7th Aug 2008 13:30
Press Release Half Yearly ReportBasingstoke, UK and Philadelphia, US - August 7, 2008 - In order to meet itsobligations under the Disclosure Rules and Transparency Rules of the UnitedKingdom Financial Services Authority, Shire Limited ("Shire") is publishing today its Half Yearly Report for the six monthsended June 30, 2008.
It should be noted that on July 31, 2008 Shire previously announced its results in respect of the same period.
For further information please contact:
Investor Relations Clĩa Rosenfeld (Rest of the World) +44 1256 894 160 Eric Rojas (North America) +1 484 595 8252 Media Jessica Mann (Rest of the World) +44 1256 894 280 Matthew Cabrey (North America) +1 484 595 8248Notes to editorsSHIRE LIMITED
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 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 the Company's website: www.shire.com
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 Company's results could be materially affected.The risks and uncertainties include, but are not limited to, risks associatedwith: the inherent uncertainty of pharmaceutical research, product development,manufacturing and commercialization including, but not limited to, theestablishment in the market of VYVANSE¢â€ž¢ (lisdexamfetamine dimesylate)(Attention Deficit and Hyperactivity Disorder ("ADHD")); the impact ofcompetitive products, including, but not limited to, the impact of those on theCompany's ADHD franchise; patents, including but not limited to, legalchallenges relating to the Company's ADHD franchise; government regulation andapproval, including but not limited to the expected product approval date ofINTUNIV¢â€ž¢ (guanfacine extended release) (ADHD); the Company's ability to securenew products for commercialization and/or development; the Company's proposedoffer for Jerini AG, including but not limited to, the Company's ability tosuccessfully complete the offer and integrate Jerini AG, as well as realize theanticipated benefits of the acquisition; and other risks and uncertaintiesdetailed from time to time in the Company's filings with the Securities andExchange Commission, including the Company's Annual Report on Form 10-K for theyear ended December 31, 2007.The following are trademarks either owned or licensed by Shire Limited or itssubsidiaries which are the subject of trademark registrations in certainterritories, or which are owned by third parties as indicated and referred toin this Half Yearly Report:Shire Product Active ingredient ADDERALL‚® XR (mixed salts of a single-entity amphetamine) ADDERALL‚® (mixed salts of a single-entity amphetamine) AMIGAL‚® (migalastat hydrochloride) (trademark of Amicus Therapeutics ("Amicus")) CALCICHEW‚® range (calcium carbonate with or without vitamin D3) CARBATROL‚® (carbamazepine - extended-release capsules) COMBIVIR‚® (lamivudine) (trademark of GlaxoSmithKline ("GSK")) DAYTRANA¢â€ž¢ (methylphenidate transdermal system) DYNEPO‚® (epoetin delta) (trademark of Sanofi-Aventis) ELAPRASE‚® (idursulfase) EPIVIR‚® (lamivudine) (trademark of GSK) EPZICOM‚®/KIVEXA (lamivudine) (trademark of GSK) (EPZICOM) FIRAZYR‚® (icatibant) (trademark of Jerini AG ("Jerini")) FOSRENOL‚® (lanthanum carbonate) INTUNIV‚® (guanfacine - extended release) JUVIDEXTM (mannose-6-phosphate) (trademark of Renovo) JUVISTA‚® (human TGFŽ²3) (trademark of Renovo) LIALDA‚® (mesalamine) METAZYM¢â€ž¢ (arylsulfatase-A) MEZAVANT¢â€ž¢ (mesalazine) PENTASA‚® (mesalamine) (trademark of Ferring) PLICERA‚® (isofagomine tartrate) (trademark of Amicus) PREVASCARTM (human recombinant interleukin-10) (trademark of Renovo) RAZADYNE‚® (galantamine) (trademark of Johnson & Johnson ("J&J")) RAZADYNE‚® ER (galantamine) (trademark of J&J) REMINYL‚® (galantamine hydrobromide) (UK and Republic of Ireland) REMINYL‚® (galantamine) (trademark of J&J, excluding UK and Republic of Ireland) REMINYL XL¢â€ž¢ (galantamine hydrobromide) (UK and Republic of Ireland) REMINYL XL¢â€ž¢ (galantamine) (trademark of J&J, excluding UK and Republic of Ireland) REPLAGAL‚® (agalsidase alfa) SEASONIQUE‚® (trademark of Barr Laboratories Inc. ("Barr")) VYVANSE¢â€ž¢ (lisdexamfetamine dimesylate) XAGRID‚® (anagrelide hydrochloride) ZEFFIX (lamivudine) (trademark of GSK) ZESTEEM‚® (17Ž² estradiol) (trademark of Renovo) 3TC (lamivudine) (trademark of GSK) CHIEF EXECUTIVE OFFICER'S REVIEW "We are pleased to enclose our financial results for the six-month period endedJune 30, 2008. This half yearly report includes consolidated financialstatements prepared in accordance with generally accepted accounting principlesin the United States of America (US GAAP).
We continue to deliver strong growth and broaden our business in specialty biopharmaceuticals. Our product sales for the first six months of this year were up 38% on the same period last year with sales of new products now comprising 34% of total product sales. At $780m, product sales excluding ADDERALL XR were up 69% reflecting the success of our strategy to build a pipeline and portfolio for Shire's future growth.
We are pleased with the performance of ELAPRASE, FOSRENOL, LIALDA, REPLAGAL andVYVANSE and are looking forward to the continued growth of VYVANSE in the USsupplemented by the recent launch of the adult indication, the additionaldosage strengths and the back-to-school season.
We have decided to commence a phased discontinuation of DYNEPO. Resources supporting this product will be redirected to faster growing, profitable core global products.
Since the beginning of this year we have made two major acquisitions adding toour strong products portfolio. In April we announced that we had acquired, fromZymenex A/S, global rights to the Phase 1-2 clinical candidate arylsulfatase-A,currently known as METAZYM, investigated for use in the treatment ofMetachromatic Leukodystrophy. This candidate complements Shire's existingexpertise in enzyme replacement therapies for the treatment of lysosomalstorage disorders and further strengthens our clinical pipeline. More recentlyin July, we announced the proposed voluntary take over of German based companyJerini AG, which is expected to complete in Q3. Jerini is an excellent matchfor our business and we expect to benefit from both near term revenues and longterm growth. The recent EU approval of Jerini's orphan drug FIRAZYR reinforcesour confidence in this product.In addition to METAZYM and FIRAZYR, we have acquired six new products since thestart of 2007 which support delivery of our long term strategy. Shire is inline to deliver another set of excellent results for 2008 and is upgrading itsfull year guidance for total revenue growth from the mid to high teens to atleast 20%."Angus RussellChief Executive Officer BUSINESS OVERVIEW FOR THE SIX MONTHS TO JUNE 30, 2008
The following discussion should be read in conjunction with the Company's unaudited consolidated financial statements and related notes appearing elsewhere in this Half Yearly Report.
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 attention deficit and hyperactivity disorder (ADHD),human genetic therapies (HGT), 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 relatively small-scale sales forces will deliver
strong results.Recent developmentsAcquisition of Jerini AGOn July 3, 2008 Shire announced that it was launching a voluntary publictakeover offer for all shares in Jerini for an equity purchase price of ¢â€š¬328million. Shire has also invested approximately ¢â€š¬21 million in return for thesubscription of newly issued Jerini shares, equating to approximately 9% of theincreased share capital. Jerini's Supervisory and Management Boards unanimouslysupport the transaction and will recommend acceptance of the offer to itsshareholders. Subject to completion of certain sale and purchase agreements, byAugust 4, 2008, Shire had rights to approximately 79% of Jerini's share capitalbefore the receipt of any takeover offer acceptances. Once the offer documentis posted, it is anticipated that the offer will be open for acceptance by theremaining shareholders until the end of Q3 2008.Although the proposed Jerini acquisition will be funded out of Shire's currentcash resources, Shire intends to enter into a certain funds facility to enablethe provision of a cash confirmation letter in accordance with the GermanSecurities Acquisition and Takeover Act (Wertpapiererwerbs- undƒ"bernahmegesetz, Wpƒ"G).The proposed acquisition will add Jerini's hereditary angioedema (HAE) product,FIRAZYR‚® (icatibant), (expected to be launched in the EU in H2 2008) to Shire'sHuman Genetic Therapies (HGT) portfolio.On July 15, 2008 Shire announced that the European Commission had grantedJerini marketing authorization for FIRAZYR in the treatment of acute attacks ofHAE which allows Jerini to market FIRAZYR in the European Union's 27 memberstates, making it the first product to be approved in all EU countries for thetreatment of HAE.On July 17, 2008 the German Federal Cartel Office issued confirmation of mergerclearance. On July 31, 2008 the 15 day waiting period under the HartScott-Rodino Anti-Trust Improvements Act 1976 expired. This satisfied the lastof the conditions precedent under the sale and purchase agreements and Shire isin the process of acquiring these shares. By August 4, 2008 Shire had paid ¢â€š¬184million for the acquisition of 50% of Jerini shares under the sale and purchaseagreements. As a result of this payment together with recent on marketacquisitions and the above mentioned subscription, by August 4, 2008 Shire hasthe rights to 79% of Jerini's issued share capital at a cost of ¢â€š¬278 million.
DYNEPO
On July 31, 2008 Shire announced that it had decided to stop thecommercialization of DYNEPO. Changes in the external environment including thelaunch of several bio-similars at lower prices have proved challenging forDYNEPO, a gene-activated erythropoietin indicated for use in treating anemiaassociated with kidney disease, making it an uneconomic product for Shire.Product sales will wind down over the second half of 2008 as all patients aretransferred off DYNEPO by the end of the year.Shire has recorded charges of $150.3 million in the six months ended June 30,2008 to cover intangible asset impairment, inventory write-down and other exitcosts. The cash effect of these exit costs is approximately $20 million.
Board changes
On June 18, 2008 Shire's former Chief Financial Officer, Angus Russell becameChief Executive Officer and Shire's former Chief Executive Officer MatthewEmmens became Chairman and Non-Executive Director. Shire's former Chairman, DrJames Cavanaugh retired from the Shire Board and David Kappler became DeputyChairman.On July 1, 2008 Graham Hetherington joined Shire as Chief Financial Officer andExecutive Board Director. Graham Hetherington has a broad range of experiencein senior financial roles having most recently held positions as the ChiefFinancial Officer of Bacardi (2007) and Allied Domecq plc (1999-2005).
On April 24, 2008 Shire announced that Michael Rosenblatt M.D. joined the Shire Board as a Non-Executive Director.
On July 29, 2008 Robin Buchanan, due to his other commitments, stepped down from the Shire Board on completion of his term of office.
Significant events in the six months to June 30, 2008
Product highlights
VYVANSE - Attention Deficit Hyperactivity disorder ("ADHD")
On April 23, 2008 Shire announced that the Food and Drug Administration ("FDA")had approved the adult indication for VYVANSE, making it the first and onlyonce-daily prodrug stimulant approved to treat adults with ADHD. Shire launchedVYVANSE for adult ADHD in June 2008.On May 8, 2008 Shire announced the results of a Phase 3 pivotal study in whichVYVANSE demonstrated significant improvements in ADHD symptoms in adults andmet all safety and efficacy endpoints.
By June 30, 2008 Shire had agreements with nine of its top eleven managed care organizations for VYVANSE.
On July 2, 2008 Shire shipped to wholesalers stocks of three additional dosagestrengths (20mg, 40mg and 60mg) for VYVANSE representing product sales ofapproximately $24 million. These product sales will be recognized into revenuein Q3 2008.
LIALDA / MEZAVANT - Ulcerative Colitis
During the first half of 2008 LIALDA / MEZAVANT was launched in Canada andGermany. On April 1, 2008 the product was launched in Ireland as MEZAVANT XLand, following approval in Luxembourg on June 26, 2008, is now approved in 15countries. Further launches are planned in certain other EU countries during2008, subject to the successful conclusion of pricing and reimbursementnegotiations.During April 2008, TAP Pharmaceutical Products Inc. ("TAP") commencedco-promotion of LIALDA in the US in accordance with the co-promotion agreemententered into on March 26, 2008. This agreement adds more than 500 additionalsales representatives from TAP which will increase the reach and frequency ofsales calls covering an additional 22,000 doctors.
FOSRENOL- Hyperphosphatemia
FOSRENOL was launched in Spain, Hong Kong, Slovenia and Switzerland during the first half of 2008 and in Malta and Malaysia in July 2008. FOSRENOL is now available in 29 countries.
ELAPRASE - Hunter syndrome
During the six months to June 30, 2008 ELAPRASE was approved for commercialsale in Russia, Mexico and Brazil. ELAPRASE was also approved for commercialsale in South Korea and Australia, where sales and distribution will be managedby Genzyme Corporation. ELAPRASE is now approved in 40 countries worldwide.
Business highlights
A new listed holding company for Shire group
On May 23, 2008 Shire Limited, a public company with its primary listing on theLondon Stock Exchange (secondary listing on NASDAQ), incorporated in Jersey andtax resident in the Republic of Ireland, became the holding company of theShire group, pursuant to a scheme of arrangement under Sections 895 to 899 ofthe United Kingdom Companies Act 2006 (the "Scheme"). The Scheme was approvedby the High Court of England and Wales and the shareholders of Shire plc, theformer holding company of the Shire group. The introduction of a new holdingcompany tax-resident in Ireland, is designed to help protect Shire's taxposition.
Immediately prior to the Scheme becoming effective, Shire Limited was substituted for Shire plc as principal obligor under Shire's $1.1 billion 2.75 per cent convertible bond due 2014 originally issued by Shire plc (and the terms and conditions of such bonds were accordingly amended).
Shire incurred costs associated with the introduction of the new holding company of $12.2 million in the six months to June 30, 2008.
See notes 2 and 17 of the financial statements for further details.
Completion of acquisition of METAZYM
On June 4, 2008 Shire completed the acquisition of the global rights to theclinical candidate arylsulfatase-A, currently known as METAZYM, from Zymenex A/S ("Zymenex") for $135 million in cash (see Research and development below).This acquisition is expected to bring forward Shire's entry into theMetachromatic Leukodystrophy ("MLD") market.
Sale of non-core assets
Shire recognised gains of $16.7 million (2007: $5.0 million) from the sale ofnon-core product rights in the six months to June 30, 2008. A gain of $5.0million was realized from the sale of certain hormone replacement therapyproducts to Meda AB, and $11.7 million of gains resulting from the sale ofother non-core products which were deferred at December 31, 2007 wererecognised during the first half of 2008 following the transfer of the relevantconsents.Share purchases
In the six months to June 30, 2008 2.0 million American Depositary Shares ("ADSs") were acquired by the Employee Share Ownership Trust ("ESOT") for a cash consideration of $104.1 million (2007: $99.9 million) at an average ADS price of $52.05.
