed entered into an agreement related to certainCollaboration Products. Under this agreement, Shire was required to reimburseDuramed for US development expenses incurred in respect of the CollaborationProducts up to a maximum of $140 million over eight years from September 2006,and Shire had the right to commercialize these products in a number of marketsoutside of North America, including the larger European markets.
On February 24, 2009 Shire and Duramed amended this agreement and it will terminate on December 31, 2009. Pursuant to this amendment, Shire agreed to return to Duramed its rights under the agreement effective February 24, 2009. For further information on this amendment see Note 3.
Out-licensing arrangements
Shire has entered into various collaborative arrangements under which Shire hasout-licensed certain product or intellectual property rights for considerationsuch as up-front payments, development milestones, sales milestones and/orroyalty payments. In certain of these arrangements Shire and the licensee areboth actively involved in the development and commercialization of the licensedproduct and have exposure to risks and rewards dependent on its commercialsuccess. In the six months to June 30, 2009 Shire received milestone paymentstotaling $4.0 million (2008: $nil) and these payments will be recognized inOther revenues. In the six months to June 30, 2009 Shire also recognizedmilestone income of $3.1 million (2008: $2.8 million) within Other revenues andProduct sales of $12.3 million (2008: $6.5 million) for shipment of product
tothe relevant licensee.Co-promotion agreements(i) VYVANSEOn March 31, 2009 Shire announced a co-promotion agreement with GSK for VYVANSEwith the aim of improving recognition and treatment of ADHD in adults. Thethree year agreement covers the United States and will more than double thereach and frequency of the current sales effort for VYVANSE. The agreement isbased on profit sharing above an agreed upon baseline and these profit sharepayments will be included within Selling, general and administrative costs.
(ii) LIALDA
As of March 31, 2009 Shire terminated the agreement with Takeda PharmaceuticalsNorth America, Inc., successor to TAP Pharmaceutical Products, Inc., relatingto the co-promotion of LIALDA in the US.
d. Commitments
(i) Other R&D and sales milestones
In addition to the commitments under the collaborative arrangements set out in(c), at June 30, 2009 Shire had fees and commitments payable on achievement ofspecified milestones for products under development in-licensed from thirdparties of $1.0 million (December 31, 2008: $1.0 million).
(ii) Clinical testing
At June 30, 2009 Shire had committed to pay approximately $125.6 million(December 31, 2008: $99.5 million) to contract vendors for administering andexecuting clinical trials. Shire expects to pay $83.9 million of thesecommitments in 2009. However, the timing of these payments is dependent uponactual services performed by the organizations as determined by patientenrollment levels and related activities.
(iii) Contract manufacturing
At June 30, 2009 Shire had committed to pay approximately $53.1 million (December 31, 2008: $67.0 million) in respect of contract manufacturing. Shire expects to pay $50.9 million of these commitments in 2009.
(iv) Purchase and service commitments
At June 30, 2009 Shire had committed to pay approximately $34.5 million (December 31, 2008: $42.6 million) for future purchases and services, predominantly relating to active pharmaceutical ingredients sourcing and IT outsourcing, which may all be payable in 2009.
v. Investment commitments
At June 30, 2009 Shire had outstanding commitments to subscribe for interestsin companies and partnerships for amounts totaling $5.7 million (December 31,2008: $5.7 million) which may all be payable in 2009, depending on the timingof capital calls.vi. Capital commitments At June 30, 2009 Shire had committed to spend $79.1 million (December 31, 2008:$95.4 million) on capital projects. This includes commitments for the expansionand modification of its offices in Basingstoke, UK and its HGT campus inLexington, Massachusetts.vii. Legal proceedings GeneralShire recognizes loss contingency provisions for probable losses whenmanagement is able to reasonably estimate the loss. Where the estimated losslies within a range and no particular amount within that range is a betterestimate than any other amount, the minimum amount is recorded. In other casesmanagement's best estimate of the loss is recorded. These estimates aredeveloped substantially before the ultimate loss is known and the estimates arerefined in each accounting period in light of additional information becomingknown. In instances where Shire is unable to develop a reasonable estimate ofloss, no litigation loss is recorded at that time. As information becomes knowna loss provision is set up when a reasonable estimate can be made. Theestimates are reviewed quarterly and the estimates are changed whenexpectations are revised. Any outcome upon settlement that deviates from Shire's estimate may result in an additional expense in a future accounting period.At June 30, 2009 provisions for litigation losses, insurance claims and otherdisputes totaled $22.5 million (December 31, 2008: $20.8 million).
Specific
There are various legal proceedings brought by and against Shire that arediscussed in Shire's Annual Report for the year to December 31, 2008. Materialupdates to the proceedings discussed in Shire's Annual Report are describedbelow. There is no assurance that Shire will be successful in any of theseproceedings and if it is not, there may be a material impact on Shire's resultsand financial position.ADDERALL XR i. Sandoz In December 2006, Shire was notified that Sandoz, Inc. ("Sandoz") had submittedan Abbreviated New Drug Application ("ANDA") under the Hatch-Waxman Act seekingpermission to market its generic versions of the 5mg, 10mg, 15mg, 20mg, 25mgand 30mg strengths of ADDERALL XR prior to the expiration of US Patent No.6,322,819 ("the `819 Patent") and US Patent No. 6,605,300 ("the `300 Patent"),the Shire patents that cover ADDERALL XR. On January 26, 2007 Shire filed suitin the US District Court for the District of Colorado for infringement of the`819 and `300 Patents. Pursuant to the Hatch-Waxman Act, there was a 30 monthstay with respect to Sandoz' proposed generic products which have now expired.In response to the parties' summary judgment motions, the court, in a decisiondated September 24, 2008, (a) granted Shire's motion to strike Sandoz'affirmative defenses of alleged patent misuse and sham litigation; (b) deniedSandoz' motion of non-infringement; and (c) construed certain terms of thepatent claims. Sandoz' motion for immediate appeal on the issue of whether apatentee who settles an earlier infringement case after a Markman ruling hasissued is precluded under the doctrine of collateral estoppel from relitigatingclaim-construction issues determined in the prior case (in this instance, theprior case was Shire v Impax from the Delaware court) was granted by theColorado court. On February 6, 2009 the Court of Appeals for the FederalCircuit ("CAFC") also granted Sandoz' petition for appeal as to this question.The Colorado case remains administratively closed until there is a decision
from the CAFC.CARBATROL i. Nostrum In August 2003, Shire was notified that Nostrum Pharmaceuticals, Inc.("Nostrum") had submitted an ANDA under the Hatch-Waxman Act seeking permissionto market its generic version of the 300mg strength of CARBATROL (Nostrum'sANDA product) prior to the expiration date of Shire's US patents for CARBATROL,US patent No. 5,912,013 ("the `013 Patent") and US patent No. 5,326,570 ("the`570 Patent"). On September 18, 2003, Shire filed suit against Nostrum in theUS District Court for the District of New Jersey alleging infringement of thesetwo patents by Nostrum's ANDA and ANDA product. Pursuant to the Hatch-WaxmanAct, there was a 30 month stay with respect to Nostrum's ANDA product whichexpired in February 2006. Nostrum could be in a position to market its 300mgextended-release carbamazepine product upon FDA final approval of its ANDA. OnJanuary 23, 2004 Shire amended the complaint to drop the allegations withrespect to the `013 Patent while maintaining the suit with respect to the `570Patent. On July 17, 2006 the Court entered an order staying discovery.In May 2008, Shire was notified that Nostrum had submitted an amendment to theabove referenced ANDA seeking permission to market its generic versions of the100mg and 200mg strengths of CARBATROL prior to the expiration date of Shire's`013 and `570 Patents. On July 2, 2008 Shire filed suit against Nostrum in theUS District Court for the District of New Jersey alleging infringement of thesetwo patents by Nostrum's ANDA and ANDA products. Pursuant to the Hatch-WaxmanAct, there is a 30 month stay with respect to Nostrum's 100mg and 200mg ANDAproducts which will expire in November 2010. This case was referenced asrelated to the earlier filed case on Nostrum's 300 mg product and has beenassigned to the same Judge as the earlier ongoing case. In a December 15, 2008decision the court decided that the two cases should proceed separately. Notrial date has been set for either case.