Expansion in MassachusettsShire Human Genetic Therapies ("HGT") announced on February 14, 2008, that theCompany will invest approximately $400 million over four years through 2011 toexpand its Lexington, Massachusetts campus, making Lexington the global centerfor HGT's research, development, and production. This will result in thecreation of an estimated 680 additional full-time jobs over the next eightyears, doubling the existing full time workforce.
Research and development
Products in registration June 30, 2008
FOSRENOL for the treatment of pre-dialysis chronic kidney disease ("CKD")
Following the FDA Cardiovascular and Renal Drugs Advisory Committeerecommendation in the fourth quarter of 2007 on the use of phosphate binders,including FOSRENOL, to treat hyperphosphatemia in pre-dialysis CKD patients,Shire worked with the FDA to agree to a regulatory pathway for approval for usein pre-dialysis patients.
VYVANSE for ADHD in Canada
In March 2008 the Canadian new drug submission was accepted for filing for the treatment of ADHD in children. Review is ongoing.
INTUNIV
On June 21, 2007 Shire received an approvable letter from the FDA for INTUNIV. Shire is conducting additional clinical work which is designed to enhance thelabel.On May 8, 2008 Shire announced pivotal trial results for INTUNIV. The datademonstrated that INTUNIV has significant efficacy in reducing ADHD symptomsfor patients taking the medication when compared to patients taking placebo atall measured time points up to 24 hours after dosing. While the precise timingfor the approval of INTUNIV is unknown, it is anticipated that launch for usein children and adolescents will occur in the second half of 2009.
DAYTRANA for ADHD in EU & Canada
Regulatory submissions were filed for approval of the product with HealthCanada on November 29, 2007 and in the EU via the decentralized procedure withthe Netherlands as the reference member state on December 12, 2007. Reviews areongoing.
Products in clinical development as at June 30, 2008
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.
LIALDA/MEZAVANT for the maintenance of remission in ulcerative colitis
Worldwide Phase 3 trials investigating the use of the product to maintain remission in patients who have ulcerative colitis were initiated in 2006 and are continuing.
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.
SEASONIQUE
Shire is evaluating the scientific advice received following meetings in 2007with the regulatory authorities in Europe in order to formulate the regulatoryfiling strategy.Velaglucerase alfaShire has completed enrolment in a worldwide Phase 3 clinical program forvelaglucerase alfa, an enzyme replacement therapy being developed for thetreatment of Gaucher disease. This comprehensive development program includesthe evaluation of velaglucerase alfa in naƒ¯ve patients and patients previouslytreated with imiglucerase across three clinical studies. It is anticipated thatthis development program will support global filings in the second half of
2009.Phase 2JUVISTANine Phase 2 efficacy trials for JUVISTA have now been reported of which sevendemonstrated statistically significant efficacy. Further Phase 2 clinicaltrials in other surgery types are ongoing and are expected to report during2008 and 2009. Renovo Limited ("Renovo") is also intending to initiate a Phase3 trial in the second half of 2008 in support of Renovo's filing of a Europeanregulatory dossier and has recently announced that the European MedicinesAgency ("EMEA") has given clearance to commence Phase 3 trials. Shire isconsidering the EMEA advice to Renovo and Renovo's EU Phase 3 plans and willgive guidance on the US development plan in due course.
SPD550 for the treatment of Celiac disease
On December 14, 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"). The two parties have established JointCommittees which will guide the development, manufacture, and commercializationof the product. Alba has initiated and is responsible for executing the agreedupon ongoing Phase 2 program and certain non-clinical studies for the treatmentof Celiac disease. Additional development studies may be conducted jointly orby the individual companies prior to or after initiation of Phase 3.
Transvaginal Ring ("TVR") technology
The TVR technology products are in various stages of development.
MLD program
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"). On June 4, 2008 Shire completed itsacquisition from Zymenex A/S ("Zymenex") of the global rights to a clinicalcandidate ASA, currently known as METAZYM. METAZYM has completed a Phase 1bclinical trial in 12 MLD patients in Europe and an extension to this study isongoing. The product has been granted orphan drug designation in the US and inthe EU. The current plan is to initiate a Phase 2/3 clinical trial by the endof 2008.This product will now be referred to as HGT-1111.
HGT-1110 was in development at Shire for the treatment of MLD following successful pre-clinical proof of concept studies. The HGT-1110 program was replaced with the HGT-1111 development program upon completion of the acquisition.
AMIGAL (HGT-3310 for the treatment Fabry disease)
Amicus Therapeutics Inc. ("Amicus") met with the FDA to discuss the AMIGAL development program in June 2008. Protocol Assistance with EMEA is planned during the final quarter of 2008. A final decision on the global development strategy will follow the conclusion of the discussions with both agencies. Shire has rights to AMIGAL in markets outside the US.
PLICERA (HGT-3410 for the treatment of Gaucher disease)
In March 2008 Amicus announced positive data from its Phase 2 clinical trial.Results from the Phase 2 trial support the previously reported interim findingsthat PLICERA was generally safe and well tolerated at all doses and increasedtarget enzyme activity levels in a majority of patients. Shire has rights toPLICERA in markets outside the US.
HGT-3510 for the treatment of Pompe disease
In June 2008 Amicus initiated Phase 2 clinical trials of HGT-3510, an orallyadministered, small molecule pharmacological chaperone being jointly developedfor the treatment of Pompe disease by Shire and Amicus. Shire has rights toHGT-3510 in markets outside the US.
Phase 1
SPD487 (Amphetamine transdermal system ("ATS"))
Shire is currently reviewing formulation data provided by Noven Pharmaceuticals Inc.
HGT-2310 - Hunter syndrome with significant central nervous system symptoms
Following the acceptance by the FDA in January 2008 of Shire's IND applicationfor idursulfase-IT (HGT-2310 -formerly referred to as ELAPRASE for Huntersyndrome patients with significant central nervous system symptoms - "HunterCNS") the Company is now in the process of planning clinical trials.
Products in pre-clinical development as at June 30, 2008
HGT-1410 for Sanfilippo Syndrome (Mucopolysaccharidosis IIIA)
On May 22, 2008 orphan drug designation was granted by the FDA for HGT-1410, an enzyme replacement therapy being developed for the treatment of Sanfilippo Syndrome, a lysosomal storage disorder. Pre-clinical development for this product is continuing.
A number of projects are underway in the early stages of development (pre-clinical) for the Specialty Pharmaceutical and HGT businesses.
SHIRE LIMITED RESULTS OF OPERATIONS FOR THE SIX MONTHS TO JUNE 30, 2008 AND 2007
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 Limitedwill prepare its annual financial statements for the year ended December 31,2008. The latest published annual financial statements of Shire plc, the formerholding company of the Shire Group, for the year ended December 31, 2007 wereprepared under International Financial Reporting Standards ("IFRS") adopted
foruse in the European Union.Total revenuesThe following table provides an analysis of the Company's total revenues bysource: 6 months to 6 months to change June 30, June 30, 2008 2007 $M $M % __________________ __________________ __________________ Product sales 1,337.4 965.7 38 Royalties 129.9 123.5 5 Other 10.5 13.9 -24 __________________ __________________ __________________ Total 1,477.8 1,103.1 34 __________________ __________________ __________________Product salesThe following table provides an analysis of the Company's key product sales: 6 months to 6 months to Product sales US growth prescription June 30, June 30, growth % 2008 2007 % $M $M Specialty Pharmaceuticals ADHD ADDERALL XR 557.9 504.2 11 -5% VYVANSE 119.6 - n/a n/a DAYTRANA 42.9 31.8 35 -8% GI PENTASA 89.0 84.0 6 -2% LIALDA / MEZAVANT 59.2 5.0 n/a n/a GP FOSRENOL(1) 78.6 47.3 66 -5% DYNEPO(1) 13.7 1.9 n/a n/a CALCICHEW 27.5 25.6 7 n/a CARBATROL 34.1 33.4 2 -4% REMINYL/REMINYL XL 17.0 14.6 16 n/a XAGRID 39.3 31.6 24 n/a Other product sales 19.1 52.6 -64 n/a __________________ __________________ __________________ 1,097.9 832.0 32 Human Genetic Therapies __________________ __________________ __________________ ELAPRASE 152.3 69.3 120 n/a REPLAGAL 87.2 64.4 35 n/a __________________ __________________ __________________ 239.5 133.7 79 n/a Total product sales 1,337.4 965.7 38 n/a __________________ __________________ __________________
(1) Reclassified to GP following Shire's decision to stop the commercialization of DYNEPO.
The following discussion includes references to prescription and market sharedata for the Company's key products. The source of this data is IMS Health,June 2008. IMS Health is a leading global provider of business intelligence forthe pharmaceutical and healthcare industries.
Specialty Pharmaceuticals
ADDERALL XR
As a result of the launch of VYVANSE in July 2007 ADDERALL XR's average shareof the US ADHD market for the six months to June 30, 2008 fell to 23.4% (2007:26.3%). US prescriptions for ADDERALL XR for the six months to June 30, 2008decreased by 5% compared to the same period in 2007 due to a 11% decrease inaverage market share offset by 7% growth in the US ADHD market.Sales of ADDERALL XR for the six months to June 30, 2008 were $557.9 million,an increase of 11% compared to the same period in 2007 (2007: $504.2 million).Product sales grew despite the decline in US prescriptions primarily due toprice increases in October 2007 and in April 2008.
Litigation proceedings concerning the Company's ADDERALL XR patents are ongoing. Further information on this litigation can be found in our filings with the US Securities and Exchange Commission, ("SEC") including our Annual Report on Form 10-K for the year to December 31, 2007.
VYVANSE
VYVANSE was launched in the US market in July 2007. For the six months to June30, 2008 VYVANSE's average market share was 6.7% of the US ADHD market. Productsales for the six months to June 30, 2008 were $119.6 million (2007: $nil).
By July 18, 2008 VYVANSE had achieved a US ADHD average weekly market share of 8.2% based on weekly prescription volumes.
DAYTRANA
Product sales for the six months to June 30, 2008 were $42.9 million (2007:$31.8 million). Prescriptions reduced by 8% compared to the same period in 2007due to a reduction in DAYTRANA's average share of the US ADHD market from 2.2%to 1.9% in 2008.Despite the decrease in prescriptions compared to 2007, sales of DAYTRANA grew35% due to lower sales deductions (primarily lower coupon deductions comparedto 2007 which was impacted by launch coupon programs) and a price increase onJanuary 1, 2008.On June 9, 2008 Shire announced a voluntary recall of a limited portion ofDAYTRANA patches because certain patches did not meet their release linerremoval specifications which may have resulted in some patients and caregivershaving difficulties removing the liners. The voluntary recall was not due tosafety issues. Shire and Noven Pharmaceuticals Inc. (the manufacturer ofDAYTRANA) continue to pursue enhancements to the product and to work closelywith the FDA to implement changes that may improve the usability of DAYTRANA.No interruption in the production of DAYTRANA is anticipated.The addition of VYVANSE combined with ADDERALL XR and DAYTRANA's market sharehelped Shire grow its total average share of the US ADHD market to 32.1% forthe six months to June 30, 2008 (2007: 28.6%). Shire has the leading portfolioof products in the US ADHD market.
PENTASA
Sales of PENTASA for the six months to June 30, 2008 were $89.0 million, anincrease of 6% compared to the same period in 2007 (2007: $84.0 million). Salesgrew despite a decrease in prescriptions due to the impact of a price increasein April 2008 and August 2007.
US prescriptions for the six months to June 30, 2008 were down 2% compared to the same period in 2007 primarily due to a 3.3% decrease in PENTASA's US average market share from 17.5% in 2007 to 16.9% in 2008, offset by a 1.8% increase in the US oral mesalamine prescription market.
LIALDA/MEZAVANT
Shire launched LIALDA in the US oral mesalamine market in March 2007, and during the six months to June 30, 2008 LIALDA had reached an average market share of 10%. LIALDA's product sales in the US for the six months to June 30, 2008 were $57.6 million (2007: $5.0 million).
Sales of MEZAVANT outside the US for the six months ended June 30, 2008 were$1.6 million (2007: $nil). The product was launched as MEZAVANT XL in the UK inNovember 2007 and as MEZAVANT in Canada and Germany in January and February2008 respectively. Shire launched MEZAVANT XL in Ireland in April 2008 andfurther launches are planned in certain other EU countries during 2008, subjectto the successful conclusion of pricing and reimbursement negotiations.Since the launch of LIALDA in March 2007, PENTASA and LIALDA's combined averagemarket share of the US oral mesalamine market grew to 26.9% for the six monthsto June 30, 2008 up from 18.9% for the corresponding period to June 30, 2007.
FOSRENOL
FOSRENOL has been launched in 29 countries and global sales totaled $78.6 million for the six months to June 30, 2008 (2007: $47.3 million). Sales of FOSRENOL outside the US for the six months ended June 30, 2008 were $35.0 million (2007: $15.6 million).
US sales of FOSRENOL for the six months to June 30, 2008 were up 37.5% to $43.6 million compared to the same period in 2007 (2007: $31.7 million).
FOSRENOL's average quarterly prescription share of the US phosphate binderretail market decreased to 8.2% for the six months to June 30, 2008 (2007:8.6%). Contributing to product sales increase were price increases in October2007 and February 2008. As a consequence of focusing on specialist physicians,clinics and dialysis centers, FOSRENOL's dollar share of the non-retail markethas increased to 17.2% in June 2008 compared to 12.3% in June 2007.Effective April 16, 2008 Shire and Abbott Laboratories Inc. mutually agreed toterminate their Co-Promotion Agreement for FOSRENOL in the United States. Shirewill continue to promote FOSRENOL on its own in the United States andthroughout Europe.
XAGRID
Sales for the six months to June 30, 2008 were $39.3 million, an increase of24% compared to the same period in 2007 (2007: $31.6 million). Expressed intransaction currencies (XAGRID is primarily sold in Euros and Pounds Sterling),sales increased by 14% due to growth in many of Shire's existing markets, withexchange rate movements against the US dollar accounting for the remaining
10%increase.Human Genetic TherapiesELAPRASE
Sales for the six months to June 30, 2008 were $152.3 million, an increase of120% compared to the same period in 2007 (2007: $69.3 million). The salesgrowth was primarily driven by increased unit sales in the EU, North America,Latin America, and Asia Pacific. The product is now approved for marketing andcommercial distribution in 40 countries. Exchange rate movements against the USdollar contributed 13% to the growth compared to the prior year.
REPLAGAL
Sales for the six months to June 30, 2008 were $87.2 million, an increase of35% compared to the same period in 2007 (2007: $64.4 million). The salesgrowth was primarily driven by increased unit sales in markets in the EU andLatin America. The product is now approved for marketing and commercialdistribution in 42 countries. Exchange rate movements against the US dollarcontributed 10% to the growth compared to prior year.
Foreign exchange effect
As many of the Company'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, June 30, June 30, translation 2008 2008 sales 2008 sales growth in growth in to sales local US dollars currency US dollars $M % % % ___________ ___________ ___________ ___________ XAGRID sales in Euros 25.4 +11 +27 +16 + REPLAGAL sales in Euros 51.3 +17 +35 +18 ELAPRASE sales in Euros 69.3 +67 +92 +25
XAGRID sales in Pounds Sterling 13.9 +19 +19
- CALCICHEW sales in Pounds 25.2 +10 +10 -Sterling
REMINYL and REMINYL XL sales in 15.8 +18 +18
-Pounds Sterling REPLAGAL sales in Pounds 12.9 +13 +13 -Sterling ELAPRASE sales in Pounds 14.5 +110 +110 -Sterling ___________ ___________ ___________ __________ RoyaltiesRoyalty revenue increased by 5% to $129.9 million for the six months to June30, 2008 (2007: $123.5 million). The following table provides an analysis ofShire's royalty income: 6 months to 6 months to Change June 30, June 30, 2008 2007 $M $M % ____________ ____________ ___________ 3TC 72.9 74.5 -2 (1) ZEFFIX 21.2 19.4 +9 (2) Others 35.8 29.6 +21 ____________ ____________ __________ Total 129.9 123.5 +5 ____________ ____________ __________
(1) The impact of foreign exchange movements has contributed 7% to the reported growth.
(2) The impact of foreign exchange movements has contributed 13% to the reported growth.
3TC
Shire receives royalties from GSK on worldwide 3TC sales. Royalties from salesof 3TC for the six months to June 30, 2008 were $72.9 million (2007: $74.5million). Excluding favorable foreign exchange movements of 7%, there has beena decline of 9% compared to the same period in 2007. While the nucleosideanalogue market for HIV has continued to grow, competitive pressures from newproducts and entrants to the market have increased, leading to a decline in
3TCsales.ZEFFIX
Shire receives royalties from GSK on worldwide ZEFFIX sales. Royalties from sales of ZEFFIX for the six months to June 30, 2008 were $21.2 million, an increase of 9% compared to the same period in 2007 (2007: $19.4 million). The impact of foreign exchange movements has contributed 13% to the reported growth; excluding favorable foreign exchange movements there has been a decrease of 4% compared to the same period in 2007.
Other
Other royalties are primarily in respect of REMINYL and REMINYL XL (known asRAZADYNE and RAZADYNE ER in the US), a product marketed worldwide (excludingthe UK and the Republic of Ireland) by Janssen Pharmaceutical N.V. ("Janssen"),an affiliate of Johnson & Johnson. Shire has the exclusive marketing rights inthe UK and the Republic of Ireland.
Sales of the REMINYL/RAZADYNE range, for the symptomatic treatment of mild to moderately severe dementia of the Alzheimer's type, continue to grow.
Litigation proceedings relating to 3TC, COMBIVIR, EPIVIR, EPZICOM, RAZADYNE,RAZADYNE ER, REMINYL, REMINYL XL and ZEFFIX are on-going. Further informationon these litigations can be found in our filings with the SEC, including ourAnnual Report on Form 10-K for the year to December 31, 2007.
Cost of product sales
The cost of product sales increased by 65% to $233.2 million for the six monthsto June 30, 2008 (17% of product sales), up from $141.3 million in thecorresponding period in 2007 (2007: 15% of product sales). For the six monthsto June 30, 2008 cost of product sales included charges of $53.4 million (4% ofproduct sales) (2007: $nil) relating to the write down of inventory and otherexit costs in respect of DYNEPO which the Company has decided to stopcommercializing, depreciation of $5.6 million (2007: $5.9 million) andamortization of $0.9 million (2007: $nil).
Research and development (R&D)
R&D expenditure increased to $267.3 million for the six months to June 30, 2008(20% of product sales), up from $184.2 million in the corresponding period in2007 (2007: 19% of product sales). For the six months to June 30, 2008 R&Dincluded $6.5 million (2007: $nil) relating to the cost of exitingpost-approval marketing commitments for DYNEPO, which the Company has decidedto stop commercializing.Contributing to the increased R&D expenditure in 2008 over 2007 are projectsin-licensed and acquired since the second half of 2007 including SPD 550,PLICERA, AMIGAL, JUVISTA and METAZYM together with Phase 3(b) and Phase 4studies to support new product launches. R&D also includes depreciation of $6.0million (2007: $5.5 million).
Selling, general and administrative (SG&A) expenses
Total SG&A costs increased by 47% to $763.3 million in the six months to June30, 2008 compared to $519.2 million in the six months to June 30, 2007. As apercentage of product sales, SG&A expenses were 57% (2007: 54%).SG&A for the six months to June 30, 2008 includes intangible asset impairmentcharges of $90.4 million (7% of product sales) (2007: $nil) in respect ofDYNEPO, increased amortization of intangible assets of $61.9 million (2007:$32.9 million) (increased due to VYVANSE, launched July 2007), and costsassociated with the introduction of a new holding company of $12.2 million(2007: $nil). Other increases in SG&A expenses mainly relate to the increase inadvertising, promotional and marketing spend to support VYVANSE and LIALDA/MEZAVANT. SG&A includes depreciation charges of $22.0 million (2007: $19.4million).
In Process R&D charge
For the six months to June 30, the Company recorded an in-process R&D charge of$135.0 million in respect of the acquisition of the global rights to theclinical candidate arylsultatase - A, currently known as METAZYM (HGT-1111),being investigated for the treatment of MLD, from Zymenex.During the six months to June 30, 2007 Shire expensed the portion of the NewRiver purchase price allocated to in-process R&D totaling $1,896.0 million.This amount represented the value of those acquired development projects which,at the acquisition date, had not been approved by the FDA or other regulatoryauthorities, including the adult indication of VYVANSE.
Gain on sale of product rights
For the six months to June 30, 2008 Shire recognized gains of $16.7 million(2007: $5.0 million) on the sale of non-core product rights. Shire realized again of $5.0 million from the sale of certain hormone replacement therapyproducts to Meda AB and also recognized $11.7 million of gains deferred atDecember 31, 2007 resulting from the sale of other non-core products during2007. These gains were deferred at December 31, 2007 pending the transfer ofthe relevant consents.Interest income
For the six months to June 30, 2008 Shire received interest income of $19.2million (2007: $34.7 million). Interest income primarily relates to interestreceived on cash and cash equivalents. Interest income for the six months toJune 30, 2008 is lower than the same period in 2007 due to lower average cashbalances and lower average US Dollar interest rates.
Interest expense
For the six months to June 30, 2008 the Company incurred interest expense of$34.1 million (2007: $35.8 million). In 2007 interest expense included a $7.9million write-off of deferred financing costs on repayment of term loans usedto fund the acquisition of New River following the issue of the $1.1 billionconvertible bonds in May 2007.In both six month periods to June 30, 2008 and 2007 interest expense includes aprovision for interest, which may be awarded by the Court in respect of amountsdue to those ex-TKT shareholders who have requested appraisal of theacquisition consideration payable for their TKT shares. A trial date ofDecember 10, 2008 has been set. Further information on this litigation can befound in our filings with the SEC, including our Annual Report on Form 10-K forthe year to December 31, 2007.
Other income
Other income includes a gain of $9.4 million arising from the sale of Shire'sminority equity investment in Questcor Pharmaceutical Inc., a specialtypharmaceutical company focused on providing prescription drugs for centralnervous system (CNS) disorders. The disposal generated cash consideration of$10.3 million.Taxation
The Company accounts for income taxes during interim periods in accordance withSFAS No. 109, "Accounting for Income Taxes," Accounting Principles Board,("APB") No. 28, "Interim Financial Reporting," and FIN 18, "Accounting forIncome Taxes in Interim Periods," an interpretation of APB Opinion No. 28. Forinterim reporting purposes, these rules require that a company determine thebest estimate of its annual effective tax rate and then apply that rate inproviding for income taxes on a year-to-date basis. Accordingly, the Companyhas calculated an expected annual effective tax rate, excluding significant,unusual or extraordinary items, for ordinary income associated with operationsfor which the Company currently expects to have annual taxable income.The annual effective tax rate applied to the results for the six months to June30, 2008 was adversely influenced by items (such as the United States researchand development tax credit which at June 30, 2008 has yet to be reinstated)that cannot at this time be included in the Company's estimate of the expectedannual effective tax rate. The impact of such items may subsequently berecognized within the expected annual effective tax rate when, in the case ofthe US research and development tax credit, tax law changes are enacted.The effective rate of tax for the six months to June 30, 2008 was 47%, (2007:-4%). During both six month periods to June 30, 2008 and 2007 the effectiverate of tax was adversely affected by in-process R&D charges of $135 million,(2007: $1,896 million) for which no tax benefit has been recorded. Excludingthe impact of these in-process R&D charges, the effective rate of tax for thesix months to June 30, 2008 was 19% (2007: 25%). The effective rate of taxexcluding in-process R&D charges in the six months to June 30, 2008 was 6%lower than the corresponding period in 2007 principally due to a permanent taxbenefit arising on the debtor substitution of the Company's convertible bond onthe Scheme of Arrangement in May 2008. The effective rate of tax excluding IPR&D charges in 2008 further benefited from the release of deferred taxliabilities, at a rate higher than the effective rate of tax, following theimpairment of the DYNEPO intangible asset.
Equity in earnings of equity method investees
Net losses of equity method investees of $0.3 million were recorded for the sixmonths to June 30, 2008 (2007: $1.2 million earnings). This comprised earningsof $2.8 million from the 50% share of the anti-viral commercializationpartnership with GSK in Canada (2007: $3.1 million) offset by losses of $3.1million being the Company's share of losses in the GeneChem, AgeChem and EGSFunds (2007: loss $1.9 million).
Dividend
In respect of the six months ended June 30, 2008, the Board resolved to pay aninterim dividend of 2.147 US cents per ordinary share (2007: 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 of1.085 pence per ordinary share (2007: 1.048 pence) and 6.441 US cents per ADS(2007: 6.441 US cents) will be paid on October 9, 2008 to persons whose namesappear on the register of members of the Company at the close of business onSeptember 12, 2008.As previously disclosed Shire intends to 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 United Kingdom. Inaccordance with the Shire ADS Deposit Agreement, the ADS Depositary will berequired to make an election on behalf of all holders of ADSs to receive UKsourced dividends. Details of the Income Access Share arrangements can be foundin the Scheme Circular issued on April 16, 2008, which is available on theCompany's website www.shire.com.
PRINCIPAL RISKS AND UNCERTAINTIES
The Shire Group has adopted a risk management strategy designed to identify, assess and manage the significant risks it faces. Whilst the Group aims to identify and manage such risks, no risk management strategy can provide absolute assurance against loss.
The principal risks and uncertainties facing the Group for the remaining sixmonths of 2008 are outlined in the Prospectus dated April 16, 2008 relating tothe introduction of the Ordinary Shares of Shire Limited to the Official List(the "Prospectus"), and the Annual Report and Accounts of Shire plc (the formerholding company of the Shire Group) for the year ended December 31, 2007 (the"Annual Report and Accounts"). The Group's process for managing these risks isconsistent with those processes as outlined in the Annual Report and Accounts.Some of these risks are specific to the Shire Group and others are moregenerally applicable to the pharmaceutical industry in which the Groupoperates. Both these documents are available on the Company's website, www.shire.com.
There has been no significant change in the principal risks and uncertainties since these risks were set out in the Prospectus on April 16, 2008.
DIRECTORS' RESPONSIBILITY STATEMENT
The directors' confirm that this condensed statement has been prepared in accordance with US GAAP and that the half yearly report herein includes a fair review of the information required by the DTR 4.2.7 and DTR 4.2.8.
The directors' of Shire Limited are listed in the Prospectus dated April 16, 2008 with the exception of the following changes:
* Dr Michael Rosenblatt was appointed as Non Executive Director on April 24
2008; * Shire's former Chief Financial Officer, Angus Russell, become Chief Executive Officer on June 18, 2008;
* Shire's former Chief Executive Officer, Matthew Emmens, became Chairman of
the Board on June 18, 2008;
* Shire's former chairman, Dr James Cavanaugh, retired from the Board on June
18, 2008; * Graham Hetherington was appointed Chief Financial Officer and Executive Board Director on July 1, 2008; and
* Robin Buchanan, due to his other commitments, stepped down from the Board
on July 29, 2008 on completion of his term of office.
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
Date: August 7, 2008 Date: August 7, 2008
SHIRE LIMITED CONSOLIDATED BALANCE SHEETS (Unaudited) Notes June 30, December 31, 2008 2007 $'M $'M ______________ _______________ ASSETS Current assets: Cash and cash equivalents 801.2 762.5 Restricted cash 34.3 39.5 Accounts receivable, net 5 463.5 441.5 Inventories, net 6 151.6 174.1 Assets held for sale 7 4.7 10.6 Deferred tax asset 135.0 143.3
Prepaid expenses and other current 8 100.3
125.3assets _______________ ______________________ Total current assets 1,690.6 1,696.8 Non current assets: Investments 9 66.7 110.2
Property, plant and equipment, net 434.2
368.6 Goodwill 221.8 219.4
Other intangible assets, net 10 1,645.5
1,764.5 Deferred tax asset 142.2 143.7 Other non-current assets 26.8 26.9 _______________ _______________________ Total assets 4,227.8 4,330.1 _______________ _______________________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued 11 702.2
674.2expenses Deferred tax liability 10.6 11.3
Liability to dissenting shareholders 490.5
480.2 Other current liabilities 12 40.3 96.5 _______________ ________________________ Total current liabilities 1,243.6 1,262.2 Non-current liabilities Convertible bonds 1,100.0 1,100.0 Other long term debt 31.9 32.9 Deferred tax liability 338.1 332.4 Other non-current liabilities 13 388.0 375.6 _______________ _______________________ Total non-current liabilities 1,858.0 1,840.9 _______________ _______________________ Total liabilities 3,101.6 3,103.1 _______________ ______________ Commitments and contingencies 14 SHIRE LIMITED CONSOLIDATED BALANCE SHEETS (Unaudited) Notes June 30, December 31, 2008 2007 $'M $'M __________ ___________ Shareholders' equity:
Common stock of 5p par value; 1,000 55.5
55.2
million shares authorized; and 559.9 million shares issued and outstanding (2007: 750 million shares authorized; and 556.8 million shares issued and
outstanding)
Exchangeable shares: nil shares issued 17 -
33.6and outstanding (2007: 0.7 million) Treasury stock (380.5) (280.8) Additional paid-in capital 2,563.9 2,503.4
Accumulated other comprehensive income 14.2
55.7 Accumulated deficit (1,126.9) (1,140.1) _________ __________ Total shareholders' equity 1,126.2 1,227.0 _________ __________ Total liabilities and shareholders' 4,227.8 4,330.1equity _________ __________ The accompanying notes are an integral part of these unaudited consolidatedfinancial statements. SHIRE LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Notes 6 months to 6 months to June 30, June 30, 2008 2007 $'M $'M _______________ ____________ Revenues: Product sales 1,337.4 965.7 Royalties 129.9 123.5 Other revenues 10.5 13.9 _______________ _______________ Total revenues 1,477.8 1,103.1 _______________ _______________ Costs and expenses:
Cost of product sales (1) (2) (3) 233.2
141.3
Research and development (1) (3) 267.3
184.2
Selling, general and administrative (1) 763.3
519.2(2) In-process R&D charge 135.0 1,896.0
Gain on sale of product rights 4 (16.7)
(5.0) Integration costs - 1.3 _______________ _______________ Total operating expenses 1,382.1 2,737.0 _______________ _______________ Operating income/(loss) 95.7 (1,633.9) Interest income 16 19.2 34.7 Interest expense (34.1) (35.8) Other income/(expenses), net 13.4 2.3 _______________ _______________
Total other (expenses)/income, net (1.5)
1.2 _______________ _______________ Income/(loss) before income taxes and 94.2
(1,632.7)
equity in (losses)/earnings of equity
method investees Income taxes (44.3) (67.1)
Equity in (losses)/earnings of equity (0.3)
1.2
method investees, net of taxes
_______________ _______________ Net income/(loss) 49.6 (1,698.6) _________ __________
1. For the six months to June 30, 2007 $8.7 million of depreciation was
reclassified from SG&A costs to Cost of product sales ($3.9 million) and
Research and development ($4.8 million).