ii. Corepharma
On March 30, 2006 Shire was notified that Corepharma LLC ("Corepharma") hadfiled an ANDA under the Hatch-Waxman Act seeking permission to market itsgeneric version of carbamazepine extended release products in 100mg, 200mg and300mg strengths prior to the expiration date of the `013 and the `570 Patents.On May 17, 2006 Shire filed suit against Corepharma in the US District Courtfor the District of New Jersey alleging infringement of these two patents byCorepharma's ANDA and ANDA products. Pursuant to the Hatch-Waxman Act, therewas a 30 month stay with respect to Corepharma's proposed generic productswhich expired in October 2008. The Court rendered a claim construction rulingon March 26, 2008. On September 23, 2008 the Court issued a decision denyingCorepharma's summary judgment motion for noninfringement of the `570 patent. Inan order dated October 31, 2008 the Court granted Corepharma's motion forsummary judgment of non-infringement of the `013 Patent. The litigation wassettled on July 14, 2009. No payments to Corepharma are involved in thesettlement. As required by law, Shire has submitted to the US Federal TradeCommission and the US Department of Justice all of the agreements entered intoas part of this settlement.iii. Teva
On March 20, 2007 Shire was notified that Teva USA had filed an ANDA under theHatch-Waxman Act seeking permission to market its generic version ofcarbamazepine extended release products in 100mg, 200mg and 300mg strengthsprior to the expiration date of the `013 and the `570 Patents. On May 2, 2007Shire filed suit against Teva in the US District Court for the SouthernDistrict of New York alleging infringement of the `013 and the `570 Patents byTeva's ANDA and ANDA products. On August 23, 2007 Shire amended the complaintto drop the allegations with respect to the `013 Patent while maintaining thesuit with respect to the `570 Patent. Teva USA raised counterclaims that the`570 and `013 Patents were not infringed. Shire has offered Teva USA a covenantnot to sue with respect to the `013 Patent. The Court held a status conferenceon October 16, 2007. Teva withdrew its counterclaim directed to the `013patent. Fact discovery has been completed and expert delivery is on hold. Notrial date has been set.iv. Apotex In May 2008, Shire was notified that Apotex, Inc. had submitted an ANDA underthe Hatch-Waxman Act seeking permission to market its generic version ofcarbamazepine extended release products in 100mg, 200mg and 300mg strengthsprior to the expiration date of the `013 and the `570 Patents. On July 2, 2008Shire filed a lawsuit in the US District Court for the Eastern District ofTexas against Apotex, Inc., Apotex Corp. and Apotex Pharmaceutical Holdings,Inc. (collectively; "Apotex") alleging infringement of the `013 and `570Patents by Apotex ANDA and ANDA products. On July 17, 2008 Apotex, Inc. filed adeclaratory judgment complaint against Shire for noninfringement and invalidityof the `570 and `013 patents in the District of New Jersey. In a December 28,2008 decision the Texas Court transferred the case to New Jersey. The DistrictCourt of New Jersey has accepted the Texas case and consolidated it with thepending case in New Jersey. No trial date has been set.
v. Actavis
Shire has been notified that Actavis South Atlantic LLC has submitted an ANDAunder the Hatch-Waxman Act seeking permission to market its generic version ofcarbamazepine extended release products in 200mg and 300mg strengths prior tothe expiration date of the `013 and the `570 Patents. On July 24, 2008 Shirefiled a lawsuit in the US District Court for the Eastern District of Texasagainst Actavis South Atlantic LLC and Actavis, Inc. (collectively "Actavis")alleging infringement of the `013 and `570 Patents by the Actavis ANDA and ANDAproducts. By an Order dated December 30, 2008 the judge in the Texas case suasponte transferred the case to the District Court of New Jersey. The litigationwas settled on February 20, 2009. No payments to Actavis are involved in thesettlement. As required by law, Shire has submitted to the US Federal TradeCommission and the US Department of Justice all of the agreements entered intoas part of this settlement.REMINYLOn January 29, 2008 Generics UK Limited ("Generics UK") commenced arectification action in the UK seeking a declaration that the duration of theSupplementary Protection Certificate ("SPC") for EP 236684, the patent thatclaims the use of galantamine for the treatment of Alzheimer's disease, is zero(i e. the period of exclusivity conferred by the patent has already expired).This SPC represents the primary patent protection for REMINYL in the EU. Thecurrent term of the SPC extension runs to January 2012. This case was heard inDecember 2008 and the court's decision upholding the SPC was handed down on May20, 2009. Generics UK have appealed. The appeal will be heard in October 2009.Data exclusivity for REMINYL was the subject of a judicial review actioncommenced by Generics UK Limited against the UK Medicines and Healthcareproducts Regulatory Agency ("MHRA") for the MHRA's refusal to grant Generics amarketing authorization for a generic version of REMINYL. This case wasreferred to the European Court of Justice ("ECJ") in November 2007, where thecase was heard in November 2008. The ECJ's decision in favour of the MHRA washanded down on June 18, 2009. Therefore, absent other successful challenges,data exclusivity is upheld until March 2010. On July 13, 2009 Generics UKfiled a notice of discontinuance indicating that they would not be pursuingthis matter any further.
FOSRENOL
In February 2009 Shire received three Paragraph IV Notice letters, from Barr,Mylan, Inc., Mylan Pharmaceuticals, Inc. and Matrix Laboratories, Inc.(collectively "Mylan") and Natco Pharma Limited ("NATCO") related to ANDA's forgeneric versions of 500mg, 750mg and 1,000mg FOSRENOL. Within the requisite 45day period, Shire filed lawsuits in the US District Court of the SouthernDistrict of New York against each of Barr, Mylan, and Natco for infringement ofcertain of Shire's FOSRENOL patents, thus prompting a 30-month stay of approvalof these ANDAs. No trial date has been set.
VYVANSE
On February 24, 2009 Actavis Elizabeth LLC brought a lawsuit against the FDAseeking to overturn the FDA's decision granting new chemical entity exclusivityto VYVANSE. Shire believes the FDA's decision was correct. VYVANSE has newchemical entity exclusivity through February 23, 2012 and patents listed in theOrange Book which expire on June 29, 2023. The lawsuit brought by Actavis hasbeen stayed and the FDA has opened a public docket to enable the public toregister comments on the legal and regulatory issues raised by Actavis.
17. Derivative instruments
Treasury policies and organization
Shire's principal treasury operations are coordinated by its corporate treasuryfunction. All treasury operations are conducted within a framework of policiesand procedures approved annually by the Board of Directors. As a matter ofpolicy, Shire does not undertake speculative transactions that would increaseits currency or interest rate exposure.