2. 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, 2008 (2007: $nil). Selling, general and administrative costs
includes amortization and impairment charges of intangible assets relating
to intellectual property rights acquired of $152.3 million for the six
months to June 30, 2008 (2007: $32.9 million).
3. Costs, predominantly relating to manufacturing set-up costs for new
products, of $3.6 million for the six months to June 30, 2007, have been
reclassified from Research and development to Cost of product sales. SHIRE LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Notes 6 months to June 6 months to June 30, 30, 2008 2007 $'M $'M _______________ _______________ Earnings per share - basic Income/(loss) from continuing 9.1c (317.5c)operations _______________ _______________ 9.1c (317.5c) _______________ _______________ Earnings per share - diluted Income/(loss) from continuing 8.2c (317.5c)operations _______________ _______________ 8.2c (317.5c) _______________ _______________
Weighted average number of shares
(millions): Basic 18 543.7 535.0 Diluted 18 579.6 535.0 _________________ _________________SHIRE LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Exchange- Accumu- Retained Common able lated Earnings/ Total stock Exchange- shares Additional other (Accumu- share- Common Number able Number of Treasury paid-in compre- lated holders' stock of shares shares shares stock capital hensive deficit) equity $'M M's $'M M's $'M $'M income $'M $'M $'MAs at January 1,2007 43.7 506.7 59.4 1.3 (94.8) 1,493.2
87.8 353.0 1,942.3
Effect of Schemeof Arrangement(cancellation)(1) (43.7) - - - - (1,493.2) - - (1,536.9) Effect of Schemeof Arrangement(issue) (1) 50.2 - - - - 1,486.7 - - 1,536.9 As at January 1,2007 (restated) 50.2 506.7 59.4 1.3 (94.8) 1,486.7
87.8 353.0 1,942.3
Net loss for theperiod - - - - - -
- (1,451.8) (1,451.8)
Foreign currencytranslation - - - - - - (15.5) - (15.5) Shares issued, net
of issue costs 4.3 42.8 - - - 873.0 - - 877.3 Exchange ofexchangeableshares 0.1 1.7 (25.8) (0.6) - 25.7 - - -
Warrants exercised 0.2 1.3 - - - 12.8
- - 13.0
Options exercised 0.4 4.3 - - - 30.0
- - 30.4 Share-basedcompensation - - - - - 75.2 - - 75.2 Shares purchasedby the EmployeeShare OwnershipTrust ("ESOT") - - - - (186.0) -
- - (186.0)
Unrealized holdingloss onavailable-for-salesecurities, net oftaxes - - - - - -
(16.5) - (16.5)
Realized gain onavailable-for-salesecurities, net oftaxes - - - - - - (0.1) - (0.1) Dividends - - - - - - - (41.3) (41.3) As at December 31,2007 55.2 556.8 33.6 0.7 (280.8) 2,503.4
55.7 (1,140.1) 1,227.0
1. Net increase to common stock of the Scheme of arrangement $6.5 million, see
Note 2 for further details.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Dividends per share
During the year to December 31, 2007 the Company paid dividends totalling 7.39 US cents per ordinary share, equivalent to 22.18 US cents per American Depositary Share ("ADS"), and 25.32 Canadian cents per exchangeable share.
SHIRE LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(continued) Exchange- Accumu- Common able lated Total stock Exchange- shares Additional other Accumu- share- Common Number able Number of Treasury paid-in compre- lated holders' stock of shares shares shares stock capital hensive deficit equity $'M M's $'M M's $'M $'M income $'M $'M $'M As at January 1,2008 55.2 556.8 33.6 0.7 (280.8) 2,503.4
55.7 (1,140.1) 1,227.0
Net income for theperiod - - - - - - - 49.6 49.6 Foreign currencytranslation - - - - - - (7.4) - (7.4) Exchange ofexchangeableshares 0.2 2.3 (33.6) (0.7) - 33.4 - - - Costs associatedwith shares issuedthrough Scheme ofArrangement - - - - - (2.9) - - (2.9) Options exercised 0.1 0.8 - - - 0.9 - - 1.0 Share-basedcompensation - - - - - 35.7 - - 35.7 Tax deficitassociated withexercise of stockoptions - - - - - (2.2) - - (2.2) Shares purchasedby the ESOT - - - - (104.1) -
- - (104.1)
Shares released byESOT to satisfyexercise of stockoptions - - - - 4.4 (4.4) - - - Unrealized holdingloss onavailable-for-salesecurities, net oftaxes - - - - - -
(28.7) - (28.7)
Realized gain onavailable-for-salesecurities, net oftaxes - - - - - -
(5.4) - (5.4)
Dividends - - - - - -
- (36.4) (36.4)
As at June 30,2008 55.5 559.9 - - (380.5) 2,563.9
14.2 (1,126.9) 1,126.2
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Dividends per share
During the six months to June 30, 2008 Shire Limited declared and paid dividends of 6.47 US cents per ordinary share (equivalent to 19.41 US cents per ADS) totaling $36.4 million.
SHIRE LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS) (Unaudited) 6 months to 6 months to June 30, June 30, 2008 2007 $'M $'M ________________ ________________ Net income/(loss) 49.6 (1,698.6)
Other comprehensive income/(loss): Foreign currency translation adjustments (7.4)
(8.9)
Unrealized holding (loss)/gain on (28.7)
0.2
available-for-sale securities, net of taxes of
$nil (2007: $nil)
Realized gain on available-for-sale securities, (5.4)
-
net of taxes of $4.0 million (2007: $nil)
________________ ________________ Comprehensive income/(loss) 8.1 (1,707.3) ________________ ________________
The components of accumulated other comprehensive income as at June 30, 2008 and December 31, 2007 are as follows:
June 30, December 31, 2008 2007 $'M $'M ________________ ________________
Foreign currency translation adjustments 57.5
64.9
Unrealized holding loss on available-for-sale (43.3)
(9.2)
securities, net of taxes of $nil (2007: $5.2
million) ________________ _______________
Accumulated other comprehensive income 14.2
55.7 ________________ _______________ The accompanying notes are an integral part of these unaudited consolidated financial statements.SHIRE LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) 6 months to 6 months to June 30, June 30, 2008 2007 $'M $'M _____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) 49.6 (1,698.6)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization 96.3 63.7
Amortization of deferred financing charges 2.5
9.2
Interest on building financing obligation 1.9
- Share-based compensation 35.7 22.4
In-process research and development charge on New -
1,896.0
River Pharmaceuticals Inc ("New River") acquisition Impairment of intangible assets 90.4
-
Gain on sale of long-term assets (9.8)
-
Gain on sale of product rights (16.7)
(4.9) Movement in deferred taxes 17.4 13.8
Equity in losses/(earnings) of equity method 0.3
(1.2)investees
Changes in operating assets and liabilities: Increase in accounts receivable (28.4)
(103.0)
Increase in sales deduction accrual 35.5
18.9
Decrease/(increase) in inventory 10.4
(40.0)
Decrease in prepayments and other current assets 24.3
11.3
(Increase)/decrease in other assets (2.4)
0.7
(Decrease)/increase in accounts and notes payable (66.4)
7.6and other liabilities Increase in deferred revenue 5.5 88.5 ______________ ______________
Net cash provided by operating activities (A) 246.1
284.4 ______________ ______________
CASH FLOWS FROM INVESTING ACTIVITIES Movement in short-term investments -
55.8 Movement in restricted cash 5.2 (9.6) Purchases of subsidiary undertakings, net of cash - (2,458.6)acquired
Expenses relating to the acquisition of New River -
(60.4)
Purchase of long-term investments (1.1)
(5.8)
Purchase of property, plant and equipment (89.4)
(33.6)
Purchase of intangible assets -
(31.8)
Proceeds from disposal of long term assets 10.3
-
Proceeds from disposal of property, plant and 0.9
-equipment
Proceeds/deposits received from sale of product 5.0
16.8rights Returns of equity investments 0.4 2.2 _____________ _____________ Net cash used in investing activities (B) (68.7) (2,525.0) _____________ _____________ SHIRE LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) 6 months to 6 months to June 30, June 30, 2008 2007 $'M $'M _____________ _____________
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from drawings under bank facility -
1,300.0
Repayment of drawings under bank facility -
(1,300.0)
Proceeds from issue of Shire 2.75% convertible bonds - 1,100.0due 2014 Redemption of New River 3.5% convertible notes due - (279.4)2013
Proceeds from exercise of New River purchased call -
141.8option
Payment of debt arrangement and issuance costs -
(32.7)
Payment under building financing obligation (0.4)
-
Proceeds from exercise of options 1.0
24.1
(Costs)/proceeds from issue of common stock, net of (2.9)
877.3issue costs
Proceeds from exercise of warrants -
7.0 Payment of dividend (36.4) (29.4)
Payments to acquire shares by ESOT (104.1)
(99.9) _____________ ___________ Net cash (used in) / provided by financing activities (142.8) 1,708.8(C) _____________ ___________
Effect of foreign exchange rate changes on cash 4.1
3.4 and cash equivalents (D) _____________ ___________ Net increase/(decrease) in cash and cash equivalents 38.7 (528.4)(A+B+C+D) Cash and cash equivalents at beginning of period 762.5 1,126.9 _____________ ___________
Cash and cash equivalents at end of period 801.2
598.5 _____________ ___________ SHIRE LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Basis of Presentation
These interim financial statements of Shire Limited and its subsidiaries(collectively "Shire" or "the Company") 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, 2007 balance sheet was derived from audited financialstatements but does not include all disclosures required by US GAAP. However,the Company believes that the disclosures are adequate to make the informationpresented not misleading.
These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year to December 31, 2007.
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 periods. 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 provisions for litigation,valuation of intangible assets (including those acquired through businesscombinations), the valuation of equity investments, sales deductions, incometaxes and share-based payments and the amount payable to former holders ofapproximately 11.3 million shares of Transkaryotic Therapies, Inc. ("TKT")common stock who have submitted written demands for appraisal of these sharesin relation to the Company's acquisition of TKT on July 27, 2005.
c. Accounting pronouncements adopted during the period
EITF 07-3
In June 2007, the Emerging Issues Task Force ("EITF") reached a consensusregarding EITF 07-3, "Accounting for Non-refundable Advance Payments for Goodsor Services to Be Used in Future Research and Development Activities" ("EITF07-3"). The scope of this Issue is limited to non-refundable advance paymentsfor goods and services to be used or rendered in future research anddevelopment activities. The EITF concluded that non-refundable advancepayments for future research and development activities should be deferred andcapitalized on the balance sheet. Such amounts should be recognized as anexpense as the related goods are delivered or the related services areperformed. Entities should continue to evaluate whether they expect the goodsto be delivered or services to be rendered. If an entity does not expect thegoods to be delivered or services to be rendered, the capitalized advancepayment should be charged to expense. On January 1, 2008 the Company adoptedEITF 07-3. The adoption of EITF 07-3 had no impact on the Company's financialstatements as at January 1, 2008.
SFAS No. 157
On January 1, 2008 the Company adopted Statement of Financial AccountingStandards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157") forfinancial assets and liabilities, which provides a single definition of fairvalue, establishes a framework for the measurement of fair value and expandsdisclosure about the use of fair value to measure assets and liabilities. Theadoption of SFAS No. 157 for financial assets and liabilities did not have amaterial impact on the Company's financial statements as at January 1, 2008.
SFAS No. 159
On January 1, 2008 the Company adopted SFAS No. 159, "The Fair Value Option forFinancial Assets and Financial Liabilities - Including an Amendment of FASBStatement No. 115" ("SFAS No. 159"). This standard permits an entity to chooseto measure many financial instruments and certain other items at fair value.The unrealized gains and losses on items for which the fair value option hasbeen elected will be reported in earnings at each subsequent reporting date.The fair value option: (a) may be applied instrument by instrument, with a fewexceptions, such as investments otherwise accounted for by the equity method;(b) is irrevocable (unless a new election date occurs); and (c) is applied onlyto entire instruments and not to portions of instruments. The Company did notelect to fair value any items on adoption, and the adoption of SFAS No. 159 didnot have a material impact on the Company's financial statements.
d. New accounting pronouncements to be adopted in future periods
SFAS No. 162
In May 2008 the FASB issued SFAS No. 162, "The Hierarchy of Generally AcceptedAccounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles to be usedin the preparation of financial statements under US GAAP. SFAS No. 162 iseffective 60 days following the SEC's approval of the Public Company AccountingOversight Board amendments to AU Section 411, "The Meaning of Present Fairly inConformity With Generally Accepted Accounting Principles". It is not expectedthat SFAS No. 162 will change current practice.
FASB Staff Position (FSP) No. APB 14-1
In May 2008 the FASB issued FSP No. APB 14-1, "Accounting for Convertible DebtInstruments That May Be Settled in Cash upon Conversion (Including Partial CashSettlement)" ("FSP No. APB 14-1"). This FSP clarifies that convertible debtinstruments that may be settled in cash upon conversion (including partial cashsettlement) 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" ("APB 14"). It requires issuers ofsuch instruments to separately account for the liability and equity componentsof those instruments by allocating the proceeds from issuance of the instrumentbetween the liability component and the embedded conversion option (i.e., theequity component). FSP No. APB 14-1 is effective for fiscal years beginningafter December 15, 2008 and for interim periods within those fiscal years. Itis required to be applied retrospectively to convertible debt instruments thatare within the scope of the guidance and were outstanding during any periodpresented in the financial statements. A cumulative effect adjustment must berecognized as of the beginning of the first period presented. Early adoption ofthe guidance is not permitted. The Company is currently evaluating the impactof the adoption of FSP No. APB 14-1.