Interest rate risk
Shire is exposed to interest rate risk on restricted cash, cash and cashequivalents and on foreign exchange contracts on which interest is at floatingrates. This exposure is primarily to US dollar, Euro and Canadian dollarinterest rates. As Shire maintains all of its investments and foreign exchangecontracts on a short term basis for liquidity purposes, this risk is notactively managed. In the six months to June 30, 2009 the average interest ratereceived on cash and liquid investments was approximately 0.5% per annum. Thelargest proportion of investments was in US dollar money market and liquidityfunds.Shire's financing arrangements at June 30, 2009 comprise of Shire plc's $1,100million in principal amount of 2.75% convertible bonds, due 2014 which wereissued in May 2007. Shire has also recognized a liability for buildingfinancing obligations of $52.3 million in respect of several leases enteredinto between August 2007 and March 2009, where Shire is in substance the ownerof the property during the construction phase and therefore records the assetand corresponding financing obligation. Shire incurs interest at a fixed rateon both the convertible bonds and on the building financing obligations.
No derivative instruments were entered into as of June 30, 2009 or by August 5, 2009 to manage interest rate exposure.
Shire continues to review its interest rate risk and the policies in place to manage the risk.
Market risk of investmentsAs at June 30, 2009 Shire has $90.2 million of investments comprisingavailable-for-sale investments in publicly quoted companies ($72.8 million),equity method investments ($13.5 million) and cost method investments inprivate companies ($3.9 million). The investments in public quoted companiesand equity method investments, for certain investment funds which contain amixed portfolio of public and private investments, are exposed to market risk.No financial instruments or derivatives have been employed to hedge this risk.
Credit risk
Cash is invested in short-term money market instruments, including money market and liquidity funds and bank term deposits. The money market and liquidity funds in which Shire invests are all triple A rated by major credit rating agencies.
Shire is exposed to the credit risk of the counterparties with which it entersinto derivative contracts. Shire aims to limit this exposure through a systemof internal credit limits which require counterparties to have a long termcredit rating of A+ / A1 or better from the major rating agencies. The internalcredit limits are approved by the Board of Directors and exposure against theselimits is monitored by the corporate treasury function. The counterparties tothe derivative contracts are major international financial institutions.Shire has entered into many agreements with third parties for the provision ofservices to enable it to operate its business. If the third party can no longerprovide the service on the agreed basis, Shire may not be able to continue thedevelopment or commercialization of its products as planned or on a commercialbasis. Additionally, it may not be able to establish or maintain goodrelationships with suppliers.
Foreign exchange risk
Shire trades in numerous countries and as a consequence has transactional andtranslational foreign exchange exposure. Transactional exposure arises wheretransactions occur in currencies different to the functional currency of therelevant subsidiary. The main trading currencies of Shire are the US dollar,the Canadian dollar, Pounds Sterling and the Euro. It is Shire's policy thatthese exposures are minimized to the extent practicable by denominatingtransactions in the subsidiary's functional currency.Where significant exposures remain, Shire uses foreign exchange contracts(being spot, forward and swap contracts) to manage the exposure in respect ofbalance sheet assets and liabilities that are denominated in currenciesdifferent to the functional currency of the relevant subsidiary. These assetsand liabilities relate predominantly to intercompany financing and accruals forroyalty receipts. Shire utilizes these derivative instruments to managecurrency risk on balance sheet foreign exchange exposures but the foreignexchange contracts have not been designated as hedging instruments.
Translational foreign exchange exposure arises on the translation into US dollars of the financial statements of non-US dollar functional subsidiaries.
At June 30, 2009 Shire had 15 swap and forward foreign exchange contracts outstanding to manage currency risk with a net fair value at June 30, 2009 of $8.7 million.
These foreign exchange contracts were classified in the unaudited consolidated balance sheet at June 30, 2009 as follows:
Fair value $'M _____________ Assets Prepaid expenses and other current assets 0.6 Liabilities Other current liabilities
(9.3)
Gains and losses (both realized and unrealized) arising on foreign exchange contracts have been classified in the unaudited consolidated statement of income for the six months to June 30, as follows:
Location of net gain/ Amount of net gain/(loss) (loss) recognized in recognized in income income 2009 2008 $'M $'M _____________ _____________ Foreign exchange Other income/(expense) (14.2) (27.8)contracts _____________ _____________
These net foreign exchange gains/(losses) are partially offset within Other income/(expense) by net foreign exchange (losses)/gains arising on the balance sheet items that were managed by these contracts. The swaps and forward contracts mature within 90 days. Shire did not have credit risk related contingent features or collateral linked to the derivatives.