FASB Staff Position (FSP) No. FAS 142-3
In April 2008 the FASB issued FSP No. FAS 142-3, "Determination of the UsefulLife of Intangible Assets" ("FSP No. FAS 142-3"). This FSP amends the factorsthat should be considered in developing renewal or extension assumptions usedto determine the useful life of a recognized intangible asset under FASBStatement No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Theintent of FSP No. FAS 142-3 is to improve the consistency between the usefullife of an intangible asset determined under SFAS No. 142 and the period ofexpected cash flows used to measure the fair value of the asset under FASBStatement No. 141, "Business Combinations", ("SFAS No. 141"). FSP No. FAS 142-3is effective for financial statements issued for fiscal years beginning afterDecember 15, 2008, and interim periods within those fiscal years. Earlyadoption is prohibited. The Company is currently evaluating the impact of theadoption of FSP No. FAS 142-3.
SFAS No. 161
In March 2008 the FASB issued 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 derivativeand hedging activities and thereby improves the transparency of financialreporting. SFAS No. 161 is effective for financial statements issued for fiscalyears and interim periods beginning after November 15, 2008 with earlyapplication encouraged. This Statement encourages, but does not require,comparative disclosures for earlier periods at initial adoption. The Company iscurrently evaluating the impact of the adoption of SFAS No. 161.
FASB Staff Position (FSP) No. FAS 157-2
In February 2008 the FASB issued FSP No. FAS 157-2, "Effective Date of FASBStatement No. 157" ("FSP No. FAS 157-2"). This FSP delays the effective date ofSFAS No. 157 for non-financial assets and non-financial liabilities, except foritems that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually). SFAS No. 157 willtherefore be applicable to non-financial assets and liabilities for theCompany's fiscal year commencing January 1, 2009. The Company is currentlyreviewing the impact of the adoption of SFAS No. 157 for all non-financialassets and liabilities on its financial statements.
EITF 07-1
In December 2007 the EITF reached a consensus regarding EITF 07-1, "Accountingfor Collaborative Arrangements" ("EITF 07-1"). The objective of this EITF 07-1is to define collaborative arrangements and to establish reporting requirementsfor transactions between participants in a collaborative arrangement andbetween participants in the arrangement and third parties. EIFT 07-1 iseffective for financial statements issued for fiscal years beginning afterDecember 15, 2008 and interim periods within those fiscal years. EITF 07-1shall be applied retrospectively to all prior periods presented for allcollaborative arrangements existing as of the effective date. The Company iscurrently evaluating the impact of the adoption of EITF 07-1.
SFAS No. 160
In December 2007 the FASB issued SFAS No. 160, "Non-controlling Interests inConsolidated Financial Statements - An Amendment of ARB No. 51" ("SFAS No.160"). SFAS No. 160 establishes new accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. Specifically, this statement requires the recognition of anon-controlling interest (minority interest) as equity in the consolidatedfinancial statements, separate from the parent's equity. The amount of netincome attributable to the non-controlling interest will be included inconsolidated net income on the face of the income statement. SFAS No. 160 alsoincludes expanded disclosure requirements regarding the interests of the parentand its non-controlling interest. SFAS No. 160 is effective for fiscal years,and interim periods beginning after January 1, 2009. The Company is currentlyevaluating the impact of the adoption of SFAS No. 160.
SFAS No. 141(R)
In December 2007 the FASB issued SFAS No. 141 (Revised 2007), "BusinessCombinations" ("SFAS No. 141(R)"). SFAS No. 141(R) will significantly changethe accounting for business combinations. Under SFAS No. 141(R), an acquiringentity will be required to recognize all the assets acquired and liabilitiesassumed in a transaction at the acquisition-date fair value with limitedexceptions. It also amends the accounting treatment for certain specific itemsincluding acquisition costs and non controlling minority interests and includesa substantial number of new disclosure requirements. SFAS No. 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter January 1, 2009. The Company is currently evaluating the impact of theadoption of SFAS No. 141(R).
2. Change in reporting entity
On May 23, 2008 Shire Limited, a public company limited by shares incorporatedin Jersey and tax resident in the Republic of Ireland ("Shire"), became theholding company of Shire plc (the former holding company of the Shire Group), apublic limited company incorporated in England and Wales, pursuant to a schemeof arrangement under Sections 895 to 899 of the United Kingdom Companies Act2006 that was approved by the High Court of Justice in England and Wales andthe shareholders of Shire plc (the "Scheme of Arrangement"). Pursuant to theScheme of Arrangement, ordinary shares, each having a nominal value of ‚£0.05,of Shire plc ("Shire Ordinary Shares") were exchanged for ordinary shares, eachhaving a nominal value of ‚£0.05, of Shire Limited ("Shire Limited OrdinaryShares"), on a one-for-one basis. As a result of the Scheme of Arrangement,Shire plc is now a wholly-owned subsidiary of Shire Limited. The Shire LimitedOrdinary Shares carry substantially the same rights as did the Shire OrdinaryShares. The Scheme of Arrangement did not involve any payment for the ShireLimited Ordinary Shares.Shire Limited immediately after the effectiveness of the Scheme of Arrangementhad the same Board of Directors, management and corporate governancearrangements as Shire plc had immediately prior thereto. The consolidatedassets and liabilities of Shire Limited immediately after the effective time ofthe Scheme of Arrangement are substantially the same as the consolidated assetsand liabilities of Shire plc immediately prior thereto.The Shire Ordinary Shares underlying the Shire American Depositary Shares (the"Shire ADSs"), each representing three Shire Ordinary Shares, participated inthe Scheme of Arrangement like all other Shire Ordinary Shares. Upon the Schemeof Arrangement becoming effective, the Shire ADSs remained outstanding butbecame Shire Limited ADS's, each representing three Shire Limited OrdinaryShares. The Scheme of Arrangement did not involve any payment for the ShireLimited ADSs.
Shire Limited was incorporated on January 28, 2008. Prior to May 23, 2008 Shire Limited had not commenced trading or made any profits or trading losses.
In accordance with SFAS No. 141, the corporate restructuring has been accounted for as a reorganization of entities under common control. Accordingly, the historical financial statements prior to the reorganization are labeled as those of Shire Limited, but continue to represent the operations of Shire plc.
Earnings per share are unaffected by the reorganization.
All Shire plc stock options granted to directors and employees under stockoption plans that were in existence immediately prior to the Scheme ofArrangement were exchangeable for stock options in Shire Limited on aone-for-one basis with no change in any terms or conditions, other than theacceleration of the vesting date of certain awards granted under the Shire plc2000 Executive Share Option Scheme ("2000 Executive Scheme") to the date of theScheme of Arrangement, May 23, 2008. The number of stock options for which thisexchange did not take place was not material.For presented periods prior to the 2008 corporate restructuring, the equity ofShire Limited represents the historical equity of Shire plc, restated toreflect the change in the nominal value of common stock as expressed in USdollars resulting from the corporate restructuring. The $6.5 million increasein the value of common stock at January 1, 2007 (being the earliest periodpresented) to $50.2 million on restatement is due to differences between thehistoric exchange rates used to convert Shire's Sterling denominated nominalshare capital into US Dollars, and the exchange rate at the time of thecorporate restructuring. The offset is recorded in additional paid-in capital.
3. Business combinations: New River acquisition
On April 19, 2007 Shire completed its acquisition of New River by way of a short-form merger, in an all-cash transaction. Total consideration, together with costs directly attributable to the business combination was $2,594.5 million at the price of $64 per share of New River common stock.
The determination of final fair values was completed on April 19, 2008. Thisdetermination of final fair values did not result in any adjustments to thepreliminary purchase price from those fair values as reported at December 31,2007.
4. Gain on sale of product rights
Following receipt of the relevant regulatory or other consents during the sixmonths to June 30, 2008 the Company recognized $11.7 million of the gainsdeferred as at December 31, 2007 from the disposal of non-core products duringthe 2007 financial year, see Note 7.
In the six months to June 30, 2008 Shire also received cash consideration of $5.0 million in respect of the divestment of the Beta range of hormone replacement products to Meda AB, realizing a gain of $5.0 million.
During the six months to June 30, 2007 the Company recognized gains of $5.0 million from the disposal of non-core products. All disposed non-core products were reported in the Specialty Pharmaceuticals operating segment.
5. Accounts receivable, net
Accounts receivable at June 30, 2008 of $463.5 million (December 31, 2007: $441.5 million), are stated net of a provision for discounts and doubtful accounts of $12.8 million (December 31, 2007: $9.8 million).
Provision for discounts and doubtful accounts:
2008 2007 $'M $'M _____________ _____________ As at January 1 9.8 8.8
Provision charged to operations 41.6
30.2 Provision utilization (38.6) (28.9) _____________ _____________ As at June 30 12.8 10.1 _____________ _____________ 6. Inventories, net Inventories at June 30, 2008 of $151.6 million (December 31, 2007: $174.1million) are stated at the lower of cost or market and are analyzed as follows: June 30, December 31, 2008 2007 $'M $'M ____________ ____________ Finished goods 44.4 67.6 Work-in-process 72.9 66.2 Raw materials 34.3 40.3 ____________ ____________ 151.6 174.1 ____________ ____________
During the six months to June 30, 2008 the Company wrote down the value of itsDYNEPO related inventory to the lower of cost or market. Changes in theexternal environment in this period, including the launch of several competingbiosimilars at lower prices has made DYNEPO uneconomic for the Company.Accordingly the Company has decided to stop commercializing DYNEPO. Productsales will wind down over the second half of 2008 as all patients aretransferred off DYNEPO by the end of the year.
7. Assets held for sale
At June 30, 2008 assets held for sale had a carrying value of $4.7 million(December 31, 2007: $10.6 million), represented by intangible assets of $4.2million and attributed goodwill of $0.5 million relating to certain productsdivested to Laboratories Almirall S.A. ("Almirall") in 2007 and a number ofother non-core product licenses. The recognition of the gains arising on thedisposal of these products and the de-recognition of the related assets havebeen deferred pending the completion of the transfer of the relevant regulatoryand other consents to the acquirer.
All assets classified as held for sale form part of the Specialty Pharmaceuticals operating segment.
8. Prepaid expenses and other current assets
June 30, December 31, 2008 2007 $'M $'M ______________ ____________ Prepaid expenses 29.4 38.1 Income tax receivable 20.3 19.2 Value added taxes receivable 25.6 10.8 Other current assets 25.0 57.2 ______________ ____________ 100.3 125.3 ______________ ____________At December 31, 2007 Other current assets included $23.0 million, payable byShire's insurance companies as a contribution towards the settlement of the TKTClass Action Shareholder Suit, see Note 14(c). This amount was paid into escrowby the insurance companies during the six months to June 30, 2008. Thesettlement was approved by the Court on June 11, 2008.
9. Investments
At June 30, 2008 the Company had available-for-sale investments in anunrealized loss position of $43.3 million, of which $40.3 million related toShire's investment in Renovo Group plc ("Renovo"). The Company has notrecognized an other-than-temporary impairment for these investments, with theunrealized loss being recorded to accumulated other comprehensive income.The decline in Renovo's share price followed announcements by Renovo of theresults of clinical trials for JUVISTA in Q4 2007 and Q1 2008. Nine Phase 2efficacy trials for JUVISTA have now been reported of which seven demonstratedstatistical significant efficacy. A further Phase 2 trial for JUVISTA is stillongoing and is expected to report in 2008, and in July 2008 the Company wasgiven clearance by the European Medicines Agency (the EMEA) to commence Phase 3trials. Renovo has other products in its pipeline, including ZESTEEM(completing its first Phase 3 trial later this year), JUVIDEX (completing aPhase 2 trial in 2009) and PREVASCAR (Phase 2 trial to report in 2010).Renovo's share price is highly sensitive to news, both positive and negative,on its clinical trials. The Company considers that, in the light of the trialactivity due to be reported in 2008 and 2009, the decline in Renovo's shareprice has yet to be determined to be "other-than-temporary".
The fair value of the Company's available-for-sale investments in an unrealized loss position is $19.5 million.
Other income includes a gain of $9.4 million from the sale of Shire's available-for-sale investment in Questcor Pharmaceutical Inc., a specialty pharmaceutical company focused on providing prescription drugs for central nervous system (CNS) disorders. Shire received a cash consideration of $10.3 million on the sale of this investment.
10. Other intangible assets, net
June 30, December 31, 2008 2007 $'M $'M ________________ ________________ Intellectual property rights acquired 2,153.4
2,116.8
Favorable manufacturing contracts 8.9
8.9 ________________ ________________ 2,162.3 2,125.7 Less: Accumulated amortization and impairment (516.8) (361.2)charges ________________ ________________ 1,645.5 1,764.5 ________________ ________________
Intellectual property rights relate to currently marketed products. At June 30,2008 the net book value of these intellectual property rights relating toproduct sales recorded in the Specialty Pharmaceuticals operating segment was$1,333.9 million (December 31, 2007: $1,440.6 million) and in the Human GeneticTherapies operating segment was $310.6 million (December 31, 2007: $322.4million).
During the six months to June 30, 2008 additions to intangible assets included $25.0 million in respect of DAYTRANA as a result of a sales milestone being triggered in June 2008.
During the six months to June 30, 2008 the Company recognized an impairmentcharge of $90.4 million, (2007: $nil), to write-down its intangible asset forDYNEPO to its fair value ($nil). During the six months to June 30, 2008 changesin the external environment, including the launch of several competingbio-similars at lower prices has made DYNEPO uneconomic for the Company.Accordingly the Company has decided to stop commercializing DYNEPO. Productsales will wind down over the second half of 2008 as all patients aretransferred off DYNEPO by the end of the year. The fair value of DYNEPO hasbeen determined using an expected present value technique. The impairmentcharge has been recorded to Selling, general and administrative expenses, andrelates to the Specialty Pharmaceuticals operating segment.The useful economic lives of all intangible assets that continue to beamortized under SFAS No. 142, "Goodwill and Other Intangible Assets" have beenassessed. Management estimates that the annual amortization charge in respectof intangible fixed assets held at June 30, 2008 will be approximately $118million for each of the five years to June 30, 2013. Estimated amortizationexpense can be affected by various factors including future acquisitions,disposals of product rights, foreign exchange movements and the technologicaladvancement and regulatory approval of competitor products.
11. Accounts payable and accrued expenses
June 30, December 31, 2008 2007 $'M $'M ________________ ________________ Trade accounts payable 94.5 79.6 Accrued rebates - Medicaid 127.5 114.3
Accrued rebates - Managed care 48.2
32.3 Sales return reserve 42.6 39.5 Accrued bonuses 36.8 59.6
Accrued employee compensation and benefits 38.3
35.0payable Accrued coupons 6.1 9.0
Research and development accruals 57.8
38.2 Marketing accruals 39.5 19.0 Deferred revenue 13.0 11.1 Accrued settlement costs 1.4 51.5 Other accrued expenses 196.5 185.1 ________________ ________________ 702.2 674.2 ________________ ________________
At December 31, 2007 Accrued settlement costs included $50.0 million, for the settlement of the TKT Class Action Shareholder Suit, see Note 14(c). This amount was paid into escrow by Shire ($27.0 million) and Shire's insurance companies ($23.0 million) during the six months to June 30, 2008. The settlement was approved by the Court on June 11, 2008.
12. Other current liabilities
June 30, December 31, 2008 2007 $'M $'M _____________ _____________ Income taxes payable - 47.3 Value added taxes 4.9 6.0 Other accrued liabilities 35.4 43.2 _____________ _____________ 40.3 96.5 _____________ _____________
13. Other non-current liabilities
June 30, December 31, 2008 2007 $'M $'M _____________ _____________ Income taxes payable 328.6 320.8 Other accrued liabilities 59.4 54.8 _____________ _____________ 388.0 375.6 _____________ _____________
14. Commitments and contingencies
a. Leases
Future minimum lease payments presented below include operating lease paymentsand other fixed executory fees under lease arrangements as at June 30, 2008: Operating leases $'M _____________ 2008 17.7 2009 29.0 2010 23.9 2011 21.6 2012 14.8 2013 13.3 Thereafter 53.7 _____________ 174.0 _____________ i. Operating leases The Company leases land, facilities, motor vehicles and certain equipment underoperating leases expiring through 2025. Lease and rental expense which isincluded in Selling, general and administrative expenses in the accompanyingstatements of operations amounted to $15.6 million for the six months to June30, 2008 (2007: $14.2 million).
ii. Restricted cash in respect of leases
At June 30, 2008 the Company had $0.3 million of restricted cash held as collateral for certain equipment leases (December 31, 2007: $8.0 million).
b. Letters of credit and guarantees
At June 30, 2008 the Company had irrevocable standby letters of credit with various banks, in the amount of $13.4 million, providing security on the recoverability of insurance claims. The Company has restricted cash of $13.4 million, as required by these letters of credit.
c. Commitments
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 Research &Development ("R&D") activities of SPD550. Alba will fund all development untilSPD550 has completed Proof of Concept, which is expected to be in the firsthalf of 2009, after which Shire and Alba will share equally development costsunder a joint development plan.
(ii) Amicus Therapeutics, Inc. ("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. Shire will paydevelopment and sales milestones up to a maximum of $390 million. Shire willalso pay tiered, double digit, royalties on net sales of the products. Shireand Amicus will pursue a joint development program toward market approval inthe US and Europe; expenses for this program will be shared equally.
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. JUVISTA is in Phase 2development. Under the terms of the agreement Shire has the exclusive right tocommercialize JUVISTA worldwide, with the exception of 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.
iv. DAYTRANA
In connection with the Company's acquisition in 2003 from NovenPharmaceuticals, Inc. ("Noven") of the worldwide sales and marketing rights toDAYTRANA, Shire will make a payment of $25.0 million to Noven in the thirdquarter of 2008 as a result of reaching a sales milestone in the six months toJune 30, 2008. This amount has been capitalized as an intangible asset and thisasset will be amortized over approximately eight years. Shire has no furthermilestone obligations to Noven in respect of this agreement.
v. Women's Health Products
In September 2006, Shire and Duramed Pharmaceuticals, Inc ("Duramed") enteredinto an agreement related to SEASONIQUE, a number of products using Duramed'stransvaginal ring technology and other oral products. Shire has the right tomarket these products in a number of markets outside of North America,including the larger European markets.Under this agreement, Shire will reimburse Duramed for US development expensesincurred going forward up to a maximum of $140 million over eight years fromSeptember 2006. US development expenditure reimbursement for the three monthsto June 30, 2008 totalled $15.5 million. At June 30, 2008 the maximum futurereimbursement for Duramed-incurred US development expenditure is $104.3million. Shire will separately be responsible for development costs in itslicensed territories.
vi. Other R&D and sales milestones
In addition to the commitments set out in (i) to (v), at June 30, 2008 theCompany had fees payable and commitments payable on achievement of specifiedmilestones for products under development in-licensed from third parties of$4.6 million (December 31, 2007: $5.3 million), of which $3.6 million could
bepaid in 2008.vii. Clinical testing At June 30, 2008 the Company had committed to pay approximately $102.0 million(December 31, 2007: $77.6 million) to contract vendors for administering andexecuting clinical trials. The Company expects to pay $59.5 million (December31, 2007: $44.4 million) of these commitments in 2008. However, the timing ofthese payments is dependent upon actual services performed by the organizationsas determined by patient enrollment levels and related activities.
viii. Contract manufacturing
At June 30, 2008 the Company had committed to pay approximately $97.3 million(December 31, 2007: $109.7 million) in respect of contract manufacturing. TheCompany expects to pay $74.9 million (December 31, 2007: $91.3 million) ofthese commitments in 2008.
ix. Purchase and service commitments
At June 30, 2008 the Company had committed to pay approximately $43.3 million(December 31, 2007: $49.4 million) for future purchases and services,predominantly relating to active pharmaceutical ingredients sourcing and IToutsourcing. The Company expects to pay $23.9 million (December 31, 2007: $31.0million) of these commitments in 2008.
x. Investment commitments
At June 30, 2008 the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totaling $6.8 million (December 31, 2007: $7.9 million) which may all be payable in 2008, depending on the timing of capital calls.
xi. Capital commitments
At June 30, 2008 the Company had committed to spend $182.8 million on capitalprojects. This includes commitments for the expansion and modification of itshead office in Basingstoke, UK and its facilities in both Owings Mills,Maryland and Lexington, Massachusetts.
xii. Legal proceedings
General
The Company accounts for litigation losses and insurance claims and provisionsin accordance with SFAS No. 5, "Accounting for Contingencies" (SFAS No. 5).Under SFAS No. 5, loss contingency provisions are recorded for probable losseswhen management is able to reasonably estimate the loss. Where the estimatedloss lies 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 the Company is unable to develop a reasonableestimate of loss, no litigation loss is recorded at that time. As informationbecomes known a loss provision is set up when a reasonable estimate can bemade. The estimates are reviewed quarterly and the estimates are changed whenexpectations are revised. Any outcome upon settlement that deviates from theCompany's estimate may result in an additional expense in a future accountingperiod. At June 30, 2008 provisions for litigation losses, insurance claims andother disputes totaled $18.5 million (December 31, 2007: $66.2 million)excluding the liability to dissenting shareholders.
Specific
There are various legal proceedings brought by and against Shire that arediscussed in Shire's Annual Report on Form 10-K for the year to December 31,2007. Material updates to the proceedings discussed in Shire's Annual Report onForm 10-K are described below. There is no assurance that the Company will besuccessful in any of these proceedings and if it is not, there may be amaterial impact on the Company's results and financial position.
ADDERALL XR
i. Colony and Actavis
In December 2004, Shire was notified that Colony Pharmaceuticals, Inc.("Colony") had submitted an Abbreviated New Drug Application ("ANDA") under theHatch-Waxman Act seeking permission to market its generic versions of the 5mg,10mg, 15mg, 20mg, 25mg and 30mg strengths of ADDERALL XR prior to theexpiration date of US Patent No. 6,322,819 ("the `819 Patent") and US PatentNo. 6,605,300 ("the `300 Patent"), the Shire patents that cover ADDERALL XR.Colony is a member of the Actavis Group hf group of companies. On March 20,2007, Shire filed a lawsuit in the U.S. District Court for the District ofMaryland against Colony, Actavis, Inc. and Actavis Group hf (collectively"Colony and Actavis") for infringement of the `819 Patent, the `300 Patent andalso US Patent No. 6,913,768 ("the "768 Patent"). The lawsuit alleges that allof Colony and Actavis' generic strengths infringe the three patents in suit. Inresponse, Colony and Actavis have alleged as affirmative defenses andcounterclaims non-infringement, invalidity and unenforceability of the threepatents. Because the case was not filed pursuant to the Hatch-Waxman Act, thereis no 30-month stay of approval of Colony and Actavis' ANDA products associatedwith this litigation.On August 2, 2007, Colony filed a motion for partial summary judgment ofnon-infringement of the `819 and `300 Patents. Following a discovery period andbriefing, the Court heard oral argument on November 27, 2007. In a decisiondated January 2, 2008 the Court denied Colony's summary judgment motion. OnJanuary 17, 2008 Colony filed motions for clarification/reconsideration and arequest for certification. The Court denied both motions on January 23, 2008.The litigation was settled on April 11, 2008 with Colony and Actavis concedingto the infringement of the '819, '300 and '768 Patents and admitting that thethree patents are valid and enforceable. Under the terms of the settlement,Colony and Actavis will be permitted to sell their generic versions of ADDERALLXR one hundred eighty one days after the launch by Barr of a generic ADDERALLXR product provided Colony and/or Actavis has received FDA approval of theirANDA. No payments to Colony, and no payments to Actavis are involved in thesettlement. As required by law, Shire has submitted to the US Federal TradeCommission ("FTC") and the US Department of Justice ("DOJ") all of theagreements entered into as part of this settlement.
ii. Teva Pharmaceuticals
In February 2005, Shire was notified that Teva Pharmaceuticals, Inc. ("TevaPharmaceuticals") had submitted an ANDA under the Hatch-Waxman Act seekingpermission to market its generic versions of the 10mg and 30mg strengths ofADDERALL XR prior to the expiration date of the Company's `819 and `300Patents. In June 2005, Shire was notified that Teva Pharmaceuticals had amendedits ANDA to seek permission to market additional strengths of 5mg, 15mg and20mg of its generic ADDERALL XR prior to the expiration of the '819 and '300Patents. In January 2006, Shire received a third notice letter that TevaPharmaceuticals had further amended its ANDA to seek permission to market the25mg strength generic version of ADDERALL XR prior to the expiration of the`819 and `300 Patents. On March 2, 2006 Shire filed a lawsuit in the EasternDistrict of Pennsylvania against Teva Pharmaceuticals USA, Inc. ("Teva USA")and Teva Pharmaceuticals Industries Ltd. (collectively "Teva") alleging thatall of Teva's ANDA products infringe both the `819 and the `300 Patents. Thelawsuit triggered a stay of FDA approval of Teva's 25mg strength product for 30months from the date of the Company's receipt of Teva's third notice letter.There is no such stay with respect to Teva's 5mg, 10mg, 15mg, 20mg and 30mgstrengths versions of ADDERALL XR. Teva counterclaimed that the `819, `300 and`768 Patents are not infringed and/or invalid. On January 30, 2007, the casewas transferred to the civil suspense docket because discovery was stayedpending settlement discussions. No discovery was taken in this case. This casesettled on March 6, 2008 with Teva conceding that its proposed generic ANDAproducts infringe Shire's `819, `300 and `768 Patents, and that the threepatents are valid and enforceable. Under the terms of the settlement, Teva willbe permitted to sell their generic versions of ADDERALL XR that are the subjectof Teva's ANDA one hundred and eighty one days after the launch by Barr of ageneric ADDERALL XR product, subject to FDA approval of Teva's ANDA products.No payments to Teva are involved in the settlement agreement. The settlementagreement, which was effective immediately, has been submitted to the FTC andthe DOJ for review, as required by law.
iii. Sandoz
In December 2006, Shire was notified that Sandoz Inc. ("Sandoz") had submittedan ANDA under the Hatch-Waxman Act seeking permission to market its genericversions of the 5mg, 10mg, 15mg, 20mg, 25mg and 30mg strengths of ADDERALL XRprior to the expiration of the Company's `819 and `300 patents. On January 26,2007 Shire filed suit in the US District Court for the District of Colorado forinfringement of the `819 and `300 Patents. Pursuant to the Hatch-Waxman Act,there will be a 30 month stay with respect to Sandoz' proposed genericproducts. In response to Shire's complaint, Sandoz has alleged affirmativedefenses and counterclaims of non- infringement and validity. Sandoz hasalleged sham litigation and patent misuse and the Company has filed a motion tostrike these two affirmative defenses. The Court has denied the motion withoutprejudice. Expert reports were filed on September 21, 2007 and rebuttal reportswere filed on October 12, 2007. On December 21 and 26, 2007 Sandoz and Shire,respectively, each filed motions for summary judgment. Opposition briefs wereexchanged on February 8, 2008. The Court has not ruled on these motions. Replybriefs were submitted on February 28, 2008. No trial date has been set.