18. Fair value measurement
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following financial assets and liabilities are measured at fair value on a recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
Carrying Fair Value Value $M Total Level 1 Level 2 Level 3 $M $M $M $M _____________ _____________ _____________
_____________ _____________ Financial assets: Available-for-sale 72.8 72.8 72.8 - -securities(1) Equity method 5.5 5.5 - 5.5 -investments(1) Foreign exchange 0.6 0.6 - 0.6 -contracts Financial liabilities: Foreign exchange 9.3 9.3 - 9.3 -contracts _____________ _____________ _____________
_____________ _____________
1. Available-for-sale securities and equity method investments are included
within Investments in the unaudited consolidated balance sheet.
Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown above are not necessarily indicative of the amounts that Shire would realize upon disposition, nor do they indicate Shire's intent or ability to dispose of the financial instrument.
The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:
* Available-for-sale securities - the fair values of available-for-sale investments are estimated based on quoted market prices for those investments. * Equity method investments - Shire's equity method investments comprise unquoted investment funds which hold a portfolio of quoted and unquoted investments. The fair values of quoted investments within the funds are
estimated based on quoted market prices for those investments. For unquoted
investments within the funds, the fair value is estimated using directly
observable inputs other than quoted prices.
* Foreign exchange contracts - The fair value of the swap and forward foreign
exchange contracts has been determined using an income approach based on
current market expectations about the future cash flows
Financial Assets and Liabilities that are not measured at Fair Value on a Recurring Basis
The carrying amounts and estimated fair values of Shire's financial assets andliabilities which are not measured at fair value on a recurring basis are asfollows: June 30, 2009 December 31, 2008 Carrying Fair value Carrying Fair value amount amount $'M $'M $'M $'M _____________ _____________ _____________ _____________ Financial assets: Option over Avexa shares - 0.1 - - Financial liabilities: Convertible bonds 1,100.0 956.4 1,100.0 892.9 Building financing 52.3 42.9 45.6 40.7obligation _____________ _____________ _____________ _____________
Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown above are not necessarily indicative of the amounts that Shire would realize upon disposition, nor do they indicate Shire's intent or ability to dispose of the financial instrument.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate to fair value because of the short-term maturity of these amounts.
The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:
1. Option over Avexa shares - the fair values of the Avexa shares are
estimated based on quoted market prices for the shares.
2. Convertible bonds - the fair value of Shire plc's 2.75% convertible bonds
due 2014 is estimated by reference to the market price of the instrument as
the convertible bonds are publicly traded.
3. Building financing obligations - the fair value of building financing
obligations are estimated based on the present value of future cash flows
associated with these obligations.
19. Earnings per share
The following table reconciles the net income from operations and the weightedaverage ordinary shares outstanding for basic and diluted earnings per sharefor the periods presented:Amounts attributable to Shire plc shareholders 6 months to 6 months to June 30, June 30, 2009 2008 $'M $'M _____________ _____________
Income from continuing operations 269.9
49.6
Loss from discontinued operations (12.4)
-
Noncontrolling interest in subsidiaries 0.2
- _____________ _____________
Numerator for basic earnings per share 257.7
49.6
Interest on convertible bonds, net of tax(1) - (2.2) _____________ _____________
Numerator for diluted earnings per share 257.7
47.4 _____________ _____________
Weighted average number of shares:
Millions Millions _____________ _____________ Basic(2) 539.7 543.7 Effect of dilutive shares:
Stock based awards to employees(3) 5.3
3.2
Convertible bonds 2.75% due 2014(4) - 32.7 _____________ _____________ Diluted 545.0 579.6 _____________ _____________
(1) For the six month period ended June 30, 2009 interest on the convertible bonds has not been added back as the effect would be anti-dilutive.
(2) Excludes shares purchased by the ESOT and presented by Shire as treasury stock.
(3) Calculated using the treasury stock method.
(4) Calculated using the "if-converted" method.
The share equivalents not included in the calculation of the diluted weighted average number of shares are shown below:
6 months to 6 months to June 30, 2009 June 30, 2008 (1) (2) (1) No. of shares No. of shares Millions Millions _____________ _____________
Stock options out of the money 18.9
17.4
Convertible bonds 2.75% due 2014 32.7
- _____________ _____________(1) For the six month periods ended June 30, 2009 and 2008, certain stockoptions have been excluded from the calculation of diluted EPS because theirexercise prices exceeded Shire plc's average share price during the calculationperiod.(2) For the six month period ended June 30, 2009 the ordinary shares underlyingthe convertible bonds have not been included in the calculation of the dilutedweighted average number of shares, because the effect of their inclusion wouldbe anti-dilutive.20. Segmental reporting
Shire's internal financial reporting is in line with its business unit andmanagement reporting structure based on two segments: Specialty Pharmaceuticalsand Human Genetic Therapies ("HGT"). The Specialty Pharmaceuticals and HGToperating segments represent Shire's revenues and costs in respect of currentlypromoted and sold products, together with the costs of developing projects forfuture commercialization. `All Other' has been included in the table below inorder to reconcile the two operating segments to the total consolidatedfigures.Shire evaluates performance based on revenue and operating income. Shire doesnot have inter-segment transactions. Assets that are directly attributable tothe segments have been separately disclosed. Specialty HGT All Other Total Pharmaceuticals 6 months to June 30, $'M $'M $'M $'M2009 _____________ _____________ _____________ _____________ Product sales 1,059.7 254.6 - 1,314.3 Royalties 16.9 - 100.6 117.5 Other revenues 8.1 1.8 5.7 15.6 _____________ _____________ _____________ _____________ Total revenues 1,084.7 256.4 106.3 1,447.4 _____________ _____________ _____________ _____________
Cost of product sales(1) (2) 131.3 41.7 7.0
180.0
Research and development(1) 221.7 117.6 5.3
344.6(2) Selling, general and 465.8 93.9 93.6 653.3administrative(1) (2) Reorganization costs 5.1 - - 5.1
Integration and acquisition 1.5 2.3 -
3.8costs _____________ _____________ _____________ _____________ Total operating expenses 825.4 255.5 105.9 1,186.8 _____________ _____________ _____________ _____________ Operating income 259.3 0.9 0.4 260.6 _____________ _____________ _____________ _____________ Total assets 2,293.7 1,154.1 773.5 4,221.3 Long-lived assets (3) 335.2 206.8 60.1 602.1 Capital expenditure on 21.0 82.7 6.7 110.4long-lived assets (3) _____________ _____________ _____________ _____________
(1) Stock-based compensation of $33.2 million is included in: Cost of product sales ($1.9 million), Research and development ($10.2 million) and Selling, general and administrative ($21.1 million).