CARBATROL
(i) Nostrum
In August 2003, the Company 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 the Company's US patents forCARBATROL, US patent No. 5,912,013 ("the `013 Patent") and US patent No.5,326,570 ("the `570 Patent"). The notification alleges that the `013 and `570Patents are not infringed by Nostrum's ANDA product. On September 18, 2003,Shire filed suit against Nostrum in the United States District Court for theDistrict of New Jersey alleging infringement of these two patents by Nostrum'sANDA and ANDA product. The lawsuit triggered a stay of FDA approval of up to 30months from Shire's receipt of Nostrum's notice letter. The 30 month stayexpired on February 6, 2006. Nostrum could be in a position to market its 300mgextended-release carbamazepine product upon FDA final approval of its ANDA. OnJanuary 23, 2004 the Company 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 thiscase until and through September 15, 2006. The parties requested, and the Courtgranted, an extension of the stay of discovery until and through December 29,2006. The stay of discovery has been extended. Nostrum requested and the Courtpermitted Nostrum to file claim construction briefs in the Shire v. Corepharmacase also pending in New Jersey. Opening briefs were submitted on October 3,2007 and responding briefs on October 24, 2007. The case has been stayedpending a claim construction ruling in the Shire v. Corepharma action. TheCourt in the Corepharma case issued a claim construction decision on March 26,2008. Corepharma moved for reconsideration on April 9, 2008. The Court deniedCorepharma's motion on May 20, 2008.In May 2008, the company was notified that Nostrum Pharmaceuticals LLC hadsubmitted an amendment to the above referenced ANDA seeking permission tomarket its generic versions of the 100mg and 200mg strengths of CARBATROL priorto the expiration date of the Company's `013 and `570 Patents. The notificationalleges that the `013 and `570 Patents are not infringed by Nostrum's ANDAproducts. On July 2, 2008 Shire filed suit against Nostrum in the United StatesDistrict Court for the District of New Jersey alleging infringement of thesetwo patents by Nostrum's ANDA and ANDA products. 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. No trial date has beenset.(ii) CorepharmaOn March 30, 2006 the Company was notified that Corepharma LLC ("Corepharma")had filed 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 United StatesDistrict Court for the District of New Jersey alleging infringement of thesetwo patents by Corepharma's ANDA and ANDA products. Pursuant to theHatch-Waxman Act, there will be a 30 month stay with respect to Corepharma'sproposed generic products. On September 1, 2006 the Company amended thecomplaint to drop the allegations with respect to the `013 Patent whilemaintaining the suit with respect to the `570 Patent. On May 4, 2007 Corepharmafiled a motion for summary judgment of non- infringement of the `570 Patent.Shire's opposition to that motion was filed on July 30, 2007. The Courtinformed the parties on August 30, 2007 that Corepharma's motion was deniedwithout prejudice. The Court set a Markman schedule and opening briefs wereexchanged on October 3, 2007 (including an amicus brief, filed with the Court'spermission by Nostrum). Responding briefs were exchanged on October 24, 2007.The Court has also entered a discovery schedule. The Court rendered a claimconstruction ruling on March 26, 2008. Corepharma moved for reconsideration ofthe claim construction ruling. The Court denied the motion on May 20, 2008.Expert reports were exchanged and expert depositions were completed on June 13,2008. On June 20, 2008, Corepharma filed another summary judgment motiondirected to the `570 Patent. Shire's response is due July 18, 2008 andCorepharma's reply is due August 1, 2008. On July 7, 2008, following briefingand oral argument on Corepharma's motion to vacate an earlier Court ordergranting Shire's motion to dismiss Corepharma's `013 noninfringementcounterclaims due to lack of subject matter jurisdiction and denying as mootCorepharma's motion for judgment on the pleadings for noninfringement of the`013 patent, the Court vacated its earlier order in view of recent Court ofAppeals for the Federal Circuit authority. The Court also denied Corepharma'srequest for judgment on the pleadings and directed the parties to conductsummary judgment briefing on the `013 patent infringement issues. A pretrialconference is scheduled before Magistrate Judge Shipp on September 15, 2008. Notrial date has been set.(iii) Teva
On March 20, 2007 the Company was notified that Teva USA had filed an ANDAunder the 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 May 2, 2007,Shire 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. The parties have submitted a discovery schedule to the Court. The Courtconducted another status conference on June 19, 2008. The parties havesubmitted a revised discovery schedule for the Court's consideration. No trialdate 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 prior to theexpiration date of the `013 and the `570 Patents. On July 2, 2008, Shire fileda lawsuit in the U.S. District Court for the Eastern District of Texas againstApotex Inc., Apotex Corp. and Apotex Pharmaceutical Holdings Inc. (collectively"Apotex") alleging infringement of the `013 and `570 Patents by Apotex ANDA
andANDA products. 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 U.S. 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.DYNEPOSince 1997, Shire HGT and Sanofi-Aventis have been involved in ongoing patentlitigation regarding Amgen Inc's ("Amgen") allegations that DYNEPO infringesclaims of five of Amgen's patents. In 2001, the United States District Court ofMassachusetts concluded that DYNEPO infringed certain claims of the patentsthat Amgen had asserted. This decision was appealed to the United States Courtof Appeals for the Federal Circuit (the "Federal Circuit") which affirmed inpart, reversed in part, and remanded the action to the United States DistrictCourt of Massachusetts for further proceedings.In 2004, the United States District Court of Massachusetts issued a decision onthe remanded issues, finding that certain claims related to four of the patentsasserted by Amgen are infringed by Shire HGT and Sanofi-Aventis. This decisionwas subsequently appealed to the Federal Circuit which affirmed in part,reversed in part, and once again remanded certain issues to the District Court.Amgen filed a petition for a writ of Certiorari with the Supreme Court in March2007, requesting review of the Federal Circuit's 2004 decision. Amgen'spetition was denied on May 14, 2007 and the case was remanded to the DistrictCourt. The remanded case is presently pending.Under the existing decisions, the Company and Sanofi-Aventis would be precludedfrom making, using and selling DYNEPO in the United States until the expirationof the relevant patents. The Company is required to reimburse Sanofi-Aventis,which controls the litigation and is paying the litigation expenses, for 50% ofthe expenses incurred in connection with the litigation from and after March26, 2004.REMINYL
On January 29, 2008 Generics UK Ltd commenced a rectification action in the UKseeking a declaration that the duration of the Supplementary ProtectionCertificate ("SPC") for EP 236684, the patent that claims the use ofgalantamine for the treatment of Alzheimer's disease, is zero (ie the period ofexclusivity conferred by the patent has already expired), or alternatively thatit expires on December 31, 2008. This SPC represents the primary patentprotection for REMINYL in the EU. The current term of the SPC extension runs toJanuary 2012. Absent the SPC extension, the patent would have expired inJanuary 2007. REMINYL is entitled to ten years data exclusivity in the UK,which will not expire until March 2010. A two day trial is scheduled for theweek of December 8, 2008.Appraisal Rights
In connection with Shire's merger with TKT, former holders of approximately11.7 million shares of TKT common stock submitted written demands to theDelaware Court of Chancery for appraisal of these shares and, as a result,elected not to accept the $37 per share merger consideration. On October 10,2005 at the request of one of the holders to tender 365,000 shares at themerger price of $37 per share, TKT filed a motion to dismiss the holder'sdemand. On October 12, 2005 the Delaware Court of Chancery granted this motion,and the holder tendered the shares at the merger consideration of $37 pershare. Therefore, as at June 30, 2008 former holders of approximately 11.3million shares of TKT common stock maintained written demands for appraisal ofthese shares and have elected not to accept the $37 merger consideration. InNovember 2005, the Delaware Court of Chancery approved a stipulatedconsolidation order whereby actions brought by all petitioners have beenconsolidated as one case.Such former holders will be entitled to receive the fair value of these sharesas determined by the Delaware Court of Chancery. The determination of fairvalue will be made excluding any element of value arising from the transaction,such as cost savings or business synergies. The Delaware Court of Chancery mayascribe a valuation to the shares that is greater than, less than or equal to$37 per share and may award interest on the amount determined in the appraisalprocess.At June 30, 2008 the Company recorded a liability of $419.9 million based onthe merger consideration of $37 per share for the 11.3 million sharesoutstanding at that time plus a provision for interest of $70.6 million thatmay be awarded by the Court.The total consideration for the acquisition of TKT, including amounts payablein respect of stock options and convertible securities, is approximately $1.6billion at the merger price of $37 per share. This could change if Shire isrequired to pay a different amount of consideration in respect of theapproximately 11.3 million shares for which holders have asserted appraisalrights. For every dollar increase/decrease in the merger considerationapplicable to those TKT shareholders who have asserted appraisal rights, thetotal estimated purchase price would increase/decrease by approximately $11.3million. Until such time as the appraisal process is complete, the Company isunable to determine the extent of its liability.On March 8, 2007 certain of the former TKT shareholders who previously assertedappraisal rights in connection with the Shire/TKT merger filed a second suit inthe Delaware Chancery Court alleging, among other claims, breaches of fiduciaryduty by TKT and certain members of its board in connection with the merger withShire. Shire and TKT have been named as defendants as are four former directorsof TKT. The new complaint also asserts a claim that the merger itself was notproperly approved by a majority of the outstanding stock of TKT entitled tovote. The complaint seeks rescissory damages with interest, attorneys' fees andcosts. In January 2008 Shire and three of the other defendants (former TKTdirectors) filed a motion for summary judgment in respect to the five countsincluded in the second suit. In June 2008 the Court granted the motion in fullwith respect to the three other defendants and in part with respect to Shire.The remaining counts of the second suit relate to alleged breaches of fiduciaryduty by Dr. Dennis Langer (a former TKT director) and Shire as well as theclaim that the merger was not properly approved. A trial date has been set forDecember 10, 2008.
Class Action Shareholder Suit
In January and February 2003, various parties filed purported securities fraud class action lawsuits against TKT and Richard Selden, TKT's former Chief Executive Officer, in the United States District Court for the District of Massachusetts. In April 2003, the Court appointed a Lead Plaintiff and Lead Counsel and consolidated the various matters under one matter: In re Transkaryotic Therapies, Inc., Securities Litigation, C.A. No. 03-10165-RWZ.
In July 2003, the plaintiffs filed a Consolidated and Amended Class ActionComplaint (the "Amended Complaint") against TKT; Dr Selden; Daniel Geffken,TKT's former Chief Financial Officer; Walter Gilbert, Jonathan S. Leff, RodmanW. Moorhead, III, and Wayne P. Yetter, then members of TKT's board ofdirectors; William R. Miller and James E. Thomas, former members of TKT's boardof directors; and SG Cowen Securities Corporation, Deutsche Bank SecuritiesInc., Pacific Growth Equities, Inc. and Leerink Swann & Company, underwritersof TKT's common stock in prior public offerings.The Amended Complaint alleges that the defendants made false and misleadingstatements and failed to disclose material information concerning the statusand progress for obtaining United States marketing approval of REPLAGAL duringthe period between January 4, 2001 and January 10, 2003. The Amended Complaintasserts claims against Dr. Selden and TKT under Section 10(b) of the SecuritiesExchange Act of 1934 and Rule 10b-5 promulgated thereunder; and against Dr.Selden under Section 20(a) of the Exchange Act. The Amended Complaint alsoasserts claims based on TKT's public offerings of June 29, 2001, December 18,2001 and December 26, 2001 against each of the defendants under Section 11 ofthe Securities Act of 1933 and against Dr. Selden under Section 15 of theSecurities Act; and against SG Cowen Securities Corporation, Deutsche BankSecurities Inc., Pacific Growth Equities, Inc. and Leerink Swann & Companyunder Section 12(a) (2) of the Securities Act. The plaintiffs seek equitableand monetary relief, an unspecified amount of damages, with interest, andattorneys' fees and costs.In May 2004, the Court granted in part and denied in part TKT's motion todismiss. In particular, the Court dismissed allegations against TKT to theextent they arose out of certain forward-looking statements protected by the"safe harbor" provisions of the Private Securities Litigation Reform Act of1995 and dismissed claims based on the public offerings of June 29, 2001 andDecember 18, 2001. The Court allowed all other allegations to remain. In July2004, the plaintiffs voluntarily dismissed all claims based on the third publicoffering dated December 26, 2001.In November 2005, the Court granted the plaintiffs' motion for classcertification. On May 23, 2005, the Court entered judgment on all claimsalleged against SG Cowen Securities Corporation, Deutsche Bank Securities Inc.,Pacific Growth Equities, Inc. and Leerink Swann & Company. On June 5, 2006, theCourt entered judgment on all claims alleged against Messrs. Gilbert, Leff,Moorhead, Yetter, Miller, and Thomas. On November 9, 2006, Mr. Geffken filed anAgreement for Judgment on all claims alleged against him. On September 1, 2007the SEC filed suit against Dr Selden. The case is entitled Securities andExchange Commission v. Richard F Selden, Civil Action No. 05-11805-NMG (D.Mass.) ("the SEC Action"). On July 10, 2008 the Court entered a final judgmentagainst Selden which permanently enjoins him from violating the anti-fraud andother provisions of the federal securities laws, and orders him to payapproximately $1.2 million in penalties.In October 2007, the parties reached an agreement in principle to resolve theClass Action Shareholder Suit, subject to Court approval, for $50 million. InFebruary 2008 the US District Court for the District of Massachusetts grantedpreliminary approval to the settlement. Shire has contributed $27 million heldin escrow towards the settlement and its insurance companies have contributedthe remaining $23 million. The settlement was approved by the Court on June 11,2008.
15. Fair value measurement
As outlined in Note 1(c), on January 1, 2008 the Company adopted the provisionsof SFAS No. 157 as they relate to financial assets and financial liabilities.The following are the major categories of financial assets and liabilitiesmeasured at fair value on a recurring basis during the six months to June 30,2008 using quoted prices in active markets for identical assets (Level 1);significant other observable inputs (Level 2); and significant unobservable
inputs (Level 3). Total Level 1 Level 2 Level 3 $M $M $M $M ____________ ___________ ___________ ___________ Financial assets: Available-for-sale securities 19.5 19.5 - - Equity method investments 14.2 - 14.2 - Derivatives(1) 0.1 - 0.1 - Financial liabilities: Derivatives(1) 7.0 - 7.0 - ___________ ___________ ___________ ___________
(1) Derivatives consist of swap and forward foreign exchange contracts
Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company's intent or ability to dispose of the financial instrument.
The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:
* Available-for-sale securities - The fair values of available-for-sale investments are estimated based on quoted market prices for those investments. * Equity method investments - The Company's equity method investments comprise 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 fund, the fair
value is estimated using directly observable inputs other than quoted prices. * Derivatives - derivative instruments comprise swap and forward 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 cashflows.
The amount of the total gains or losses for the six months to June 30, 2008included in earnings or other comprehensive income that are attributable tothose assets and liabilities still held as at June 30, 2008 are reported asfollows: 6 months to June 6 months to June 6 months to June 30, 2008 30, 2008 30, 2008 Other Other income, net Earnings comprehensive income, $M from equity method investees net $M $M ___________ ___________ ___________ Available-for-sale (28.7) - -securities Equity method investments - - (0.3) Derivatives - (6.9) - ___________ ___________ ___________16. Interest income
ID Biomedical Corporation ("IDB") Loan
On September 9, 2004 the Company completed the disposition of its vaccinesbusiness to IDB. As part of the transaction, Shire entered into an agreement toprovide IDB with a loan facility of up to $100.0 million, which was drawn downin 2005. The $100.0 million loan was segregated into drawings for injectableflu development of $70.6 million and drawings for pipeline development of $29.4million. In 2005, a provision of $70.0 million was recognized against all ofthe pipeline development tranche ($29.4 million) and against $40.6 million ofthe $70.6 million injectable flu development tranche. In 2006 IDB repaid the$70.6 million injectable flu development drawings, together with accruedinterest.On March 28, 2008 Shire agreed to a final settlement with IDB of $4.0 millionfor the outstanding pipeline development advances and interest. The amountreceived has been recorded within interest income in the six months to June 30,2008 in accordance with the method of allocating receipts between interest andadvances in the loan agreement.
17. Shareholders' Equity
Reduction of Capital and Distributable Reserves
On June 11, 2008 the Jersey Court approved a reduction of Shire Limited's sharecapital to take effect on June 12, 2008. The reduction increased thedistributable reserves potentially available to Shire Limited to approximately$3.7 billion by recharacterizing amounts standing to the credit of ShireLimited's share premium account as a distributable reserve. The purpose of thereduction of capital is to create a distributable reserve which would beavailable to be distributed as dividends, at the discretion of the Directors ofShire Limited, from time to time or for any other lawful purpose to which sucha reserve may be applied (including share buy backs). The reduction of capitalwas designed to create in Shire Limited a level of distributable reservessimilar to that previously available in Shire plc and to enable Shire Limitedto continue Shire's existing dividend policy in a financially and operationallyefficient manner.
Income Access Share Arrangements
Shire intends to put into place, following Board approval, income access sharearrangements. To the extent they are operated, these arrangements will meanthat Shire ordinary shareholders, other than Shire ADS holders, are able tochoose whether they receive their dividends from a company resident for taxpurposes in the Republic of Ireland or receive their dividends under the incomeaccess share arrangements from a Shire Group company resident for tax purposesin the UK.
To the extent that such arrangements are effected and operated, Shire Biopharmaceuticals Holdings Limited (formerly Shire plc) ("Old Shire") will issue one income access share which will be held by the income access share trustee pursuant to the income access share trust. The income access share trust will be constituted pursuant to a trust deed which will provide that (inter alia):
(i) the income access share trustee will hold any dividends paid (not just declared) on the income access share on trust for the Shire ordinary shareholders who have elected (or are deemed to have elected) to receive dividends pursuant to these arrangements;
(ii) the income access share itself will be held on trust for Shire; and
(iii) each registered holder of Shire ordinary shares on a dividend record datewho has made (or is deemed to have made) a valid income access share election(described below) will be entitled to receive from the income access sharetrustee an amount equal to the dividend it would have received from Shire, tothe extent the income access share trustee has actually received an amountequal to such amount by way of dividend from Old Shire.
To ensure compliance with technical trust law rules, the period during which the income access share trust may continue will be restricted. However, the income access share trust should be able to continue for 80 years.
This mechanism is reflected in the articles of association of both Shire andOld Shire that to the extent that such arrangements are effected and operated,the mechanics of the arrangements will be as follows:
The Shire articles of association provide that if
(i) a dividend is announced or declared by Shire on the Shire ordinary shares,
(ii) an amount is paid by Old Shire by way of a dividend on the income access share to the income access share trustee, and
(iii) such amount is paid by the income access share trustee to the Shireordinary shareholders who have elected (or are deemed to have elected) toreceive dividends under these arrangements, the dividend which would otherwisebe payable by Shire to such Shire ordinary shareholders will be reduced by anamount equal to the amount paid to such Shire ordinary shareholders by theincome access share trustee.If the dividend paid on the income access share and on-paid by the incomeaccess share trustee to the Shire ordinary shareholders is less than the totalamount of the dividend announced or declared by Shire on the Shire ordinaryshares in respect of which an election has been made (or is deemed to have beenmade) to receive dividends under these arrangements, Shire will be obliged topay a dividend on the Shire ordinary shares to those Shire ordinaryshareholders who have so elected (or are deemed to have so elected) of theamount of the shortfall. In such a case, any dividend paid on the Shireordinary shares will generally be subject to Irish withholding tax at the rateof 20% or such lower rate as may be applicable under exemptions fromwithholding tax contained in Irish law.A Shire ordinary shareholder will be entitled to make an income access shareelection such that, to the extent that such arrangements are effected andoperated, he will receive his dividends (which would otherwise be payable byShire) under these arrangements from Old Shire.A Shire ordinary shareholder who holds 25,000 or fewer Shire ordinary shares atthe time he became a Shire ordinary shareholder pursuant to the Scheme ofArrangement, and who does not make a contrary election, will be deemed to havemade an election (pursuant to the Shire articles of association) such that, tothe extent that such arrangements are effected and operated, he will receivehis dividends under these arrangements from Old Shire.Equally, where a Shire ordinary shareholder who first acquires his Shireordinary shares after the date of the Scheme of Arrangement, who holds 25,000or fewer Shire ordinary shares on the first dividend record date after hebecomes a Shire ordinary shareholder, and who does not make a contraryelection, will be deemed to have made an election (pursuant to the Shirearticles of association) such that, to the extent that such arrangements areeffected and operated, he will receive his dividends under these arrangementsfrom Old Shire.In accordance with the provisions of the Shire ADS deposit agreement, theDepositary will be required to make an election on behalf of all holders ofShire ADSs such that, to the extent that such arrangements are effected andoperated, they will receive dividends from Old Shire under the income accessshare arrangements. Dividends paid by Old Shire under the income access sharearrangements will not under current legislation be subject to any UK or Irishwithholding taxes. If these arrangements are adopted and a holder of Shire ADSsdoes not wish to receive dividends from Old Shire under the income access sharearrangements, he must withdraw his Shire ordinary shares from the Shire ADSprogram prior to the dividend record date set by the Depositary and requestdelivery of the Shire ordinary shares. This will enable him to receivedividends from Shire (if necessary, by making an election to that effect).If such income access share arrangements are effected and operated, it is theexpectation, although there can be no certainty, that dividends will be paid byOld Shire through the income access share trustee to Shire ordinaryshareholders who make (or are deemed to make) an income access share election.It is the expectation, although there can be no certainty, that Old Shire willdistribute dividends on the income access share to the income access sharetrustee for the benefit of all Shire ordinary shareholders who make (or aredeemed to make) an income access share election in an amount equal to whatwould have been such Shire ordinary shareholders' entitlement to dividends fromShire in the absence of the income access share election. To the extent thatany dividend paid on the income access share to the income access share trusteeand on-paid by the income access share trustee to the Shire ordinaryshareholders is less than an amount equal to what would have been such Shireordinary shareholders' entitlement to dividends from Shire in the absence ofthe income access share election, the dividend on the income access sharereceived by the income access share trustee will be allocated pro rata to suchShire ordinary shareholders and Shire will pay the balance by way of dividend.In such circumstances, there will be no grossing up by Shire in respect of, andOld Shire and Shire will not compensate those Shire ordinary shareholders for,any adverse consequences including any Irish withholding tax consequences.Shire will be able to suspend or terminate these arrangements at any time, inwhich case the full Shire dividend will be paid directly by Shire to thoseShire ordinary shareholders (including the Depositary) who have made (or aredeemed to have made) an income access share election. In such circumstances,there will be no grossing up by Shire in respect of, and Old Shire and Shirewill not compensate those Shire ordinary shareholders for, any adverseconsequences including any Irish withholding tax consequences.
Exchangeable Shares
On February 12, 2008 a subsidiary of Shire exercised a redemption call rightand purchased each exchangeable share of Shire Acquisition Inc. ("SAI")remaining in public ownership. Exchangeable shareholders received either threeordinary shares of Shire plc or one American Depositary Share ("ADS")representing three ordinary shares of Shire plc for each Exchangeable Shareheld. Exchangeable Shares were issued to Canadian resident shareholders ofBiochem Pharma Inc. (now Shire Canada, Inc.) in 2001 as consideration for theacquisition by the Shire group of Biochem Pharma Inc. The Exchangeable Shareshave now been de-listed from the Toronto Stock Exchange.
18. Earnings per share
The following table reconciles the net income/(loss) from operations and theweighted average ordinary shares outstanding for basic and diluted earnings pershare for the periods presented: 6 months to June 30, 6 months to June 30, 2008 2007 $'M $'M _________________ _________________ Net income/(loss) 49.6 (1,698.6) _________________ _________________ Numerator for basic earnings per share 49.6
(1,698.6)
Impact of convertible bonds, net of tax (2.2)
-(1) _________________ _________________ Numerator for diluted earnings per share 47.4 (1,698.6) _________________ _________________Weighted average number of shares: No. of shares No. of shares Millions Millions _________________ _________________ Basic(2) 543.7 535.0 Effect of dilutive shares:
Stock based awards to employees(3) 3.2
-
Convertible bonds 2.75% due 2014(4) 32.7
- _________________ _________________ 35.9 - _________________ _________________ Diluted 579.6 535.0 _________________ _________________(1) Includes the after tax interest charge in respect of the convertible bonds($9.3 million), and the tax benefit recognized on substitution of theconvertible bonds from Shire plc to Shire Limited on the Scheme of Arrangement($11.5 million).
(2) Excludes shares purchased by the ESOT and presented by the Company 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 June 6 months to June 30, 2008(1) 30, 2007(2) No. of shares No. of shares Millions Millions _________________ _________________ Stock options in the money - 7.1
Stock options out of the money 17.4
1.4 Warrants - 0.6
Convertible bonds 2.75% due 2014 -
10.7 _________________ _________________
1. For the six months ended June 30, 2008, certain stock options have been
excluded from the calculation of diluted EPS because their exercise prices
exceeded Shire Limited's average share price during the calculation period.
2. For the six months ended June 30, 2007 no share options, warrants or
ordinary shares underlying the convertible bonds have been included in the
calculation of the diluted weighted average number of shares, because the
Company made a net loss during the calculation period and the inclusion of
these items would be anti-dilutive.
19. Segmental reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and RelatedInformation" ("SFAS No. 131") establishes standards for reporting informationabout operating segments and related disclosures, products and services,geographic areas and major customers. Operating segments are components of anenterprise about which separate financial information is available that isevaluated regularly by the chief operating decision-maker to decide how toallocate resources and to assess performance.
Shire's internal financial reporting is in line with a business unit and management reporting structure based on two segments: Specialty Pharmaceuticals and Human Genetic Therapies ("HGT").
The Specialty Pharmaceuticals and HGT operating segments represent the Company's revenues and costs in respect of currently promoted and sold products, together with the costs of developing projects for future commercialization. `All Other' has been included in the table below in order to reconcile the two operating segments to the total consolidated figures.
The Company evaluates performance based on revenue and operating income. The Company does not have inter-segment transactions. Assets that are directly attributable to the segments have been separately disclosed.
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(1) 172.2 95.1 -
267.3(2) Selling, general and 595.4 76.2 91.7 763.3administrative(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 190.7 168.2 78.4 437.3
Capital expenditure on long 19.8 63.9 13.8
97.5lived assets _____________ ___________ ___________ ___________
(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) is included inselling, general and administrative. Specialty HGT All Other Total Pharmaceuticals 6 months to June 30, 2007 $'M $'M $'M $'M ___________ ___________ ___________ ___________ Product sales 832.0 133.7 - 965.7 Royalties 1.0 - 122.5 123.5 Other revenues 6.6 4.8 2.5 13.9 ___________ ____________ ___________ ___________ Total revenues 839.6 138.5 125.0 1,103.1 ___________ ____________ ___________ ___________ Cost of product sales(1) (2) 120.5 15.3 5.5 141.3 Research and development(1) 113.3 70.9 - 184.2(2) Selling, general and 383.9 64.2 71.1 519.2administrative(1) (2) In-process R&D charge 1,896.0 - - 1,896.0 Integration costs 1.3 - - 1.3 Gain on sale of product (5.0) - - (5.0)rights _____________ ____________ ___________ ___________ Total operating expenses 2,510.0 150.4 76.6 2,737.0 _____________ ____________ ___________ ___________ Operating (loss)/income (1,670.4) (11.9) 48.4 (1,633.9) _____________ ____________ ___________ ___________ Total assets 2,421.5 560.7 1,057.7 4,039.9 Long lived assets 156.7 59.8 80.0 296.5 Capital expenditure on long 13.1 10.2 11.1 34.4lived assets _____________ ___________ ___________ ___________
(1) Stock-based compensation of $22.4 million is included in: cost of product sales ($1.8 million), research and development ($5.4 million) and selling, general and administrative ($15.2 million).
(2) Depreciation from manufacturing plants ($5.9 million), is included in costof product sales, depreciation of research and development assets ($5.5million) is included in research and development, and all other depreciationand amortization and intangible asset impairment charges ($52.3 million) isincluded in selling, general and administration.
20. Subsequent events
Proposed acquisition of Jerini
On July 3, 2008 Shire announced that it was launching a voluntary publictakeover offer for all shares in Jerini for an equity purchase price of ¢â€š¬328million. Shire has also invested approximately ¢â€š¬21 million in return for thesubscription of newly issued Jerini shares, equating to approximately 9% of theincreased share capital. Jerini's Supervisory and Management Boards unanimouslysupport the transaction and will recommend acceptance of the offer to itsshareholders. Subject to completion of certain sale and purchase agreements, byAugust 4, 2008 Shire had rights to approximately 79% of Jerini's share capitalbefore the receipt of any takeover offer acceptances. Once the offer documentis posted, it is anticipated that the offer will be open for acceptance by theremaining shareholders until the end of Q3 2008.Although the proposed Jerini acquisition will be funded out of Shire's currentcash resources, Shire intends to enter into a certain funds facility to enablethe provision of a cash confirmation letter in accordance with the GermanSecurities Acquisition and Takeover Act (Wertpapiererwerbs- undƒ"bernahmegesetz, Wpƒ"G).The proposed acquisition will add Jerini's hereditary angioedema (HAE) product,FIRAZYR‚® (icatibant), (expected to be launched in the EU in H2 2008) to Shire'sHuman Genetic Therapies (HGT) portfolio.On July 15, 2008 Shire announced that the European Commission had grantedJerini marketing authorization for FIRAZYR in the treatment of acute attacks ofHAE which allows Jerini to market FIRAZYR in the European Union's 27 memberstates, making it the first product to be approved in all EU countries for thetreatment of HAE.On July 17, 2008 the German Federal Cartel Office issued confirmation of mergerclearance. On July 31, 2008 the 15 day waiting period under the HartScott-Rodino Anti-Trust Improvements Act 1976 expired. This satisfied the lastof the conditions precedent under the sale and purchase agreements and Shire isin the process of acquiring these shares. By August 4, 2008 Shire had paid ¢â€š¬184million for the acquisition of 50% of Jerini shares under the sale and purchaseagreements. As a result of this payment together with recent on marketacquisitions and the above mentioned subscription, by August 4, 2008 Shire hasthe rights to 79% of Jerini's issued share capital at a cost of ¢â€š¬278 million.
INDEPENDENT REVIEW REPORT TO SHIRE LIMITED
We have been engaged by the Company to review the consolidated set of financialstatements in the half yearly financial report for the six months ended June,30 2008 which comprises the consolidated balance sheet, consolidated statementof operations, consolidated statement of changes in shareholders' equity ,consolidated statements of comprehensive income/(loss) , the consolidatedstatements of cash flows and related notes 1 to 20. We have read the otherinformation contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the consolidated set of financial statements.This report is made solely to the Company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our review work, for thisreport, 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 the Company a conclusion on the consolidated set of financial statements in the half-yearly financial report based on our review.
Scope of ReviewWe 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 2008 is not prepared, in allmaterial respects, in accordance with the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditor
August 7, 2008
London, UK
Shire Limited Incorporated and registered in Jersey No. 99854
Registered Office: 22 Grenville Street, St Helier, Jersey JE4 8PX
vendorRelated Shares:
Shire