(2) Depreciation from manufacturing plants ($11.5 million) and amortization offavorable manufacturing contracts ($0.9 million) is included in Cost of productsales; depreciation of research and development assets ($7.8 million) isincluded in Research and development; and all other depreciation andamortization ($97.5 million) is included in Selling, general andadministrative.(3) Long-lived assets comprise all non-current assets, (excluding goodwill andother intangible assets, deferred tax assets, investments and financialinstruments) based on the geographic location within which the economicbenefits arise. Specialty HGT All Other Total Pharmaceuticals 6 months to June 30, 2008 $'M $'M $'M $'M _____________ _____________ _____________ _____________ Product sales 1,097.9 239.5 - 1,337.4 Royalties 1.0 - 128.9 129.9 Other revenues 4.2 1.3 5.0 10.5 _____________ _____________ _____________ _____________ Total revenues 1,103.1 240.8 133.9 1,477.8 _____________ _____________ _____________ _____________ Cost of product sales(1) 198.6 27.8 6.8 233.2(2) Research and development 154.2 94.0 - 248.2(1) (2) Selling, general and 613.4 77.3 91.7 782.4administrative(1)(2) In-process R&D charge - 135.0 - 135.0 Gain on sale of product (16.7) - - (16.7)rights _____________ _____________ _____________ _____________ Total operating expenses 949.5 334.1 98.5 1,382.1 _____________ _____________ _____________ _____________ Operating income/(loss) 153.6 (93.3) 35.4 95.7 _____________ _____________ _____________ _____________ Total assets 2,253.2 647.2 1,327.4 4,227.8 Long-lived assets (3) 190.7 168.2 78.4 437.3 Capital expenditure on 19.8 63.9 13.8 97.5long-lived assets (3) _____________ _____________ _____________ _____________
(1) Stock-based compensation of $35.7 million is included in: Cost of product sales ($2.4 million), Research and development ($10.2 million) and Selling, general and administrative ($23.1 million).
(2) Depreciation from manufacturing plants ($5.6 million) and amortization offavorable manufacturing contracts ($0.9 million) is included in Cost of productsales; depreciation of research and development assets ($6.0 million) isincluded in Research and development; and all other depreciation, amortizationand intangible asset impairment charges ($174.3 million) are included inSelling, general and administrative.
(3) Long-lived assets comprise all non-current assets, (excluding goodwill and other intangible assets, deferred tax assets, investments and financial instruments) based on the geographic location within which the economic benefits arise.
21. Taxation
In the six months to June 30, 2009 subsequent to Massachusetts State tax lawchanges which were enacted during the second quarter of 2009, Shire reduced theamount of valuation allowance recorded against its deferred tax assets by $35.4million. Following interpretation and analysis of the implication of theseregulations Shire's management determined that it was now more likely than notthat the relevant US State tax credits and loss carry-forwards would berealized. The impact of revisions to Massachusetts State tax law, together withthe corresponding change in the effective tax rate on State deferred tax assetsand liabilities, resulted in an overall $27 million deferred tax creditrecorded within income taxes in the six months to June 30, 2009.
INDEPENDENT REVIEW REPORT TO SHIRE PLC
We have been engaged by Shire to review the consolidated set of financialstatements in the half yearly financial report for the six months ended June,30 2009 which comprises the consolidated balance sheet, consolidated statementsof income, consolidated statement of changes in equity, consolidated statementsof comprehensive income, the consolidated statements of cash flows and relatednotes 1 to 21. We have read the other information contained in the half-yearlyfinancial report and considered whether it contains any apparent misstatementsor material inconsistencies with the information in the consolidated set offinancial statements.This report is made solely to Shire in accordance with International Standardon Review Engagements (UK and Ireland) 2410 "Review of Interim FinancialInformation performed by the Independent Auditor of the Entity" issued by theAuditing Practices Board. Our work has been undertaken so that we might stateto Shire those matters we are required to state to them in an independentreview report and for no other purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than Shire, for ourreview work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half yearly financial report in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1(a), the annual financial statements of the Group areprepared in accordance with US GAAP. The consolidated set of financialstatements included in this half yearly financial report have been prepared inaccordance with the accounting policies the Group intends to use in preparingits next annual financial statements.
Our responsibility
Our responsibility is to express to Shire a conclusion on the consolidated set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the consolidated set of financial statements in the half yearlyfinancial report for the six months ended June 30, 2009 is not prepared, in allmaterial respects, in accordance with the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United KingdomAugust 21, 2009
Registered in Jersey, No. 99854, 22 Grenville Street, St. Helier, Jersey, JE4 8PX.
www.shire.com
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